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Health services are not economic in nature when they are funded by the state through taxation, they are provided for free or at a nominal fee which is the same for all patients and they are available to all citizens on a universal basis and on the same terms.

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Introduction

After the judgment of the General Court of 5 February 2018 in case T‑216/15, Dôvera zdravotná poist'ovňa et al v European Commission, health ministries across Europe must be wondering whether their public health systems are economic in nature. This is because over the past decade health systems have been undergoing reform with the introduction of elements of competition, budgetary autonomy and flexibility in the services offered by hospitals. In its judgment of 5 February, the General Court annulled Commission decision 2015/248 which had found that some elements of competition in the health insurance system of Slovakia did not alter its non-economic character. The judgment of the General Court was reviewed on the StateAidHub on 22 February 2018 (View article here: http://stateaidhub.eu/blogs/stateaiduncovered/post/9177).

Nonetheless, the Commission reached the same conclusion, that elements of competition did not make the system economic in nature, in case SA.39913 concerning compensation of public hospitals in the region of Lazio in Italy.[1] Its decision on this case was taken in December 2017 before the ruling of the General Court. We can only speculate whether it would have taken the same decision had it been aware of the contents of the judgment of the General Court. For sure, that judgment opens up new possibilities for competitors to appeal and for new PhD dissertations to explore the boundaries of the market and social solidarity.

The Commission examined the system of public hospitals in Lazio after receiving a complaint in November 2014. The complaint was lodged by a religious organisation that owned a private hospital. It alleged that State aid was granted to public hospitals in Lazio. The Commission decision describes the complaint as follows:

“(11) The complaint concerns alleged State aid to public hospitals in the Lazio Region in Italy. In particular, the Complainant argued that public funds that would have been paid to public healthcare facilities part of the Italian health care system ("SSN") to cover their financial deficits without verification of their costs and in breach of the principles of freedom of choice of the patient and competition, to the detriment of accredited private hospitals also providing healthcare services for the SSN.”

“(12) For the Complainant, the payments to public hospitals would amount to State aid because the services provided by the SSN are economic in nature. In its view, the SSN would not be universal or based on the principle of solidarity. Rather, the SSN would be based on the principle of "freedom of choice of the patient", by means of which the Italian authorities would have introduced competition in the SSN system and made the services economic in nature.”

 

“(13) In particular, the Complainant indicated that the healthcare reforms introduced by Legislative Decrees No. 502/1992 and No. 229/1999 (i) converted the public healthcare facilities (e.g. public hospitals) into corporations subject to managerial principles, and (ii) introduced competition between public and private healthcare providers acting for the SSN, because citizens were able to choose between facilities pursuant to the principle of "freedom of choice of the patient", within the constraints of accreditation of medical facilities, healthcare planning and cost control.”

“(14) Furthermore, the Complainant claimed that the SSN does not cover all health services for all citizens, and therefore would not be universal or based on solidarity, because approximately one third of the overall annual costs for the provision of all healthcare services in Italy would be paid by the citizens, directly (out of pocket) or indirectly (through insurance coverage). This would show in its view that some citizens also use the private medical services (in addition to or instead of the free SSN services), and that there is one single market for healthcare services.”

“(15) Finally, the Complainant argued that, pursuant to the said reforms, public hospitals are also entitled to provide private health care services within the public facilities (so-called ALPI or intramoenia services). For the Complainant, the fact that these public facilities provide services under the ALPI system (which are paid by the users), would demonstrate that the system is neither based on solidarity, nor universal in nature.”

Existence of State aid

The Commission first noted that according to Article 168(7) TFEU, “Union action shall respect the responsibilities of the Member States for the definition of their health policy and for the organisation and delivery of health services and medical care. The responsibilities of the Member States shall include the management of health services and medical care and the allocation of the resources assigned to them.”

It follows that the definition of health policy and the provision of health services and medical care fall within the competence of Member States. Member States are free to decide their health budgets and how to allocate resources. However, as with all public policies, it is irrelevant whether they are formally covered by the TFEU. What matters is whether public measures, regardless of their objectives, can be found to constitute State aid.

Consequently, “(49) a measure concerning the organisation or the financing of a Member State's healthcare system will not fall within the scope of the EU State aid rules, if it does not meet the conditions of Article 107(1) TFEU.”

Therefore, the task of the Commission was to determine whether public hospitals performed an economic activity. The Commission explained that the existence of a market depends on how an activity is organised in Member States. “(55) As regards hospital activities, in some Member States, public hospitals are an integral part of a national health service and are almost entirely based on the principle of solidarity. Such hospitals are directly funded from social security contributions and other State resources and provide their services free of charge to affiliated persons on the basis of universal coverage.”

“(56) In other Member States, hospitals and other healthcare providers offer their services for remuneration, be it directly from patients or from their insurance. In such systems, there is a certain degree of competition between hospitals concerning the provision of healthcare services. Where this is the case, the fact that a health service is provided by a public hospital is not sufficient for the activity to be classified as non-economic in nature.”

“(57) The Union Courts have confirmed that in those systems where services are directly funded from social security contributions and other State resources, and provided free of charge, or for a small fraction of the costs, to affiliated persons on the basis of universal coverage, the relevant organisations do not exercise activities of an economic nature. Therefore, they do not act as undertakings within the meaning of Article 107(1) TFEU. [Here the decision cites cases FENIN v Commission, T-319/99, paragraph 39; FENIN v Commission, C-205/03 P, paragraphs 25-28.] Accordingly, a healthcare system that is based on those principles can be considered non-economic in nature.”

“(58) The Union Courts have clarified that universality means that the service is offered at uniform and non-discriminatory rates and on similar quality conditions for all customers. [Here the decision cites case BUPA v Commission, T-289/03, paragraphs 201-203.]”

“(59) In connection with the Italian SSN system, in the ICI-IMU Decision of 19 December 2012 [Commission decision 2013/284], the Commission noted, based on the Union case-law [here the decision cites cases FENIN v Commission, T-319/99, paragraph 39; FENIN v Commission, C-205/03 P, paragraphs 25-28 ; AOK Bundesverband and Others, C-264/01, paragraphs 45 to 55; CBI v Commission, T-137/10 , paragraph 90] that health care services in Italy are provided on a non-commercial basis if (i) the activities are accredited by the State and performed under a contract or an agreement with the State, the Regions or local authorities; (ii) the activities are part of or complementary to the public national health system, and (iii) the services are provided to users free of charge or for a low fee which covers only a small fraction of the actual cost of the service. In that case, the Commission concluded that the Italian national health system provides universal cover and is based on the principle of solidarity. The Commission also concluded that non-public hospitals which fulfil the conditions above did not qualify as undertakings.”

On the basis of the above principles and precedent, the Commission proceeded to assess the Italian health care system in the light of the information provided by the complainant and the Italian authorities.

The Commission concluded that the reforms mentioned by the complaint did not change the non-economic nature of the Italian health care system. “(62) In particular, the reforms did not change the main characteristics that make the activities non-economic in nature, this is, the accessibility of all citizens to the same level of healthcare services, the obligation for all hospitals part of SSN system to provide medical care services free of charge (or almost free of charge) and the public financing of the services from the State budget, with citizens contributing to the financing, in particular via social security contributions.”

It explained that “(63) the reforms (namely, corporatisation, accreditation, freedom of choice and programming and control of expenditure) aimed at guaranteeing the universality and solidarity of the system by ensuring a more rational use of the public resources, and a re-organisation of the SSN by giving regions and provinces responsibility for planning and organisation of healthcare.”

Then the Commission went on to examine each of the features of the reform.

 

Impact of reforms

With respect to the “corporatisation” and “accreditation”, it found that they did not alter the universal coverage or the solidarity basis of the system.

There was no evidence “(65) that would suggest that the conversion of healthcare units into corporations and the accreditation procedure, has changed the Italian SSN in a way that would no longer guarantee the safekeeping of the health of all citizens, or that the authorised and accredited hospitals do not provide free of charge services/or charge patients a symbolic fee which cover only a fraction of the costs of the service.”

“(66) The introduction of these changes had the objective of applying managerial principles to the SSN, and therefore, to make a more efficient use of the resources available and to achieve the objectives of the health plans. […] [T]he changes did not affect the vocation of solidarity and universal coverage of the healthcare system. […] [T]he main principle of solidarity and the universal coverage […] have not been modified”.

With respect to the “principle of freedom of choice”, the Commission found that it did not compromise the universal coverage or solidarity nature of the Italian system.

The Commission agreed with the arguments of the Italian authorities that “(69) the principle of "freedom of choice of the patient" was intended to guarantee that all citizens are free to choose the doctor or the accredited hospital where they wish to be treated.” The Commission noted in this respect that “(71) the principle of freedom of choice of the patient is limited. […] [C]itizens do not have an absolute right to "choose" and that the choice of the patients would be limited to hospitals accredited with the SSN and subject to programming and expenditure control. […] The Commission is of the view that such characteristics of the system do not run against the definition of non-economic healthcare systems provided in the case-law of the European Courts. [Here the decision cites again the Fenin cases.]”

“(72) The freedom of choice of the patient might have introduced a certain degree of competition intra-system, this is, between the SSN-accredited providers, but, still, within this system, the providers are financed through social security contributions and other State resources, and they offer their services free of charge to the affiliated persons on the basis of universal coverage.”

“(75) In this framework, the Commission concludes that there is no evidence suggesting that the principle of "freedom of choice" of the user, distorts the nature of the SSN system as being based on solidarity and universal coverage. On the contrary, it seems that, in Italy, all citizens would still benefit from healthcare services free (or almost free) of charge at the accredited hospital of their choice.”

“(76) Finally, the Commission rejects the allegations of the Complainant concerning the inclusion of healthcare activities in the Italian SGEI Reports for years 2006-2009, 2009-2011 and 2011-2013. The Commission points out that the reporting of certain activities in the SGEI reports is not evidence of the economic nature of the activities. In any event, the Italian authorities have explained that the activities were included in the reports to describe better to the Commission the nature and workings of the SSN. Furthermore, within the SGEI Report for years 2012-2013 the Italian authorities explicitly explained that the organisation of the SSN does not fall within the scope of the SGEI rules.”

With respect to provision of private services within public hospitals, the Commission found that they did not distort the non-economic nature of the Italian system.

“(77) The Complainant has also submitted that the universality and solidarity of the SSN system was compromised by the so-called ALPI rules that allow doctors employed by public hospitals to provide private healthcare services intramoenia (i.e. within hospital facilities) that are paid by the citizens directly or through private insurances (out-of-pocket). For the Complainant, this would further confirm that the current healthcare system in Italy is a true market regulated by the competitive principle of freedom of choice by users.”

“(78) The Commission cannot support such position. ALPI rules do not change the conclusion that the Italian SSN system is not economic in nature.” “(79) First, […], ALPI services are not part of the public Italian SSN system. Rather, ALPI services are private healthcare services provided by some hospital doctors also working for the public SSN but outside normal working hours, and remunerated directly by the citizen. ALPI services are provided in competition with private healthcare services and would have an economic nature.”

“(80) Second, there is a proper separation of accounts to distinguish public health services provided by these doctors from private health services, and to allow the correct attribution of all – direct and indirect – costs incurred in the provision of ALPI services. In addition, a levy of 5% over the gross revenues deriving from the provision of private services is paid by the doctors to the public hospitals concerned.”

“(81) Thus, the Commission concludes that the Complainant's arguments do not put into question the universality or solidarity of the healthcare system in Italy.” “(84) The Commission has accordingly decided that the measures do not constitute State aid within the meaning of Article 107(1) TFEU.”

Paragraphs 78 and 80 of the Commission decision do not provide an answer to the following two questions. First, if ALPI services were economic in nature, did public hospitals not act as undertakings when they provided facilities to doctors who were undertakings in the context of ALPI? Second, if hospitals did not act as undertakings [perhaps because they did not charge a market price], were they then a source of State aid to doctors?

Conclusions

The essential element of a non-economic health care system is social solidarity. This means that the system has the following three characteristics [the case law does not clarify whether all are indispensable]:

  1. Services are paid by the state through taxation. [Payment directly by patients or indirectly through insurance companies makes the system economic in nature.]
  2. Services are provided for free or at a nominal fee which is applied uniformly to all patients.
  3. Services are available to all citizens on a universal basis and on the same terms.

Freedom of patients to choose hospitals or doctors does not alter the non-economic nature of the system, as long as the universality of the service is not affected. Accreditation of eligible health providers also does not alter the non-economic character of the system.

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[1] The full text of the Commission decision can be accessed at:

http://ec.europa.eu/competition/state_aid/cases/271629/271629_1963634_74_4.pdf.



Comments

by Dr. José Antonio Rodríguez Miguez, Tuesday, 10 April 2018, 14:49:45

This is another very interesting case. As it is clearly noted in this post, the basic question is whether the levy of 5% over the gross revenues deriving from the provision of private services is o not relted with the real use of the facilities or inclues the materials, machinery… Is it a way to give these doctors a complementary salary or a genuine state aid to them. These doctors can work in private center or center opened by they own. It is similar, in such way, and mutatis mutandi, at what happen with universities and the “private” activities of the professors of the university institutes when work for firms…where is the limit?. I will read carefully the Judgment of the General Court of 5 February 2018 in case T 216/15, Dôvera zdravotná poist'ovňa et al v European Commission.



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