Hospital merger made Iceland's health care system one of the world's most expensive Skip to content

Hospital merger made Iceland’s health care system one of the world’s most expensive

The merger that created Landspítali University Hospital (LSH), Iceland’s largest hospital, made the Icelandic health care system one of the world’s most expensive reports the Icelandic National Broadcasting Service, RÚV.

RÚV covered the findings of research by Dr. Sigurbjörg Sigurgeirsdóttir as reported in her Ph.D. thesis, “Hospital Mergers: How the ‘impossible’ became possible. Politics and Executive leadership in the Shaping of Health Policy”, completed at the London School of Economics last spring.

According to Sigurbjörg the merger provides an example of how too much focus on one aspect of a large operation, saving and cost cutting, incurred costs elsewhere.

Sigurbjörg says that the side effects of the merger include drastic changes to the Icelandic health care system. She says that from 1997 to 2002 health care expenditures’ share of the GDP increased from 8.1% to 9.9%, making it one of the world’s highest ratios. In 2005, that ratio had increased to over 10%.

Sigurbjorg says that after the merger the Icelandic health care system has changed to such a degree that the overall management of the system has to be made more effective. She says the new structure of the health care system “demands completely different management methods”.

In a commentary in Morgunbladid last Friday, Sigurbjörg writes, “Six years after the merger the finances of the LSH remain an issue for parliament’s Budget Committee. There is every indication that the health care system in Iceland has evolved in such a way that the government will find it even more difficult than before to control expenditures.”

Sigurbjörg goes on to say “when one examines the current state of the Icelandic health care system in light of this history there are warning signals that indicate that the entire health system needs emergency care. ”

According to public figures, every year the Icelandic government plugs LSH’s substantial operating deficit. For example, in 2003, LSH ran a loss of ISK 25.5 billion on revenues of ISK 2 billion, a deficit which the government paid out of its budget. Invariably, LSH exceeds its authorized budget and a supplemental budget has to be approved. According to the financial statements of the Icelandic government for 2003, that year LSH overspent by ISK 761 million or 3.1 per cent of its allocated budget and consumed 9.4 króna out of every hundred spent by the Icelandic government. In the first three quarters of 2005, LSH has already exceeded its 2005 budget by ISK 239 million.

In recent years, the precarious and unpredictable finances of LSH have led the Federation of Icelandic Trade to complain in public that accounts payable to LSH’s suppliers were continuously in arrears. In mid-2003, a spokesman for the Federation went so far as to demand that the government “get its act together” and stop squandering millions of taxpayers money on interest charges incurred by LSH because of late payments.

Criticism concerning the management of LSH has been voiced before. In a report issued in November 2003, the Icelandic National Audit office found that LSH administrative costs and headcount were significantly higher than at similar institutions in the UK. LSH was overstaffed in doctors and understaffed in nurses compared to British hospitals. During the years 1999-2002, expenditures of the two merged hospitals had increased by 37 per cent, 20 per cent in excess of inflation, and the cumulative deficit of the combined institutions had more than quadrupled. The National Audit Office concluded by stating that the merger of the two hospitals into LSH had not been “sufficiently well planned”.

In the wake of the National Audit Office’s report, the managers of LSH announced a downsizing in early 2004, and said they would make two hundred staff redundant through lay-offs or by attrition. The medical director, Jóhannes Gunnarsson, admitted that the planned cost reductions would impact the level of service in some areas, naming specifically increased waiting times in the emergency ward and reduced follow-up on discharged patients.

The doctors themselves appear less than satisfied with the merger. According to Dr. Sigurbjörg Sigurgeirsdóttir doctors at the merged hospital “experienced facilities that were increasingly cramped and less flexibility to do their work”. The doctors’ dissatisfaction was evident in a study conducted by the Administration of Occupational Safety, also published in November 2003; according to the study 65 per cent of doctors at LSH claimed to be dissatisfied with the management of the hospital and half had considered giving notice.

Twelve senior doctors wrote the minister of health, Jón Kristjánsson, last February and demanded to know why LSH management had repeatedly ignored the resolutions of the doctor’s council of the LSH concerning the governance and management of the institution. The twelve authors claimed that management had illegally created new department head positions and filled them without creating proper job descriptions and without publicly advertising for candidates as prescribed by law. In their letter, the doctors also referred to a legal opinion about the governance of LSH and a formal public governance complaint they had submitted to the ministry of health the preceding December. The legal opinion, originally issued in 2000, had questioned the legality of the proposed governance structure of the then newly merged hospital. The doctors claimed that they had presented LSH management with the opinion in February 2001 but management had ignored it. The doctors also criticized an increase in the number of managers and resulting increase in expenditures and inefficiency.

In response to the criticism, then acting CEO, Jóhannes Gunnasson, currently LSH’s medical director, told the Icelandic National Broadcasting Service, RÚV, “the institution is well managed.”

Late in March, the minister of health replied to the doctors and dismissed the governance complaint filed by the doctors on a technicality and stated that he approved of the organizational structure of LSH.

Three days after the minister brushed off the doctors, thirteen out of seventeen pharmacologist at LSH published a statement accusing LSH management of “autocratic and prehistoric” management practices. In the wake of the declaration, RÚV reported that many staff of LSH were afraid to express their views concerning the management of the institution because of fear of reprisals. Speaking to RÚV, the chairman of the nurses’ council endorsed some of the views expressed by the doctors, not least the widespread fear of reprisals. She was rewarded by being summoned to a meeting with the health minister, but she confirmed her views after meeting with the minister. She also said many staff had voiced support for her in private but none in public.

The minister of health, Jón Kristjánsson of the Progressives, appoints the chairman of the board of directors of LSH. The current chairman is Pálmi R. Pálmason, an engineer with a local engineering consulting firm, VST. In recent years, he served state utility Landsvirkjun as a project manager for the design of the controversial hydroelectric power plant at Kárahnjúkar. Last March, it transpired that Pálmi had recused himself from the board because of a conflict of interest situation. It is not known if he has resumed his duties.

The sole preceding chairman of the merged hospital is Gudný Sverrisdóttir, county commissioner of Grenivík (pop. 392). She is the sister of industry and trade minister Valgerður Sverrisdóttir, also of the Progressive Party.

The remaining directors are nominated by the parties represented in Althingi; the parties in government form the majority of the board.

The Chief Executive Officer of LSH is Magnús Pétursson, former permanent secretary of the Ministry of Finance; he had no previous experience in hospital administration before being appointed CEO of LSH.

Last summer, Magnús returned to LSH after an eight month leave of absence during which he attended a course in executive education at Harvard University. According to the LSH web site Magnús has consulted for various governments on public finances including the government of Swaziland.

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