Although only 37 percent of the electorate turned out to vote, less than the 50 percent needed for the results to be automatically valid, the measure still could have passed if one-fourth of eligible voters, or two million Hungarians, had voted in favor. For the Fidesz - Hungarian Civic Union, Hungary’s largest opposition party and the referendum’s main supporter, the final tally was tantalizingly close with over 1.92 million votes in favor. But at the end of the day, the failure to get those last 98,000 votes still meant a victory of sorts for the governing coalition of the Hungarian Socialist Party (MSZP) and the liberal Alliance of Free Democrats (SZDSZ), both of which opposed the referendum.

The conservative Hungarian Democratic Forum (MDF) also opposed the measure, although it stressed that the privatization of healthcare institutions should only be allowed to non-profit organizations.

A referendum about politics

Make no mistake, the referendum was about politics, not policy. In practical and professional terms, the referendum would have had little immediate effect, since the referenced “law that runs counter,” the so-called Hospital Act, had already been nullified in December 2003.

The Constitutional Court struck down the act on procedural grounds, ruling Parliament had not carried out a new debate in earnest after Hungarian President Ferenc Mádl sent it back to the house for reconsideration in June 2003. The court therefore declared the law void, defending the president’s veto power from dilution. It was again the Constitutional Court that decided, in September 2004, that the referendum could go ahead even though it calls for the nullification of non-existent legislation.

The referendum’s political pedigree was worthy of a case study in its own right, having been organized by the Workers’ Party, the main bastion of Hungary’s unbowed communists. That the cause was picked up by the famously anti-communist Fidesz is remarkable - roughly analogous to a situation in which the MSZP would be seen running with a proposal put forward by István Csurka’s radical conservative Hungarian Justice and Life Party (MIÉP).

Rhetoric surrounding the referendum reflected the political nature of the contest, as scare tactics were a key part of the campaign on both sides. “If you don’t want there to be privatized hospitals, where you have to pay for health services, for example HUF 625,000 to give birth, then you should vote ‘Yes’ this weekend,” said Fidesz’s Gabriella Selmeczi in the run-up to the election.

Improving health-quality?

Meanwhile, the MSZP’s István Újhely also bent the truth severely when he said that if the referendum passed, all clinics, private practices, pharmacies and church-operated hospitals would have to be nationalized. Yes, positive messages about policy were put forward by the SZDSZ and by Hungarian Prime Minister Ferenc Gyurcsány, who stressed that bringing private capital into the struggling health care system would improve the quality of services.

But in the end, most voters preferred the devil they know (a state system that is inefficient, often patient-unfriendly but “free” – apart from unrealistically high taxes, the illegal and pernicious practice of gratitude money and a few co-payments) to the devil they don’t know (the potentially rapacious health capitalist).

Real privatization marches on

Although the Hospital Act is a dead issue, the referendum would still have had some real long-term implications, putting the kibosh on any future attempts to bring private capital into government-owned clinics or hospitals - at least at the ownership level. But it would not have had any effect on the outsourcing of services to the private sector, which is the real issue in health care privatization today, according to Péter Mihályi, professor of economics at Veszprém University and a former senior government official responsible for privatization and health care issues.

Actual moves to privatize hospitals have been limited to a handful - one of them in the City of Körmend, where the process was overseen by a Fidesz mayor. Kiskunhalas is another example. But there has been only one outright sale of a hospital in Hungary. István Mikola, former health minister under the Fidesz government, sold and shut down the “Mentőkórház,” the former hospital belonging to the ambulance service. He was quite right to do so, said Mihályi.

“State ownership works well in some cases, such as Debrecen. They happen to be good people,” Mihályi said. “But elsewhere, working under the same rules, state ownership works badly, such as in Budapest or Szeged.”

While moves to sell hospitals have been few, the private sector is steadily gaining in importance in terms of the provision of services at state-run hospitals. Like private sector managers, hospital directors have budgets they must meet, and in order to get the maximum use of limited resources, they outsource an increasing volume of services. As in the private sector, this generally means savings of costly taxes and social security charges, Mihályi said.

Outsourced services, provided by private doctors or companies, now amount to approximately 20 percent of the overall health care market, according to Mihály, but in some areas of service, such as diagnostics and anesthesiology, private services are in the majority. About 90 percent of family doctors operate in private practices, thanks to a reform introduced by the Fidesz government, and laboratory work is about 30 percent private. In addition, state hospitals sometimes resort to tax avoidance schemes as loose as any in the private sector – Mihályi noted the trick of doctors and nurses putting in their standard workday as state employees, but instantly switching to work through an external, private contractor once their considerable overtime hours kick in.

Hungary is not alone

The problems facing Hungary’s health sector are not unique. A white paper on healthcare in Central Europe published in September by the Economist Intelligence Unit (EIU) says similar problems face healthcare systems in the region: a shortage of family doctors, an overabundance of specialists and hospital beds, scant attention to preventive medicine and gaping funding deficits that create a reliance on under-the-table payments.

The health care systems of the socialist era were focused on containing epidemics, which required a lot of hospital beds and a preponderance of specialist physicians, according to the report. The failure to cut unneeded hospital beds and staff in transition is one of the main drivers of the funding gap in the region’s health sectors today. It has also driven down wages in the sector, resulting in the widespread system of tipping, common across the region and known in Hungary as gratitude money. The practice has been called “hard corruption” by the European Union.

A survey carried out for the report showed that 72 percent of questioned executives from the health sector, pharmaceutical companies and governments believe new EU member states cannot afford universal state-funded healthcare. Yet healthcare has been one of the most neglected areas in terms of policy and reform throughout Central Europe, and with a few exceptions, such as the privatization of family practices, the systems today are little changed from those in 1989. Reasons for the lack of health reform are simple, the report argues: healthcare is politically sensitive and reform wasn’t required for EU membership.

Going private no panacea

While private capital can help tackle these problems, it is not a panacea. “In Central Europe’s conditions it may best serve as a complement to central funding,” according to one of the EIU’s central findings. Attempts in the Czech Republic and Poland to introduce a German-style multiinsurer model have been costly, as private (or in Poland’s case regional) funds have failed, requiring the state to step in and pick up the pieces. Although there has been a degree of success with complementary insurance schemes, performance in this area has not been exemplary either, the EIU stated.

MOST VOTERS preferred the devil they know (an inefficient state system, often patient-unfriendly but “free”) to the devil they don’t know (the potentially rapacious health capitalist).

Rather than focusing only on the public-private debate in health care financing, governments should rethink funding systems that pay hospitals for the amount of treatment carried out and general practitioners for number of patients on the books, according to the report. Medical efficiency should be rewarded, not volumes of treatment.

Substantively, the Dec. 5 vote on hospital privatization was a red herring. Even if the referendum had passed, it would have prevented only the sale of actual buildings and top-level operative responsibility for Hungary’s state-owned hospital and clinics. It did not address, and would not have stopped, the real trends in healthcare privatization today - namely the outsourcing by the state owner of primary and secondary healthcare services to private contractors, large and small.

More importantly, the referendum did not speak to the real problems of the health care sector, either on the funding side or the provision side. As a result, today Hungary stands no closer to, and no farther away from, introducing meaningful health policy changes. However, the referendum has also helped put healthcare on the public agenda. The vote makes it clear that most Hungarians want the state to continue in its role as the country’s HMO, but even with that constraint, there is still plenty of room for meaningful reform and the attraction of private funding.

Healthcare staff and facilities, per 100,000 population

Source: Economist Intelligence Unit, World Bank