Spain’s Health-Care System Needs Surgery

Arruñada, Benito (1994), “Spain’s Health-Care System Needs Surgery,” The Wall Street Journal, August 2.

Most users of the Spanish National Health System (SNHS) agree that it is mired in a deep crisis. But while massive reform efforts have been underway in Spain for several years, the system's deficiencies -- mismanagement, chronic shortages, long waiting lists -- only seem to be expanding.

The SNHS, financed by general taxation, provides health assistance to almost 100% of the population. The system does not charge fees to patients, except for a co-payment of 40% for medicines prescribed to non-pensioners. Freedom to choose providers, either public or private, is very limited.

Part of today's crisis is a result of a switch from the cost-containment policies of the first half of the 1980s to the dramatic expenditure increases over the last decade Budgets have become meaningless. Ever increasing salaries and lower labor productivity have been major factors behind cost inflation.

At the same time, the quality of health care is declining. Waiting lists for both primary and hospital care are expanding and reports of public discontent with health services available in Spain appear regularly in the Spanish media. As a result, new private services are competing with the national service. People who can opt out of public health care (one in 20, mostly civil servants) have chosen private alternatives, and one in 10 have purchased a second insurance policy to secure coverage.

The most disparaging feature of the current organizational status quo is the power enjoyed by employees. The labor relations framework of the SNHS resembles the civil service. Labor is organized by several statutes that differ across categories and regions and that specify employees' rights and duties. The structure suffers from inefficiencies typical of large government bureaucracies.

The traditional hierarchy based on health providers' expertise was undermined by a consensus-style management practiced by low-paid, amateur managers during the '80s. One example is hospitals, which are run by informal electoral bodies. Workers' representatives are charged with negotiation privileges from their managers. The result has been that salaries are inflated, and widespread fraud goes largely unchecked because the system lacks effective disciplinary power.

Another flaw in the health system's labor relations is that the role of medical department heads has been undermined. The new management-by-consensus approach, shaped by the power of nurses' and nonhealth workers' unions, means political cronies fill key positions. Standards for hiring and promotion have been substantially lowered.

These employment structures have contributed to widespread fraud not only in transactions with the private sector -- bribes for equipment purchases, gratuities for doctors prescribing drugs, diversion of patients to private practice, extension of waiting lists, etc. -- but also in lax labor practices, with high absenteeism and slack working hours.

The poor situation of the SNHS derives from a managerial failure comprising four dimensions. First, a misunderstanding of democracy as the only correct way of making decisions, which has led to management by consensus and the erosion of authority. Second, bending to doctor and trade unions has caused substantial salary increases and productivity decreases. Third, more management does not mean better management. The adoption of managerial accounting techniques was useless and premature. Fourth, there was an unfortunate redesign of some features of the SNHS: hospital mergers, tax-financing, coverage extension and mainly, confused regionalization.

There have been some moves by the government to correct some of the system's worst flaws, but they have had a limited impact. Three years ago, the conclusions of a report by a parliamentary commission on the SNHS were made public and for some time focused the debate. The Abril report, as it became known, recommended charging fees for some services and transforming hospitals into state-run firms. Its main goal was to build an internal market, where purchasers and providers would be separate entities, independent from public agencies, and where providers would compete for customers. This goal was based on the success of similar reforms to Britain's National Health System. But the many differences in the functioning of the two systems, employment practices in particular, undermined the feasibility of Britain-style reforms for Spain.

While the report recognized that current labor relations, which mirror the civil service system, are too rigid, it shied away from proposing any revisions to the governing bodies of Spain's self-governing hospitals. Instead, it proposed a new system: hiring new workers under private labor laws but offering current workers the option to enter the new system with economic incentives. But the chances for the proposal's success are minimal in the Spanish public sector, where even state firms maintain rigid labor practices.

Spain needs a different sort of reform -- one that introduces more private sector alternatives, one that values doctors as more than mid-level managers, streamlines costs, and purges corruption. Internal markets might mean the introduction of competition to Spain's welfare state system, but internal markets are bound to fail in their attempt to reproduce market incentives in a publicly funded system.

The SNHS is run not by a bureaucracy but by bureaucratic chaos. Before any deep reform, it is necessary to repair basic control devices and to restore management authority. Converting civil service departments into state firms will not lead to efficiency when this transition means giving the firms more freedom without a corresponding share of accountability. It is essential to eliminate the management-byconsensus approach before increasing hospitals' freedom.

It is an indication of the political constraints of any reform that the Abril report reassured all participants that their rights would be maintained. It seems difficult to reconcile this promise with the objective of cost containment. An essential part of any reform is to abolish the customary rights that allow such relaxed standards.

Nor did the report attempt to analyze labor productivity, which is understandable given the profound lack of available data. It is often unknown how many people work in each hospital. This speaks to the need for updating the health care system's rudimentary accounting methods; failing to do so will make cost-containment policies even more difficult to devise. Similarly, it is necessary to improve control by computing reliable statistics on doctors' expenses and, crucially, using them to sanction the most aberrant behavior.

An exploration of physicians' salaries is also in order. Their modest compensation ($40,000 a year for a doctor who has just completed specialized training) is offset by their short workweek: just 24 hours. A 40-hour workweek would increase salaries, but it would reduce the number of doctors employed by the health system and the fiscal burdens of having them on the payroll (a significant problem in Spain).

But based on recent experience it seems unlikely that any of the aforementioned suggestions are likely to be adopted. A brutal reminder of the narrow terms of debate came during the discussions that grew out of the Abril report, as nothing was said about the system's inequalities, which clearly favor health-care workers (especially doctors), people living in cities and those able to jump waiting lists. The report's common-sense suggestion that patients should be charged fees for the services provided, and existing fees extended to all users, was met with public outcry and the government backed down.

The news is not all bad, as the government has made some attempt to increase accountability and institute greater control over the administration of health care. But the illnesses afflicting Spain's health care system demand major reconstructive surgery, not simple tinkering around the edges. Unfortunately, such surgery seems a long way off.