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Ensuring financial sustainability for health care

Partner Institute: 
Institute for Advanced Studies (IHS), Vienna
Survey no: 
Hofmarcher, Maria M.
Health Policy Issues: 
Pharmaceutical Policy, System Organisation/ Integration, Funding / Pooling, Quality Improvement, Remuneration / Payment
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes yes no no no


With a new draft legislation the government seeks to ensure sustainability of social health insurance and plans to implement new standards for contracting with doctors and for dispensing drugs. Proposed measures in concert with attempts to improve governance in health care have created strong opposition from providers but also from individual sickness funds. The outcome of debates is uncertain as it is claimed that the proposal is incomplete and as some issues addressed remain ambiguous

Purpose of health policy or idea

In mid-May 2008 the government presented a draft legislation for health reform by addressing the revenue and expenditure side of sickness funds but also issues regarding their organisation. The proposal mainly aims to ensure financial sustainability of sickness funds by 

  • Injecting monies to pay off sickness funds´ debts
  • Providing transition to flexible contracts for doctors in ambulatory care
  • Allowing for generic substitution
  • Re-organising the administration of sickness funds to give incentives for better purchasing   

The draft legislation is currently assessed by various stakeholders and experts and it is likely that measures as proposed will be changed. There is fierce oppostion from doctors but also from individual sickness funds within social security administration. Some of them fear losing "regional or local" executive power and autonomy as a self-governing body.  Doctors also fear losing power and oversight in the ways contracts are administred and issued.  

Main points

Main objectives

The proposal aims at ensuring financial sustainability of sickness funds by

  • setting short-term measures, e.g. injecting monies and by
  • seeking to initate a much-needed structural change in purchasing services.

Type of incentives

  • First, in case no collective agreement can be reached between doctors and sickness funds, sickness funds may offer contracts to all medical providers willing and able to contract. This implies that - on the margin - sickness funds will be enabled to "shop around" and in doing so to put more pressure on doctor fees;
  • Second, exsisting or newly issued contracts are subject to re-certification after five year. This re-certification is being done on the basis on quality indicators (yet to be defined)  
  • Third, doctors inside and outside hospitals are required to prescribe substances rather than brand names; the pharmacy will decide on the brand or generic drug to be delivered. If patients insist on a certain drug they may need to pay the price difference between this drug and the generic substitute.
  • Fourth, executive powers of the umbrella organisation of sickness funds will be enhanced by introducing a new self-governing body (SV-Holding) with wide-reaching strategic descion making power and more centralized monitoring and controlling.

Groups affected

Medical doctors, pharmacists, social insurance administration

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Characteristics of this policy

Degree of Innovation traditional neutral innovative
Degree of Controversy consensual controversial highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low high very high
Transferability strongly system-dependent neutral system-neutral

As the focus of this draft legislation is on securing revenues of social health insurance the degree of innovation is low. Providing for a transition to more flexibilitiy in contracting with providers and for generic substitution will be truly innovative in the Austrian context. However, it is uncertain whether these measures will be implemented.

While measures as proposed may justify some concern by doctors and other stakeholders they do not seem to be enough of a reason for the high level of controversy observed. Rather, probably what many stakeholder sense is that this proposal may initiate a fundamental change in governance of the health care sector. This would imply that doctors increasingly lose powers but also individual sickness funds. As a consequence the structural and systemic impact may be high because purchasing power is enhanced and the power of suppliers weakened. Furthermore individual sickness funds will not only face more central surveillance but also an equal representation of employers and employees in their boards. Thus, the "climate" in which decision are made will probably change.

Overall, the proposed measures including ideas to strengthen purchasing power of payers of care reflect well international developments. For example, the United Kingdom and some US Health Maintainance Organisations have been experimenting with contracting on the basis of quality indicators; Estonia is considering implementing some form of "payment by results" (Maynard 2008). In addition a number of countries including Germany and the Netherlands have implemented generic substitution. Furthermore, in those countries but also in the Slovak Republic recent reforms seek to promote better purchasing of health insurance funds by centralising governance to some degree.

Political and economic background

The current centre-left government  "grand coalition" addressed health and social policy issues in its policy paper in November 2006 (see survey 9(2007). While reform proposals of previous center-right coalition governments met fierce opposition from social partners and in particular form the association of trade unions who claimed to be left out in the process of policy formulation (see e.g. survey 4(2004) and Survey 2(2003)) the current government brought them back on the agenda. As a result the social partners developed a paper which laid out an agenda for securing financial sustainability in the health care sector. 

In April 2008 the Austrian Social Partners, i.e. the Association of Trade Unions and the Chamber of Commerce launched the paper which laid out corner stones for a health reform; This paper aimed at bringing the financial situation of sickness funds to public attention and proposed measures to pay-off accumulated debts and to contain cost increases. Estimates presented suggest that sickness funds' deficits will increase to around 630 Million Euros until 2012 if no measures will be taken. 

Reflecting fragmentation in financing health care in Austria this paper focused on securing revenues of sickness funds used to ensure service provision in ambulatory care including the administration of dispensing drugs. Hospital care - while mostly in the responsibiltiy of federal states - was largely left out from the reform agenda. Hospital care incurs cost in the order of around 10 billion Euros and utilizes about two fifth of total health spending. About 45 percent of this cost is financed by sickness funds. Hospital financing is currently compartmentalized in an agreement between the general government and federal states to regulate fiscal equilization across federal states and municipalities. This agreement involves the above mentioned 45 % of the hospital budget coming from health insurance and is valid until 2012. There is only a low chance that it will be untied.

As a consequence the current debate is highly concentrated on ambulatory care and spending on pharmaceuticals making measures as proposed a piece meal solution.  However, and consistent with issues introduced in the 2006 policy paper of the government the draft legislation addresses governance issues and seeks to introduce new management practices in the administration of social insurance to set the scene for sickness funds to become better purchasers of care. This should be achieved by giving regional sickness funds more autonomy in contracting with providers while simultaneously enhancing central bodies, i.e. the SV-Holding  to get more involved in setting strategic goals for purchasing.

This reflects a new orientation in health policy making because the focus of previous reforms - at least since 2000 when die centre-right government came into power - concentrated efforts more on improving governance at the level of Federal States; many recent measures, e.g. "health platforms"  focused on enhancing regional governments to take wider responsibility for balancing health care provision in specified areas. While this implied more emphasis on the level Federal States the focus of current proposal is on improving governance leveraged by enhanced purchasing through sickness funds.

Recent discussions about health reform across many important stakeholders increasingly reflect concerns about poor governance in health care. This led some stakeholders and experts to promote a "single-payer approach" where leadership in this context is thought to be best placed in the hands of health insurance rather than in regional health platforms (see Survey 4(2004). While still vague in nature, some issues addressed in the draft legislation have potential to set the scene for health insurance and individual sickness funds to increasingly taking on the role of active purchasers of services at various levels of care including hosptial care.

Change based on an overall national health policy statement

Austria´s new coalition goverment program, see Survey 9(2007)

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes yes no no no

Origins of health policy idea

On the basis of the paper presented by Social Partners in April 2008 a legislation was drafted seeking to ensure financial sustainability of sickness funds. While additional revenues will be mostly generated by using tax money, the focus of this legislation on the expenditure side is on service provision in ambulatory care including the administration of dispensing drugs. The following measures are proposed:

Revenue side

  • Compensation of sickness funds for foregone tax-monies, e.g. complete recovery of the value added tax (125 million Euros per year), additional funds from the retirement pension scheme (around 33 million Euros per year)
  • Debt write-off in the order of 450 million for 2008 and 2009

Expenditure side

  • Provision of transition to flexible contracts with ambulatory care providers (expected savings of around 100 mill. Euros between 2008-2010)
  • Generic substitution by pharmacists (around 35 million Euros per year)
  • Reduction of cost growth for pharmaceuticals (around 90 million Euros per year)

Governance issues

  • The umbrella organisation of social insurance institutions becomes a holding (SV-Holding) and as a self-governing body it will have executive power. The main functions of the holding are:
  1. Developing strategic goals on the basis of Balanced Score Cards for individual sickness funds
  2. Monitoring and controlling, e.g. the development of indicators for comparing performance of individual sickness funds; guidelines are to be developed.
  3. Safeguarding the achievement of objectives as developed for individual sickness funds.
  • The SV-Holding ensures delivery of central services, e.g. outcomes and indicators of performance of individual sickness funds to be shown regularily to supervisory authorities
  • Supervisory power for sickness funds is only in the hands of the Ministry of Health (previously some smaller sickness funds have been supervised by the administration of Federal States)
  • Individual sickness funds may now conclude contracts with providers without prior authorisation from the Holding
  • Obligation of sickness funds and providers to particitpate in implementing the Electronic Health Record (ELGA).

The draft legislation also foresees patient billing; this is much debated as ambulatory care doctors fear the burden of administrating billing. However, the draft legislation envisages cost in the order of 20 million Euros für setting up administration in this area. Another 30 million Euros cost is estimated to be necessary for administrating generic substitution and documentation. Cost which likely arise from changed governance in the social insurance administration is yet to be specified.

Initiators of idea/main actors

  • Government
  • Providers
  • Payers: Individual sickness funds are divided; some fear a loss of power while others are supportive
  • Patients, Consumers
  • Civil Society

Actors and positions

Description of actors and their positions
Government partiesvery supportivesupportive strongly opposed
Federal Statesvery supportiveneutral strongly opposed
Chamber of Doctorsvery supportivestrongly opposed strongly opposed
Pharmacistsvery supportivesupportive strongly opposed
Individual sickness fundsvery supportiveneutral strongly opposed
Federation of social insurancevery supportivevery supportive strongly opposed
Patients, Consumers
Self-help groupsvery supportiveneutral strongly opposed
Civil Society
Social Partnersvery supportivevery supportive strongly opposed
Patient counselorsvery supportivesupportive strongly opposed

Influences in policy making and legislation

The proposal likely leads to a formal piece of legislation; however, it is uncertain what will remain from the measures as proposed;

The strongest opposition comes from the chamber of doctors who fear loss of power in administrating contracting and overseeing the allocation of expenditure on contracts. They also resist generic substitution as they fear to be blamed if patients do not receive medication appropriate to their needs. The chamber envisages to go on strike or to take other measures to prevent the proposed reform from emerging into legislation.

Some individual sickness funds strongly oppose the reform proposal in light of fears to lose autonomy and power within social security administration; for example a big regional sickness fund claims that its performance has been favorable compared to other sickness funds because of the proximity they have to providers and patients making care provision more effective and responsive.

Advocates of a more comprehensive reform, e.g. the former President of the Federal Audit agency claim that the legislation is insufficient as the hospital sector is excluded.

Experts also claim that the health reform without involving issues of hospital care and finance will inhibit the achievement of cost efficiency and better quality care.

There is also some opposition within the ruling parties forming the current government; for example, conservative trade unionists have already indicated that they do not support this legislation; details of these discussions are rarely debated in public but it appears that party leaders are busy to calm down members and to promote their compliance when the proposal will be discussed in parliament at the beginning of June 2008.

Federal States remained silent so far because they have been constantly re-assured that agreements about fiscal relations - valid until 2012 - will remain untied. However, there is some concern expressed that full recovery of value added tax for sickness funds will emerge into less tax revenues for regional areas. Thus, there are some signals that they could arm themself in claiming compensation for an expected short fall of tax revenues.

Actors and influence

Description of actors and their influence

Government partiesvery strongstrong none
Federal Statesvery strongvery strong none
Chamber of Doctorsvery strongvery strong none
Pharmacistsvery strongweak none
Individual sickness fundsvery strongstrong none
Federation of social insurancevery strongstrong none
Patients, Consumers
Self-help groupsvery strongweak none
Civil Society
Social Partnersvery strongstrong none
Patient counselorsvery strongneutral none
Federation of social insurance, Social PartnersPharmacistsPatient counselorsGovernment partiesSelf-help groupsIndividual sickness fundsFederal StatesChamber of Doctors

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Monitoring and evaluation

Currently the proposal does not foresee any evaluation; in addition, indicators for performance monitoring of individual sickness funds are yet to be developed. Further, it is not specified in detail who will have access to this information and whether it will be available to the public.

Expected outcome

As with previous health reforms this draft legislation has the focus to ensure financial sustainability  for sickness funds. While in addition to that health reform measures since 1997 often made hospital financing and structural change in this area a center piece, this draft legislation proposes measures to improve governance in social security and to enhance purchasing of sickness funds who currently have no say in matters of hospital care.

The current agreement between the general government and the federal states about hospital financing remains untied. This is unfortunate as by comparision Austria is been plagued by overcapacity in acute hospital care and by a high level of hospital activity. This suggests that resources could be shifted from hospital to the ambulatory care setting thereby ensuring cost efficiency and better allocation of means.

While the current draft legislation is short of taking into account issues of hospital care it nevertheless proposes measures which have potential to improve purchasing of sickness funds and to "activate" them in taking on wider responsibilities in purchasing and contracting in the future. 

In the following paragraphs main issues of the draft legislation are summarized:

First, access to care seems ensured as additional money will help to maintain current benefit levels. However, most fresh money for the sickness funds comes from the general budget reflecting the increasing importance of the general government in health care matters. On the other hand access to care may remain restricted for some groups as ambulatory care will be further on predominantely delivered in single-headed offices and no measures are foreseen to change the structure of service provision in this area. In light of persistent gaps in life expenctancy across regions and across socio-economic groups the draft legislation fails to address inequity and inequality in access.

Second, more flexible contracting in concert with strategic goal setting from the SV-Holding and more regional autonomy of individual sickness funds may help to contain cost in ambulatory care while ensuring and improving quality of care. However, neither objectives for strategic purchasing nor quality indicators as suggested to be used for re-issuing contracts to providers are yet developed. Thus, it remains uncertain when and to which degree improved care delivery will emerge. While flexible contracting on the basis of quality indicators, i.e. some form of "pay for performance" is already in use in some countries, the current draft legislation does not specify enough details on how to implement that in the Austrian context.

Third, generic substitution as proposed is not yet fully thought through. For example, the draft legislation provides for exemptions but is not entirely clear about the terms for that. In particular, it envisages that doctors may prescribe brands for chronically ill to ensure consistency in drug therapy; while this is understandable, the overall impact of generic substitution on cost efficiency may be low as elderly and chronically ill people utilize drugs most and thus incur high cost.

Fourth, it remains unclear whether proposed measures to improve governance will translate into efficiency or better cost control. For example, while the draft legislation envisages strategic goals to be binding for individual sickness funds, it leaves open what type of goals this eventually may embrace. In addition, it stipulates an array of standards without being specific. This is unfortunate because individual sickness funds across regions and occupations diverge in many aspects from each other including the way doctors are being paid. Most of the standards are yet to be developed and it remains unclear whether, when and to which degree these standards will help to make care delivery more transparent, e.g  by harmonized rules about the way providers are paid across sickness funds. 

To improve performance of the health care system via better governance the current draft legislation proposes a combination of a more centralized strategic orientention  while enhancing simultanesously (regional) autonomy of individual sickness funds. If developed further in the future this orientation may change the architecture of health care governance fundamentally. This may evolve in the hope that increased power of social health insurance will help to overcome costly fragmentation as being caused by administrative divisions of responsibilities in governance. While this likely is a very slow process if emerging at all, the current approach may be seen as a kind of warm-up excerise for social health insurance to show capacity in becoming a truly active agent for insurees. 

Impact of this policy

Quality of Health Care Services marginal rather fundamental fundamental
Level of Equity system less equitable neutral system more equitable
Cost Efficiency very low neutral very high

If re-certification of contracts will be bound to achieving better standards in ambulatory care, the quality of service provison in this area may increase. On the other hand it remains uncertain if the way generic substitution is currently  envisaged to emerge will ensure quality dispensing of drugs for patients.

The level of equity is unlikely to change as no explict measures are in discussion. However, equality in access to quality services may be enhanced if the way doctors practice medicine is safeguarded by quality standards and if better oversight about the performance of ambulatory care providers is ensured.

The level of cost efficiency may remain unchanged as the current draft legislation does not consider dealing with the level of inefficiency in hospital care. Moreover, it is uncertain to which degree the current proposal can ensure that diverse contracting regimes on the level of individual sickness funds may be streamlined along general strategic objectives to be set by newly created central bodies with more executive powers.  Both the objectives and bodies are yet to be developed.


Sources of Information

Entwürfe zu Bundesgesetzen mit denen das Allgemeine Sozialversicherungsgesetz und andere Gesetze geändert werden, 14.5.2008.

Österreichischer Gewerkschaftsbund und Österreichische Wirtschaftskammer: Zukunftssicherung für die soziale Krankenversicherung. Wien, 7. April 2008.

BMGFJ. Finanzierung der Krankenversicherung und Strukturreform des Hauptverbandes. Presseunterlage. Wien, 14.5.2008.

Hofmarcher, M.M, H.M. Rack: Austria: Health System Review. Health Systems in Transition. 8(3): 1-247, 2006.

Maynard, A. Payment for Performance (P4P): International experience and a cautionary proposal for Estonia. Health Financing Policy Paper, Division of Country Health Systems, WHO 2008.

Various Press Releases.

Author/s and/or contributors to this survey

Hofmarcher, Maria M.

Review provided by Helmut Hofer, Senior Researcher, Institute for Advanced Studies Vienna

Suggested citation for this online article

Hofmarcher, Maria M.. "Ensuring financial sustainability for health care". Health Policy Monitor, May 2008. Available at