What Can the US Healthcare System Learn from the Czech Republic?
My fellow American Marshall Memorial Fellows and I passed through security in an eight-story building in downtown Prague. After ascending to the sixth floor, we looked for the door marked 14. After two wrong turns, we opened the appropriate door and were greeted by the receptionist for the head of one of the largest insurance companies in the Czech Republic, Všeobecná zdravotní pojišťovna CR (VZP).
After exchanging pleasantries, I had my turn “at bat” to ask rapid-fire questions with the hope of gaining a better understanding of healthcare in today’s Czech Republic. What I learned was a cautionary tale about government run healthcare.
Prior to the velvet revolution of 1989, I learned that the then communist run government administered all aspects of the healthcare system. This meant that, based on their address, people were assigned to a government employed primary care physician, assigned to a regional government hospital (of approx. 180 hospitals throughout the country) and assigned to the government employed healthcare workers who lived in their region. No clearinghouse for hospital quality, physician level quality, or cost data was made available to the patient. So, the healthcare you received was – in essence – determined by where you lived. Patients didn’t generally seek out “better” doctors because no such quantifiable measure was available.
After the revolution, the state retained control of 90% of the hospitals throughout the country, though it began to allow insurance companies to be created. In response, 35 health insurance companies emerged throughout the state. Within 24 months, only 8 were left and the remainder filed for bankruptcy.
VZP is the largest such company remaining and covers nearly 62% of the entire Czech population. Unlike the US, where we enjoy a great scope of coverage options in our healthcare insurance, all Czech health insurance companies must provide exactly the same scope of coverage for everyone. While a few exceptions exist, the population is, essentially, fully covered. This is a shared goal of recently passed US healthcare reforms.
Such private insurance now allows Czech citizens to go to any physician they choose, and 90% of the population is now “registered” to a Primary Care Physician. Did the velvet revolution matter when viewed through the lens of healthcare outcomes? In short, yes. Life expectancy went up, and infant mortality rates went down.
However, the Czech Republic does not have a free market for healthcare. At present, the Czech Minister of Health appoints the head of the VZP, who then has to be vetted by the Czech Parliament. Any disagreements between rates proposed by hospitals (still majority owned by the state) and the insurance companies, like VZP (again, who are appointed by the state) are settled by the state.
Market forces are not allowed to prevail. This creates a distorted market. For example, certain requirements force insurance companies (such as VZP) to engage in certain contracting requirements with hospitals. This can leave the insurance company on the hook for losses. This is the current case where VZP is projected to have a nine billion Koruny ($463M) loss due in part to “the state transferring further unplanned expenses to health insurance companies such as one billion for vaccination and two billion for doctors' salaries” (Prague Daily Monitor). As a result, insurance companies adjudicate claims more slowly, which takes the form of delayed payments to doctors.
As we look deeper, we see that a by-product of these changes is what could be considered a two-tier healthcare system. The lower (public) tier has created a natural market for higher (private) care. Instead of having a ubiquitous prescription for healthcare coverage, a secondary market for higher tier healthcare has emerged. Doctors now receive only about 60% of their income from the reimbursable care from patients’ insurance coverage. The remainder of doctors’ income comes from providing private care, often at the direct expense of the patient. Though doctors are required to provide a percentage of their services to the public program, they are free to charge extra for the remainder of their time. If you were a doctor and had delayed payments on 60% of your accounts receivable, the economic rationale for charging a premium for your private services may well cross your mind. However, though patients are charged premium pricing, there is still very little transparency for doctor or hospital quality data in the Czech Republic. Therefore, patients have very little power to discern exactly what they are buying.
As the United States looks to implement unprecedented healthcare reforms over the coming years, we should look to learn from examples such as the Czech Republic, where the private sector is still a byproduct of government involvement. If there is a lesson here, it is that we may witness the emergence of our own two-tier healthcare system in the United States. As doctor reimbursements go down and private sector employers have the opportunity to “offload” healthcare benefits onto the state or federal government through newly established healthcare exchanges, healthcare providers in the United States may well seek to remedy their financial downturn through direct patient recoupment. As this shift occurs, hopefully we will at least know what we are buying.
Russ Lipari, President of Validus Group in Atlanta, is a Fall 2012 American Marshall Memorial Fellow.
The views expressed in GMF publications and commentary are the views of the author alone.