Healthcare Business International

Extensive reforms could change the face of German healthcare

Germany’s Federal Minister of Health, Karl Lauterbach, is a polarizing politician with a history of upsetting even the members of his own party. Up until recently, the suggestion that he could be at the helm of the most wide reaching healthcare proposals of any Western European country in recent memory would have raised only a smile. No one is laughing now. Following a public and typically blunt – and according to many accurate – assessment of the state of the pandemic, at the end of 2021 a wave of popular support saw this once unlikely candidate elevated to a position where he could really make a difference. In this free article, we explain how the reforms which could change the face of German healthcare sound the death knell for small hospitals, and signal an end to overactivity.

Here’s a free sample of a news article about first published in December 2022. Members get exclusive news like this together with the opportunity to research more deeply by exploring our Market Reports, Deals and Insights data and much more available to Members.

German health minister Karl Lauterbach has set out detailed reforms which would change the face of German healthcare, sound the death knell for small hospitals, and signal an end to overactivity.

Click here to read our German reports on HBI Intelligence.

The proposals reclassify hospitals into three categories. Currently, hospitals can provide any kind of care regardless of size. Under the proposed reforms, hospitals will receive fixed holding amounts, the size of which will depend on which classification they meet:

  • Primary care hospitals which will provide basic medical, nursing and surgical care as well as emergency care. These are split further into those which provide emergency care and those which provide integrated outpatient/inpatient care.
  • Regular and specialist care hospitals which provide more than basic care.
  • Maximum care hospitals, such as university hospitals.

A Germany-based source tells us this would be “a massive change with significant repercussions”.

The proposals recommend that care hospitals which provide outpatient/inpatient care are to be planned regionally to ensure those in rural areas also have access to high quality healthcare. However there is some concern in Germany that local hospitals will become “glorified nursing homes” and despite the government’s best efforts, plans to close smaller hospitals will leave some rural areas worse off than they already are.

Over the next five years, hospitals will be expected to transition so they do not treat patients unless they have the correct specialisations and equipment. The health ministry has said this was previously allowed due to the overly vague classification of condition types, such as “internal medicine” as opposed to “cardiology”. As the types of care hospitals can deliver will be more strictly managed depending on whether the hospital counts as a primary care or regular/specialist hospital, it could mean many smaller private hospitals may not be able to deliver more lucrative kinds of care, and would likely need to close.

According to a German consultant source this reckoning is long overdue: “Smallish hospitals, many of them loss making, you could argue don’t even have a right to continue to act as a hospital because we have overcapacity, they have no USPs, no specialisation, patients are turning away. In the UK you need additional infrastructure but in Germany we have plenty.”

The source adds that due to the previously announced push towards outpatient care, these hospitals may be saved by M&A: “By introducing these laws you provide owners of hospitals with the opportunity to sell their smallish hospitals at a very high price to investors who are keen to buy this to invest in the outpatient space so you counter your efforts to make the hospital more proficient.”

An investor source adds: “The industry is so heterogeneous. Some disadvantages for small operators are advantages for big operators. Smaller hospitals may go out of business, bigger ones profit, and they treat patients better. Short term if there’s lower reimbursement it creates pressure on everybody. The smaller hospitals don’t have scale and they’re forced out of business.” He says regional clusters would be bought up, while small rural hospitals would likely shut down.


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University hospitals also look likely to get extra reimbursement to help them deal with their complex case loads.

HBI hears Lauterbach is now more very focused on the need to close hospitals. One source previously told HBI when Lauterbach announced plans which would see as much as 25% of inpatient activity switch to outpatient: “To me it looks like the health minister just wants to save time because he’s currently not willing to go through a huge reform in hospital licensing or decide which hospitals are going to be closed.” The announcement marks a huge shift in Lauterbach’s approach to reform.

Overactivity is firmly in Lauterbach’s sights. German healthcare is often seen as incentivising overactivity. Germany performs a lot of surgery as each activity is paid at a flat rate DRG (diagnosis related group) tariff which encourages doctors to administer treatment patients might not necessarily need, and which hospitals might, potentially, not be best placed to carry out. The tariff can also sometimes encourage early discharge when patients still need care, and to close necessary but unlucrative specialisms such as paediatrics. The holding costs would provide hospitals with funding without the immediate need for activity. Providers have told HBI they’re unclear about any deeper detail as to how this might work.

The answer to this may be found in Lauterbach’s reforms, where the 17-member “Government Commission for Modern and Needs-Based Hospital Care” says reimbursement should follow three criteria: provision services, care levels, and performance groups. Lauterbach has said: “This recommendation will be a basis for our major hospital reform. Patients should be able to rely on the fact that they will receive fast and good care everywhere, even in rural areas, and that medical and not economic reasons will determine their treatment. To do this, we need to overcome the flat-rate case-by-case system.”

A German hospital provider tells HBI prospective changes to DRGs are nothing to worry about – for well-run operators at least: “Inefficient providers will remain inefficient, but they will see differences in quality, equipment etc. Obviously we will have to see how the numbers turn out and what the rates are and then we can do our calculations, but I’m sure we’ll come out positively.”

Another German hospital provider, tells HBI while he agrees with the reforms, Lauterbach may have trouble implementing them: “He’s going to have a problem in implementing this as there’s federal systems, he will have to get the region to agree and with the shared responsibilities for healthcare investment that’s hard to get. That could be a stumbling block, there’s no doubt about that. Political agreement on this package with the sleaze he has to manage is what could make this fall, but the ideas are good.

“I think it would have to contain something the region would have to finally honour its commitment to do the financing of hospital infrastructure, because one problem we have at the moment is the region is responsible for investment in hospital infrastructure and the providers are just supposed to get paid for what they do, but providers have to invest as the region hasn’t been honouring this agreement and that has led to a strong lag in infrastructure investment. Lauterbach has to squeeze this money out of the regions.”

Our first provider source believes Lauterbach’s language has taken on a distinct party political, anti-private tone: “One segment we disagree with is one of the political statements – the private sector is just about collecting money and not doing good medicine, which is fundamentally wrong.

“But if you ask me he has to make those statements to please his party, so I would discount what he says there.”

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