Czech Republic’s Cautionary Tale of Government-run Health

By Russ Lipari 

Marshall Memorial Fellows are a select group of emerging U.S. leaders in an annual, 24-day program to expose them to a changing and expanding Europe. This year, Russ Lipari was one of three Georgia participants among 50 selected from across the nation and traveled across Europe studying health care systems.

We passed through security in an eight-story building in downtown Prague, capital of the Czech Republic. On the sixth floor, it took two wrong turns before we found the door marked 14 where we were to meet with the head of the country’s largest insurance company, VZP. 

We exchanged pleasantries and I had my at bat, a rapid fire of questions in hopes of gaining a better understanding of health care in today’s Czech Republic. 

What I learned was a cautionary tale of government-run health care. 

Before the Velvet Revolution of 1989, we learned, the Communist Party government administered all aspects of health care in Czechoslovakia. People were assigned, based on their home address, to a government-employed primary care physician, assigned to one of the country’s approximately 180 government regional hospitals, and assigned to the government- employed health care workers who lived in their region. 

Patients had no clearinghouse for hospital or physician level quality or cost data. Health care was, in essence, what you received based on where you lived. Patients didn’t generally seek out “better” doctors because no quantifiable measure of such was available. 

After the revolution, the government retained control of 90 percent of the hospitals while allowing for insurance companies to be created. Thirty-five health insurance companies emerged, but within 24 months only eight were left; the remainder filed for bankruptcy. VZP survived and covers nearly 62 percent of the Czech population. (In 1993 Czechoslovakia peacefully separated into two countries, the Czech Republic and the Republic of Slovakia.)  

Unlike the United States, where Americans enjoy a wide scope of coverage options in insurance, all Czech health insurance companies must provide exactly the same scope of coverage – for everyone. A few exceptions exist but, essentially, the population is fully covered. This is a shared goal of the Obama administration’s 2010 health care law. 

With private insurance, Czech citizens may go to any physician they choose. Ninety percent of the population is now “registered” to a primary care physician. Did the Velvet Revolution matter when viewed through the lens of health care outcomes? In short, yes. Life expectancy went up, infant mortality rates went down. 

This is not, however, a free market for health care. The Czech Minister of Health appoints the head of VZP, who must then be vetted by the Czech Parliament. Disagreements between rates proposed by hospitals (still majority-owned by the state) and the insurance companies such as VZP (again, whose leaders are appointed by the state) are settled by the state. 

Market forces are not allowed to prevail. This creates a distorted market. For example, because of requirements placed on insurance companies when engaged in certain contracts with hospitals, an insurance company may be on the hook for losses. In VZP’s case, it is projected to have a 9 billion Koruny ($463 million) loss, due in part to “the state transferring further unplanned expenses to health insurance companies such as one billion for vaccination and two billion for doctors’ salaries,” according to news reports. As a result, insurance companies adjudicate claims more slowly, which results in delayed payments to doctors. 

A closer look shows that a by-product of these changes is what could be considered a two-tier health care system. The lower (public) tier has created a natural secondary market for a higher (private) tier of health care, versus a ubiquitous prescription for coverage. Doctors now receive only approximately 60 percent of their income in reimbursement from a patient’s insurance coverage. 

The remainder comes from providing private care, often at the direct expense of the insured patient. Doctors are required to provide a percentage of their services to the public program, they are free to charge extra for the remainder of their time. Clearly, if you were a doctor facing payment delays on 60 percent of your accounts receivable, the economic rationale for charging a premium for your private services may well cross your mind. 

Even though patients are charged premium pricing, there remains little transparency for doctor or hospital quality data in the Czech Republic. Patients continue to have very little power to discern exactly what they are buying. As the United States looks to implement unprecedented health care changes over the coming years, the Czech Republic provides lessons on what happens when the private sector is a byproduct of the government. 

Americans may well witness the emergence of our own two-tier health care system as doctor reimbursements go down and private sector employers have the opportunity to “offload” employees onto the state or federal government through newly established health care exchanges. Health care providers in the United States may well seek to correct their financial downturn through direct patient recoupment. As this shift occurs one can only hope that corresponding transparency will at least allow Americans to know what they are buying.

This commentary was written for the Georgia Public Policy Foundation by Russ Lipari, 2012 Marshall Memorial Fellow and president of Validus Group LLC, an Atlanta-based health care corporate development and government affairs firm. The Foundation is an independent, state-focused think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

©Georgia Public Policy Foundation (November 30, 2012). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.