Assistance with Implementation of System of Health Accounts (SHA) Organisation of Workshops

Transcription

1 Assistance with Implementation of System of Health Accounts (SHA) Organisation of Workshops Eurostat Grant N Annex 2a: Capital formation of health care provider institutions Second Workshop Report Cyprus, December 11 13, October 2008

2 Content Abbreviations...3 Executive Summary...4 Background...7 Gross fixed capital formation...7 Consumption of Fixed Capital...8 Summary of presentations...9 Introduction to the workshop...9 Observations from the international organisation...9 Results of the questionnaire...10 Issues in capital formation...12 Financing capital investment in the UK health system: the Private Finance Initiative...12 Treatment of investment in German health accounts...13 Gross Capital formation of health care in Hungary...14 Gross Capital Formation in Sweden...14 Gross Capital Formation and Danish SHA...14 Results of the Working Group Discussions...14 Annexes: Annex 1: Programme: Second Workshop at Cyprus, December 11-13, Annex 2: List of participants...17 Annex 3: Questionnaire on HC.R.1 Capital formation of health care provider institutions...18 Annex 4: Country responses to the questionnaire...22 Annex 5: Results of the 3 working groups...46 Annex 6: Glossary...56 Annex 7: Presentations of the participants...58 Cyprus SHA Workshop December

3 Abbreviations ABS Australian Bureau of Statistics CFC Consumption of Fixed Capital COFOG Classification of the Functions of Government ESA95 European System of National Accounts 1995 EU European Union EUCOMP Comparable Health Care Data in EU Eurostat Statistical Office of the European Communities FISIM Financial intermediation services indirectly measured FS Classification of Financing Sources GCF Gross Capital Formation GFS Government Finance Statistics GFSM Government Finance Statistics Manual (IMF) HBS Household Budget Survey HC Functional Classification of Health Care (ICHA) HC.R.1 Gross capital formation in SHA HF Classification of Health Care Financing (ICHA) HIF Health Insurance Fund (GR) HP Classification of Health Care Providers (ICHA) ICHA International Classification of Health Accounts IHAT International Health Accounts Team IMF International Monetary Fund MS Member States NHA National Health Accounts NPISH Non-profit Institutions Serving Households OECD Organisation for Economic Co-operation and Development PG Producers Guide RC Classification of Resource Costs (PG) SHA System of Health Accounts (Version 1.0) SNA System of National Accounts TCHE Total Current Health Expenditures TFP Total Factor productivity THE Total Health Expenditure WHO World Health Organization Cyprus SHA Workshop December

4 Executive Summary This report describes the objectives and results of the Eurostat workshop on capital formation of health care provider institutions, held on December 2007 in Nicosia. It was supported by the Eurostat Grant with the aim of promoting the use, credibility and Europe-wide comparability of health accounts data based on the manual of A System of Health Accounts. The workshop was organized by the Statistical Office of Cyprus in co-ordination with the National Board of Health of Denmark, the Estonian Ministry of Social Affairs, and BASYS Beratungsgesellschaft für angewandte Systemforschung mbh from Germany. Health Accountants from 20 European Countries participated and one expert from the International Health Accounts Team (IHAT). The workshop focused on issues relating to the compilation and reporting of capital formation: a) Observations of the international organisations related to capital formation b) Capital formation (HC.R.1), and c) Capital consumption in the framework of SHA. Fixed capital is a crucial factor in the production of health care services and goods. Two distinct aspects of capital are considered in the measurement of health expenditure: Gross Fixed Capital Formation (GFCF) and the Consumption of Fixed Capital (CFC). SHA explicitly includes the recording of GFCF in the functional classification of health expenditures (as HC.R.1). Both SHA and the Producers Guide (PG) recognize gross fixed capital formation as an important expenditure item and propose to include it in the Total Health Expenditure (THE) of a country. Furthermore, both SHA and PG suggest that CFC be considered as part of the resource cost RC 1. As capital formation and capital consumption are closely related, it is wise to check the consistency of the compilation and reporting of both variables concurrently. SHA refers to the System of National Accounts (SNA) which recommends the Perpetual Inventory Method (PIM) for the compilation of the capital stock. However, neither the SHA manual, nor the Producers Guide provide specific guidelines on how to compile GFCF. Therefore, the key objectives of the SHA workshop in Nicosia, December 11-13, 2007 were: i) to better understand the interpretation of GFCF and CFC as part of SHA; and ii) to develop suggestions for a more consistent and comparable compilation of data in future. Ideally the estimation of GFCF would be calculated by separate estimates for Net Capital Formation and CFC at the provider level. But, this would require a methodology/common framework for capital accounts including a classification of assets for health accounts. It was also discussed, if GFCF is to be reported below the line, that all countries provide the National Accounts figure for Gross Fixed Capital Formation (GFCF) for Division 85. But as improvements to National Accounts data were not the subject of this workshop and because National Accounts data for the health sector have also limitations this issue was not discussed further. Within and across countries a better understanding is necessary of 1 Only the Producers Guide provide a classification of resource cost RC. Cyprus SHA Workshop December

5 what is reported under 85.1 and 85.3 requires further clarification. Some countries claimed to be unable to separate GFCF from current expenditure in the accounting period. CFC represents costs during the course of the accounting period as a consequence of the decline of the current value of the capital stock owned and used by the producer as a result of physical deterioration, normal obsolescence or normal accidental damage (SNA 6.179). SHA does not recommend CFC as a separate item. In contrast, PG lists CFC as a separate item of the resource cost classification RC. The participants of the workshop were not clearly in favour of reporting CFC as part of the resource costs. In any case, reporting of CFC can only offer comparable data if the common methodology is developed. Presently, countries are far from having a clear conceptual framework for the reporting of CFCF. As the status of health accounts as well as the data situation varies greatly, no firm recommendation was concerning a breakdown of CFCF. First, the National Accounts breakdown of assets for health care and the details collected by the investment surveys should be analysed. There are four main conclusions related capital formation and consumption: 1) The urgent need for clear guidelines on the treatment of consumption of fixed capital (CFC) in current and total health expenditure vis-à-vis double counting, in order to ensure consistent and comparable estimates; 2) The capital formation question should be considered as an important topic for the revision of the manual. It is preferable to align it with the national accounts. In view of the ultimate goal of international comparability it is advisable to review the national methodological descriptions (inventories) that can be used as a first step to develop best practices towards the long-term objective of establishing recommendations on sources and methods of reporting of HC.R.1. 3) Work to improve comparability should be prioritised as follows: a) Total Current health expenditure (TCHE); b) Total health expenditure (THE) i.e. including HC.R.1.; c) Comparability with national accounts. Data sources are dependent on the national contexts. It is however preferable to align with the national accounts and to explain the observable differences between SHA and SNA estimates. It was suggested to conduct a study comparing the Perpetual Inventory Method used in each country in National Accounts for the estimates of the branch 85 health and social care; d) Developing an actual capital account; the focus must be to develop a methodology/common framework for the capital accounts. 4) In the context of capital formation in health care and their impacts on economic growth as well as in light of the proposed changes to the treatment of research and development in the SNA the accumulation of human capital in health (HC.R.2) and knowledge (HC.R.3) is also an issue for further consideration in SHA development. Recommendations based on conclusions of the workshops The workshop raised demanding methodological and practical issues of SHA implementation which are partly correlated with semantic issues. Considering the Cyprus SHA Workshop December

6 variation of opinions it is necessary to develop and use approaches to handle this problem. i. The compilation and reporting of capital formation in health care within the framework of SHA requires a guideline and further statistical development. The compilation of GFCF need the definition of assets and of the universe of health care producers. Common tools for data collection are recommended. SHA emphasises the rules of National Accounts. Differences of the estimates of capital formation between SHA and National Accounts must be reasonable and explainable. ii. The accumulation of human capital in health (HC.R.2) and knowledge (HC.R.3) should be discussed in further workshops in light of proposed changes to the treatment of Research and Development in the SNA. Cyprus SHA Workshop December

7 Background Capital is a crucial factor in the production of health care services and goods. The SHA 1.0 Manual includes the recording of Gross Capital Formation (GFCF) as HC.R.1. In 2000, when SHA was published, there were not many studies dealing with the issue of capital formation in health care. Both SHA and the Producers Guide recognize capital formation as an important expenditure item and propose to include it in the total health expenditure of a country. Furthermore, both manuals recommend including consumption of fixed capital in the estimation of non-market output. As capital formation and capital consumption are closely related it is wise to check the consistency of the compilation of both variables concurrently. But, both SHA and Producers Guide (PG) do not provide specific guidelines on how to compile GFCF. Therefore, the key objectives of the SHA workshop in Nicosia, December 11-13, 2007 are, on the one hand to understand the interpretation of GFCF as part of SHA, and on the other to develop suggestions for a more consistent and comparable compilation of further data collections. In economics, capital is an input factor like human resources for the process of health care production, which is playing an increasingly important role in health care delivery both in diagnostic and treatment, but even more in the production of intermediate goods used in health care delivery as pharmaceuticals or medical non-durables. Precondition for the measurement of GFCF is the definition of types of assets to be included. As SHA is referring to SNA European Member States have to take the recommendations of ESA95 as basic outline (see Glossary Annex). Gross fixed capital formation SHA restricts the measurement of capital formation on selected health care providers. HP.4, HP.7, and HP.9 are excluded. In accounting, capital is recorded in the balance sheet. As such, the fixed capital stock of health care providers is an indicator of how the assets of a health care provider have changed as a result of the production process. It is an indicator of the wealth of health care providers. But, at the same time, fixed capital is also an indicator of the future potential to produce goods and services. It is important to recognise these two different interpretations, one, which indicates the results of developments of the past, and one, which show the future potential. In national accounts, capital formation is broken down into gross fixed capital formation, net acquisitions of non-produced non-financial assets and changes in inventories. Gross fixed capital formation is the net result of the acquisition and disposal of fixed assets. (The 'gross' in gross fixed capital formation reflects the fact that the estimates are not adjusted for consumption of fixed capital.) Non-produced non-financial assets include land, subsoil assets and other natural assets. Conceptually, net acquisitions of valuables should also be recorded in the capital account, but as there is no reliable data source in most countries for such transactions this item is not included in SHA. Cyprus SHA Workshop December

8 In national accounts, data for measuring GFCF are usually from business accounts. There are very different capital goods by nature, which are documented in business accounts - usually in an inventory. The business inventories are updated continuously using various depreciation methods which are defined by law. The results of these regular updates are shown in the balance sheet. It shows the actual net values of the inventory at the beginning and at the end of the accounting period. The stocks are assessed by acquisition prices or in historical cost. The difference is between the two stock levels at the beginning and the end of the period is identical with the net capital formation. Consumption of Fixed Capital GFCF refers to goods, which are not consumed in the current period. Capital formation is therefore not part of current health care expenditure. But Consumption of Fixed Capital (CFC) is part of the resource cost. Standard tables of SHA1.0 do not exhibit capital consumption. Therefore one question is: Why is it necessary to compile consumption of fixed capital? Consumption of Fixed Capital expresses the costs during the course of the accounting period as consequence of the decline of the current value of the capital stock owned and used by the producer as a result of physical deterioration, normal obsolescence or normal accidental damage (SNA 6.179, ESA 6.02). CFC is used in preference to "depreciation" to emphasize that fixed capital is used up in the process of generating new output; CFC may include other costs incurred in using fixed assets beyond actual depreciation charges. Presently, there is neither an overview, how Member States deal with CFC in the business accounts of health care providers nor in the inclusion of health care prices nor in measuring CFC. On the one hand, countries or governments are not taking into account CFC in the remuneration for some types of health services and provide either financial support in the acquisition of investments or provide investments goods in kind. On the other hand, some governments do not subsidise the provision of health care this way and allow CFC to be part of the 'pricing' system. Compiling differently the spending of these two different systems of health care remuneration provides a skewed image of 'reality' Business and administrative records do not always provide information that reflects economic reality. For example, interest charges generally include a service charge as well as a return on capital invested. Cyprus SHA Workshop December

9 Summary of presentations Introduction to the workshop Morten Hjulsager described the objectives for the workshop (Hjulsager.ppt). Its key objective was to discuss capital formation in health care provider institutions ICHA- HC.R.1. This refers to expenditure which adds to the stock of resources in the health care system and which lasts more than an annual accounting period. In accounting for this area in SHA we should be aiming for methodological compatibility with SNA. The workshop would look at conceptual issues, methodological challenges and do some practical work on ICHA-HC.R.1. - methodological issues - practical issues Markus Schneider introduced the topic of capital formation in health care by posing three basic questions (Schneider.ppt): 1. How should Gross Fixed Capital Formation (GFCF) be compiled? What are the boundaries in terms of time and capital goods for doing this? 2. Is it possible to use the results of the Perpetual Inventory Method of SNA for SHA, and what assumptions should be used? 3. How can we ensure consistency between GFCF and Consumption of Fixed Capital (CFC)? In addressing these questions we need to be aware of the recommendations made in the relevant manuals, the economic concepts behind GFCF and CFC, aspects of financing and data sources. Markus summarised the approach taken to capital accounting in SHA 1.0, the Producers Guide, SNA 93/ESA 95 and in the OECD Manual on Capital Accounting (2001) (slides 5-8). He presented equations for PIM, net capital stock, CFC, value of capital, rentals and capital service demand (slides 9-16). He then discussed ways of financing GFCF, looking in turn at how service lives and financing might differ, grants and subsidies, the cost of financing, how financing might be split and leasing. He stressed that a precondition for consistent accounting of the financing of GFCF is the observation of changes in fixed capital goods and prices. He then summarised data issues, which arise in trying to measure capital formation, stating that the most likely data sources for capital goods inventories, asset prices, and resource costs, were business surveys; and that for service lives these would be likely to be tax statistics and business recommendations. In looking at capital costs, information is needed on interest rates, net operating surplus and net value added. Observations from the international organisation David Morgan for OECD presented information on capital formation as reported by countries in the Joint Questionnaire, with regard to both capital formation and consumption of fixed capital (Morgan.ppt). He began by reminding us that in the SHA Cyprus SHA Workshop December

10 manual HC.R.1 forms part of total expenditure on health: THE= HC.1-7+HC.R.1, where the latter is the sum of GFCF in the institutional units of HP classification HP.1 to HP.3, HP.5 and HP.6, i.e. it does not include HP.4 and HP.7. Separate estimates should be provided for public and private ownership and reporting is restricted to Table 5:Total expenditure on health including health-related functions i.e. HCR.1 by HF only. This is slightly expanded in the JHAQ to split HCR.1 by financing agents and health care providers. The 2007 questionnaire collected information on data sources and the methodology used to compile GCFC and CFC. Slides 6 to 11 present information on HCR.1 by HF and HP, giving the range of values reported by countries and the number of countries reporting this information. Issues raised by countries returning the JHAQ include the lack of both data sources and methodological guidance enabling them to separate data on capital formation by provider; whether we need to consider capital formation in HP.4 and HP.7, how or whether to include households financing capital formation; use of the accrual method for investment accounting; and the increasing use of financial leasing to finance capital formation. David concluded with a summary of countries approaches to measuring the consumption of fixed capital. 19 countries responded to a question on this in the 2007 JHAQ. 12 explicitly stated that CFC is not included in non-market production estimates. Results of the questionnaire Markus Schneider presented results on the questionnaire sent to countries for completion before the workshop (Schneider2.ppt). The presentation focused on questions one, two and eight related to capital formation and question five related to consumption of fixed capital. The responses are obtainable in detail in the annex 4 for this workshop. The first question, Which financing agents HF are involved in financing the HC.R.1 of health care providers in your country? exhibit the public-private mix of investment financing and the structure of financing agents involved. The question responds to Table 5 of the SHA manual. Obviously, there is a quite different understanding. For example, Switzerland includes H.C.R.1 systematically in the total health expenditure via amortization imputations, renting expenditure or interests on loans for buildings or fixed equipment, which means that HC.R.1 is extra reported. Other countries as Czech Republic and Luxemburg, concentrate on public expenditures as privately financed investments are reimbursed via prices for current services. The privately financed investments raise generally the question under which HF-Code to classify the investments, if these are financed by own means of the health care providers? In some countries, as Germany, a dual financing system for hospital investments exist. In this case, only those values of capital formation are reported under HC.R.1 which are not included in current expenditures. As consequence of the various institutional regulations and reporting practices on cannot expect comparable data on capital formation. Most countries had problems to provide the detailed structure of capital formation by categories of health care providers as demanded in the JHAQ. However, it is interesting to note, that data about the types of assets investments are available in many countries (question 2). Portugal emphasized that the measurement of changes of AN.12 Cyprus SHA Workshop December

11 inventories) doesn t conceptually apply. Other countries included inventories in their reporting of capital formation. According to SHA manual, capital formation comprises gross capital formation of domestic health care provider institutions excluding those listed under HP.4 (Retail sale and other providers of medical goods). The size of this position as per cent of total capital formation in health care is presently unclear. Data sources (question 4) for estimation of inventories are structural business surveys and balance sheets (Sweden, Slovak Republic, Romania). Question 8 investigated GFCF from a different viewpoint. Usually, capital formation in the health branch is provided by specialized industries such as the manufacture of medical instruments or other industries as construction. The question therefore was: Do you have any examples where health care providers also produce capital goods for the health sector (HP.7 is limited to health care providers producing health care as a secondary activity)? Most countries answered this question with No or Not applicable. France related this question to research and development. In the French case, research and development is considered in national accounts as intermediate consumption. But, in few years, it is planned to consider it as an investment; in that case, private hospital, which have an activity of medical research, would produce capital formation. Question 5 brought rather questionable results because many countries did not include consumption of fixed capital for some providers in the estimates of current health expenditures, leading to an underestimation. However, there might had been some misunderstanding as for market providers consumption of fixed capital is always included in the price of services charged to the users, and also in the case of non-market producers prices paid by social insurance and public health authorities include generally depreciation. Only in the case of dual financing of investments consumption of fixed capital might be underpaid. As most countries do not explicitly estimate CFC it is difficult to judge the effects on current health expenditures. Presently, few countries apply Perpetual Inventory Method for estimation of CFC (question 6). The same holds for the stocks of fixed capital (question 3). Countries try to avoid double counting (question 7). The Netherlands emphasized, that the only proper way of compiling figures on total health expenditure, gross fixed capital formation, consumption of health care, and consumption of fixed capital is in an integrated way with an supply and use framework. The answers to question 9 showed that further work is required both at the methodological side (guidelines, practical examples) and at data side. Countries proposed also both aspects for the discussion in working groups (question 10). As Germany pointed out, the guidelines in the manual and the PG are lacking guidance in respect to investments; therefore, countries have established a reporting practice for investment on their own. In some cases the accounting practice might have only a very loose connection to the National Accounts. The workshop should not only concentrate on recommendations of National Accounts, but discuss appropriate solutions for SHA. And as Hungary concludes, the SHA Manual presents very summarily this issue and it is not clear what would be the role of the SHA-expert. Which GFCF shall be included? Which data sources are accessible and what are suitable estimation techniques? Cyprus SHA Workshop December

12 Issues in capital formation Financing capital investment in the UK health system: the Private Finance Initiative Marian Craig discussed the Private Finance Initiative in England s NHS, examining its scale, structure and operation, the public expenditure implications of current and future contracts and the association between PFI, the national tariff and financial problems facing NHS trusts (Craig.ppt). The presentation drew on the work of Allyson Pollock and colleagues at the University of Edinburgh. The significance of PFI for health accounting relates to the following: - It will affect the value of Gross Fixed Capital Formation as a proportion of Total Health Expenditure; - It will change the public/private mix of GFCF; - It represents a significant change in the way in which GFCF is financed; - The increasing use of PFI necessitates a change in how we describe and hence measure the consumption of capital. Slides 3-5 define PFI and state why it is controversial. Its critics argue that the underfunding of the cost of capital under PFI results in deficits in NHS Trusts with consequent cuts in clinical services. In the 10 years to 2007, PFI accounted for 87% of capital investment in England s hospital building programme. Under PFI a unitary charge (slides 8-12) is paid to a private consortium by a trust for the provision of assets such as buildings and equipment the availability charge; and for the provision of services such as maintenance, cleaning and catering. Together these charges are known as the availability charge and cover 3 types of cost: - interest and principal payments on debt taken out by the consortium; - cash reserves to meet lifecycle costs (expenditure during the lifetime of the contract to maintain facilities); - returns to shareholders in the form of dividends. When a trust signs a PFI contract for a hospital and transfers the assets to the private sector, it no longer pays capital charges on the land and property transferred. The capital charge and the availability charge can each be thought of as the rent the trust pays for the use of hospital buildings and equipment i.e. its capital costs. Accounting for these capital costs in SHA for England will not be straightforward, because the Department of Health cannot separate the unitary charge into availability and service charges. BY 2013/14 it is estimated that trusts with PFI schemes will be paying annual charges of 2.3 billion, for which the availability charge or capital cost will be 1.4 billion per annum. Slides 15 and 16 describe how the Payment by Results (PBR) system of resource allocation will result in an underfunding of capital costs in trusts with higher than average capital costs such as those with large PFI schemes. Pollock and colleagues estimate that for the 18 trusts in England paying charges on schemes with a capital value of over 50 million, there was an average shortfall in income of 4.4% in Slide 17 summarises the consequences of PFI for service delivery, and slide 18, the implications of PFI for health accounting, namely that it represents major change in: - the source of finance for capital investment; - the cost of finance for capital investment; Cyprus SHA Workshop December

13 - the way capital assets are valued during the lifetime of the asset; - the ownership of capital assets; and - the relationship between capital and revenue expenditure in health authorities with PFI schemes. All of these are relevant to a discussion of how we should account for capital investment and consumption in national health accounts. Treatment of investment in German health accounts Michael Muller of the Federal Statistical Office discussed how investment is treated in the German Health Accounts (Muller.ppt). SNA aggregates on Gross Capital formation are not used in the German Health Accounts. This is because of differences in understanding of health-related investment, limited data availability and conceptual objections: if GCF were included in THE this would lead to double counting. In Germany data is primarily collected from the financing agents, and there is a strong connection with public finance statistics in the field of investment. These statistics reflect the accounting rules for the federal, state and municipality budgets. The share of investment in THE has been constant for the last few years at 3.8%, 9 billion. Slides 5 and 6 show HCR.1 by financing agent, and HCR.1 by health provider. There are 3 principal sources for investment in hospitals, together amounting to financing of 5 billion: - the states (law of hospital financing); - the Federation and the states (Law of promoting the construction of university hospitals); and - municipalities. Private households are the main source for investment in Long Term Care institutions. They pay an investment surcharge to LTC institutions. This amounts to 3 billion. Should this be considered as investment or current expenditure? A preliminary solution of HCR.1 with HF2.3 is proposed. In discussing the dual needs for comprehensiveness and avoiding double counting, Michael set out the guiding rules for accounting for investment in the German HA: - Where financing of investment is independent of the financing of the services provided, and the price of the services provided has no depreciation component, investment should be accounted for as HCR.1. This is the case for hospitals and LTC institutions. - Where the financing of investment is an integral part of the financing of services provided, and there is a depreciation component in these prices, investment should not be measured separately as HCR.1. The consumption of fixed capital is already included in Current Health Expenditure. This is the case for e.g. medical practitioners and dentists. In conclusion Michael stated that in Germany the SNA total for Gross Capital Formation is not used because of conceptual objections. A country-specific approach should be used Cyprus SHA Workshop December

14 for each provider depending on the remuneration of services provided, as described above. The definition of Total Health Expenditure should be discussed further. Gross Capital formation of health care in Hungary Szilard Pall of the Central Statistical Office described the Hungarian approach to accounting for capital investment (Pall.ppt). The main data sources are Structural Business Statistics and the annual budget report of capital formation of the state and local government. Slides 3 and 4 describe the financing agents involved and the assets included. GCF is complied using the PIM method, based on the national gross capital estimation for the year Slide 8 shows this as a flow diagram. The main problems affecting the measurement of capital investment are that data is available only at the second digit level, there is no separate information on providers and no information on the boundaries of health care. Gross Capital Formation in Sweden Christina Liwendahl of Statistics Sweden described the Swedish approach (Liwendahl.ppt). Slide 2 provides an overview of the transactions recorded. The main sources for measuring GFCF are business statistics and short-term investment surveys, vehicle registers and annual reports from general government. Additional information on own produced computer software, investments and financial leasing is used. In terms of leasing only financial leasing, not operational leasing, counts as fixed capital formation. Slides 7 and 8 show GFCF for 2006 for health COFOG 07 and market producer NACE 85.1; and GFCF 2006 by product. Gross Capital Formation and Danish SHA Morten Hjulsager gave a brief summary of the history of implementation of SHA in Denmark (Hjulsager.ppt). Slide 3 shows the difference in THE using international and national definitions of the health sector between 1980 and Using the international definition shows expenditure to be approximately 2% higher. The more detailed implementation of SHA now available for SHA includes GFCF in THE, as an aggregate with National Accounts as the data source, but does not include consumption of fixed capital in non-market providers. In future it is planned to use the National Accounts more intensively with the aim of dividing gross capital formation by HP and HF, and adding the consumption of fixed capital to expenditures in non-market providers. Slides 8-10 describe the information available from National Accounts with regard to: - the division of gross capital formation and consumption of fixed capital by branch and by ICHA-HF; - a division by market and non-market producers - investment matrices; and - the division of gross fixed capital formation by assets. Results of the Working Group Discussions Although HC.R.1 is presently not consistently reported across countries, participants of all Cyprus SHA Workshop December

15 countries see capital formation as an important part of the functional classification of health accounts (ICHA-HC). Countries also see a problem when total health expenditure include both GFCF and CFC and propose to avoid double accounting in THE by compiling CFC both as part of total current health expenditure TCHE and as part of HC.R.1. Two solutions were discussed without final decision: a) Focus on TCHE because the methodology for compiling HC.R.1 is not yet fully developed and report HC.R.1 below the line. As a consequence HC.R.1 would no longer be included in THE. b) Compile THE as TCHE plus GFCF minus CFC. This means only net fixed capital formation is added to current health expenditures. The precondition for b) is the consistent compilation of CFC and GFCF. The discussion of the workshop concentrated on both GFCF and CFC. Countries proposed that capital formation should be considered an important topic for the revision of the SHA manual. For the sake of comparability the compilation should follow a common framework. In view of the ultimate goal of international comparability it is advisable that national methodological descriptions (inventories) are produced that can be used as a first step to develop best practices towards the long term objective of establishing recommendations on sources and methods of compilations of HC.R.1. Presently, countries are far from having a clear conceptual framework for the reporting of CFCF. As the status of health accounts as well as the data situation varies greatly, no firm recommendation was made. With respect to further development, it was proposed to itemize (breakdown) HC.R.1 by specific sub items (e.g. by non-financial assets) and to measure the proportion (rate) of the identically itemized total capital assets. The National Accounts breakdown of assets and the details collected by the investment surveys should be analysed. It was proposed to add a voluntary capital account distinguishing certain types of produced assets. Cyprus SHA Workshop December

16 Annexes: Annex 1: Programme: Second Workshop at Cyprus, December 11-13, 2007 Subject: Capital formation Tuesday 11 December :30 10:00 Welcome, registration and Practical information 10:00 10:15 Objectives of the workshop Morten Hjulsager (Danish National Board of Health) 10:15 11:00 Capital Formation: Introduction Markus Schneider (BASYS) 11:00 11:15 Break 11:15 12:30 1st session: The health care system of Cyprus and the reform 2008 Cyprus Speaker: Country presentation and discussion 12:30 14:00 Lunch 14:00 15:30 2nd session: Gross capital formation from the perspective of International Organisations Results of the IHAT data collection (OECD, David Morgan) 15:30 15:45 Break 15:45 17:15 3rd session: Gross capital formation: assessment of status quo Results of the Questionnaire (Markus Schneider, BASYS) Cross Capital formation and SNA (Morten Hjulsager, SST) Indicators of Gross capital formation (Marian Craig, BASYS) Wednesday 12 December :30 11:00 1st session: Issues in cross capital formation: Non Market providers Country presentations and Discussions e.g. Estonia, Spain, Sweden 11:00 11:15 Break 11:15 12:30 2nd session: Issues in cross capital formation: Market providers Country presentations, work sessions etc. e.g. Portugal, Netherlands, Germany 12:30 14:00 Lunch 14:00 15:30 3rd session: Working Groups: A: Financing issues of GCF B: Estimation of GCF and Capital stocks C: GCF as part of the functional classification 15:30 16:00 Break 16:00 17:00 4th session: Working Groups: Continuation Thursday 13 December :30 11:00 1st session: Presentation of Working Groups Presentation of results of Working Groups. 11:00 11:15 Break 11:15 12:30 2nd session: Common Discussion and Conclusions :00 Lunch 14:00 Workshop ends Cyprus SHA Workshop December

17 Annex 2: List of participants Country Institution, Department, Function/Title Name Belgium FPS Social Security, International Relations Mr Sebastian Bastaits Belgium FPS Social Security, International Relations Mr Dirk Moens Cyprus Statistical Service of Cyprus Ms Nicoletta Petrou Cyprus Statistical Service of Cyprus, Division of demography, health and education, Unit of health statistics Ms Eleni Kyriacou Cyprus Health Insurance Organisation, General Health Scheme Mrs Efi Kammitsi Cyprus Statistical Service of Cyprus Mr George Zeitountsian Czech Rep. Czech Statistical Office Mrs Lia Venerova Denmark Ministry of the Interior and Health Mr Christian Harsløf Denmark National Board of Health, Health Monitoring & Evaluation Ms Monika Madsen Denmark National Board of Health, Health Monitoring & Evaluation Mr Morten Hjulsager Denmark National Board of Health, Health Monitoring & Evaluation Mr Uffe Jon Ploug Denmark University of Southern Denmark Mr Kjeld Moller Pedersen Estonia Ministry of Social Affairs of Estonia, Health Information and Analysis Department Ms Kristi Villsaar Finland STAKES, National Research and Development Mr Jan Moilanen France Drees, French ministry of Health Mr Francois LE France OECD Health Division Mr David Morgan Germany Federal Statistical Office, Bonn Branch Office Mr Michael Müller Germany BASYS Mr Markus Schneider Hungary Hungarian Central Statistical Office Mr Szilard Pall Ireland Central Statistics Office Ms Ciara O Shea Italy ISTAT Mr Marco Ciaffi Latvia Central Statistical Bureau of Latvia, Social Statistics Department Ms Ilze Burkevica Lithuania Statistics Lithuania Ms Sigita Maciuikiene Luxembourg IGSS, General Inspectorate of Social Security Mrs Laurence Weber Luxembourg IGSS, General Inspectorate of Social Security Mr Raymond Wagener Malta Department of Health Information Mr Joseph Galea Malta Department of Health Information Mr Arthur Gerada Netherlands Statistics Netherlands, Department of Health and Care Mr Martin Boon Poland Central Statistical Office Mrs Malgorzata Zyra Poland Central Statistical Office Ms Maria Penpeska Portugal INE, Instituto Nacional de Estatistica, National Accounts Department /Satellite Accounts Unit Ms Alexandra Carvalho Romania National Institute of Statistics Ms Oana Mavlea Serbia Ministry of Health, PCU office, NHA Team Leader Mrs Milena Gajic-Stevanovic Serbia Ministry of Health Ms Tanja Knezevic Slovak Rep Statistical Office of the Slovak Republic Mr Pavol Baxa Slovenia Statistical Office of the Republic of Slovenia Mr Stane Marn Sweden Statistics Sweden Ms Christina Liwendahl United Kingdom Office for National Statistics Ms Katherine Mills United Kingdom BASYS Ms Marian Craig Cyprus SHA Workshop December

18 Annex 3: Questionnaire on HC.R.1 Capital formation of health care provider institutions A contribution by: Patricia Hernandez (WHO), David Morgan, Roberto Astolfi (OECD) Cor van Mosseveld (EUROSTAT) Markus Schneider, Marian Craig (BASYS) The objective of this questionnaire is to determine the status of the current accounting practices of HC.R.1 and get information were the difficulties lie in reporting according to the current framework (SHA1.0) whether it is flawed or not? Capital is an important factor in the production of health care services and goods. SHA1.0 includes the recording of gross capital formation as HC.R.1. But, both SHA1.0 and PG do not provide specific guidelines how to compile capital formation. Therefore, the key objectives of the Cyprus workshop are, on the one hand to understand the interpretation of capital formation as part of SHA1.0, and on the other to develop suggestions for a more consistent and comparable compilation of further data collections. Gross capital formation (GCF) consists of (ESA and following articles; SNA 10.32) by the - total value of the gross fixed capital formation (GFCF, P51), - changes in inventories (P52), and - acquisitions less disposals of valuables (P53). These three types of capital formation are linked in the balance sheet to produced assets (AN1) including fixed assets (AN.11), inventories (AN.12), and valuables (AN.13). 2 Capital formation has furthermore to consider the finite service life, so that consumption of fixed capital is calculated for all such fixed assets. Consumption of fixed capital (is a cost of production (ESA 6.02, SNA 6.179) and as such included in the valuation of non-market output of health care provision. The participants are invited to consider the questions below prior to their journey to Cyprus and to return their answers until November 15, It is hoped that this will provide a sound overview of the current challenges of recording capital formation in the context of SHA and that it will promote the discussion in CYPRUS Which financing agents HF are involved in financing the HC.R.1=Gross Capital Formation (GCF) of health care providers in your country? Please include the Structural Fund of the EU or other investments financed by means from the Rest of the World (HF.3) if relevant? (List of capital financing agents to be inserted here.) 2 See ESA95 Chapter 7 Balance Sheets and Table 7.1 Classification of Assets. Cyprus SHA Workshop December

19 2. What types of assets do you include in the compilation of GCF? Please make crosses in the following table to answer the question. It might be useful to check the table with the colleagues from the national accounts department in the case you are using figures from National Accounts. Nursing Retail sale and other Provision/ General Total and Providers providers administration health Other HCR.1 residentialof of of public administration industries HP.1- care ambulatory medical health and (rest of the HP.7 Hospitals facilities health caregoods programs insurance economy*) Types of assets HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x AN Non-financial assets AN.1 Produced assets AN.11 Fixed assets AN.111Tangible fixed assets AN.1111 Dwellings AN.1112 Other buildings/structures AN.1113 Machinery and Equipment AN.112Intangible fixed assets AN.12 Inventories AN.13 Valuables AN.2 Non-Produced assets Capital stock at year t-1 Capital stock at year t K.1 Consumption of fixed capital Revaluations * HP7 is limited to providers of health care as a secondary activity. 3. In the case do you have compiled stocks of fixed capital of health facilities (see table above), which method (e.g. perpetual inventory method, survey) do you apply What data sources do you use for the compilation of GCF? Please use the following table to answer the question. HP* HP.1 Type of Provider (add rows if necessary) Please list data sources (Distinguish between types of assets if necessary) HP.2 HP.3 HP.4 HP.5 HP.6 3 PIM is recommended by ESA, see 6.05, as well as Cyprus SHA Workshop December

20 HP.7 * Although SHA 1.0 restricts HCR.1 to HP.1-3 and HP.5-6 we believe that the principles of consistency and comprehensiveness require a complete reporting of capital formation including HP.4 and HP For some providers, Consumption of Fixed Capital (CFC) may not be included in the estimates of current health expenditure (CHE), leading to an underestimation. Therefore, we would like to know which providers in your country s estimates exclude CFC (depreciation)? Please use the following table to answer the question by type of providers and if relevant sub-set of providers. HP HP.1 Please, list those providers where CHE excludes CFC e.g. general public hospitals Comment (please distinguish between public and private providers) HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 6. In the case CFC is not included in CHE and you have to estimate CFC, please complete the following table. What methodology do you use for to estimate CFC? Note that the list should be the same as Q.4 HP Type of assets (please add if necessary) Buildings (AN1111+AN1112) Equipment (AN1113) other Buildings Equipment other Buildings Equipment other Buildings Equipment other Methodology for estimation of CFC (tangible, intangible) 7. In your opinion, do you consider there to be some double counting in the compilation of GCF and CFC as part of Total Health Expenditures by type of health care providers in your country s SHA? Yes or No?. Cyprus SHA Workshop December

21 Please give further details:. 8. Usually capital formation in the health branch is provided by specialized industries such as the manufacture of medical instruments or other industries as construction. Do you have any examples where health care providers also produce capital goods for the health sector (HP.7 is limited to health care providers producing health care as a secondary activity)? 9. Based on your responses to the above questions and your experience in estimating CFC and GCF, do you have any comments on the compilation of these estimates in the current SHA1.0 framework and/or the revision? a) GCF:... b) CFC: What topics (related to GCF and CFC) do you wish to be discussed in the working groups? a)... b). c).. When participants in the workshop intend to present results of their compilations of GCF in the discussions, it is advi sable to share copies with the facilitators and the participants. Thank you. Terminology: GCF = Gross Capital Formation = HC.R.1 GFCF = Gross Fixed Capital Formation CFC = Consumption of Fixed Capital CHE = Current Health Expenditures. PIM = Perpetual Inventory Method Cyprus SHA Workshop December

22 Annex 4: Country responses to the questionnaire Responses included from 20 Countries CH, CY, CZ, DE, DK, EE, ES, FR, HU, IT, LU, LV, NL, PL, PT, RO, SE, SI, SK, SR Introduction The objective of this questionnaire is to determine the status of the current accounting practices of HC.R.1 and get information were the difficulties lie in reporting according to the current framework (SHA1.0) whether it is flawed or not? Capital is an important factor in the production of health care services and goods. SHA1.0 includes the recording of gross capital formation as HC.R.1. But, both SHA1.0 and PG do not provide specific guidelines how to compile capital formation. Therefore, the key objectives of the Cyprus workshop are, on the one hand to understand the interpretation of capital formation as part of SHA1.0, and on the other to develop suggestions for a more consistent and comparable compilation of further data collections. Gross capital formation (GCF) consists of (ESA and following articles; SNA 10.32) by the total value of the gross fixed capital formation (GFCF, P51), changes in inventories (P52), and acquisitions less disposals of valuables (P53). These three types of capital formation are linked in the balance sheet to produced assets (AN1) including fixed assets (AN.11), inventories (AN.12), and valuables (AN.13). 4 Capital formation has furthermore to consider the finite service life, so that consumption of fixed capital is calculated for all such fixed assets. Consumption of fixed capital (is a cost of production (ESA 6.02, SNA 6.179) and as such included in the valuation of non-market output of health care provision. [Correction note made by PT: In both SNA93/ESA95, Consumption of Fixed Capital is only calculated for Fixed Assets (AN11), tangible and intangible, except for animals. Nevertheless animals are not relevant for health accounts and therefore no need to make any explicit mention to it. This is also to stress that not Inventories not Acquisitions less cessions of Valuables generate any Consumption of Fixed Capital.] 4 See ESA95 Chapter 7 Balance Sheets and Table 7.1 Classification of Assets. Cyprus SHA Workshop December

23 Question 1: Which financing agents HF are involved in financing the HC.R.1=Gross Capital Formation (GCF) of health care providers in your country? Please include the Structural Fund of the EU or other investments financed by means from the Rest of the World (HF.3) if relevant? (List of capital financing agents to be inserted here.) CH All financing agents are actually involved. H.C.R.1 is systematically included in the total health expenditure via amortization imputations, renting expenditure or interests on loans for buildings or fixed equipment. The current health expenditure is not estimated since the capital formation is not estimated, neither globally as some countries seem to do under HC.R.1, nor for any providers or functions. Estimating the capital formation in health, globally or in a disaggrated way, is clearly not a priority task in our efforts to improve the data collection, its quality and the methods of estimation. Therefore many of the following questions cannot be answered CY The following financing agents are involved in financing the Gross Capital Formation of health care providers in Cyprus: HF.1: General Government HF.2.4: Non-profit institutions serving households CZ Central government Local Government Social security funds DE HF.1.1 Investment in hospitals by the Länder (states) according to the Krankenhausfinanzierungsgesetz (law of financing of the hospitals) Investment in university hospitals by Bund und Länder (federation and states) according to the Hochschulbauförderungsgesetz (law of promoting the construction of universities) Investment grant for public hospital (mainly by municipalities) Investment or Investment grants for various other health care providers as published in the budgets of the federation, states and municipalities Public health providers HF.1.2 Investment surcharge according to Article 14 Abs.3 Gesundheitsstrukturgesetz paid by the Statutory Health Insurance Funds Investment in administration (buildings and other assets) and own-operated hospitals (Eigenbetriebe) by Statutory Health Insurance Funds Investment in administration (buildings and other assets) and own-operated hospitals (Eigenbetriebe) by Statutory Pension Insurance Funds Investment in administration (buildings and other assets) and own-operated hospitals (Eigenbetriebe) by Statutory Accident Insurance Funds HF.2.2 Investment in administration (buildings and other assets) by Private Health Insurance Companies HF.2.3 Investment surcharge for Nursing Homes payable by the residents to the Nursing Homes EE Heath Insurance Fund (HF. 1.2) Central Government (HF ) Rest of the world (HF.3) Structural Fund of the EU If a private person is involved in formation of Gross Capital Formation of health care providers where (under which HF category) it should be classified? In Estonia we have an example where a businessman bought very expensive medical equipment to the hospital, where his child was born. ES HF111 Central government HF112 State / provincial government HF113 Local / municipal government HF12 Social Security Funds HF24 NPISH Cyprus SHA Workshop December

24 HF25 Corporations FR We consider that GCF in health sector is financed by Social Security: in public hospital, Social Security finances nearly all the expenditure (94%) and the public financing includes all the expenditure, including GCF. For private hospital health providers, we consider that their activity is mainly financed by Social Security, and that these providers use their income to finance their GCF But we could also consider that a part of the investment is financed by the health provider itself, but it does not exist in the HF classification. So further guidelines about this point would be welcome. HU HF Central government HF Local/municipal government HF. 2.4 Non-profit institutions HF. 2.5 Corporations LU HF Ministry of Health HF Other Ministries Note: Social security is not yet included here. LV HF.1 General Government HF.1.1 General Government HF Central Government HF Health Ministry HF Other Ministries HF Local Government HF.3 Rest of the World (EU Funds) NL Mainly: HF 1.1 General government, HF 1.2 Social security funds, HF Private insurance. PL HF.1.1 HF.2.5 HF.3 (Ministry of Finances) PT HF National Health Service; HF Other public Institutions; HF.2.1 Private Health Subsystems; HF.2.4 Non-profit Institutions; HF.2.5 Corporations; The available information doesn t detail the financing values of health care providers by the structural Funds of the EU and other investments financed by the Rest of the World (HF.3). However, in our opinion, on HF.3 the only thing that should be reported should be the direct financing flows between foreign entity and national providers of health care. In our case, for the public sector, the financing is allocated directly to National Health Service and after is distributed for the several public providers. So, these values should allocated to National Health Care Financing, as a financing agent, and to Rest of World as a source of financing. For the private sector, the detail of available information doesn t be sufficiently for split the direct capital financing by corporations or the capital financing carried by corporations but directly financing by the Structural Fund of the EU or other investments financed by means from the Rest of the World (HF.3). RO Ministry of Health Local/municipal government Cyprus SHA Workshop December

25 Private agents with activity in health sector External financing (reimbursable and non-reimbursable funds) SE At present Sweden intent to include the following financing agents: General government sector divided in: Central government County councils Municipalities Market producers classified in NACE 85.1 Depending on the Long-term care project some market producers classified in NACE 85.3 may bee included as well. SR H.F MINISTRY OF HEALTH; H.F A. Regions H.F Municipalities H.F Private financiers H.F Corporations H.F.3.1. DONATIONS No Answer: DK, IT, SI, SK Cyprus SHA Workshop December

26 Question 2: What types of assets do you include in the compilation of GCF? Please make crosses in the following table to answer the question. It might be useful to check the table with the colleagues from the national accounts department in the case you are using figures from National Accounts. (* HP7 is limited to providers of health care as a secondary activity.) CH Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x CY Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x x x x x x AN.11 Fixed assets x AN.111 Tangible fixed assets x AN.1112 Other buildings/structures x AN.1113 Machinery and Equipment x Capital stock at year t x K.1 Consumption of fixed capital x CZ Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x x AN Non-financial assets x AN.1 Produced assets x AN.11 Fixed assets x AN.111 Tangible fixed assets x AN.1111 Dwellings x AN.112 Intangible fixed assets x K.1 Consumption of fixed capital x x x x DE Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x AN.11 Fixed assets x x x x x AN.111 Tangible fixed assets x x x x x AN.1112 Other buildings/structures x x x x x AN.1113 Machinery and Equipment x x x x x AN.112 Intangible fixed assets????? DK Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x EE Gross capital formation of heath care providers is mainly financed by the Health Insurance Fund in Estonia. The expenditure of gross capital formation is included in total expenses on health care services. At present it is not possible to distinguish gross capital formation from price of services. Therefore currently GCF is included in current health expenditure of Estonia (HP.1; partly HP.2; HP.3). But it is not possible to recognize total share of GCF from current health expenditure. Moreover it is not possible to distinguish between the different types of assets. Also for the HP.6 GCF is included and currently this is the only category where capital formation can be separated from the current expenditure. And by HP.6 it is also possible to distinguish between different types of assets. These providers are financed by central government and the health insurance fund. Almost every type of assets is marked individually in the state budget and the Fund s budget. Cyprus SHA Workshop December

27 Information about GCF of HP.1, HP.2 and HP.3 has been collected with economical reports of health care providers during a few last years. So we have a potential data source for GCF for these HP categories. On the basis of the report the total amount of GCF and types of assets can be distinguished. Methodology for integrating the data source to NHA is still under development process. In the following table: X GCF is included (X) GCF is included but it is not possible to separate total share of GCF from current health expenditure and distinguish between the different types of assets. (X ) - GCF is included for some providers (e.g. nursing care) but it is not possible to separate total share of GCF from current health expenditure and distinguish between the different types of assets. There is no available information about GCF for residential care facilities. Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation (x) (X*) (X) X AN Non-financial assets (x) (X*) (X) X AN.1 Produced assets (x) (X*) (X) X AN.11 Fixed assets (x) (X*) (X) X AN.111 Tangible fixed assets (x) (X*) (X) X AN.1111 Dwellings (x) (X*) (X) X AN.1112 Other buildings/structures (x) (X*) (X) X AN.1113 Machinery and Equipment (x) (X*) (X) X AN.112 Intangible fixed assets (x) (X*) (X) X AN.2 Non-Produced assets (x) (X*) (X) X Capital stock at year t-1 (x) (X*) (X) X Capital stock at year t (x) (X*) (X) X K.1 Consumption of fixed capital (x) (X*) (X) X ES Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation (1) x AN.11 Fixed assets X X X X X AN.1111 Dwellings X X X X X AN.1112 Other buildings/structures X X X X X AN.1113 Machinery and Equipment X X X X X AN.112 Intangible fixed assets X X X X X (1) For private sector GCF only hospitals FR Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x X (for public For a part AN.1 Produced assets hospital) of HP2 X Capital stock at year t-1 Capital stock at year t X X HU Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation X AN Non-financial assets X AN.1 Produced assets X AN.11 Fixed assets X AN.111 Tangible fixed assets X AN.1111 Dwellings X AN.1112 Other buildings/structures X AN.1113 Machinery and Equipment X AN.112 Intangible fixed assets X Cyprus SHA Workshop December

28 AN.12 Inventories X AN.2 Non-Produced assets X Capital stock at year t-1 Capital stock at year t X K.1 Consumption of fixed capital X LU X Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x AN.1111 Dwellings X X X AN.1112 Other buildings/structures X X X AN.1113 Machinery and Equipment X X X AN.112 Intangible fixed assets X X AN.2 Non-Produced assets X LV Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 AN.111 Tangible fixed assets X X X X AN.1111 Dwellings X X X X AN.1112 Other buildings/structures X X X X AN.1113 Machinery and Equipment X X X X AN.12 Inventories X X x X NL The content of the following table is based on our first ideas (instead of our current practices) of incorporating GCF into the SHA framework Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x AN.1 Produced assets x x x x x x x AN.11 Fixed assets X X X X X X X AN.111 Tangible fixed assets X X X X X X X AN.1111 Dwellings X X X X X X X AN.1112 Other buildings/structures X X X X X X X AN.1113 Machinery and Equipment X X X X X X X AN.112 Intangible fixed assets X X X X X X X AN.12 Inventories X X X X X X X AN.2 Non-Produced assets X X X X X X X K.1 Consumption of fixed capital x x x x x x x PL Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x AN.111 Tangible fixed assets x Due to the fact that so far data has been collected from the financing agents there is no connection between HCR.1 and health care providers. PT Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation Estimated for all providers AN Non-financial assets AN.1 Produced assets AN.11 Fixed assets AN.111 Tangible fixed assets AN.1111Dwellings AN.1112Other buildings/structures AN.1113Machinery and Equipment X X X X X X Estimated for all providers Cyprus SHA Workshop December

29 AN.112 Intangible fixed assets X AN.12 Inventories Doesn't conceptually apply AN.13 Valuables Doesn't conceptually apply AN.2 Non-Produced assets Doesn't conceptually apply Capital stock at year t-1 Capital stock at year t K.1Consumption of fixed capital Revaluations Subsequent to the calculation of the PIM method, recommended by ESA95 Subsequent to the calculation of the PIM method, recommended by ESA95 Estimated for all providers It doesn t make since in every year of accumulation of GFCF capital must be evaluated at current prices of the year. In the System revaluation are not taken into account from as such. RO Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x X X X X X X X AN Non-financial assets X X X X X X X X AN.1 Produced assets X X X X X X X X AN.11 Fixed assets X X X X X X X X AN.111 Tangible fixed assets X X X X X X X X AN.1112 Other buildings/structures X X X X X X X X AN.1113 Machinery and Equipment X X X X X X X X AN.112 Intangible fixed assets X X X X X X X X AN.12 Inventories X X X X X X X X AN.2 Non-Produced assets X X X X X X X X Capital stock at year t-1 X X X X X X X X Capital stock at year t X X X X X X X X K.1 Consumption of fixed capital X1) X X x X x X x 1) only for public administration SE Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x AN Non-financial assets x AN.1 Produced assets x AN.11 Fixed assets x AN.111 Tangible fixed assets x AN.1111 Dwellings x x AN.1112 Other buildings/structures x x x x x x x AN.1113 Machinery and Equipment x x x x x x X Capital stock at year t-1 X X?? X???? Capital stock at year t x X?? X???? K.1 Consumption of fixed capital x x x x x x x Sweden starts with the HC-classification. Then classify each HC to a HP. Capital stocks and consumption of fixed capital are calculated on an more aggregated level due to the need of long time series and to at which degree. For instance Sweden manages to report at 4 digits- COFOG level just from the year To get consumption of fixed capital at the same level, capital formation at 4 digits- COFOG level are used as keys from the year The market producers, report at the level of total NACE 85.1 and 85.3 SI Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x SK Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x Cyprus SHA Workshop December

30 SR Types of assets Total HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 HP.7 Gross Capital Formation x AN.111 Tangible fixed assets X X X X X AN.1111 Dwellings X X X X X AN.1112 Other buildings/structures X X X X X AN.1113 Machinery and Equipment X X X X X AN.12 Inventories X X X X X AN.13 Valuables X X X X X Cyprus SHA Workshop December

31 Question 3: In the case do you have compiled stocks of fixed capital of health facilities (see table above), which method (e.g. perpetual inventory method, survey) do you apply. (PIM is recommended by ESA, see 6.05, as well as ) CY Stocks of fixed capital have been compiled for the economy in general using the perpetual inventory method. However stocks have not been compiled explicitly for the health domain. EE Acquisition cost of assets of HP.6 category is included in current health care expenditure annually. Data on acquisition cost at the beginning of the year; income of the gross capital during the year; acquisition cost at the end of the year; depreciated cost at the end of the year; depreciation and accumulated depreciation for the HP.1, HP.2 (partly), HP.3 are available but not yet implemented in the NHA. FR In our data sources, the method is PIM HU Perpetual inventory method NL This is not relevant (see the table above) PT We apply the method recommended in ESA 95: The Perpetual Inventory Method (PIM). RO Perpetual Inventory Method SE PIM-method SR Perpetual Inventory Method No Answer: CH, CZ, DE, DK, ES, IT, LU, LV, PL, SI, SK, Cyprus SHA Workshop December

32 Question 4: What data sources do you use for the compilation of GCF? Please use the following table to answer the question. (* Although SHA 1.0 restricts HCR.1 to HP.1-3 and HP.5-6 we believe that the principles of consistency and comprehensiveness require a complete reporting of capital formation including HP.4 and HP.7.) CY Public Sector HP* Type of Provider (add rows if necessary) HP.1 HP.1.1, HP.1.2, HP.1.3 The Government Budget HP.2 HP.2.3 The Government Budget HP.3 HP.3.4, HP.3.5 The Government Budget HP.5 HP.5 The Government Budget HP.6 HP.6.1 The Government Budget Private Sector (HF.2.4) HP.2 HP.2.2, HP.2.3, HP.2.9 Services Survey HP.3 HP Services Survey CZ HP.1 General hospitals Speciality hospitals SPA Please list data sources (Distinguish between types of assets if necessary) Central Government Local Government HP.3 Other ambulatory care Central Government Local Government HP.4 Retail sail Local government HP.6 Government administration Social security funds Central Government Local Government DE HP.1 HP.1.1 general hospitals Statistics of Public Finances (federal budget, budget of the states and municipalities) University Finance Statistics Financial Records of Statutory Health Insurance Funds for ownoperated hospitals HP.1.3 specialized hospitals Financial Records of Statutory Pension Insurance Funds for ownoperated specialized hospitals HP.2 Nursing Homes Long-term care database by the Federal Association of company health insurance funds HP.3, HP.4 Not included in GCF Not included in GCF HP.5 Public Health providers Statistics of Public Finances (federal budget, budget of the states and municipalities) HP.6 HP.6.2 Social Security Funds HP.6.4 Private Insurance Financial Records of Statutory Health Insurance Funds Financial Records of Statutory Pension Insurance Funds Financial Records of Statutory Accident Insurance Funds Explanatory Notes on Assets of the balance sheet of the PHI companies HP.7 Universities not university hospitals Investment in assets for health research University Finance Statistics EE HP.1, HP.2, HP.3 HP.6 (Economical report of heath care facilities) State budget; Health Insurance Fund budget ES Cyprus SHA Workshop December

33 HP.1 HP.2, HP.3, HP.5, HP.6 Public hospitals Private and NPHSH hospitals Public ones Administrative Hospital Survey FR HP.1 HP.2 HP.4 Public hospital: national accounts Private hospital: statistics based on accounts of the firm. (for a part of HP2): national accounts National accounts HU HP* HP Type of Provider (add rows if necessary) Please list data sources (Distinguish between types of assets if necessary) The calculation is based on the National Gross Capital estimation of year The distribution on providers within the actual compilation system of the Hungarian NA is not possible. LU HP.1 HP.1.1 General Government Accounts HP.2 HP.2.1 General Government Accounts HP.3 HP.6 HP.7 HP HP HP.3.5 HP HP.6.9 HP.6.1 HP.6.3 HP.7.9 HP.7.1 General Government Accounts General Government Accounts General Government Accounts LV HP.1 HP.2 HP.3 HP.4 HP.5 HP.6 Multiprofile or acute care hospitals All psychoneurological and substance abuse hospitals Skin and Sexually Transmissive Diseases Centre, Daugava Hospital (oncology), tuberculosis hospitals, obstetric establishments Social care centres (social care and rehabilitation centre of persons with impaired vision) Psychiatric and substance abuse disorder care establishment Orphan care centre Primary health care practices and establishments (individual work and group work) Specialty doctor practice establishments, Dental establishments Other practices of medical workers Ambulatory care establishments Retailers of medical products and suppliers of other medical products Provision and administration of public health programmes General health care administration and insurance (Ministries, health care departments, the Institute of Medical Care and Working Ability Expertise Quality Control, State Sanitary Inspectorate, Public Health The State Compulsory Health Insurance Agency (SCHIA) data The Health Ministry data The State Budget Financial reports of other Ministries Possible source- Structural Business survey The State Compulsory Health Insurance Agency (SCHIA) data The Health Ministry data The State Budget Financial reports of other Ministries Possible source- Structural Business survey The State Compulsory Health Insurance Agency (SCHIA) data The Health Ministry data The State Budget Possible source- Structural Business survey The State Compulsory Health Insurance Agency (SCHIA) data The Health Ministry data The State Budget Cyprus SHA Workshop December

34 Agency, AIDS Centre, Health Statistics and Medical Technologies State Agency, the medical department of the Latvian Prison Administration, the Health and Social Affairs State Agency of the Ministry of the Interior, etc.) Possible source- Structural Business survey HP.7 Establishments of other branches NL The content of the following table is based on our first ideas (instead of our current practices) of incorporating GCF into the SHA framework HP.1 HP.2 HP.3, HP.4, HP.5, HP.6, HP.7 base statistics derived from micro data on annual reports or accounts (balance sheets and income-statements) of health care providers base statistics derived from micro data on annual reports or accounts (balance sheets and income-statements) of health care providers macro statistics from National Accounts PL Due to the fact that so far data has been collected from the financing agents there is no connection between HCR.1 and health care providers. HP.1-HP.7 Total government and local self-government units For HF.2.5 (corporations) Information on government and local self-government units are classified by the national budget classification financial reporting of the Central Statistical Office PT For the public sector we use the data taken from financial reports. For private providers we estimate GCF providers by economic reports. RO HP.1, HP.2, HP.3, HP.4 Ministry of Health Private Agents Butgetary Execution Structural business survey HP.5 Ministry of Health Butgetary Execution HP.6 HP.7 SE HP.1 HP.2 HP.3 HP.4 - National House of Health Insurance - Health Insurance House of Defance, National Security - Health Insurance House of Ministry of Transports, Construction and Tourism County Councils (part of local government) Municipalities (part of local government) Market producers* Municipalities Market producers* County Councils Municipalities Structural Business Statistics In Sweden all medicines and other medial products produced in NACE are distributed and sold by the retail sale organization called Apoteket AB. Butgetary Execution Butgetary Execution The annual report from the County Councils The annual report from the Municipalities Structural Business Statistics* The annual report from the Municipalities Structural Business Statistics* The annual report from the County Councils The annual report from the Municipalities Structural Business * Structural Business Statistics. An annual survey produced by Statistic Sweden. HP.5, HP.6 General Government The Swedish National Financial Management Authority collects information from central government authorities yearly. Annual reports concerning local government HP.7 General Government Market producers* The Swedish National Financial Management Authority Annual reports concerning local government Cyprus SHA Workshop December

35 Structural Business Statistics *For the market producers, the structural Business Statistics report at the level of total NACE 85.1 and 85.3 SR HP.1 Public general, specialized hospitals, Clin.centres, Clin.hosp.centres, Institutes Health providers BALANCE SHEETS; ACCOUNTS IN ACCOUNTANCY; Annual REPORTS FROM MINISTRY OF HEALTH & MINISTRY OF FINANCE (GFCF) and Chamber of health institutions. Ministry of social affairs data. HP.2 HP.3 Sanatoriums and social care protection facilities Primary health care centres Health providers BALANCE SHEETS; ACCOUNTS IN ACCOUNTANCY; Annual REPORTS FROM MINISTRY OF HEALTH & MINISTRY OF FINANCE (GFCF) and Chamber of health institutions. HP.4 Health providers BALANCE SHEETS; Annual REPORTS FROM MINISTRY OF HEALTH & HIF MOH and HIF annual report HP.5 HP.6 HP.7 Public health care institutes Health insurance fund, Ministry of health HIF and Republican Statistics No Answer: CH, DK, IT, SI, SK Cyprus SHA Workshop December

36 Question 5: For some providers, Consumption of Fixed Capital (CFC) may not be included in the estimates of current health expenditure (CHE), leading to an underestimation. Therefore, we would like to know which providers in your country s estimates exclude CFC (depreciation)? Please use the following table to answer the question by type of providers and if relevant sub-set of providers. CY CFC is not included in the estimates of current health expenditure (CHE) at all. DE HP Please, list those providers where CHE excludes CFC Comment (please distinguish between public and private providers) HP.1 HP.1.1 CFC is excluded for all general hospitals CFC is included for specialized hospitals HP.2, HP.5, HP.6, HP.7 HP.3, HP.4 CFC is excluded for all providers CFC is included EE Every medical service has its own price/ cost in the pricelist of the Health Insurance Fund. Service price is formed of different components: cost of medical goods used for the service, labour cost, capital formation etc. So the cost included in the current expenditure of health is not CFC (depreciation) and also not acquisition cost. It is just a fixed component/ fixed amount of money. HP.1, HP.2, HP.3, HP.6 HP.4, HP.5, HP.7 included excluded ES HP.1 public hospitals Hospitals established as Public enterprises includes CFC HP.3 HP.5 HP.6 Out patient public care centre Administration of public health programs, when public General health administration, when public FR Just a remark: whether it leads to an underestimation or not depends on the way other countries construct their data: if all countries do not include CFC, there is no underestimation. The first aim on this type of subject has to be the comparability across countries. HP.1, HP.2 CFC included HP.4 CFC excluded HU HP CFC is included in the calculation LU HP Please, list those providers where CHE excludes CFC HP.1 HP.1.1 Private and public providers HP.2 HP.2.1 Private providers HP.3 HP.4 HP.3.5 HP HP HP Comment (please distinguish between public and private providers) Private providers Cyprus SHA Workshop December

37 HP.5 HP.6 HP.7 HP.6.9 HP.6.1 HP.6.3 HP.7.1 HP.7.9 Public providers Private and public providers NL According to the SHA1.0 manual total health expenditure (THE) is defined as final use of resident units of health care goods and services plus gross capital formation in health care provider industries. In the SHA1.0 manual this concept is translated in the following SNA components: 1) final consumption expenditures on health (C) plus GCF. This is equivalent to the final expenditure approach in SNA for measuring gross domestic product (GDP, or value added). According to SNA there are two alternative approaches: 2) from the output (or production=p): output of health care providers (P; including CFC) minus intermediate consumption within the health care providers sector (IC; excluding CFC); 3) from the generation of income: compensation of employees (W) plus taxes/subsidies on production (T) (S) plus operating income (O) plus CFC within the health care providers sector. These three approaches have to be added to the SHA manual. Each country chooses one of the three approaches. If a country has an accurate and detailed budget survey for measuring health expenditure THE, then the final expenditure is normally selected. If this is not the case, a country chooses approach 2 or 3. The Netherlands has an inaccurate budget survey with a small sample. Therefore in the Dutch SHA health expenditure THE is defined as output (P, approach 2), that is total gross turnover or receipts of health care providers which is generated by supplying goods and services. At the moment in the Dutch SHA intermediate consumption IC is not subtracted from output P; this can be considered as an overestimation. The major data sources for output are a) micro data on revenues and costs of individual health care providers (from income-statements) and b) macro data on payments by health insurance companies/funds for health care delivered by health care providers. In case of the output approach CFE is implicitly included in output. It is conceptual wrong to subtract CFC from total health expenditure based on output and add GCF. The only proper way of compiling figures on total health expenditure, GCF, C and CFC is in an integrated way with an supply and use framework. In this framework all the underlying variables (THE, P, IC, C, GCF, CFC, etc.) which are mentioned in the three different approaches for measuring gross domestic product (or value added) are measured coherently and consistently by using basic accounting identities. An important advantage is that double counting in figures can be avoided. We do not plan to exclude CFC from CHE based on output PL We do not include consumption of fixed capital (CFC) PT In Portugal Health Accounts all expenditure includes CFC. In particular, for public providers (non-market) we have estimated CFC and included in the expenditure (output) as a cost of production and therefore it is clearly included. For market providers the health expenditure corresponds to health sales. Moreover the rate of return of physical capital is always included in price of charged to the users. This rate of return of physical capital corresponds to the economic depreciation of physical capital. Therefore it is also implicitly included. Anyhow CFC is always included (implicitly or by direct inclusion) in the health expenditure. RO HP HP.1 - HP.7 Please, list those providers where CHE excludes CFC Non-market production institution of public administration Comment (please distinguish between public and private providers) SE HP.4 Our intention has not been to include CHE for HP 4. CFC are indirectly included in the price for the medicines etc. SR HP.1 HP.7 ALL PUBLIC PROVIDERS. Depreciation is not excluded in any type of provider. No Answer: Ch, CZ, DK, IT, LV, SI, SK Cyprus SHA Workshop December

38 Question 6: In the case CFC is not included in CHE and you have to estimate CFC, please complete the following table. What methodology do you use for to estimate CFC? Note that the list should be the same as Q.4 CY HP HP.1 HP.2, HP.3, HP.5, HP.6 Type of assets (please add if necessary) Buildings (AN1111+AN1112) Equipment (AN1113) Methodology for estimation of CFC (tangible, intangible) PIM PIM other Buildings Equipment PIM PIM other DE We do not estimate CFC. Either it is included in the price of the services and hence included in the respective HC-Function (e.g. HC in the case of general practitioners HP.1) or we calculate the GFC and refrain from estimating the CFC (e.g. in hospitals) ES No estimates. NL We estimate CFC implicitly in the output with the methods mentioned in the following table HP 1-7 All non-financial assets (AN1 +2) base statistics derived from micro data on annual reports (income-statements) of health care providers PL We do not estimate CFC PT HP.1-7 Buildings (AN1111+AN1112) Equipment (AN1113) other We use the Perpetual inventory method (PIM) recommend by ESA 95. The National Accounts Inventory of CFC and GCF data sources and methodologies is far too large to describe here. RO HP.1-7 Buildings (AN1111+AN1112) Equipment (AN1113) other Perpetual Inventory Method (PIM) PIM PIM SR Buildings (AN1111+AN1112) Equipment (AN1113) other Not applicable No Answer: CH, CZ, DK, EE, FR, HU, IT, LU, LV, SE, SI, SK Cyprus SHA Workshop December

39 Question 7: In your opinion, do you consider there to be some double counting in the compilation of GCF and CFC as part of Total Health Expenditures by type of health care providers in your country s SHA? Yes or No?. CZ No, because we just use the data, which we receive, from sources of funding HU Should not be any double counting in the compilation. LV No, CFC is shown as a part of GCF, but not in all cases it is possible to extract it from data available for compiling SHA. NL See our remarks at question 5 SE No, but I have some doubts about HP 4. Answer YES : DE, FR Answer NO : CY, EE, ES, LU, PL, PT, RO No Answer: CH, DK, IT, SI, SK, SR Please give further details: CY In the private sector since the basic source is the household expenditure (FBS) a double counting should be inevitable if any further estimation of CFC is to be added to this data. In the case of the public sector no double counting exists, however the total health expenditure is underestimated, since no data has been provided for CFC in the first place. CZ We do not estimate anything we receive complete data. DE See attached document EE Currently GCF is included in current health care expenditure of Estonia. Expenditure of gross capital formation is included in the expenditure of health care services. It is not possible to recognize the total share of GCF of current health expenditure and it is not possible to distinguish between the different types of assets. LU Social security information is excluded NL See our remarks at question 5 PT From the conceptual point of view K1 corresponds to the rate of return of fixed assets and therefore, is considered as a cost of production both for market and non-market. For a market producer the components of the output (sales) are equivalent to the cost of production plus taxes less subsidies on products plus distribution (trade and transport) margins. This CFC as a cost of production is implicit. For the non-market producer the output is measured only by the cost of production meaning that taxes less subsidies on products plus distribution (trade and transport) margins are zero. The output affects the goods and services account and the production account. The GFCF affects the accumulation accounts. Moreover for health it only makes sense to talk about GFCF instead of GCF in the extent that no health product is considered a valuable (producer approach) nor the Cyprus SHA Workshop December

40 acquisitions of valuables is relevant among health providers (user approach). Concerning inventories only retailers have uses of inventories although all providers may have costs with inventories but nor valuables nor inventories are related to CFC. SE a) Is HP 4 really classified as health care provider institutions? b) Concerning Occupational health services, some of them are classified inside SHA and some of them outside SHA, but all are registered in NACE 85.1 and all capital formation in NACE 85.1 are included in HC.R.1 SR NO, IF WE EXCLUDE CFC No Answer: CH, DK, ES, FR, HU, IT, LV, PL, RO, SI, SK Cyprus SHA Workshop December

41 Question 8: Usually capital formation in the health branch is provided by specialized industries such as the manufacture of medical instruments or other industries as construction. Do you have any examples where health care providers also produce capital goods for the health sector (HP.7 is limited to health care providers producing health care as a secondary activity)? CY That case is not applicable in Cyprus since the health care providers do not produce capital goods for the health sector. EE No, there is not such kind of examples. In Estonia there are even no specialized industries for the manufacture of medical instruments or other industries as construction. ES No, perhaps some type of software is produced for administrative use, but it s not a separate accounting FR By now, at least in the French case, research and development is considered in national accounts as intermediate consumption. But, in few years, it is planned to consider it as an investment; in that case, private hospital, which have an activity of medical research, would produce capital formation HU Is not the case in Hungary. PL We have no such examples PT We don t identity these situations in Portugal Health Accounts. RO It s not the case Answer NO : CZ, NL, SE No Answer: CH, DE, DK, LU, LV, SI, SK, SR Cyprus SHA Workshop December

42 Question 9: Based on your responses to the above questions and your experience in estimating CFC and GCF, do you have any comments on the compilation of these estimates in the current SHA1.0 framework and/or the revision? a) GCF: CY Data sources on annual investments can be established at list for the basic HP categories although with certain difficulties. DE Should GCF be included in the figure of Total Health Expenditure for providers that already include CFC (e.g. in HC.1.3) in Total Health Expenditure? EE We suggest that there should be clear guidelines about GCF in the next SHA manual in the future. Rules about acquisition cost, depreciation etc should be worked out. LU More detailed information and illustrative examples PL In the method used up to now for compilation the NHA, there are no good sources of more detailed information. We are still working on the improvement both data availability and methods of compilation. SE Swedish national account calculates GCF (=GFCF for services) and CFC according to the market production by NACE and non-market production by COFOG. If one part of the long-term care for the elderly (IADL) is classified inside SHA as well as some of the occupational health care the 100% connection with GFCF and CFC is broken. What to do? Answer NO : CZ, NL, SK b) CFC: CY For CFC only the total can be estimated with the PIM. The breakdown to HP and HC categories could only be made with percentages due to the absence of any long-term time series by assets and HP and HC categories. DE Should CFC be estimated separately and included in THE in the case of a provider where we already record for GFC? ES Some estimates are needed for Public administration expenditure. Based in NA? FR For private providers, data on CFC are of very bad quality, and are hardly comparable between countries, so it should not be compiled LU More detailed information and illustrative examples PL In the method used up to now for compilation the NHA, there are no good sources of more detailed information. We are still working on the improvement both data availability and methods of compilation. SE Swedish national account calculates GCF (=GFCF for services) and CFC according to the market production by NACE and non-market production by COFOG. If one part of the long-term care for the elderly (IADL) is classified inside SHA as well as some of the occupational health care the 100% connection with GFCF and CFC is broken. What to do? Answer NO : CZ, NL, SK No Answer: CH, DK, HU, LV, PT, RO, SI, SR Cyprus SHA Workshop December

43 Question 10: What topics (related to GCF and CFC) do you wish to be discussed in the working groups? CY a) Methods and sources for the computation of CFC and GCF. b) Recommendations for calculating GCF regarding the private sector from the data obtained from the Household Budget Survey by the side of the private household the private insurances CZ I have not any preferences. Because I am not national account, I do not understand to this topic very much, so any information will be useful. DE I would like very much if the whole workshop (not only the working groups) would not only concentrate on investment as it is recorded in the National Accounts. As the guidelines in the manual and the PG are lacking guidance in this respect, countries will have established a reporting practice for investment on their own. In some cases the accounting practice might have only a very loose connection to the National Accounts. EE a) How record GCF? What should be taken into account acquisition cost or depreciation? b) Other countries experiences on capital formation of health care providers. c) Should GCF be included in current health expenditure or not? Capital expenses are one part of the expenditures on total heath care services as well as for example labour costs. Why should we exclude GCF but not labour costs? HU The SHA Manual presents very summarily this issue and it is not clear what would be the role of the SHA-expert since at least in the case of Hungary the calculation process is fulfilled by NA, the Health Accounts being part of it. Concrete cases would be interesting to analyze as well as estimation methods (for division on health care providers for example) within the SHA systems. LV Other country experiences / advices for compiling GCF and CFC, best data sources NL a) feasibility of constructing a Health Supply and Use Table (HSUT) in the context of the SHA (see the Portuguese paper on HSUT for the OECD Health Accounts Experts meeting in October 2007) b) using different approaches (final expenditure, output, income generation) for measuring total health expenditure leading to comparable figures for different countries RO a) Methods of estimation for lack of data b) Data sources for GCF for obtain more data SE a) The borderline problem. Which GFC shall be included. b) The distinction between HC and RHC. Should GFC just include HC? SK a) Different approaches for data compilation (mainly for market providers) b) Sustainability of assets (like buildings, machinery and equipments) c) Degree (extent) of reproduction of assets SR a) The frame of gcf (inventories; estimation of non-produced assets). b) New investments vs. cfc. No Answer: CH, DK, ES, FR, IT, LU, PL, PT, SI Cyprus SHA Workshop December

44 Others: Notes on the estimation of Gross Capital Formation in Health Sector German Statistical Office Methodological demarcation of investment expenditure: From our point of view investment expenditure should only by considered as HC.R.1 in the figure of Total Health Expenditure if they are paid independently of the delivery of services. In German health care methodology this is called principle of dualistic financing. This principle applies to the in-patient sector of the health industry, namely hospitals and long-term care institutions. In the case of hospitals the investment in fixed assets like buildings and machinery and equipment is within the responsibility of the states. This means that hospitals are not allowed to have a depreciation component of the remuneration that they do get from Statutory Health Insurance for the provision of their health services. There is no depreciation component in the cost rate (or DRGs) that they are allowed to charge. The dualistic principle in the context of the hospitals means that the current costs (the costs for the provision of services) are covered by the Statutory/Private Health Insurance (or other financing agents) whereas the costs of investments are covered by the states. Hence we consider all investment expenditure in the in-patient sector as HC.R.1 because we can be sure that the CFC is not accounted for as HC.1.1. The situation is different in the ambulatory sector: All investments like buildings or equipment are incurred by the provider himself. In the case of an investment in X-ray equipment by a general practitioner he will have to pay for the investment on his own. However the remuneration he will get from the Statutory Health Insurance or other financing agents for the provision of services with this asset has a depreciation component. If we account for both the CFC as part of the remuneration and for the investment expenditure that the general practitioner has to bear separately, we would consider this as double counting. In a nutshell: For each Health Care Provider we either include GCF as HC.R.1 in the figure of THE or we include CFC (as part of the respective function e.g. HC.1.3.1) in the figure of THE. Italian National Statistics Institute - ISTAT Each year a set of data is delivered to OECD by ISTAT for updating OECD Health Data database. The information provided include the value of Gross Capital Formation (GCF), for both General Government (HF1) and private (HF2) sectors. In what follows, a brief explanation is provided about the methods adopted by ISTAT for estimating GCF for the economy as a whole and specifically for Health sector. Concerning General Government s GCF, the basic quantitative information are drawn from public bodies financial statements. These data, however, are subjected to a process of reclassification, in order to reconcile the entries of financial statements with the criteria stated by ESA95 (European System of Account 1995, Eurostat) for the computation of Gross Fixed Capital Formation (ESA 95, code P.51). The resulting value of General Government s GFC is further disaggregated by types of assets and by functions, according to COFOG classification. The functional distribution of investments is, in a second step, rearranged in branches of economic activity according to the ATECO classification (ATECO 2002). The link between functions and branches is established by a bridge matrix, which allows to distribute capital expenditure by functions over the activity branches. Classification by branches is relevant for determining the two aggregates General Government output (as the sum of costs incurred) and final consumption expenditure that enter in the GDP calculation as the Government s contributions, respectively to the supply side and the demand side. Private sector s GCF is estimated on the basis of data on firms investment expenditure extracted from two industrial surveys, covering, respectively, Small and Medium Enterprises (SME) and large companies. These surveys allow to estimate firms investment expenditures, disaggregated by type of assets and branches of economic activity. As result of the estimations carried out, a measure of GFC (total and by branches of activity) is obtained, for both General Government and private sectors. Thanks to the detailed analysis of investment expenditure by branches of activity and institutional sector, the evaluation of health care GCF is obtained by taking - for both private and General Government sectors the value of capital expenditure recorded within the activity branches concerning Health services. Total gross fixed capital formation (SHA code HC.R.1) is obtained by adding public and private investments. Cyprus SHA Workshop December

45 Statistics Netherlands Up till now Statistics Netherlands does not compile and publish statistics on GCF in the frame of its SHA. The reason is that there are no accurate base statistics on GCF of health care providers (distinguished by the HPclassification) and that there no specific guidelines for handling GCF in the SHA1.0 and the Producer Guide. Before the end of year 2007 new base statistics on GCF come available. These base statistics are composed from data derived from (complete) annual reports or accounts (balance sheets and income-statements) of health care providers in category HP1 and HP2. These micro data on annual reports can combined with macro data for other health care providers from National Accounts. On occasion of the next meeting in Cyprus we have discussed the ways of incorporating GCF into the SHA framework. In this questionnaire our tentative ideas (instead of our current practices) of incorporating GCF into the SHA framework are described Cyprus SHA Workshop December

46 Annex 5: Results of the 3 working groups Questions: (1) Should Capital Formation in Health Care be reported: a) as part of Total Health Expenditure; b) separate as part of investment accounts? (2) Should consumption of fixed capital be reported as resource cost in the IHAT questionnaire? (3) What are the next steps do you recommend for developing a more standardised reporting of HC.R.1? Specific questions (4) Should Capital formation cover: a) HP.1 - HP.3, HP.5, HP.6 (SHA 1.0); b) HP.1 HP.6; c) HP.1 HP.7 (Producer Guide); d) Other? (5.1) What types of capital formation should be distinguished as minimum? a) No recommendation (only total capital formation); b) Buildings and equipment including others; c) Others (make a detailed proposal). (5.2) How should leasing be treated in SHA with respect to capital formation? (6.1) In the case the government is providing capital transfers for investments how should this be considered in SHA? a) Consumption of capital should be explicitly estimated; b) Both consumption of capital and capital formation should be compiled; c) Transfers of capital of the government should be compiled under HCR.1; d) Other. (6.2) What is the recommendation for the compilation of consumption of capital in nonmarket production? Cyprus SHA Workshop December

47 Working Group Session, Group 1 Question 1: The capital formation question should be considered an important topic for the revision of the manual. There is a need for rephrasing in the manual (p. 124 about HC.r.1), since the current phrasing invites for double counting. The group suggests adding as far as depreciation is not yet included in current expenditure That gives the following phrasing: This item comprises gross capital formation of domestic health care provider institutions excluding those listed under HP.4, Retail sale and other providers of medical goods as far as depreciation is not yet included in current expenditure With that in mind the group favours solution A, which means that HC.R.1 should be mandatory - Reasons: politicians and the public want to know how much money is used for financing health care We propose to add a voluntary capital account consisting of: - buildings - machinery - transport The capital account should follow a common framework for the sake of comparability. Priority 1. Current expenditure 2. Total expenditure 3. Be able to compare with national accounts 4. Develop an actual capital account Question 2: Resource costs don t seem to have a high priority right now. Focus must be to develop methodology for the capital accounts. For the future it should be a priority to include resource costs for the purpose of calculating productivity efficiency etc. Therefore resource costs should be included in the common questionnaire once the common methodology is developed. Question 3: - Clarify HC.R.1 in order to avoid double counting - Develop a methodology/common framework for capital accounts Data sources are dependant of the national contexts. It is however preferable to align with the national accounts. Cyprus SHA Workshop December

48 In view of the ultimate goal of international comparability it is advisable that the to be produced national methodological descriptions (inventories) that can be used as a first step to develop best practices as a first step towards the long term objective of establishing recommendations on sources and methods. Question 6: 6.1: Capital transfers being a financial flow are not destined to be depreciated. They are already included in HC.R : By definition, non-marked production being the sum of costs, should include capital consumption (k1). The government final consumption expenditure being the continuation of this approach implicitly includes the consumption of capital in the COFOG allocation. However in practice depending on sources, maybe the expenditure is not based on the National Accounts Sources but instead on the budgets of the various public health providers (Central government, regions municipalities etc). Therefore in the case of need, some allocation of capital consumption is necessary. The PIM-solution could be used. Cyprus SHA Workshop December

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54 Cyprus SHA Workshop December

55 Cyprus SHA Workshop December

56 Annex 6: Glossary Term Gross capital formation (GCF) Gross fixed capital formation (GFCF) Consumption of fixed capital (CFC) Non-financial assets (AN) Produced assets (AN.1) Fixed assets (AN.11) Tangible fixed assets (AN.111) Dwellings (AN.1111) Other buildings/structures (AN.1112) Machinery and Equipment (AN.1113) Intangible fixed assets (AN.112) Inventories (AN.12) Definition GCF consists of gross fixed capital formation (P.51), changes in inventories (P.52), and acquisitions less disposals of valuables (P.53). (ESA 95, 3.100) Gross fixed capital formation (P.51) consists of resident producers acquisitions, less disposals, of fixed assets during a given period plus certain additions to the value of nonproduced assets realised by the productive activity of producer or institutional units (ESA 95, ) Consumption of fixed capital (K.1) represents the amount of fixed assets used up, during the period under consideration, as a result of normal wear and tear and foreseeable obsolescence, including a provision for losses of fixed assets as a result of accidental damage, which can be insured against. (ESA 95, 6.02.) CFC is a decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by the producer as a result of physical deterioration, normal obsolescence or normal accidental damage. (SNA 6.179) Consumption of fixed capital should reflect underlying resource costs and relative demands at the time the production takes place. (SNA 6.180) Entities, over which ownership rights are enforced by institutional units, individually or collectively, and from which economic benefits may be derived by the owners by holding them, or using them over the period of time. (SNA; Annex to chapter XIII) Non-financial assets that have come into existence as outputs from production processes. (SNA 13.14) Produced assets that are used repeatedly or continuously in production processes for more than one year. Fixed assets consist of tangible and intangible fixed assets. (SNA; Annex to chapter XIII) Fixed assets that consist of dwellings; other buildings and structures; machinery and equipment and cultivated assets. (SNA; Annex to chapter XIII) Tangible fixed assets have to be recorded at market prices if possible (or basic prices in the case of own-account production of new assets), if not then at current purchasers prices written down by the accumulated consumption of fixed capital. Purchasers costs of ownership transfer associated with these assets, appropriately written down, are included in the balance sheet value. (ESA 95, 7.34.) Buildings that are used entirely or primarily as residences, including any associated structures, such as garages, and all permanent fixtures customarily installed in residences. Houseboats, barges, mobile homes and caravans used as principle residences of household are also included, as are historic monuments identified primarily as dwellings. Costs of site clearance and preparation are also included. (SNA; Annex to chapter XIII) Non-residential buildings and other structures. (SNA; Annex to chapter XIII) Transport equipment and other machinery and equipment, other than that acquired by household for final consumption. (SNA; Annex to chapter XIII) Fixed assets that consist of mineral exploration, computer software, entertainment, literary or artistic originals and other intangible fixed assets intended to be used for more than one year. (SNA; Annex to chapter XIII) Produced assets that consist of goods and services that came into existence in the current period or in an earlier period held for sale, use in production or other use at a later date. They consist of material and supplies, work-in-progress, finished goods and goods for resale. Included are all inventories held by government, including, but not limited to, inventories of strategic materials, grains and other commodities of special importance to the nation. (SNA; Annex to chapter XIII). Inventories should be valued at prices prevailing on the date to which the balance sheet relates, and not at the prices at which the products Cyprus SHA Workshop December

57 on the date to which the balance sheet relates, and not at the prices at which the products were valued when they entered inventory. (ESA 95, 7.37.) Valuables (AN.13) Non-produced assets (AN.2) Produced assets that ate not used primarily for production or consumption, that are expected to appreciate or at least not to decline in real value, that do not deteriorate over time under normal conditions and that are acquired and held primarily as stores of value. They consist of precious metal and stones, antiques and other art objects and other valuables. (SNA; Annex to chapter XIII) Non-produced assets are non-financial assets that have come into existence other than through processes of production. (SNA; Annex to chapter XIII) Some of these assets occur in nature, others, which may be referred to as constructs devised by society, come into existence by legal or accounting actions. (ESA 95, 7.17.) Cyprus SHA Workshop December

58 Annex 7: Presentations of the participants Cyprus SHA Workshop December

59 Content Objectives of the workshop Morten Hjulsager, National Board of Health Introduction to Capital Formation in Health Care Markus Schneider, BASYS Overview of current health system in Cyprus and introduction of a National Health Insurance System Efi Kammitsi, Health Insurance Organisation Capital Formation - Results from the International Data Collections David Morgan, OECD Gross Capital Formation and SNA Morten Hjulsager, National Board of Health Questionnaire on HC.R.1 - Capital formation of health care provider institutions Markus Schneider, BASYS Financing capital investment in the UK health system: the Private Finance Initiative Marian Craig, BASYS Treatment of Investment in German Health Accounts Michael Mueller, Federal Statistical Office Capital Formation of Health Care, Hungary Szilárd Páll, Hungarian Central Statistical Office Gross Capital Formation in NA for market and non-market health care providers Christina Liwendahl, Statistics Sweden Gross Capital Formation and Danish SHA Morten Hjulsager, National Board of Health Introduction to a System of Health Accounts Uffe Jon Ploug, National Board of Health

60 Workshop Objectives 2nd workshop Cyprus December 11-13, 2007 Morten Hjulsager Morten Hjulsager Cyprus - December 11-12, Eurostat SHA project (1/2) Support country-efforts to implement or further develop health accounts according to the OECD SHA-manual (2000) Improve common methodological understanding Improve data compilation (best practice) Improve data comparability The project will organise and host three workshops, addressing problems which countries consider difficult or cumbersome Morten Hjulsager Cyprus - December 11-12,

61 Eurostat SHA project (2/2) MS, AC/CC, EEA/EFTA. Continue previous Eurostat SHA projects, e.g. Previous workshop project Phare projects Project partnership Ministry of Social Affairs (Estonia) Statistical Service CYSTAT (Cyprus) BASYS Gmbh. National Board of Health (Denmark) Morten Hjulsager Cyprus - December 11-12, Aim of the project Support the use, credibility and Europe-wide comparability of health account data based on the SHA manual (2000) Address challenging parts of the SHA manual of both practical and methodological origin Provide recommendations for future development of the SHA-manual Morten Hjulsager Cyprus - December 11-12,

62 Method of the project Three workshops will address selected challenges Subjects selected by surveying experts in MS, AC/CC and EEA/EFTA countries Eurostat, OECD and WHO SHA problems inventory Pre-workshop questionnaires, background papers, country presentations and working group sessions Continuity; subjects and participation (network) Morten Hjulsager Cyprus - December 11-12, Cyprus workshop December 11-13, 2007 (1/2) Subject: Gross capital formation ICHA-HC.R.1 Gross capital formation of health care provider institutions Investments = Gross fixed capital formation, changes in inventories and valuables Expenditure that add to the stock of resources of the health care system and last more than an annual accounting period Methodological compatibility with SNA Conceptual issues, methodological challenges and practical work on the ICHA-HC.R.1 Morten Hjulsager Cyprus - December 11-12,

63 Cyprus workshop December 11-13, 2007 (2/2) Input for the work group sessions Eurostat, OECD and WHO problems inventory Pre-workshop questionnaire Workshop Motivate active participation Exchange and discuss country solutions Benefit from the strong SHA-expertise present Country examples on calculation of HC.R.1 Morten Hjulsager Cyprus - December 11-12,

64 Introduction to Capital Formation in Health Care Markus Schneider SHA Workshop on Capital Formation in Health Care December 2007, Nicosia BASYS Nicosia, December2007 Questions: Compilation of HC.R.1 (1) How to compile CFCF? (2) Can one use the results of PIM of SNA? (3) How to consider consistency between CFCF and CFC? BASYS Nicosia, December2007 1

65 Issues (1) Recommendations of manuals (2) Economic concept (basic equations) (3) Financing (4) Data issues BASYS Nicosia, December2007 Recommendations: Manuals SHA 1.0 SHA Guidelines PG SNA 93 ESA 95 OECD 2001 BASYS Nicosia, December2007 2

66 SHA 1.0 HCR.1=Capital Formation of Domestic Health Care Providers The complex issue of accounts for capital formation and its financing is not part of this manual (SHA 6.3). But SHA refers to SNA SHA excludes HP.4; HP.7 SHA requests separate estimates for public and private ownership BASYS Nicosia, December2007 PG Expenditure on capital formation should be estimated for all institutions and activities within the expenditure boundary, i.e. both government and non-government entities. Both CFC and GFCF are line items in the resource cost classification (Producers Guide Table 4.8), which captures expenditure according to the standard economic classification of resources used for the production of health services. The classification includes categories for current outlays (RC.1) and capital outlays (RC.2), with breakdowns for each one of these major categories. BASYS Nicosia, December2007 3

67 SNA 93 / ESA 95 Gross fixed capital formation is the value of acquisitions less disposals of new or existing fixed assets. Assets consist of tangible or intangible assets that have come into existence as outputs from processes of production, and that are themselves used repeatedly or continuously in other processes of production over periods of time longer than one year. ESA95 recommends as main method of calculating fixed assets and consumption of fixed capital the Perpetual Inventory Method (PIM). BASYS Nicosia, December2007 ms@basys.de OECD 2001 This Manual does not deal with the measurement of fixed capital formation (OECD 2001: 1.4). This Manual is concerned with the measurement of capital stocks and assumes that fixed capital formation, including capital formation in these new assets, has been correctly measured and correctly valued. Alternative PIM: Capital formation in standard efficiency units. The pattern of the quantity of capital services produced by an asset is described as the age-efficiency profile of an asset. The CFC measures the decline in the value of assets associated with ageing. This decline in market values is described as the age-price profile of an asset. BASYS Nicosia, December2007 ms@basys.de 4

68 Economic Concept: equations (1) GFC t = Gross Fixed Capital stock (2) NFC t = Net Fixed Capital stock (3) CFC t = Consumption of Fixed Capital (4) VFC t = Value of Fixed Capital (5) R = Rentals (6) S = Capital services Dependent: GFC, NFC, CFC, VFC, R, Independent: p, τ, r, GFCF BASYS Nicosia, December2007 ms@basys.de Equation 1: PIM GFC t = Σ GFCF t-1 for i=1,..,τ Capital stock is the sum of past investments Valued at market prices not at historic prices Time series of investments (depending on service lives τ) Example: τ =5, Annual investments of 1 million Euro Gross Capital Stock is 5 million BASYS Nicosia, December2007 ms@basys.de 5

69 Equation 2: Net capital stock NFC t = GFC t - CFC t Net Fixed Capital stock equals GFC minus cumulated Consumption of Fixed Capital Consumption of Fixed Capital is a baseline for investment estimates Net capital formation varies much more than consumption. Growth of capital stock requires positive net capital formation Example: τ =5, Annual investments of 1 million Euro Net Capital Stock is 4 million, CFC = 1 million BASYS Nicosia, December2007 ms@basys.de Equation 3: CFC CFC t = 1/τ* GFC t Consumption of Fixed Capital equals capital stock divided by service life (linear depreciation; e.g. does not hold in the case of geometric depreciation) Depreciation measures the loss in values of capital goods as it ages (age-price profile): Longer service lives means lower consumption of fixed capital and vice versa Decay (efficiency loss) measures the loss of productive services as it ages (age-efficiency profile) BASYS Nicosia, December2007 ms@basys.de 6

70 Equation 4: Value of Capital VFC t = Σ R t+i-1 /(1+r) i for i=1,.. τ The value (market price) of the capital stock is the discounted sum of future rentals r is the discount rate which reduces the future flows of rentals to their present value τ represents the service live Rentals link current expenditures to GFCF Defines user cost of capital which means the cost of financing Shorter lived assets will have higher user cost. BASYS Nicosia, December2007 ms@basys.de Equation 5: Rentals R = S*p Rentals are the quantity of capital services generated by capital multiplied by the price of those services Assumption: Capital services are in proportion to the capital stock after each vintage has been converted into standard efficiency units The so compiled stock is referred to as productive capital Rental prices are usually referred to as the user cost of capital (unit cost per capital) BASYS Nicosia, December2007 ms@basys.de 7

71 Equation 6: Capital Service Demand S = f (X, ) Capital service demand is depending on Output, other factors of production (labour, technology) and relative prices Increase of capital services is linked to capital formation Increase of output is linked to capital services e.g. increase of HC.4 depends on availability of diagnostic equipment. BASYS Nicosia, December2007 ms@basys.de 6 basic equations (1) GFC t = Σ GFCF t-1 for i=1,..,τ (2) NFC t = GFC t - CFC t (3) CFC t = 1/τ* GFC t (4) VFC t = Σ R t+i -1 /(1+r) i for i=1,.. τ (5) R = S*p (6) S = f (X, ) Dependent: GFC, NFC, CFC, VFC, R, Independent: p, τ, r, GFCF BASYS Nicosia, December2007 ms@basys.de 8

72 Financing of GFCF Service lives and financing might differ Grants and subsidies Cost of financing Split of financing Leasing Precondition for consistent Accounting of Financing of GFCF is the observation of changes in fixed capital goods and prices BASYS Nicosia, December2007 Data issues Investments Inventory of capital goods (Survey) Prices of assets (Survey) Capital costs: Interest rates / Net operating surplus / net value added Resource cost (Survey) Service lives (tax statistics, business recommendations) BASYS Nicosia, December2007 ms@basys.de 9

73 Questions: Compilation of HC.R.1 (1) How to compile CFCF? (2) What are the boundaries (time, capital goods)? (3) Can one use the results of PIM of SNA for SHA? (4) What assumptions are recommended for PIM? (5) How to consider consistency between CFCF and CFC in SHA? BASYS Nicosia, December

74 Overview of current health system in Cyprus and introduction of a National Health Insurance System HIO December 2007 CONTENTS Current health system in Cyprus Overview of National Health Insurance System Road map of implementation

75 OVERVIEW OF THE CURRENT HEALTH SYSTEM Overall Situation Existence of strong public and private sector 85-90%* of Cypriots have access to free care in public sector nevertheless, out of pocket spending is very high, ie beneficiaries choose to go to private sector instead Overall, the current healthcare system shows important deficiencies and a lack of information and data transparency *( Health expenditure analysis report, University of Cyprus). OVERVIEW OF THE CURRENT HEALTH SYSTEM Main Deficiencies 1. Lack of coordination between private and public sector 2. High individual financial burden and lack of financial control 3. Lack of independent body managing the healthcare system

76 OVERVIEW OF THE CURRENT HEALTH SYSTEM Main Deficiencies 1.Lack of coordination between private and public sector Uncoordinated public and private sector development with no supply management based on real demand leading to wastage and duplication Decreasing quality perception in healthcare provision, especially in the public sector Lack of standardised quality indicators in both public and private sector Uncoordinated primary care system OVERVIEW OF THE CURRENT HEALTH SYSTEM Main Deficiencies 2. High individual financial burden and lack of financial control No transparency on volumes and costs of medical services rendered, resulting in uncontrolled rise of public and private sector spending (assuming no system change, costs would almost double in the next 10 years) Poor public hospital organisation Excessive out-of-pocket payments in the private sector despite financial coverage for majority of population for the public sector

77 CURRENT HEALTH SYSTEM IS NOT SUSTAINABLE CYP million 283 Private Annual average growth % * Annual average growth 6% Public ** 11% Public sector is growing at a double digit rate, not taking into account the operating costs involved from the new General Hospital of Nicosia At this pace, the public sector will reach levels where the government budget will be unable to sustain it * CYP 235m includes optical and other non-applicable goods, CYP 219m is the actual medical revenue ** 2006 budget is CYP 248m Source:Statistical Service, team analysis OVERVIEW OF THE CURRENT HEALTH SYSTEM Main Deficiencies 3. Lack of independent body managing the healthcare system Currently, the Ministry of Health has a conflict of interest being a policy maker, a regulator and an operator leading to: a) inequality between the public and the private providers due to discriminating regulation b) an overall under-developed governance of the Ministry of Health over public providers c) absence of uniform quality standards.

78 OVERVIEW OF NHIS The NHIS aims: to address the deficiencies of the current system, while the Health Insurance Organisation (HIO) is responsible for the implementation and operation of the NHIS. OVERVIEW OF NHIS 1. ALL ACTORS IN THE HEALTHCARE ARENA ARE INTER- CONNECTED A HOLISTIC APPROACH Interdependency Responsible for Policy making Regulating providers MoH Funders Global budget where contributions match expenses HIO Same standards for all providers Public providers Private providers HIO Beneficiaries Government Strong commitment needed to set ground rules for change Public acceptance of the NHIS to be achieved through responding to needs of the population

79 OVERVIEW OF NHIS 2. INTEGRATED CONCEPT FOR IN- AND OUTPATIENT CARE Emergencies Private and public primary and specialty care Private and public hospital care Males >16 years* Free access GP specialist Family Doctors Other specialists opted to become Family Doctors Free access for Females gynaecological matters Gynaecologists Refers to*** Specialists Refers to*** Private Public Refers to*** Inpatient care Outpatient care Labs Children <16 years** Free access Paediatrician Family Doctors Refers to*** Allied Health Services Accident & Emergency department Emergencies or other specified cases agreed with Medical Association * Each person who has completed 16 years is listed on a Family Doctor list ** Each child who has not completed 16 years is listed on a Paediatrician Family Doctor list *** Patient has free choice OVERVIEW OF NHIS 3A. SAFEGUARDING FINANCIAL VIABILITY AND SUSTAINABILITY OF THE SYSTEM VIA: ESTABLISHMENT OF A HEALTHCARE INSURANCE FUND CONTRIBUTIONS Person Employer Self Employed Government Category of Natural Persons based on income Contributions % Totals Employees 2,00% 2,55% - 4,55% 9,10% Self Employed - - 3,55% 4,55% 8,10% Pensioners 2,00% - - 4,55% 6,55% Income for Government Officials 2,00% ,00% Employment independent income 2,00% ,00% Pensions from abroad 2,00% ,00%

80 OVERVIEW OF NHIS 3B. SAFEGUARDING FINANCIAL VIABILITY AND SUSTAINABILITY OF THE SYSTEM VIA: ESTABLISHMENT OF A HEALTHCARE INSURANCE FUND - Expenditure Side -introduction of a Global Budget whereby overspending on the total budget will be prohibited and fees will be reduced accordingly in the case that actual expenditure is higher than that projected. -introduction of a reimbursement scheme relating to actual activities provided and not on the providers availability to deliver services to the scheme. -in addition, a system of reference pricing will be used to determine the reimbursement of all products, while co-payments will be in place so as to ensure cost -effective consumption. OVERVIEW OF NHIS 4. ACTIVITY BASED FINANCING LEADS TO INCREASED ACCOUNTABILITY OF ALL PROVIDERS, FOSTERS COMPETITION AND INCREASES INTEGRATION Provider segment Family Doctor Outpatient specialists Key features of reimbursement system Age and gender based capitation per listed patient Additional incentives for patients enrolled on prevention, chronic disease programs as well as adequate referral behaviour Fee for service based on severity level of case treated Capped reimbursement per specialty to guarantee global budget Additional incentives for adequate referral behaviour Activity based financing to reward quality and efficiency Inpatient hospital Diagnosis-related groups (DRGs) driving for positive health outcome and operational excellence Activity -based payment for treatments not available in Cyprus Accident & Emergency dept (A&E) Fee for service for patients discharged after A&E treatment Low flat fee for non-emergency cases encouraging FD use DRG-based reimbursement for patients admitted to hospital Adjacent (para) medical services Fee-for-service scheme for restricted list of services and products Co-payments apply up to predefined limit

81 EG. FAMILY DOCTOR REIMBURSEMENT - A 3-TIERED APPROACH % Intended proportion of basic remuneration, to be defined POTENTIAL MISUSE Key principles of mechanism Basis is capitation Tiered system will overcome negative incentives Component ~%* Age and genderadjusted capitation ~% Quality assurance ~% Reward right referral pattern Annual payment per patient for a Family Doctor Level of annual payment adjusted to the specific cost per age and gender category Enforces clinical standards for care of patients with specific chronic diseases requiring close monitoring (e.g., diabetes, hypertension) as well as preventive screening for the registered population Rewards the physician for applying standard medical procedures on treatments and medicines prescribed Rewards realisation of at least one annual visit per year of all enrolled beneficiaries Rewards referral behaviour in line with system goals Rewards achieved effectiveness of linkages between primary and secondary care segments compared to benchmarks (Emergency) admission rates Outpatient referrals * 50% not in line with the current Law, which describes 75% for capitation and separate adjustments for cost-driving factors OVERVIEW OF NHIS 5. INDEPENDENT BODY MANAGING THE NHIS ROLE OF HIO HIO s role is as follows: Collection and allocation of healthcare funds based on the needs of the population, while ensuring the financial viability and sustainability of the system Ensuring high quality of services - the family doctor concept offers several quality advantages Creating an integrative infrastructure for information and data transparency in this respect acting as an agent for information gathering in relation with NHE

82 SUMMING UP THE WAYS THE NHIS WILL ADDRESS CURRENT DEFICIENCIES Current deficiencies Building blocks of the proposed system to address main deficiencies 1 Lack of coordination between private and public sector 2 High individual financial burden and lack of financial control 3 Lack of independent body managing the healthcare system Patient can access all healthcare providers meeting minimal standard requirements independent of ownership Introduction of a family doctor concept for first access of care where majority of patients can be treated with focus on prevention and chronic disease management Capacity management to control infrastructure development based on actual patients needs All adjacent medical and paramedical services provided through commonly available evidence-based guidelines Contribution scheme based on principle of solidarity (percentage of income) Contribution levels of individual contributor segments in line with Cyprus economic and political context Global budget where contributions match expenses Individual budgets for each segment of care (e.g. family doctors, medicines, etc.) Activity based funding of healthcare provision based on high-quality standards Rewarding prevention and chronic disease management Rewarding positive health outcome and operational excellence Increased accountability of beneficiaries: co-payments HIO acts as neutral and critical client, with its primary consideration being the benefit of the patient HIO with the important role to collect and distribute funds based on outcomes and predefined minimal standard requirements MoH with focus on policy-making and regulation ROADMAP OF IMPLEMENTATION NHIS IMPLEMENTATION PLAN Outpatient care introduction Family doctors, A&E, Labs Outpatient specialists Design and execute FD training program based on defined FD skill level Detail processes for reimbursement, referrals, activity lists Define activity list and reimbursement scheme Train specialists Enroll Family Doctors Enroll specialist s Enroll beneficiaries After mid Outpatient care concept operational Pharmacies, adjacent (para) medical services Define reimbursement method Define Enroll product/activity pharmacies list and pricing Inpatient care introduction Make providers fit for competition Improve management in public sector Establish cost and volume base Introduce DRGs Gradual introduction of competition Operational Enablers HIO buildup Define organizational setup - ongoing Setup systems and processes ongoing Build-up staffing - ongoing MoH reform Benchmark MoH in other countries Define necessary changes to MoH Implement changes to structure and activities Law amendments Finalize amendments Draft law Approve amendments IT Define business requirements and select IT provider Develop and install solution

83 PROGRESS WITH IMPLEMENTATION STEPS TAKEN 1. HIO STRUCTURE 2. PREPARATION OF DIFFERENT PROVIDER SEGMENTS 3. INTERACTION WITH STAKEHOLDERS 4. AMENDMENTS OF LEGISLATION 5. SUPPORT FOR THE IMPLEMENTATION OF THE NHIS AND THE REORGANISATION OF PUBLIC HOSPITALS 6. COSTING OF SERVICES 7. IT SOLUTION 8. TRAINING OF FDs and SPECIALISTS PROGRESS WITH IMPLEMENTATION - STEPS TAKEN 1. HIO STRUCTURE: Recruitment Division of staff into thematic teams: 1.Family Doctor (FD) 2.Specialist Doctors 3.Pharmaceuticals 4.Allied Health Professionals 5.Clinical Labs and Diagnostic Centres 6.A&E 7.Inpatient Care 8.Funding of NHIS 9.IT system Teams work based on detailed timetable plans with specific activities internal monitoring mechanism in place.

84 PROGRESS WITH IMPLEMENTATION - STEPS TAKEN 2.PREPARATION OF DIFFERENT PROVIDER SEGMENTS: All teams work on the basic principles of operation of the provider segment under their responsibility. These principles cover: Current situation analysis and challenges Mode of operation under NHIS Contracting requirements of providers Contract Renewal Requirements Reimbursement method Next step discuss with stakeholders and adjust position papers accordingly. PROGRESS WITH IMPLEMENTATION - STEPS TAKEN 3. INTERACTION WITH STAKEHOLDERS: Key stakeholders: MoH All health care providers Next step Negotiations expected to intensify in 2008 when more information on costing of activities will be available and therefore negotiations on reimbursement levels will take place.

85 PROGRESS WITH IMPLEMENTATION - STEPS TAKEN 4. AMENDMENTS OF LEGISLATION : Process of drafting amendments to current law has been completed. Draft law streamlines many aspects of the 2001 NHIS law aiming at a more efficient operation of the system. Next step: Draft law to be discussed in Parliament. HIO to finalise process of drafting all relevant regulations and rules deriving from legislation upon approval of draft law. PROGRESS WITH IMPLEMENTATION - STEPS TAKEN 5.SUPPORT FOR THE IMPLEMENTATION OF THE NHIS AND THE REORGANISATION OF PUBLIC HOSPITALS: Award of new tender for the purchase of consultancy services for two dimensions: Support to the HIO with the actual implementation phase. Support to the MoH for the reorganisation of public hospitals.

86 PROGRESS WITH IMPLEMENTATION - STEPS TAKEN 6.COSTING OF SERVICES: Integral part of operation of NHIS. Award of tender for the costing of services to be offered by the NHIS, the development of an actuarial model and the calculation of national health expenditure - due in December The contractor will estimate the National Health Expenditure which encompasses the total health spending in Cyprus including all activities irrespective of whether these services or activities are: covered by the NHIS offered through the public or private sector funded by private or public funds. PROGRESS WITH IMPLEMENTATION - STEPS TAKEN 7.IT SOLUTION: HIO aims for a high level of interactivity between providers and the HIO. This is a vital part for the smooth operation of the system. Due to small size of CY, we believe that the operation of a fully interactive IT solution is a feasible target. In the first years of NHIS operation, the HIO aims to provide incentives to health care providers for electronic submission of data and for accurate data management via the IT system. A competitive dialogue procedure for the purchase and operation of the IT system has been launched.

87 PROGRESS WITH IMPLEMENTATION - STEPS TAKEN 8. TRAINING OF FDs and SPECIALISTS: Adequate number of FDs is required for smooth operation of NHIS. Training requirements have been defined and tender documents have been prepared to get the training institution on board. Training for FDs is two dimensional: Medical training Operational/procedural training vis-à-vis the NHIS Specialist doctors also to be trained on NHIS operational aspects. Thank you for your attention

88 Capital Formation Results from the International Data Collections Second Workshop of the SHA Workshop Project, Cyprus, December 11 13, 2007 Overview Capital formation in the SHA manual and Joint Health Accounts Questionnaire Current status of reporting capital formation in JHAQ/HD Issues raised from JHAQ Consumption of fixed capital in SHA/JHAQ

89 Capital Formation in SHA SHA Manual (p.64-65): HC.R.1 forms part of Total Expenditure on Health: THE = HC HC.R.1 HC.R.1 is the sum of GFCF in the institutional units of HP classification HP.1 to HP.3, HP.5 and HP.6, i.e. does not include HP.4 and HP.7 Capital Formation in SHA Separate estimates should be provided for public and private ownership Reporting restricted to Table 5: Total expenditure on health including health-related functions, i.e. HCR.1 by HF only

90 Capital formation in JHAQ Reporting expanded in JHAQ HC.R.1 split by: Financing agents (HF) Health care providers (HP) No additional guidelines 2007 JHAQ collection of sources and methodology of GCF (and capital consumption) 7.5 Total HC.R.1 reporting in JHAQ/HD % TEH Norway Poland Ireland Korea Turkey Belgium Portugal Netherlands Australia Sweden Source: JHAQ and OECD Health Data Austria Canada Slovak Republic Italy Slovenia Denmark Hungary Germany Cyprus Czech Republic AVERAGE Finland Lithuania Spain France Greece Mexico Bulgaria Japan Switzerland United States Iceland Luxembourg Estonia Latvia Romania New Zealand United Kingdom

91 HC.R.1 reporting Total HC.R.1 (JHAQ/HD) 35 out of 37 countries report an estimate for HC.R.1 Share of THE varies from 0.1% to 6.5% (average of 3.6%) Under-reporting of private investment and distinction between public/private Under-reporting of investment in nonhospital providers HC.R.1 by HF 100% Rest of the world (HF3) 90% 80% Corporations (HF25) 70% NPISH (HF24) 60% Private households OOPS (HF23) 50% Private insurance (HF21 -HF22) 40% Private sector (HF2) 30% Social security funds (HF12) 20% Territorial government (HF11) 10% General government (HF1) 0% Australia (AUS) Bulgaria (BGR) Canada (CAN) Cyprus (CYP) Czech Republic (CZE) Estonia (EST) Finland (FIN) France (FRA) Germany (DEU) Hungary (HUN) Japan (JPN) Korea (KOR) Latvia (LVA) Lithuania (LTU) Luxembourg (LUX) Norway (NOR) Poland (POL) Portugal (PRT) Romania (ROU) Slovak Republic (SVK) Slovenia (SVN) Spain (ESP) United States (USA)

92 HC.R.1 by HF 23 out of 27 countries give some breakdown by HF 9 of the 23 countries provide figures on public investment only private investment negligible/non-estimated 3 countries at 1 st digit level only (HF.1/HF.2/HF.3) Only total investment from BEL, CHE, DNK & NLD Investment by households DEU, EST, (SVK) HC.R.1 by HP 100% 90% Other industries (HP7) 80% 70% General health admin. & insurance (HP6) 60% Prov. & admin. of public health programs (HP5) 50% 40% Ambulatory health care providers (HP3) 30% 20% Nursing & resid. care facilities (HP2) 10% Hospitals (HP1) 0% Australia (AUS) Canada (CAN) Cyprus (CYP) Czech Republic (CZE) Finland (FIN) France (FRA) Lithuania (LTU) Luxembourg (LUX) Romania (ROU) Slovenia (SVN) Spain (ESP)

93 HC.R.1 by HP 11 out of 27 countries report HC.R.1 by HP Restricted to investment in Hospitals (HP.1) in FRA, ROM High share placed in Admin/Ins. (HP.6) in AUS, LUX Investment in HP.7 (i.e. outside of SHA definition) in CAN, LTU, LUX and ESP Sources: Special industry tabulations, administrative sources, provider surveys, etc. Issues raised during JHAQ Lack of sources/methodology to separate by provider? Consideration of capital formation in HP.4 and HP.7? Households financing capital formation? Investment accounting? Accrual Financial leasing?

94 Consumption of fixed capital in SHA.. to ensure that the various non-market services.. are valued consistently with each other, they are all valued by the sum of the costs incurred in their production: that is, by the sum of: Intermediate consumption Compensation of employees Consumption of capital Other taxes, less subsidies, on production. (SHA 5.24) CFC practices in current reporting Methodological questions on current practice and sources of information in 2007 JHAQ: 19 country responses on CFC 12 explicitly replied that CFC is not included in non-market production estimates Info used as a basis for the focused workshop questionnaire on methodologies/sources

95 Gross Capital Formation and SNA 2nd workshop Cyprus December 11-13, 2007 Morten Hjulsager Morten Hjulsager Cyprus - December 11-12, Gross Capital Formation in SHA This is not easy stuff! The complex issue of accounts for capital formation and its financing is not part of this manual (SHA p. 67) Basically, the SHA manual points to the SNA93, i.e. the UN manual on National Accounts. ESA95 is the European Union version of SNA93 Measuring Capital (OECD, 2001). A working document supporting the SNA93 with further details Morten Hjulsager Cyprus - December 11-12,

96 Supply and Use tables in SNA (1/2) Basic SNA identity: Supply (S) = Use (U) S: Production value + Import U: Final consumption (public and private) + Intermediate consumption + Gross capital formation + Export Gross Domestic Product (value added) = Production value Intermediate consumption Morten Hjulsager Cyprus - December 11-12, Supply and Use tables in SNA (2/2) The statistical allocation of items to respectively Intermediate consumption Gross capital formation affects directly value added It has a positive contribution to GDP-growth, if a given item is treated as gross capital formation instead of intermediate consumption Both elements plays an important role in the production process; as basis for the production Morten Hjulsager Cyprus - December 11-12,

97 Gross capital formation in SNA concepts Gross capital formation = Net fixed capital formation + Consumption of fixed capital + Changes in inventories + Changes in valuables Gross fixed capital formation Morten Hjulsager Cyprus - December 11-12, Gross capital formation in SNA Gross capital formation is measured by the total value of the net fixed capital formation, consumption of fixed capital, changes in inventories and changes in valuables for a unit / sector during the accounting period Gross capital formation covers assets, that are used repeatedly in processes of production for more than one year excl. small tools and some kinds of military equipment Morten Hjulsager Cyprus - December 11-12,

98 Gross fixed capital formation in SNA Gross fixed capital formation is normally the biggest part of gross capital formation, and are measured by the total value of a producer s acquisitions, less disposals, of fixed assets during the accounting period + certain additions to the value of non-produced assets (e.g. subsoil assets or major improvements in the quantity of land) The value of acquisitions, less disposals, of new or existing fixed assets new investments and acquisitions, net of used capital disposals do not include consumption of fixed capital Morten Hjulsager Cyprus - December 11-12, New and existing fixed assets (1/3) Some assets have service lives that may range up to several years, e.g. dwellings or other structures An existing fixed asset is one that has already been acquired by at least one user, or produced on own account It has already been included in the gross fixed capital formation of at least one user at some earlier point in time It is recorded as negative gross fixed capital formation by the former (disposal) and as positive gross fixed capital formation by the latter (acquisition) Morten Hjulsager Cyprus - December 11-12,

99 New and existing fixed assets (2/3) Gross fixed capital formation may take the form of improvements to existing fixed assets improvements must go well beyond the requirements of ordinary maintenance and repairs must bring about significant changes in some of the characteristics of existing fixed assets Ordinary maintenance and repairs constitute intermediate consumption activities that must be undertaken regularly in order to maintain a fixed asset do not change the fixed asset's performance, capacity or expected service life Morten Hjulsager Cyprus - December 11-12, New and existing fixed assets (3/3) The distinction between ordinary maintenance and repairs and improvements to existing fixed assets is not clear cut Principles for accounting is needed, e.g. magnitude (cost) improvements are not the kinds of changes that are observed to take place routinely Morten Hjulsager Cyprus - December 11-12,

100 Fixed assets Fixed assets are tangible (e.g. buildings) or intangible assets (e.g. IT software) from a process of production that itself is used repeatedly or continuously in other processes of production for more than one year Changes in assets may be either positive or negative negative if an institutional unit sells off, enough of its existing fixed assets Morten Hjulsager Cyprus - December 11-12, Fixed assets diversity in types The following main types may be distinguished: New or existing tangible fixed assets: (i) Dwellings (ii) Other buildings and structures (iii) Machinery and equipment (iv) Cultivated assets, trees and livestock New and existing intangible fixed assets: (i) Mineral exploration (ii) Computer software (iii) Entertainment, literary or artistic originals (iv) Other intangible fixed assets Morten Hjulsager Cyprus - December 11-12,

101 Fixed assets bought or own-production Gross fixed capital formation can, either be bought from other producers, e.g. machinery and equipment be the result of own-production, e.g. software Goods under a financial lease are treated as if they were purchased by the user, i.e. as if a change in ownership had occurred Morten Hjulsager Cyprus - December 11-12, Fixed assets some more rules Big investment projects can take a long time to complete. Until such time as the ownership of at least some of the output produced is transferred to the eventual user of the structure, no gross fixed capital formation can take place work-in-progress addition to inventories of finished goods As the main rule capital formation is recorded with the investing unit (branch) exception: investments in non-residential buildings for rental purposes (letting and sale of real estate) Morten Hjulsager Cyprus - December 11-12,

102 Inventories and valuables The value of changes in inventories is equal to the value of the inventories acquired by an enterprise less the value of the inventories disposed of during the accounting period Valuables are assets that are not used primarily for production or consumption, that do not deteriorate over time under normal conditions and that are acquired and held primarily as stores of value e.g. precious stones and metals, paintings Morten Hjulsager Cyprus - December 11-12, Valuation of assets (1/2) New fixed assets acquired by purchase are valued at purchasers' prices including all transport and installation charges plus all costs incurred in the transfer of ownership Purchases of existing fixed assets are valued including all transport, installation and other costs of ownership transfer incurred by the purchaser Fixed assets produced for own gross fixed capital are valued at their estimated basic prices, or by their costs of production when satisfactory estimates of their basic prices cannot be made Morten Hjulsager Cyprus - December 11-12,

103 Valuation of assets (2/2) The time of recording and valuation, is when the ownership of the fixed assets is transferred to the institutional unit that intends to use them in production Assets should be valued as if they were being acquired on the date to which the balance sheet relates current purchasers' prices Fixed assets that were acquired some time before the balance sheet date is more problematic in general, writing-down the current purchasers' prices of new assets by the accumulated consumption of fixed capital on the assets Morten Hjulsager Cyprus - December 11-12, Consumption of fixed capital (1/2) Consumption of fixed capital represents the reduction in the value of the fixed assets used in production during the accounting period depreciation Resulting from physical deterioration, normal obsolescence or normal accidental damage Consumption of fixed capital is a cost of production, it is not treated as a disposal the decline, during the course of the accounting period, in the current value of the stock of fixed assets Morten Hjulsager Cyprus - December 11-12,

104 Consumption of fixed capital (2/2) Consumption of fixed capital is calculated using the prevailing prices, i.e. what is the decline in value of the asset taking the original price into account different from traditional depreciations, where price changes can cause re-evaluations of the original value Consumption of fixed capital is calculated via a model for the rest-lifetime of the asset may vary across types of assets linear / non-linear loss of value Morten Hjulsager Cyprus - December 11-12, Capital stock (capital accounts) (1/2) Gross capital stock Consumption of fixed assets = Net capital stock The value of the capital stock is recorded at the prices prevailing on the dates to which the balance sheets relate Morten Hjulsager Cyprus - December 11-12,

105 Capital stock (capital accounts) (2/2) Calculating the value of the capital stock several methods can be used direct stock-counts from administrative registries Perpetual inventory method (PIM) Surveys Direct stock-counts are regarded the most reliable method of valuation of capital stock. PIM is regarded as a resource-wise attractive method In calculating the value of the capital stock supplementary methods can be used Morten Hjulsager Cyprus - December 11-12, Case: Denmark Fixed assets Machinery and equipment Method of calculating capital stock PIM Transport equipment Stock-count Buildings Stock-count Structures PIM Software PIM Morten Hjulsager Cyprus - December 11-12,

106 Total expenditure on health (SHA) Total expenditure on health measures the final use of resident units of health care goods and services + gross capital formation in health care provider industries Gross capital formation in HP-institutions where health care is the predominant activity Morten Hjulsager Cyprus - December 11-12, Gross capital formation SHA-definition (1/3) Total gross capital formation in health care industries = sum of gross capital formation in certain institutional units listed under the ICHA-HP HP.1, HP.2, HP.3, HP.5 and HP.6, domestic providers where health care is the predominant activity excl. HP.4 Retail sale and other providers of medical goods excl. HP.7 Other industries (rest of the economy) excl. HP.9 Rest of the world (SHA p. 65) Morten Hjulsager Cyprus - December 11-12,

107 Gross capital formation SHA-definition (2/3) Gross capital formation in health care industries are those expenditure that add to the stock of resources of the health care system and last more than an annual accounting period Gross capital formation can further be classified by type of institutional unit involved in the provision of health care services (ICHA-HP) source of funding (ICHA-HF) Morten Hjulsager Cyprus - December 11-12, Gross capital formation SHA-definition (3/3) Units (HP s) where health care is the predominant activity Where functions of administration in public health and health care funding are embedded into larger institutional units, part of gross capital formation will go unrecorded Morten Hjulsager Cyprus - December 11-12,

108 Health providers Retail sale of medical goods is by the SHA manual regarded as a supporting activity intermediate consumption to health care and is therefore not counted under total capital formation of health care providers An alternative for aiming at a complete coverage of the ICHA-HP in investment surveys for international comparisons would be the definition of a subaggregate for the sum of institutions under HP.1 to HP.3 (SHA p. 65) Morten Hjulsager Cyprus - December 11-12, Non-market providers Factor cost estimates of gross capital formation are required for non-market providers in public administration and insurance, in order to calculate capital consumption, which in turn is necessary for calculating the production value of non-market producers Total current expenditures on health, includes consumption of fixed capital in both market and non-market providers market: implicitly given from market prices non-market: production value from the cost-side Morten Hjulsager Cyprus - December 11-12,

109 SHA terminology Slightly differential use of terminology across the SHA manual Gross capital formation Capital formation The different terms covers the same Expenditure that add to the stock of resources of the health care system and last more than an annual accounting period Morten Hjulsager Cyprus - December 11-12,

110 Questionnaire on HC.R.1 Capital formation of health care provider institutions Markus Schneider SHA Workshop on Capital Formation in Health Care December 2007, Nicosia BASYS Nicosia, December Questions 1 Fixed Capital Formation HF 2 Fixed Capital Formation AT x HP 3 Capital stock PIM? 4 Fixed Capital Formation Data sources 5 Consumption of Fixed Capital Exclusion 6 Consumption of Fixed Capital Methodology 7 Consumption of Fixed Capital Double counting HP as producer of capital goods Comments on compilation of GFCF and CFC Topics to be discussed in working groups BASYS Nicosia, December2007 ms@basys.de 1

111 GFCF Question 1 Which Financing Agents are involved? Table 5 of SHA 1.0 CH Approach HP as providers of Financing HF.1 Dual Financing HF , HF2.3, HF2.4, HF 2.5, HF.3 BASYS Nicosia, December2007 ms@basys.de GFCF Question 2 What types of assets are included? Check with colleagues fromsna Many countries have problems to split by HP but less by types of assets (AT) Data Sources (Question4), BASYS Nicosia, December2007 ms@basys.de 2

112 CFC Question 5 Which providers in country s estimates exclude CFC? Many countries exclude CFC There is no underestimation if all countries exclude CFC? Method (Question 6) Double counting (Question7), BASYS Nicosia, December2007 ms@basys.de Question 8: HP as producer of capital goods No, No investigation Software Research & Development will be considered as investment good in the future BASYS Nicosia, December2007 ms@basys.de 3

113 Question 9: Comments on compilation Metadata: Data Inventories Guidelines + illustrative examples If several activities: how to split GCF and CFC Data issues BASYS Nicosia, December2007 ms@basys.de Question 10: Topics for the working groups Methods (Borderlines, HSUT, Alternative models for calculation) Data sources BASYS Nicosia, December2007 ms@basys.de 4

114 Financing capital investment in the UK health system: the Private Finance Initiative Presentation by Marian Craig to the SHA workshop in Nicosia December 11-13, 2007 Implications of PFI for health accounting Value of Gross Fixed Capital Formation as proportion of Total Health Expenditure Public/private mix of GFCF Financing of GFCF Change in the way we describe and hence measure the consumption of capital This major change in the way capital investment is financed affects the sources of information needed to describe capital investment in health accounts for the UK Marian Craig SHA workshop Nicosia December

115 What is the Private Finance Initiative? Since 1992 UK government favours paying for capital works through the Private Finance Initiative (PFI) i.e. through loans raised in private sector For hospitals this means a private consortium designs, builds, finances and operates new hospitals In return NHS pays an annual fee to cover the capital cost incl. cost of borrowing, plus any non-clinical services provided over a year contract period NB. This presentation draws on work by Mark Hellowell, Allyson Pollock and colleagues of the Centre for International Public Health Policy, University of Edinburgh, UK (1) Marian Craig SHA workshop Nicosia December Why is PFI controversial? PFI is controversial because of high costs and associated cuts in clinical services However PFI in England s NHS is being expanded As of April 2007, 85 signed PFI contracts, worth 8.5 billion 45 more planned, total value 15.5 billion Existing PFI schemes are a source of financial difficulty for the NHS Cost of PFI for most trusts is greater than the capital funds they are provided with under resource allocation mechanisms This underfunding leads to financial deficits and hence cuts in services in Marian order Craig to SHA balance workshop Nicosia the books December

116 Why is PFI controversial? The problem is even more serious for trusts with large or multiple schemes. Trusts with operational PFI schemes with capital values of over 50 million have average capital costs of 10.2% - a shortfall in income of 4.4%. This under-funding has created serious financial difficulties for many trusts, which can only be reconciled by further service reductions. While PFI appears to be a major cause of deficits and associated service cuts among trusts, its inflexible nature means that plans for reductions to service capacity are affecting health economies more widely. Marian Craig SHA workshop Nicosia December How this presentation is organised Scale, structure and operation of PFI in England s NHS The public expenditure implications of current and future contracts Association between PFI, the national tariff and financial problems facing NHS Trusts Marian Craig SHA workshop Nicosia December

117 Scale, structure and operation of PFI Between April 1997 and April 2007, the majority of contracts for new hospital projects 85 out of 110, or some 87.3% - came through PFI. The method accounted for 87.4% billion out of a total of 9.7 billion - of the capital investment in the hospital building programme. Marian Craig SHA workshop Nicosia December Scale, structure and operation of PFI (1/5) PFI contracts combine 2 types of transaction: - Provision of assets such as buildings and equipment, called the availability charge - Provision of services, such as buildings maintenance, cleaning & catering, called the service charge - Together known as the unitary charge Marian Craig SHA workshop Nicosia December

118 Scale, structure and operation of PFI (2/5) The annual availability charge covers 3 types of cost: - Interest and principal payments on debt taken out by the consortium - Cash reserves to meet lifecycle costs expenditure during lifetime of contract to maintain facilities - After above costs met, availability payment funds return to shareholders in the form of dividends Marian Craig SHA workshop Nicosia December Scale, structure and operation of PFI (3/5) The annual service charge (for which the range and specification of services varies between projects) includes: - Contracting out to the provider of hard facilities management services e.g. routine building maintenance work - Outsourcing of soft services e.g. catering, cleaning, security, helpdesk, portering Marian Craig SHA workshop Nicosia December

119 Scale, structure and operation of PFI (4/5) Paying the annual unitary charge: - When a Trust signs a PFI contract for a hospital and transfers the assets to the private sector, it no longer pays capital charges on the land and property transferred - This releases funds to pay the PFI availability charge - The fee for privately delivered facilities management services is paid from the budget previously allocated to in-house provision Marian Craig SHA workshop Nicosia December Scale, structure and operation of PFI (5/5) Paying the availability charge The capital charge and the availability charge can each be thought of as the rent the trust pays for the use of its hospital buildings and equipment that is, its capital costs. However, it is important to note that, while capital charges revert to the Treasury, the availability charge is paid to the PFI consortium and is money lost to the NHS and the taxpayer. Marian Craig SHA workshop Nicosia December

120 PFI and public expenditure (1/2) Hellowell and colleagues obtained data on actual and projected unitary charges for all PFI contracts signed to Nov 06 and compared these with publicly available information on capital investment raised by private consortia DoH cannot provide a breakdown of the unitary charge into availability and service charge this information is no longer collected centrally DoH research estimates that the availability charge accounts for approximately 60% and the service charge for 40% of the unitary charge This means that by 2013/14, Trusts with PFI schemes will be paying annual charges of 2.3 billion of which the availability charge component will be 1.4 billion per annum Key issue for health accounts: is an estimate for this item adequate given the scale of resources invested? Marian Craig SHA workshop Nicosia December 2007 PFI and public expenditure (2/2) Source: Hellowell and Pollock, 2007 Marian Craig SHA workshop Nicosia December

121 PFI, resource allocation, deficits and service cuts (1/2) Payment by Results (PbR) - A new system of resource allocation for England s NHS. Trusts receive most of their income through a standard tariff for each patient receiving treatment. - This tariff is based on the average cost of providing treatment across the NHS, and includes funds for capital costs (i.e. dividend on public dividend capital, depreciation and where applicable the PFI availability charge) designed to equal to the average capital cost across all English trusts. Currently this is 5.8% of each trust s annual income from activities. Marian Craig SHA workshop Nicosia December PFI, resource allocation, deficits and service cuts (2/2) The problem of under-funding of capital costs - With Payment by Results, trusts with higher than average capital costs will incur a deficit on their incomeexpenditure accounts - Particularly the case for large PFI schemes - For the 18 trusts in paying charges on schemes with a capital value of over 50 million, average annual capital costs were 10.2% of total income, compared to the 5.8% allocated in the tariff i.e. an average shortfall in income of 4.4% Marian Craig SHA workshop Nicosia December

122 Conclusion (1/2) Consequences of PFI for service delivery Expansion of PFI continues despite continued controversy surrounding PFI over its high cost and the association with service cuts and closures Unfunded costs of trusts with operational PFI contracts remains significant, despite the service cuts made in earlier attempts to bridge the affordability gap The extent of under-funding increases with the size of the PFI scheme and for many trusts leads to major financial difficulties Trusts with major schemes are, on average, under-funded by some 4.4% of their total income under Payment by Results This under-funding creates pressure for a further wave of cuts in service provision to reduce deficits Marian Craig SHA workshop Nicosia December Conclusion (2/2) Consequences of PFI for health accounting PFI represents major change in : - The source of finance for capital investment - The cost of finance for capital investment - The way capital assets are valued during the lifetime of the asset - The ownership of capital assets - The relationship between capital and revenue expenditure in health authorities with PFI schemes All of these issues are relevant to a discussion of how we should account for capital investment and consumption in national health accounts Marian Craig SHA workshop Nicosia December

123 References (1) Hellowell, M and Pollock, AM, 2007, Private finance, public deficits: A report on the cost of PFI and its impact on health services in England, Centre for International Public Health Policy, University of Edinburgh (2) Prowle, M, 2006, The role of the Private Finance Initiative in the delivery of health services in the UK, HLSP Institute Marian Craig SHA workshop Nicosia December

124 Treatment of Investment in German Health Accounts SHA Workshop Cyprus December 11-13, 2007 Federal Statistical Office Theoretical Treatment of HC.R.1 SHA-Manual: HC.R.1 Capital formation of health care provider institutions comprises gross capital formation of domestic health care provider institutions excluding HP.4 clear connection to SNA Total Health Expenditure = Current Health Expenditure + HC.R.1 Federal Statistical Office

125 Capital Formation in National Accounts SNA aggregates on Gross Capital Formation are not used for German Health Accounts: Historically different understanding of health-relevant investment limited data availability Conceptual objections! The inclusion of Gross Capital Formation into Total Health Expenditure will lead to double-counting for certain providers Federal Statistical Office Practical Arrangement in Germany Method of data collection on investment Data is primarily collected from the Financing Agents Historical background of German HEA Strong connection with public finance statistics in the field of investment Public finance statistics reflect the accounting rules for the budgets of the federation, states and municipalities Federal Statistical Office

126 Practical Arrangement in Germany Accounting of public households is mostly cameralistic single-entry bookkeeping, cash-based accounting not accrual-based! investment or investment grant is recorded when realised Properties of cameralistic accounting cash-oriented, not accrual-based Properties of commercial accounting resource-oriented, accrual-based Federal Statistical Office Investment as part of THE Composition of Total Health Expenditure 3,8% 96,2% Investment Total Current Health Expenditure 0% 20% 40% 60% 80% 100% 3.8% is equivalent to 9 bn Euros Share of investment has been constant over last years Federal Statistical Office

127 Investment of Financing Agents Contribution of Financing Agents to HC.R.1 61% 32% 4% 3% HF.1.1 HF.1.2 HF.2.2 HF.2.3 0% 20% 40% 60% 80% 100% HF mainly investment and investment grants out of budgets HF private HH as consumers financing investment At odds with SNA accounting rules Federal Statistical Office Investment from the providers side Investment affect following providers 63% 32% 1% 3% 1% HP.1 HP.2 HP.5 HP.6 HP.7 0% 20% 40% 60% 80% 100% Investment from HP.3 are not accounted for as HC.R.1 conceptual objections Federal Statistical Office

128 Investment in Hospitals Three main sources for the investment in hospitals The states (according to the law of hospital financing) data source: budgets of the 16 states The federation and states (according to the law of promoting the construction of universities) data source: University finance statistics (based on budget information) The municipalities Investment grants for municipal hospitals data source: budgets of the municipalities Federal Statistical Office Investment in Hospitals Volume of investment: ~ 5 bn Euro What kind of investment: Fixed assets Other buildings/structures Machinery and equipment HC.R.1 with HF.1.1 Federal Statistical Office

129 Investment in LTC institutions Main sources for the investment LTC institutions Private Households Volume of investment: Investment surcharge has to be paid from residents to the LTC institutions additionally to co-payments for LTC services ~ 3 bn Euros What kind of investment: Fixed assets Federal Statistical Office Investment in LTC institutions Different opinions: Should it be considered investment Should it be considered as Current Expenditure Preliminary solution: HC.R.1 with HF.2.3 Federal Statistical Office

130 Comprehensiveness vs. double-counting Guiding rule for accounting of investment in German HEA Principle of dualistic financing Financing of investment is independent of the financing of services provided Price of the services provided has no depreciation component Investment is accounted as HC.R.1 dualistic financing for hospitals and LTC institutions Federal Statistical Office Comprehensiveness vs. double-counting Guiding rule for accounting of investment in German HEA Federal Statistical Office Principle of monoistic financing Financing of investment is an integral part of the financing of services provided Price of the services provided has a depreciation component Investment is not accounted separately as HC.R.1 Consumption of Fixed Capital (depreciations) is already included in Current Health Expenditure monoistic financing for practitioners, dentists etc

131 Change in financing regime Country-specific accounting practice Total Health Expenditure HCR1 TCHE dualistic TCHE monoistic CFC will be captured in the higher prices for services No need to account for GCF THE remains unchanged Federal Statistical Office Change in financing regime Current SHA recommendation Total Health Expenditure HCR1 TCHE dualistic HCR1 TCHE monistic CFC will be captured in the higher prices for services GCF remains constant THE will increase! Federal Statistical Office

132 Conclusion SNA figure Gross Capital Formation is not used conceptual objections Own country-specific approach for each provider depending on the remuneration of services provided remuneration has depreciation component do not account for the investment separately remuneration has no depreciation component record the investment as HC.R.1 Definition of Total Health Expenditure should be discussed Federal Statistical Office Thank you for your attention! Michael Müller Federal Statistical Office Federal Statistical Office

133 CAPITAL FORMATION OF HEALTH CARE, HUNGARY Szilárd Páll Hungarian Central Statistical Office Nicosia, December 2007 Current data extracted from: SBS (Structural Business Statistics) Annual budget report of capital formation of state and local government 1

134 Financing agents involved HF Central government HF Local/municipal government HF. 2.4 Non-profit institutions HF Corporations Included assets Fixed assets tangible assets dwellings, other buildings machinery, equipment cars (import/domestic) inventories Non-Produced assets 2

135 GCF compilation PIM method Based on National Gross Capital estimation of year 2000 GCF compilation Year t Asset acquisition, renewal, reconstruction etc. Sell of assets Other "events" of the period (e.g. reevaluation of the assets) Capital stock at year t-1 "black box" Depreciation factors based on National Gross Capital estimation of year 2000 (PIM method) Capital stock at year t 3

136 Problems Data only on Division (2 digit code) level No separate information on providers No information on boundaries of health care Possible solutions A separate module for health care within the PIM black box Division on providers 4

137 Gross Capital Formation in NA for market and non-market health care providers Christina Liwendahl Statistics Sweden Overview transactions P.5 Gross Capital Formation P.51 Gross Fixed Capital Formation P.511 Tangible fixed formation (buildings, machinery and equipment,) P.512 Intangible fixed formation (computersoftware) P.513 Non-financial non produced formation (land, subsoil assets: ore, coal, oil) P.52 Changes in inventories P.53 Valuables 2 1

138 Main sources for Gross Fixed Capital Formation Business statistics and short term investment survey for most industries. Transport equipment; vehicle register Annual report from general government Additions Addition: own produced computer software Investments 1-2 years (special question ) Financial leasing 2

139 Leasing investment Leasing investment: Financial leasing Operational leasing In the National Accounts only financial leasing counts as gross fixed capital formation Software investments Investment in computer programs: - Purchased software and - Software produced for own account 3

140 G F C F 2006 mnkr non market producer General gov. County councils Municipalities central gov. Health cofog therapeutic appliances gen.medical services spec.medical services dental services paramedical services gen.hospital sevices public health healt nec. market producer nace Total 9451 G F C F 2006 by product 2006 Products Mnkr % Vehicles inclusive financial leasing % Maskinery & equipment incl. financialleasing % Purchased software % Software produced for own account % Other buildings & structures % Total % 8 4

141 Gross Capital Formation and Danish SHA 2nd workshop Cyprus December 11-13, 2007 Morten Hjulsager Morten Hjulsager Cyprus - December 11-12, Implementation of SHA in Denmark (1/2) The Danish SHA-strategy has over time been divided in two steps 1) reach to aggregates of health expenditures following the SHA manual; no detailed SHA implementation 2) conduct a more detailed implementation of SHA using the ICHA more intensively The aggregates (1) has since the end 1990 ties been available and reported to OECD A detailed SHA implementation (2) was reported to IHAT in 2007 data collection for the first time Morten Hjulsager Cyprus - December 11-12,

142 The effect from SHA to total health expenditure in % of GDP 10,0 9,0 Percentage of BNP 8,0 7,0 6,0 5, International definition of the health sector National definition of the health sector Morten Hjulsager Cyprus - December 11-12, Implementation of SHA in Denmark (2/2) The aggregates (1) includes gross capital formation in total expenditures on health The aggregates (1) includes consumption of fixed capital in non-market providers The detailed SHA implementation (2) includes gross capital formation in total expenditures on health The detailed SHA implementation (2) does not include consumption of fixed capital in non-market providers Morten Hjulsager Cyprus - December 11-12,

143 GCF and SHA current situation Gross capital formation (GCF) is included in total expenditures on health as an aggregate, i.e. no division by HP or HF with National Accounts as the data source Consumption of fixed capital is not added to the expenditures of non-market providers in calculation of current health expenditures Morten Hjulsager Cyprus - December 11-12, Future plans Gross capital formation and consumption of fixed capital is available in the National Accounts aggregate certain divisions; branch, type of asset, market / nonmarket providers statistical uncertainty, growth oriented The National Accounts will in the future be used more intensively in the aim of divide gross capital formation by HP and HF add consumption of fixed capital to expenditures in non-market providers Morten Hjulsager Cyprus - December 11-12,

144 Gross capital formation SHA-definition Total gross capital formation in health care industries = sum of gross capital formation in certain institutional units listed under the ICHA-HP HP.1, HP.2, HP.3, HP.5 and HP.6, domestic providers where health care is the predominant activity excl. HP.4 Retail sale and other providers of medical goods excl. HP.7 Other industries (rest of the economy) excl. HP.9 Rest of the world (SHA p. 65) Morten Hjulsager Cyprus - December 11-12, What can the National Accounts give us? (1/3) Division of gross capital formation and consumption of fixed capital by branch hospital activities (= HP.1) medical, dental and veterinary activities ( HP.3) only 1-digit level of HP is not directly available borderline issues should be solved HP.2, HP.5 and HP.6 is not directly available; keys? supplementary data sources? HP.4, HP.7 and HP.9 can easily be excluded Morten Hjulsager Cyprus - December 11-12,

145 What can the National Accounts give us? (2/3) Division of gross capital formation and consumption of fixed capital by ICHA-HF detailed division to HF s is not directly available Division by market / non-market providers is possible HF.1 and HF.2, at 1-digit level Keys? Supplementary data sources? Morten Hjulsager Cyprus - December 11-12, What can the National Accounts give us? (3/3) Investment matrices Input-Output tables for gross fixed capital formation Division of gross fixed capital formation by assets Machinery and equipment Transport equipment Buildings and structures Software Investment matrices, example Hospitals Morten Hjulsager Cyprus - December 11-12,

146 Introduction to a System of Health Accounts Uffe Jon Ploug, Health Economist uffe@ploug.dk Cyprus, December Agenda for Introductory Course 1. Introduction 2. The overall definition of health care in HA 3. HC: Functions (and settings) Break 4. HP: Providers 5. HF: Funding 6. General thoughts ondoing HAs 7. The future of HA 8. Sources and references 2 1