IDS Hospital Mangement - White Paper

Is Healthcare Budgeting Ethically Justifiable?


J. Fritze






A budget is the compilation of data for the planning of anticipated costs and revenue for a future period. The budget provides a financial framework. Budget planning serves to reduce economic risks for an enterprise and is therefore instrumental in ensuring the survival of the undertaking. In this way budget planning fulfils a collective ethical claim, namely that of preserving the business from financial ruin, and thereby, for example, securing work places for its employees, and honouring its service mandate towards its customers.Budgeting is therefore ethical – and ethically indispensable.

Healthcare budgeting

Budgeting means a definite guaranteed volume of finance for the healthcare service over an agreed budget period,based on the unit costs of the medical and hospital service. If the contributory revenue from health insurance does not meet the agreed total budget, i.e. because of wage links following an economic unemployment slump, the risk lies with the health insurance funds. It is a political decision as to whether the deficit should be balanced by increased contributions, i.e.ancillary wage costs. The political decision depends on economic criteria which, in the globalised economy, and the export dependency of the German economy, must also take into account conditions abroad, as well as the majority consensus as to what proportion of income the citizen is willing to pay.

The decision of the majority in a democratic community is derived in the final analysis through parliamentary elections,even though without such specific questions as to the amount of joint and several contributions being voted upon. It must,however, be assumed that the majority of the population supports the system of community health insurance, i.e. service demands independent of the amount of contributions with vertical and horizontal redistribution. It must also be assumed that the majority is in favour of limiting the size of contributions. The majority would also thus favour a limit on contributions for hospital treatment, even if public opinion polls show that health is always top of the list of priorities. It is an ethical imperative that politics respects the sovereign will of the majority (and thus acts conservatively in economic terms). The majority in question, however, means the majority of the healthy insured population, and not the sick who are ultimately affected by the decision.

Stability of contributions

If at the time – over and above party demarcation lines – an increase in donations is politically rejected, it is probably a reflection of sovereign will. Section 4 of the Social Law Code V (Health Insurance Funds) and similarly Sect. 71 of the Social Law Code V (Stability of Contributions) read:“Insurance funds must be managed sparingly and economically in the use to which they are put and how they are managed,and their outlay must therefore be apportioned in such a way that increases in contribution rates are excluded,unless,even after economic reserves have been used up, necessary medical care cannot be guaranteed without an increase in contributions” (Sect. 4 paragraph 4). The law thus does not categorically exclude the provision of additional resources if this is required through medical advancement or changes in morbidity.However, in practical terms the legal statute means a rigidly “capped” budget, because evidence of economic reserves being exhausted is difficult to determine.

Medical contract system

In the out-patient area the entire provision of the health insurance funds are handed over to the health insurance associations (Sect. 85 of the Social Law Code), comprising the total flat individual rate of the insured. The health insurance associations share out the entire provision according to the accumulated individual services of contract physicians, as indicated by the medical profession (in line with the Unified Evaluation Scale, Sect. 87 of the Code of Social Law V). This internal medical distribution is thus conditioned by numerous further complicated rules which need not concern us here. The distribution rules are supposed to guarantee a just distribution (cooperative principle) and are agreed upon by the contract physicians. If more services are provided overall than is allowed for by the total financial provision,monetary value of individual services is reduced. If an individual physician therefore wishes to provide more services for reasons of commercial self-interest, or is compelled to do so on the grounds of morbidity, the individually higher revenue is acquired through correspondingly lesser revenue for other physicians.

Hospital budgets

Individual hospital budgets are agreed (still up to the introduction of the full lump sum compensation system modelled on the Australian DRG system on 1 Jan. 2003) between statutory sick fund administrations and hospitals as sum total of planned revenue which, with certain exceptions, are to cover the planned costs. This is based on case figures. If excess or insufficient receipts are realised through over- or under-estimates of case figures, they are only proportionately adjusted in line with fixed rules relating to federal accommodation and treatment charges.These adjustments should achieve a quantitative control which of course ignores medical exigencies.


The upper budget limit for drugs, dressings and pharmaceuticals is set by cost unit and health insurance agreement (Sect. 84, Social Law Code). The budget for individual physicians is arrived at by the combination of the number of patients and the agreed specialist tariff rate. The share in the price of drugs to be taken over by the health insurance, which are no longer protected by patent, is determined by the federal committee for physicians and health insurance (Sect. 35,Social Law Code V; analogue to remedies in Sect. 36,Social Law Code V). The legitimacy of these imposed prices is open to question in the light of some cartel judgements. The share of the price contributed by health insurance funds for patent-protected drugs is reduced by the amount of the supplement paid by the patient,which is graded according to the size of the packaging (Sect. 31, Paragraph 3,Social Law Code V). The sick are thus financially burdened in order to ease the load carried by the healthy community. The amount of this burden is unrelated to the underlying illness or to the expediency of the drug.To avoid social hardship provision is made for exemption from this burden (Sect. 61, Social Law Code V).

Fig.1 Scale of psychotherapeutic care (May 2000) compared to neurologists and family physicians. (Data from Federal Association of Medical Insurance. Federal Office for Population Statistics. Status in each case 31 Dec. 98)

In order to guarantee maintenance of the upper limit, three sanction mechanisms have been put in place, of which two apply to individual physicians and one which is collective. These are spot checks as well as conspicuity tests (Sect. 106,Social Law Code V) on the ad-herence to tariff rates, as well as the obligation for collective adjustment of 5% of budget excess, for which funds are to be used from the total allowance made available for medical services (Sect. 84, Social Law Code V). There is far-reaching
consensus that the collective liability is unconstitutional. It has never been enforced, and thus there has never been a complaint of unconstitutionality.

Fig.2 Budget for drugs and dressings (1998) per citizen covered by statutory health insurance

Rationalisation and rationing

If expenditure for the treatment of the sick (and other health services listed in the statutory sickness insurance service catalogue) is limited (“capped”budget), an increase in demand (for reasons of medical advancement or change in morbidity) can only be covered by redistribution. This is what the legislators mean by exhaustion of economic reserves. The law does not specify what rules are to be followed; they are thus left (largely) to the subjective discretion of the medical profession. Some demands are of a general nature, namely that the services must be sufficient, expedient and economic
and may not exceed the measure of necessity (Sect. 12,Social Law Code V) that they should justify needs and be equitable and reflect the generally accepted level of medical knowledge (Sect. 70, Social Law Code V).

Such rationalisation means, as far as material services are concerned (e.g. pharmaceuticals), the inevitable decision that certain services cannot be guaranteed any more in order to accommodate others.That is what rationing is all about. This can probably be very sensible medically (e.g. giving up doubtful services). It is difficult,however, to make the patient understand this. In the case of non-material services (e.g. medical consultation) the exhaustion of economic reserves may well mean faster turn over, but which the patient concerned my experiences, in certain cases, as a lesser benefit. This also conflicts with the political development that is demanded and encouraged of the responsible patient, whose maturity poses higher demands on the “service provider” in terms of time allocation. The growing needs of the patient necessarily run counter to greater efficiency. This can mean dehumanising the physicianpatient relationship.

Uniformity and Justifiable Need

The requirement in Sect. 70 of the Social Law Code V that “health insurance funds and service providers must guarantee a justifiable need and uniformity of care for the insured which reflects the generally accepted level of medical knowledge” is an ethical one. Is it redeemable and honoured? A glance at the number of therapists (Fig. 1) and the pharmaceutical budgets (Fig. 2) in relation to federal states makes this questionable.

The degree of neurological provision (Fig. 1) varies between federal states with a coefficient in variation of CV=35.8%, and in the case of medical psychotherapists 128.4%, and non-medical psychotherapists 89.1%. The provision of general practitioners only varies by comparison with 9.2%. It is hardly credible that this crass imbalance can be explained away, or be justified, by the morbidity differences between federal states. It is simply a historic anomaly in which vested rights have been updated.

The budget available for drugs and dressings (Fig. 2) per statutorily insured health care varies between federal states by CV=7.5%. The only recognisable connection in this variability is the number of contracted physicians in each federal state. This connection is plausible insofar as the total budget inevitably grows with the number of contracted physicians, yet runs parallel with the motivation to suppress its growth.There are indeed regional differences in morbidity (e.g. higher incidence of cardiovascular morbidity in the new federal states), payment exemptions (e.g. new federal states) and health care structures (e.g. main oncology centres in Lower Saxony). These,however, hardly explain the differences (Fig. 2). The disparity is again better understood as a historic anomaly, whereby vested interests were updated.

The ethical claim is not redeemed. Different groups of illnesses compete for resources in the redistribution necessitated by innovation. This competition between patient interests is fought out within the medical profession where physicians act as representatives of their patients. The rules are not transparent. This has led to the mentally ill not being equitably treated by atypical neuroleptics and anti-dementia drugs according to the state of the art. Only the Hesse Health Insurance Association has separated out atypical neurolepsy from the budget tariff on the grounds of it being an exception.

Medical necessity

The concept of medical necessity is intended rather as a demarcation from the optimal or the desirable. The only concrete definition is to be found in Sect. 27 of the Social Law Code V: “The insured
have a claim to health care when it is necessary in order to detect and cure an illness, to prevent any deterioration, or to ameliorate any symptoms”. Defining clearly the meaning of medical necessity must fail in individual cases as long as no total social consensus exists, and as long as ill health is perceived as a fateful catastrophe, and thus severally and jointly in need of support, and not, for example, because it is due to anything trivial, or to a person’s particular lifestyle. Discussions about this are still at an early stage. Certain illnesses have been statutorily classified as trivial (e.g. adult colds,Sect. 34,Social Law Code V), which the person concerned might not view as trivial. The federal committee of physicians and health insurers have to determine “guidelines for the guarantee of a sufficient, expedient and economic healthcare service” (Sect. 92, Social Law Code V), which would substantiate the criteria. The decision of the federal committee (3 Aug. 1998), to exclude services for the treatment of erectile dysfunction because they are uneconomic and assignable to the private lifestyle sector, was rejected by the Federal Social Court (SKAT; 30 Sept. 1999) and the Hanover Social Court (Sildenafil,Viagra; 16 Nov. 1999).


The demand for expediency has undergone an indirect realisation with the (renewed) introduction of the so-called positive list (Sect. 33a, Social Law Code V) at the cost of statutory health insurance prescriptive drugs. The list contains “drugs suitable for expedient, adequate and necessary treatment, prevention or diagnosis of diseases or significant ill health. A precondition for this suitability is a more than slight therapeutic use, measured against the attainable therapeutic effects.... The quality and meaningfulness of the specimens, the therapeutic relevance of scientific findings and the probability of the success of the therapeutic,preventive or diagnostic measure...”. The law therefore requires evidence of a minimum effect size established according to the latest state of medical science. That means requiring proof of effectiveness (and safety) by controlled, randomized, double- blind trials.

This requirement, unfortunately, is “in the same breath”, overruled by the legislation that the criterions for the inclusion of the pharmaceuticals of complementary medicine have to consider the peculiarities of the respective alternative medicine (Sect. 33a, Social Law Code V).


Restrictions in the joint and severally financed health services are, in the face of continually limited resources, inevitable. That is what rationing means, and is, unfortunately,the reality of life. If there is going to be rationing, however, it needs explicit, transparent consensus rules which are applicable to the whole population, so as to satisfy ethical demands. This reality has been debated publicly for some time already in other countries. It has only just begun in Germany. The central ethics committee of the Federal Medical Council has accepted the necessity of defining priorities relating to medical necessity and expediency (Deutsches Ärzteblatt 97/15, 14 April 2000, pp. A- 1017ff). The “medical orientation” committee, the Society for the Science and Structure of Insurance,made conceptual suggestions in Berlin on 19 May 2000 for the formulation of health aims. These suggestions follow an elsewhere explained and reasoned algorithm for prioritisation, based on empirical data [1].

In the end it is about resources not being allocated randomly, or in the best case not following particular interests, but rather – as the law requires – according to medical necessity, expediency, conformity with and restriction to medical needs, even accessibility and efficiency. To give these concepts substance, rational, scientifically based criteria are needed. These, however, must be based on full democratic consensus covering the entire population.To avoid arbitrariness and favouritism the priorities have to stem from scientific findings. Justifiable need and expedient medical measures can only be based on the results of methodically adequate, scientific studies. In this way “evidencebased
medicine” is the fundamental basis of prioritisation.

From these arguments – here briefly reproduced – the following criteria are a suggestion for an inductive methodology for defining priorities (Fritze 1999):

1. Actual frequency of illnesses
2.“Dangerousness” (vital, invalidism) and “mental trauma” (quality of life) from the point of view of the
individual concerned
3. “Dangerousness” (vital, invalidism), “mental trauma” (quality of life) and anticipated frequency from the point of view of the community
4.Avoidability (prevention) from a medical-scientific and sociological (acceptance) point of view
5.Degree of benefit from available preventative options
6.Curability from a medical-scientific standpoint
7. Degree of benefit from available treatment options
8.Direct illness costs
9.Indirect illness costs
10. Cost of illness prevention
11. Cost of achieving healthcare target
12. Reliability (semi-quantitative) of prioritisation as healthcare target

Each criterion is at least approximately quantifiable with the help of empirically produced data.For each of these criteria a weighting system can be accorded to each illness through a rating procedure, so that a priority or ranking order can be established. Thus e.g. a rare illness can attain a high priority because of high mortality after tantalizing ailment in spite of its limited curability and thus high expenditures (research investments) in achieving this healthcare target (e.g. AIDS). Prioritisation, of course, requires regular updating to take account of changes in weighting at every decision level.

The demand for a rational system of prioritisation may appear idealistic. It would without doubt only be approximately realisable in stages.Nevertheless, only with a clearcut system of priorities can the ultimately insoluble conflict be made tolerable between the justifiable, collectively ethical claim (of healthy citizens) to economising and limitation of resources, and the equally justifiable individual ethical claim (of patients) to joint and several help. At any rate a broad-based public discussion about the problem of prioritisation must take place, so as to put an end to the current, ethically indefensible “secret”rationing, for which the individual physician must shoulder responsibility.


The demand for health care services is in principle unlimited, although the available resources are strictly limited. That inevitably means rationing. Although people inveigh against such rationing, there is a tacit agreed consensus among the population at large that resources are in fact limited. If, indeed, resources are limited, a society which feels behoven to justice and social responsibility, requires clear rules about the distribution of resources, and about which services must be excluded. The rules need to be based on scientifically established priority lists. At which point the lowest ranking services should be excluded is not a scientific question any longer, but depends on total social economic viability and general consensus. In Germany there is an absence of any prioritisation debate. The legal requirements of necessity, expediency and economic stringency are insufficient. The burden of capped rationing has until now been borne by the medical profession alone, and is responsible for an inequitable distribution of health care supply.This is contrary to statutory law. An algorithm is herewith suggested in outline for the deduction of priorities.


1. Fritze J (1999) Therapy with atypical neurolepsy from a health economic point of view: an attempt at a health economic analysis. In: Möller H-J, Müller N (eds) Atypische Neurolepika. Steinkopff: Darmstadt,pp 123–154