Case study 4: Denmark’s hospital transformation

In 2007 the Danish government introduced a ‘Quality Fund’ (Kvalitetsfonden) as part of a set of wide-ranging reforms of health and local government structures. This was a DKK42.7 billion (worth £5.9 billion in 2015/16 UK prices) initiative, with DKK25.5 billion (£3.5 billion, 15/16 prices) core fund to build new, modern hospitals as a central feature of a new health and care infrastructure. With the initial commitment made in 2009, the projects are currently in progress and are expected to finish in the next few years.

Context

Denmark is divided into five regions, which contain 98 municipalities. The Danish health care system is currently managed by the regions, with populations ranging from 600,000 to 1,700,000. They receive 80 per cent of their funding from the state and 20 per cent from the municipalities. The regions manage all secondary and tertiary care while the municipalities cover elderly care and rehabilitation. Primary care is provided by independent private practices, which are separate from secondary care, but funded from the regions’ health care budget. This structure has been in place since the 2007 reforms.

With a trend towards more out-of-hospital care, and reducing length of stay, there was political and clinical will to change the way care was being delivered. An expert panel was established to define and specify what an acute hospital should be. This hospital construction goes hand-in-hand with new plans and concepts for emergency care (including a nurse-led telephone service). These new hospitals would then be constructed based on the plans developed by each region. The Kvalitetsfonden (Quality Fund)was established as part of the 2007 reforms to fund construction.

Intended benefits

The aim of the Fund is not just to change the way health care is delivered in Denmark, but also to improve quality and productivity by doing so. While it was decided that it would not be appropriate to decide on quality metrics to assess the projects, some productivity requirements have been set out.  These were agreed after reviewing the type of construction (building on greenfield sites or renovation of existing provision), the different baselines, and the evidence of improved productivity from previous major hospital construction. The productivity requirements are expected to be realised within a year of the new hospitals being completed, although it is acknowledged that this is ambitious.

Process and management

In 2007, the government set up a panel of experts to assess the regions’ applications for grants to the Quality Fund. It also made preliminary commitments to support 16 projects. The expert panel evaluated the specific hospital projects and made recommendations to the government as to which projects should receive funding from the Quality Fund. The expert panel has evaluated the regions’ hospital plans as well as the individual construction projects. A preliminary commitment of funding for successful applications determines the scope of the investment. Subsequently, the regions must specify the project within this framework and apply for final commitment. The final commitment of funds includes approval of the project plan on certain conditions.

The productivity requirements for the new hospitals reflect the relationship between a hospital’s operating budget and its activity. There is, however, some disagreement about the appropriate baseline and appropriate way of measuring productivity.

Since the hospital and health care systems in Denmark are governed at the regional level, the regional councils are responsible for planning and managing the construction within budgets and inspecting the hospital construction projects. The Danish Ministry of Health, which has a department to monitor the projects, is responsible for approving and supervising the construction projects.

Funding arrangements

These construction projects represent the largest capital investment ever made in Denmark (totalling DKK42.7 billion over 10 years). Of this, DKK25.5 billion is earmarked for government co-financing, and the remaining 40 per cent by the regions. The total investment budget is also financed by expected productivity gains and loans. This figure was based on the amount that central bodies felt could be used to support the ambition to modernise hospitals.

The funding is given to the projects at intermediate deadlines, of which there are four or five for each project. In principle, the Ministry of Health can choose to withhold the funding at any of these points in time. In practice, in all but one case (where the auditors had not yet submitted their report), the money has been committed at each deadline.

In January 2009, the government followed the expert panel’s recommendations and made a preliminary commitment to 11 projects.

Challenges

Managing costs

While the Fund’s commitments matched the DKK42.7 billion figure, the original plans were more than double that. Negotiations were therefore required to reduce the proposed budgets.

However, this has proved challenging in terms of delivery of the plans. The terms of plans are such that no more money can be put into the projects over and above the amount agreed. Given that large capital investment projects inevitably contain uncertain cost fluctuations, this has been problematic. Nonetheless, it is important to note that the amount of funding has not changed over the past eight years.

A further area of critique from the Rigsrevisionen (the national auditors of public spending) is that the Ministry of Health has not done enough to ensure that the new hospitals will achieve the efficiency gains. Their concern is that the due to the decision not to judge projects on their quality of care, hospitals may increase operational efficiency just by cutting spending.

More on the case for a Transformation Fund for the NHS