New Public Management in the Norwegian Hospital Sector: Budgeting, efficiency, and economies of scope

Abstract

In the 1990s, the Norwegian hospital sector struggled with long waiting lists and a lack of cost control. In response to this, several reforms labelled under the umbrella term “New Public Management” (NPM) were introduced in the Norwegian hospital sector in the late 1990s and early 2000s. In brief terms, NPM consists of introducing management practices inspired from the private sector into the public sector, with the goal of making the public sector more efficient. The reforms introduced radical changes in how the hospitals were organized, managed, and financed. The most extensive reform was the 2002 Hospital Ownership Reform. This reform moved the ownership of the hospitals from the counties to the state, while reorganizing the hospitals as health trusts. These health trusts were organized as self-governing entities with control of their own personnel and capital. This thesis covers a study period between 2011-2019, when the Norwegian hospital sector was relatively stable, in terms of both financing and organization. The thesis consists of three papers, as empirical studies, investigating three different aspects of the 2002 Hospital Ownership Reform one decade after its initial implementation. Paper 1 investigates how the health trusts adapted to a model whereby they are responsible for financing both the day-to-day operations of the health trust, as well as investments. Specifically, we look at both at the degree to which the health trusts have planned for budget surpluses, and the accuracy of this planning. We furthermore investigate whether there have been any associations between structural/organizational characteristics and the accuracy of budgeted surpluses. We find that the health trust for the most part budgets for a positive result of between 0-3 per cent of total operating costs. When comparing the budgeted results with the actual results, we find indications pointing towards the health trusts being too optimistic when planning future surpluses, but we also find examples of pessimism. Larger health trusts seem to have a greater accuracy in their budgeted results than smaller health trusts, while health trusts with more a more complex pool of patients have lower accuracy in their surplus budgeting. Paper 2 investigates one of the main objectives of the NPM reforms, namely efficiency. In the study, we first measure the efficiency of the whole hospital sector through a non-parametric method. Secondly, we investigate how NPM-related tools are related to the efficiency. We find that from 2011 to 2019, the average efficiency level of Norwegian health trusts increased somewhat. We find that a variable capturing the NPM component of incentivization is associated with the efficiency score, while a variable capturing the NPM component of competition is not associated with the efficiency of the health trusts. Paper 3 investigates the potential presence of economies of scope in the Norwegian hospital sector. Following the 2002 Hospital Ownership Reform, the Regional Health Authorities had the freedom to decide on the separation of functions within the health region. The individual health trusts were also given greater management autonomy. Economies of scope refer to situations where cost savings occur from the joint production of services in the same unit, rather than from separate production in specialized units. For the 2013-2019 period, the study investigates whether there were any differences in average efficiency between relatively specialized and differentiated hospitals, and whether the Norwegian hospital sector was characterized by economies or diseconomies of scope While the findings concerning the first question are somewhat ambiguous, the findings concerning the second question indicate that the sector is characterized by economies of scope.