Report: Financial situation of hospitals Summary Łódź, 18.12.2017
Magellan - an expert on the market of financial services for the medical sector Healthcare market research Magellan has been studying market trends for 8 years. We prepare reports of financial situation of hospitals and share our knowledge with the market. 2
Financial results of hospitals Hospitals by ROS Hospitals by return on medical treatments 100% 100% 80% 60% 41% 60% 61% 58% 63% 60% 80% 60% 25% 29% 25% 23% 27% 24% 40% 20% 59% 40% 39% 42% 37% 40% 40% 20% 75% 71% 75% 77% 73% 76% 0% 2011 2012 2013 2014 2015 2016 0% 2011 2012 2013 2014 2015 2016 Unprofitable Profitable Last year 60% of hospitals achieved a positive net result. Profitability of procedures in hospitals decreased 24% in 2016 vs. 27% in 2015. The Magellan report shows the financial situation of public hospitals has slightly deteriorated. 3 Return on medical treatment = (revenues - operating costs)/revenues ROS = net profit /revenues
Return and liquidity of hospitals Average return Current liquidity 1.40 0% -1% -2% 2011 2012 2013 2014 2015 2016-0.8% -1.4% -1.5% -0.6% -1.3% 1.20 1.00 0.80 1.08 1.07 1.11 1.14 1.14 1.15-3% -4% -5% -6% -7% -4.0% -5.3% -4.1% -4.5% -4.7% Return on medical treatment -5.8% ROS -5.8% 0.60 0.40 0.20 0.00 2011 2012 2013 2014 2015 2016 Average return on medical treatment remained on an unchanged low level, which confirms that hospitals operated in difficult conditions in 2016. The situation seems to look better at the level of ROS. A marked jump in 2012 was an effect of changes in accounting posting of subsidized assets. The result in 2016, which was at the same level as in previous year, was an effect of the National Health Fund paying for services exceeding the contract limits. However, there is a positive trend in the financial liquidity of hospitals. From year to year, it is getting higher. Return on medical treatment = (revenues - operating costs)/revenues ROS = net profit /revenues 4
Financial situation of public hospitals Liabilities mln zł 12,000 10,000 9,963 10,384 10,661 9,922 8,958 9,578 10,398 8,000 6,000 4,2% 2,7% -6,9% -9,7% 6,9% 8,6% 4,000 2,000 0 2,139 2,317 2,474 Liabilities 2,016 2,171 2,034 1,871 23,3-8,3% 21,5 6,8% 22,3-18,5% 23,2 7,7% 19,5-6,3% 17,5-8,0% 15,2% % % % % % % 2010 2011 2012 2013 2014 2015 2016 Due liabilities In 2010-2012 liabilities of hospitals were increasing. In 2013 hospital liabilities dropped as a result of transformation of hospitals. At present, hospitals use cheap money on the financial market and a tactic of "forward escape" thus replacing due and payable liabilities by payables with a longer period of maturity in effect the current liquidity of hospitals keeps improving. Such a trend continues for the consecutive year. 5 Source: Ministry of Health
Market of direct financing toward public hospitals Value of direct financing in public procurement mln PLN 1,600 1,400 1,200 1,000 800 600 400 200 0 404 759 766 523 698 570 615 305 2013 2014 2015 2016 Banking institutions Other financial institutions Data regarding financing under the Public Procurement Law are available to general public. Magellan team collects them and makes multidimensional analyses. After the period of intensive growth, the market shows stability at a high level, which confirms the argument about the conversion of hospital due and payable debts into long-term debts. Major providers of financing in 2016 (like in 2015) were banking institutions. 6 Source: Based on PressInfo
Analyzing profitability of hospitals by regions 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% ROS 2015 ROS 2016 Average 2016 When analyzing profitability of hospitals by regions, a group of certain regions having their hospital results always below the average can be separated (Mazovian and Warmian-Masurian regions). Positive trends: Kuyavia-Pomerania, podlaskie and Lesser Poland. 7 Source: Based on PressInfo
Analyzing profitability of hospitals by founders 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% -4.0% -4.5% -5.0% Medical University City Minister of National Defence Ministry of the Interior Ministry of Health ROS 2015 ROS 2016 average 2016 Country Voivodeship According to the classification involving entities that are founders of health care facilities, no institutions reached a positive profitability rate in the years 2014-15. Ministry of Health, self-governments in provinces, counties and communes have most problems with hospitals. The latter made the greatest progress in profitability approaching its average level. 8 ROS = net profit /revenues
Investment Public sector Value of deliveries in healthcare sector (mln PLN) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 3,902 2,767 2,492 2,757 2,721 2,285 1,585 163 286 302 320 314 284 380 2011 2012 2013 2014 2015 2016 foercast 2017 Debt financed investments Cash financed investments Forecast We forecast that the value of the supply market in health protection will be at a lower level than in 2016 we observe a considerable drop of investments on public market. A real growth of investments will occur only when UE subsidies are launched (at the turn of 2017 and 2018). We expect an approximate 34% growth of the financing investments market in public sector. The needs to secure the entity's own contributions to EU projects and bridge financing of investment projects carried out appeared to be an impulse for the growth of financing market. 9 Source: Based on PressInfo reports
Financial situation of hospitals Forecast 20% 15% 10% 5% 0% -5% -10% +1,2-5.32% pp -4.09% -0,4 pp -4.52% -0,2 pp -4.74% -5.85% +0,1 pp -5.79% -1,1 pp 2011 2012 2013 2014 2015 2016 2017 2018 Return on medical treatment Dynamics of budget for hospitals In the investigated period, profitability of hospital procedures improved significantly in 2012 only. However, to achieve such an improvement, it was necessary that National Health Fund's spending on hospital treatment grew more than 8%. It is planned that in 2018 there will be a 15% growth on hospital treatment. There are two reasons for this: - a good macroeconomic situation causing an increase in funds coming from contributions, and - shifting some care over the patient from outpatient specialist services (OSS) to hospitals to increase their revenues. Will higher dynamics translate into a better condition of the financial sector? Much depends on current finances of particular hospital institutions. Entities, which are doing well, will use their new budget in quite a different way than those having a negative result. 10 Source: Based on PressInfo reports
Will financial standing of hospitals improve in the coming years? 11
Expenditure on hospitals The analysis of hospital financial results provides information that hospitals are inviable already at the level of procedures they generate 5.5 percent loss. One of major problems is underfunding of health care sector now hospitals need additional 2 billion PLN. The government has presented assumptions of the health protection reform in July last year. One of its priorities is an increase of expenditure on health protection to 6% level of GDP. On 24 November, the Parliament adopted a revised act on health protection services financed out of public funds. Consequently, expenditures on health will grow to 4.67 GDP next year, and the path is more expansive than in the project a year ago. 12
Expenditure on hospitals Revolution or evolution? 4,73% - according to Ministry of Health will be the level of expenditures on health protection in relation to GDP in 2017. Whereas, the index for the next year is 4,67%. A growth in the National Health Fund budget results from a better condition of economy and labour market, and not from a conscious political decision. Polish national healthcare system is one of the most underfunded in Europe - in the OECD ranking Poland is on 31st out of 35 places. 2018 Reforms are challenges in terms of organizational issues as they will consume time and money. More funds on health protection need not necessarily translate into the financial condition of hospitals. A real improvement of financial condition of hospitals may take place much later. Increased public funds on health up to 6 percent by 2025 would allow to maintain the level of services rendered. However, it might seem too low for patients and hospitals to notice a perceivable improvement. 13
Summary 2017 - year of preparation of healthcare reform Legal and organizational works Waiting for final solutions Searching solutions how to deal with hospital debts 2018 first year of healthcare reform Organizational challenge continuation of activity of National Health Fund (NFZ) Debt reduction is possible in some hospitals Pressure to increase the number of services which generate the longest queues (ophthalmology, orthopedics) Further pay pressure on the part of medical personnel 14