Introduction
In June 2016, the Commission received a complaint from the Medical Chamber of Slovenia – a professional organisation of private medical doctors and dentists practicing in Slovenia – concerning alleged State aid granted by Slovenia to public hospitals and public healthcare centres. With decision SA.45844, the Commission recently decided that the public funding of public hospitals and healthcare centres was not State aid.[1]
The Slovenian public health system
According to the Commission decision, the Slovenian constitution lays down a right to healthcare as a fundamental social right which obliges the state to ensure that there is a public health system providing people with the necessary health services.
The Slovenian Health Care and Health Insurance Act [ZZVZZ] and the Slovenian Health Services Act [ZZDej] express in detail the right of citizens to healthcare.
The public healthcare system in Slovenia is co-ordinated and supervised by the National Health Insurance Institute [ZZZS] which exercises control over the healthcare service providers. The healthcare services are divided into three sub-categories: primary level healthcare services, secondary level healthcare services and tertiary level healthcare services.
Healthcare providers are made up of the public healthcare institutes (public hospitals and health centres) [PHIs] and private hospitals and clinics which operate concessions granted by ZZZS. The Slovenian health system also includes private service providers who are not financed by ZZZS. All three groups of providers offer commercial services not covered by the public health system.
Pricing of healthcare services
The Commission explained that “(28) there is no competition on price between the PHIs and concession holders. Article 66 of the ZZVZZ sets out the parameters for calculating the prices for the healthcare services provided by PHIs and concession holders, which are remunerated by the ZZZS (i.e., the basic basket of public healthcare services).” Public healthcare services provided by PHIs and concession-holders are covered by a “General Agreement”.
The financing of healthcare services
The compensation paid by ZZZS covers the costs of medical and other personnel, material costs, and other statutory obligations. However, “(32) this compensation by the ZZZS does not cover all costs of public healthcare services, but, according to the Slovenian authorities, between 50% and 100% (on average 85%), depending on the treatment.” “(33) Approximately 15% of the overall costs of healthcare services is covered by complementary health insurance, which according to the Slovenian authorities, shares a high number of similarities with the compulsory insurance and would hence also be based on solidarity and be seen as part of the universal system and de facto mandatory.”
“(34) In particular, the Slovenian authorities explained that, first, the complementary health insurance represents the public interest of Slovenia and is based on cross-generation and cross-gender mutuality principles and has practically become (together with the compulsory insurance) part of the social security of the insured person. Second, undertakings providing complementary insurance are obliged to accept all compulsorily insured persons and to treat them equally throughout the duration of the insurance period – there is a legally binding obligation that insurance premiums are the same for all persons insured with a specific complementary insurance company. Third, a risk equalisation between undertakings providing the complementary insurance is mandatory. Fourth, insurances are bound to keep separate accounts on the provision of the complementary insurance. Fifth, PHIs and concession holders are obliged to do business with all insurances providing complementary insurance and are prohibited from demanding extra payments from insured persons with complementary insurance. In addition, the top-up to which the complementarily insured person is entitled, meaning the difference between the ZZZS coverage percentage level and the full 100% coverage of the public healthcare service’s price, does not depend on the amount of premiums paid. Finally, due to the strict regulation aimed at ensuring the universality and mutuality, the complementary insurance premiums are practically identical, differing only by a few cents.”
Assessment on the existence of State aid
The Commission began its assessment by recalling that according to Article 167 TFEU, it is for Member States to define their health systems and the modalities for the organisation, delivery and funding of health services.
The sole issue at hand was whether PHIs were undertakings, which in turn depended on whether they carried out economic activities. There is ample case law that healthcare systems based on the principle of solidarity, in which participation is compulsory and contributions and benefits are fixed by law are not market-based activities.
The Commission concluded that public healthcare services offered by the PHIs in the framework of the Slovenian healthcare system were not economic in nature for the following reasons.
First, the PHIs are an integral part of the Slovenian public healthcare system.
Second, the affiliation of both insured persons and insurance entities is compulsory. In addition, the compulsory insurance cover is financed by mandatory social security contributions from residents.
Third, the Slovenian healthcare system is characterised by a social objective in the sense that a healthcare system aims to achieve a social objective by ensuring that all persons have sickness cover, regardless of their financial position or state of health. As the Commission observed, “(90) this is further demonstrated by the fact that certain groups of persons, such as unemployed or disabled citizens are entitled to a 100% health insurance coverage, even if they are not paying social security contributions.”
Fourth, the Slovenian healthcare system is based on the principle of solidarity. “(92) The Court of Justice has consistently held that social security schemes applying the principle of solidarity are characterised, in particular, (i) by the compulsory nature of affiliation both for insured persons and for the insurance bodies, (ii) contributions which are fixed by law in proportion to the income of the insured persons and not the risk they represent individually on account of their age or state of health, (iii) the rule that compulsory benefits set by law are identical for all insured persons and do not depend on the amount of the contributions paid by each, and (iv) a mechanism for the equalisation of costs and risks through which schemes that are in surplus contribute to the financing of those with structural financial difficulties.” “(93) Conversely, it has also consistently been held by the Court of Justice that organisations which manage an insurance scheme based on a system of optional affiliation, operating according to a principle of capitalisation under which there is a direct link between the amount of the contributions paid by the insured person and their financial situation, on the one hand, and the benefits provided to that insured person, on the other, and incorporating extremely limited elements of solidarity, are not applying the principle of solidarity and are, therefore, engaging in an economic activity.” The Commission went on to verify that the Slovenian healthcare system conformed with all four of the conditions laid down in the case law [see paragraph 92].
Fifth, the public healthcare activities are subject to supervision by the state. It is not enough that there is law that certifies the competence of medical personnel or the safety of operations of hospitals and clinics. It is necessary that the provision of healthcare activities is regulated and controlled by public authorities.
Sixth, the public healthcare services are provided for no or limited out-of-pocket payment, meaning that patients do not pay anything in excess of their insurance premiums or if they make a payment the amount is small. [In some systems patients are also required to make small extra payments in order to disincentivise wasteful demand on scarce medical resources.]
On the basis of the above criteria, the Commission concluded that “(117) the Slovenian public healthcare system is non-economic in nature. In particular, the Slovenian public healthcare system (i) has mandatory affiliation and universal coverage, (ii) pursues a social purpose, (iii) is based on the principle of solidarity, (iv) is regulated and controlled by the public authorities, and (v) stipulates that public healthcare services are provided for no or limited out-of-pocket payment.”
Therefore, “(120) the PHIs, when providing public healthcare services, do not exercise activities of an economic nature and thus do not qualify as undertakings within the meaning of Article 107(1) TFEU. The existence of profit-seeking operators on the market, such as the concession-holders does not alter that conclusion.”
Extent of competition in the system
The complainant argued that the Commission in its decision 2016/2327 on Brussels hospitals found that there was competition between hospitals – both public and private – which provided similar services and that public hospitals received remuneration for the services they provided. For those reasons, the Commission concluded that the services provided by the Brussels hospitals were economic in nature. Since then, the Court of Justice has ruled in the landmark case C‑262/18 P, Commission v Dôvera, that limited competition which does not affect premiums or benefits and whose objective is to improve the quality of service provided to patients does not amount to competition on the market. It must be also noted that the Court of Justice has not defined in precise terms the meaning of limited competition.
In the present case, the Commission considered necessary to address the argument put forth by the complainant that there was competition in the Slovenian healthcare system, especially given the findings that “(120) the PHIs, when providing public healthcare services, do not exercise activities of an economic nature”. This implies that services outside the public healthcare system were economic in nature, which leads to the question whether the PHIs operated separate accounts.
“(121) According to the Complainant, PHIs compete within the public healthcare system with private concession-holders. Even though, there is no competition on price, the Complainant argues that competition on quality, for example by shorter waiting times for healthcare services provided by the concession-holders is enough evidence in that regard.”
“(122) As regards the allegation of the complainant that there is competition on quality and on waiting times, the Commission notes that there is no (or very limited competition) between PHIs and concessions-holders in this regard since the annual General Agreements set standards ensuring the provision of safe and high-quality healthcare services, which are applicable to both PHIs and concession-holders. In addition, […], the waiting times for services provided by the concession-holders are not always shorter but rather depend on the supply and demand of healthcare services in each specific location.”
“(123) In any event, even if there was a certain degree of competition between PHIs and concessions holders on quality and waiting times, the Commission is of the view that it would not call into question the (non-economic) nature of the scheme.”
“(124) This is because the presence of a competitive element in a healthcare system characterised by the principle of solidarity does not change the non-economic nature of that system, in so far as this is intended to encourage operators to operate in accordance with principles of sound management, that is to say, in the most effective and least costly manner possible, in the interests of the proper functioning of the system.”
“(125) In the case at hand, even if the patients could choose the medical facility in which to receive healthcare services, the Commission notes that all providers – PHIs and concession-holders – are financed by social security contributions, and they offer their services free of charge to all persons affiliated to the mandatory and the complementary insurance (which in reality represent more than 95% of the population.”
“(127) In addition, the Commission notes that according to the case law “even when combined with a certain degree of competition prevailing on the relevant market and adjacent markets, the principles of solidarity and universality only imply that the service is provided, at least potentially, to all patients on demand”.” [here the Commission cited cases T-223/18, v Commission and C-492/21, Casa Regina Apostolorum v Commission].
Then the Commission examined and ruled out possible cross-subsidization of PHIs economic activities.
“(130) Even though the Slovenian public healthcare system is non-economic in nature, the measures [in question] would still be subject to an assessment under Article 107(1) TFEU if they are conferred to undertakings within the meaning of that provision.” “(131) PHIs are not undertakings in regard to their public healthcare services. Nevertheless, PHIs qualify as undertakings in regard to their commercial activities.”
“(132) In this regard the Slovenia authorities have held that the funding under the measures has been exclusively used for financing the PHIs’ public healthcare activities since their commercial activities are in principle of a non-healthcare, and ancillary nature (e.g., catering, cleaning).” “(133) Nevertheless, those measures would still be subject to an assessment under Article 107(1) TFEU unless a possible cross-subsidisation of their commercial activities is excluded.”
“(134) According to the Slovenian authorities cross-subsidisation can be excluded due to the obligation imposed on PHIs to separate their costs and revenues from economic and noneconomic activities.”
“(135) In order to reach that conclusion, the Commission has to assess whether the applicable rules for account separation ensure that cross-subsidisation does not take place.”
Then the Commission noted the following. “(136-140) PHIs with a total annual net turnover of at least EUR 40 million over the period of the preceding two financial years must apply the requirements of ZPFOLERD-1. The ZPFOLERD-1 imposes an obligation for public-bodies, including PHIs, to have a separation of accounts by activities and to keep records of it. Pursuant to Article 8 ZPFOLERD-1, the criteria for allocating indirect costs by activity shall be based on accounting principles ensuring that that the costs are allocated to the activities which generated those costs. Moreover, an external auditor must perform an annual audit of the separated accounts, which includes a review of whether the cost allocation principles are still appropriate and whether they are correctly applied. The Ministry of Health can impose sanctions upon the PHIs in case of non-compliance or breaches of the provisions on account separation.”
“(142-146) For PHIs not falling within the scope of the ZPFOLERD-1, the ZR, as well as the Acts implementing the State budget (ZIPRS2122) provide concrete obligations on separation of accounts. Those PHIs must have separate accounts showing costs and revenues from operations with public funds separately from operations with funds obtained from the sale of goods and services on the market. Furthermore, entities not falling within the scope of the ZPFOLERD-1, which are also financed from revenues from commercial activities must ensure separate accounts based on objectively determined criteria. The Commission notes that the Ministry of Health provides further guidance to PHIs on how to accurately separate revenues and expenses from public healthcare service activities and commercial activities in the Instruction on separation of activities between public services and commercial services, which includes detailed rules about allocation of revenues and costs stemming from public healthcare activities and from commercial activities. Finally, pursuant to Article 48 of the Institutes Act (“ZZ”), all surpluses of revenues from commercial activities must intended for the provision of healthcare services as a public service.”
Conclusions
This is a very useful decision because it spells out all the issues that need to be assessed in order to conclude that public funding of healthcare does not constitute State aid. The Commission clarified the conditions under which limited competition does not make the provision of healthcare into a market-based activity and that healthcare providers may offer commercial services as long as there is account separation that prevents cross-subsidisation.
[1] The full text of the Commission decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202445/SA_45844_228.pdf
