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Acute or chronic: the impact of economic crisis on healthcare, report by KPMG Romania - Doing Business | DOINGBUSINESS.RO

  |  08.11.2012

Acute or chronic: the impact of economic crisis on healthcare, report by KPMG Romania

The deepening economic crisis in the Eurozone has exposed health systems around the world, particularly in Europe, to public and private budgetary constraints

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Healthcare systems currently face a funding crisis, which is adversely affecting health outcomes. High unemployment and the slow pace of recovery have further weakened the public sector and its ability to supply quality health services in Europe. This trend is spreading beyond Europe to other geographies, including the US, as economies across the globe are far more interdependent than ever before. The current financial crisis is an acute form of what is likely to become chronic in many western economies. The scale of the challenge not only requires solutions that are effective in the short term, but also some bold and radical measures in the medium to long term.


The economic downturn and the consequent squeeze on public spending have significantly affected spending on healthcare in Europe and North America. Despite signs of recovery, the economic environment remains fragile, with a strong possibility that some countries may implement further austerity measures to stabilize their finances. This, in turn, is expected to significantly affect publicly funded healthcare systems.

In many countries, healthcare is likely to enter a period of extended austerity. Further, the pressures that are surfacing are likely to be a common feature of many health systems in future.

The unfunded entitlement payments (burden of social security, Medicare and other entitlements in excess of money set aside for them) may be as high as 188 percent of GDP, in the US. The National Health Service (NHS) in England has a task to become 20 percent more productive by 2015. Other healthcare systems have already started buckling under the pressures of increasing demand and constricted public finance.

The demographic imbalance caused by an increase in aging population globally leads to a much larger issue of change in dependency ratio — reduced tax-paying and working population to support the retired population and those using healthcare services. This imbalance is leading to a growing demand for healthcare globally.

Demand-side pressures — such as an increase in chronic diseases and the number of patients with multiple conditions — are significant challenges to the way healthcare systems operate. However, the majority of growth in health expenditure over the last 20 years has been driven by policy choices and supply-side factors. In fact, factors such as increasing use of technology; new drugs; improved facilities that help provide services to an increasing number of patients; rising costs of providers; and the tendency for spending on healthcare to grow at more than 0.5–2.5 percent above GDP growth have generally had a greater impact on health expenditure than aging has. Its likely that up to one-third of the growth in public health expenditure could be modified by policy decisions.

Countries, states and payors will need to adopt new and more sustainable approaches to service delivery and healthcare funding. In the long-term, many health systems may face the challenge of containing the impact of population changes while simultaneously managing expectations, saying no to developments and reprioritizing existing expenditure.

In the US, the emergence of both the Patient Protection and Affordable Care Act (PPACA) and accountable care organizations (ACOs) reflects a realization of the need to contain spending. Even so, the ambition to slow the rate of increase in expenditure suggests that the urgency of the situation may not have been fully reflected in the legislation. In Europe, while many short-term measures exist to contain costs and review the extent of coverage, there are no signs yet of providers, payers or policymakers having identified alternative models that are likely to be financially sustainable in the long term.


Over the past few years, total healthcare expenditure has risen in both developed and emerging markets. Public spending on health constitutes a significant share of total government expenditure and GDP. In most cases, health expenditure has increased, often more rapidly than GDP. During times of recession, the widening gap is also likely to be reinforced by a decrease in GDP growth rates.

According to OECD estimates, public health expenditure as a percentage of GDP is likely to increase by an average of 3 percent in advanced economies, over the next 20 years. This growth is higher than the growth in the 28 years up to 2008 (i.e., between 1980 and 2008), during which time only six countries had growth in excess of 2.5 percent, while some grew at a significantly lower rate — six had less than 1.5 percent growth over this period.

The situation in the US is especially worrisome, as public health spending as a percentage of GDP is projected to rise by about 5 percent over the next 20 years. Medicare spending is expected to continue its upward trend and is projected to grow faster than the GDP. According to estimates by the Congressional Budget Office (CBO), Medicare spending amounted to US$572 billion in 2011, and is expected to be more than US$1 trillion in 2021.6 Moreover, according to the 2011 Medicare Trustees Report, unfunded Medicare benefits to its beneficiaries are likely to total approximately US$24 trillion over the next 75 years.7, 8 The reforms introduced under the Patient Protection and Affordable Care Act (PPACA) of 2010 are expected to expand health insurance coverage and reduce the budget deficit. However, forecast savings on healthcare spending are not very high and the future of these reforms remains uncertain.


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