Remuneration structure

Publicly and privately financed healthcare.

Funding conditions, agreement and remunerations models differ between the European countries, and thus also the conditions and incentives for healthcare operations. However, a common feature for all the countries where Capio operates is that the majority of the healthcare costs are publicly financed.

Financing
People pay for healthcare services either through taxes (Sweden, Norway, Denmark and France), or through mandatory fees to social insurance companies (Germany). To a small extent there is also private healthcare financing, either under private insurance schemes or as out-of-pocket charges paid directly by the patients. In 2016, 88% of the Group’s net sales were  publicly financed and 12% privately financed. The privately financed activities relate mainly to Norway and France. In France, most privately financed  remuneration is attributable to non-medical services, including single room supplements.

Agreement forms
For a private provider to be able to treat patients and obtain reimbursementfrom the publicly financed healthcare system, an agreement with the relevant government body is required. This agreement can be either a  license/authorization or a tendered contract.

Authorizations
When the basis for business operations is a license/authorization, the healthcare provider will have gained approval from the healthcare authorities to deliver certain types of healthcare, and to receive remuneration according to a specific price list. Normally, an approval can be applied for at any time, and the license/authorization will apply until further notice or can be extended after a re-approval process. A trend in the Nordics is for a larger proportion of healthcare to be provided under licenses/authorizations, called free healthcare choice schemes. Capio’s activities in France and Germany are run under licenses/authorizations, as well as primary care and parts of specialist healthcare in Sweden. In Sweden, free healthcare choice has been mandatory in primary care since 2009. In recent years, some county councils have introduced this for a number of different specialist healthcare treatments, primarily in Stockholm, but also in Uppsala, Skåne and Jönköping. In Norway, after a political reform in 2015, free healthcare choice was introduced in some areas of the specialized healthcare. However, the reimbursement levels were set very low and few private providers have shown an interest in applying for authorizations.

In general, Capio sees the shift towards free healthcare choice as a positive trend, as it ensures patient empowerment and opens up competition. A healthcare provider with high quality, availability and service focus will hold the advantage in such a system. Free healthcare choice also provides better  conditions for long-term development and investments.

Tendered contracts
Contracts are also subject to public calls for tender. The contracts stipulate that the care provider is required to provide a certain volume of healthcare, at a price level that has been set in the tender process. If the volume cap is exceeded, the remuneration for production above the fixed cap will be reduced, or not reimbursed at all. The contracts have no volume guarantees, but there is often an indication of the volumes which the provider will obtain. There are different models for evaluating the bids in a public tender; this can either be according to lowest price, highest quality, or a combination of price and quality. During the last ten years we have seen how quality factors have become increasingly important. Capio holds publicly tendered contracts in Sweden and Norway. For example, Capio S:t Göran’s hospital, the local hospitals and a large share of Capio Psychiatry’s operations are contract-based. In Sweden, these are often long-term contracts whereby the county councils outsource healthcare operations within a geographical area or medical specialty. The contracts typically have terms of at least five-seven years, including extensions.

In Norway and Denmark, the contracts are for shorter terms, and primarily used as a buffer when there are long waiting times in the publicly provided healthcare system.

Remuneration forms
The largest share of Capio’s remuneration is based on payment per treatment (tariffs). The tariffs can be either fee-for-service, i.e. the provider receives remuneration whenever the patient seeks treatment, or bundled payments whereby the provider is reimbursed for a full care episode independently of the number of care contacts. Capitation is another remuneration form that, with regard to Capio, is applied in large parts of the primary care activities in Sweden. This entails that a fixed level of remuneration is received per patient registered at the primary care center, regardless of whether the patient seeks treatment or not.There is increasing price pressure in all countries were Capio is present. Private providers often obtain lower remuneration than public providers, e.g. estimates indicate a more than 20% higher remuneration to public providers in France.

Capio’s agreement and remuneration model 2016 (Group)