The hospitals’ financing model hinders innovation in the health sector

  • Iacob Mathiesen 

Chairman of the Board of Norway Health Tech / CSO Otivio AS,

  • Lena Nymo Helli

CEO Norway Health Tech

  • Sveinung Tornås

Head of Innovation, Sunnaas Hospital HF

May 4, 2021 21:00

Last updated May 4, 2021

 The outlook report paints a challenging future picture for Norway. The changes come quickly and require restructuring in the health service. The need for health services will increase as a result of population growth and a higher proportion of older people.

At the same time, the current income side will be reduced, linked to lower activity in the oil industry and fewer people of working age.

Good framework conditions for innovation

The outlook report points to the need for innovation. Good research, good health care, good support schemes and a digitalized society are necessary framework conditions we already have in Norway.

We spend large sums on health research and have world-class environments. There are good support schemes for product development and testing.

We therefore believe that private actors and the public health service can solve many challenges that the perspective report points to. Such a development presupposes a financing model for the health service that stimulates innovation and innovation.

From left Iacob Mathiesen, Chairman of the Board of Norway Health Tech / CSO Otivio AS, Lena Nymo Helli, CEO of Norway Health Tech and Sveinung Tornås, Head of Innovation at Sunnaas Hospital HF.

Today’s financing model an obstacle

The current financing model for the hospitals, however, presents unintended challenges for restructuring.

The hospitals receive 50 per cent as a fixed framework grant. The remaining 50 per cent is activity-financed and a result of, among other things, the number of consultations, operations or treatment courses.

The effort-driven activity is repaid according to a set rate system. To avoid deficits, activity must be maintained.

In practice, it is demanding to introduce changes that do not provide direct savings for the hospital – even if it provides savings in the municipality, at Nav or for the patient himself.

The financial management of Norwegian hospitals thus leaves little room for socio-economic profitability assessments. This is in contrast to the need for change.

Non-refundable home treatment

The hospitals will not be reimbursed for new activity that is not included in the tariff system. The costs of introducing new activity and methods must usually be borne by themselves until thorough assessments of risk, benefits and finances have been carried out.

In the hospitals’ marginal budgets for innovation, this often leads to the prioritization of new activity “within the hospital’s four walls”.

One example is a new method for home treatment of poor blood circulation in the legs. The disease is chronic. It requires regular follow-up of both specialist and municipal health services.

There are no tariffs for the newly developed home treatment today, despite the fact that successful treatment gives the municipality reduced costs related to follow-up and transport. For the hospitals that prescribe the treatment, it is an expense.

If the treatment is successful and the patient has less need for health care, the hospital’s income base disappears.

There is an urgent need to change the financing model to remove a major barrier to innovation and restructuring.

The example shows that home treatment of poor blood circulation according to a new method will enable society to save money, health professionals can prioritize other urgent tasks and patients have a better life, while hospital expenses increase as a result of “non-refundable home treatment”.

The problem poses a major challenge for the development of a new health industry.

Reimbursement for new activity takes a long time

Another example is a telemedicine solution for the follow-up of serious wounds in the patient.

The specialist health service provided guidance to the local health service via video, and the patients were treated at home. The trial showed that the costs associated with patients’ need for transport and hospital stays were eliminated.

Despite investing in video equipment and follow-up in the municipality, the costs to society were reduced by more than 90 per cent, without the treatment deteriorating.

Nevertheless, it took about ten years to get a refund in place, and it still does not cover the costs.

Changes in rates stimulate development

During the ongoing pandemic, new technology has been used in record time, especially in telemedicine.

The hospitals in Health South-East had a large increase in activity, and rates were quickly put in place. However, the speed of video / telephone consultations did not really pick up until the summer of 2020, when the same tariff was introduced as for attendance. Similar challenges related to new activity and financing are also seen in other countries.

It’s urgent

Tomorrow’s health service involves solutions with the patient in the center, not the individual hospital department or unit in the municipality.

Hospitals are required to move 30 percent of patient care to the patient’s home by 2030. A prerequisite for success is that the funding model is changed. It must take into account societal benefits across sectors and service levels and look beyond the individual hospital budget.

In addition, there must be a financial motivation to solve the assignment in a “profitable” way, by using new innovations.

This can be solved, for example, by framework transfers to innovation. It will ensure better quality and services for patients, more efficient healthcare, better use of resources by healthcare professionals and reduced costs from a societal perspective.

The health technology solutions exist. There is an urgent need to change the financing model to remove a major barrier to innovation and restructuring. In parallel, a viable Norwegian export industry can be developed.