The Italian Health System Is not Economic in Nature

Certain elements of competition that raise efficiency do not undermine the social solidarity foundations of a health care system.

Introduction

A question that has been addressed by the Court of Justice but not in sufficient detail is whether the providers of non-economic health services can compete with each other. The answer is conditionally affirmative. Competition that does not undermine the principle of social solidarity and does not affect the price and/or quality of the services is congruent with the non-economic nature of those services. This is because such competition leads to lower costs and higher efficiency without harming the quality of services provided to citizens. The problem is that most competition on the market also leads to lower costs, higher efficiency and improvements in quality. Hence, the reasoning of the Court does not have much distinguishing power in practice. It is not surprising, therefore, that on 2 June 2021, the General Court, in case T-223/18, Casa Regina Apostolorum della Pia Società delle Figlie di San Paolo v European Commission, had to assess certain elements of competition between hospitals in Italy and to determine whether they could transform a non-economic health care system into economic.[1]

Casa Regina applied for annulment of Commission Decision SA.39913 which had found that public funding of hospitals in the Lazio Region of Italy did not constitute State aid. That Decision was reviewed here on 10 April 2018

https://www.lexxion.eu/en/stateaidpost/what-makes-a-public-health-care-system-non-economic/

The Italian health care system is organized within the framework of the national health service [Servizio Sanitario Nazionale or SSN]. Health care is offered for free or almost free of charge to all patients who are enrolled in the SSN. Services are provided by public hospitals or private hospitals which are contracted with the SSN. Their costs are financed by the SSN whose budget is funded by social security contributions and by other state resources. The management of the SSN is mainly carried out by Italian regions.

Casa Regina claimed that the Commission failed to take into consideration the lack of universality of the SSN, the extent of economic activities in hospitals, and to verify the applicability of the Altmark conditions.

Universality & solidarity

With respect to the alleged lack of universality of the SSN, the General Court noted that in its Decision, the Commission found the SSN to have universal application: It was accessible to all citizens, patients could obtain care from the hospital of their choice, all hospitals under the SSN were obliged to provide free medical care and the system was funded by the state and by social contributions. [paragraph 125 of the judgment]

At the time period that was the subject of investigation by the Commission, the health care system in Italy had undergone reform whose aim was to increase competition and efficiency in the health care sector. Patients were given freedom to choose hospitals and hospitals were given more discretion to control their expenditure.

The Commission considered that the free choice by patients, a certain degree of competition among care providers contracted under the SSN and the other reforms aiming at greater control over costs did not affect the principles of universality and solidarity on which the SSN was based. The system still provided free health care funded by compulsory contributions.

Economic activities & Altmark

With respect to the alleged economic nature of the services provided in SSN hospitals, the Court noted that the Commission had confirmed the non-economic nature of services in the SSN framework. Furthermore, it highlighted that economic services were separated in the accounts of hospitals. [para 129]

With respect to compliance with the Altmark conditions, the Court held that the Commission was under no obligation to check the applicability of the Altmark conditions since it had found that the health care services provided in the SSN framework were not economic in nature. [paras 136-137]

According to the seminal Altmark judgment, public funding that satisfies the four Altmark conditions does not constitute State aid. But the Altmark conditions concern services which are economic in nature.

Then Casa Regina argued that the Commission misinterpreted Article 107(1) TFEU because it incorrectly found the health services in question not to be economic in nature.

In examining this plea, the General Court referred extensively to the judgment of June 2020 of the Court of Justice in the “Dôvera” case [C-262/18 P, European Commission v Dôvera zdravotná poistovňa]. I reviewed this judgment on 30 June 2020 at:

https://www.lexxion.eu/en/stateaidpost/health-insurance-based-on-social-solidarity-is-non-economic/

The General Court, first, recalled the definition of undertakings. The concept of undertaking includes any entity carrying on an economic activity, regardless of the legal status of that entity and of its method of financing. Whether an entity is classified as an undertaking depends on the nature of its activity in question. Any activity consisting in offering goods or services on a given market constitutes an economic activity. [paras 146-148]

Then the Court reiterated the well-established principle that Member States are free to define their social security system. In order to assess whether an activity carried out within the context of a social security scheme is non-economic, it is necessary to examine the following elements: Whether the system in question pursues a social objective, whether it is based on the principle of solidarity, whether profit-seeking activities are absent and whether the whole system is regulated by the state. [para 149]

Casa Regina argued that the SSN was no longer based on the principles of solidarity and universality, but on a principle of competition, given the fact that patients could exercise choice and the presence of economic activities in hospitals.

The General Court noted in its preliminary remarks that Casa Regina did not dispute, that the health care services were not profit-oriented and that the system was controlled by the state. [para 152]

With respect to the principle of solidarity, the Court held that the SSN system was characterised by the compulsory affiliation of insured persons, by contributions fixed by law in proportion to the income of the insured persons and not to the risk that they represented because of their age or their state of health and by the compulsory benefits that were fixed by law and which were are identical for all insured persons, regardless of the amount of the contributions they paid. [para 154]

Moreover, the SSN system offered free or almost free health care, regardless of the insured person’s income. The system was mainly financed by the contributions of insured persons according to their respective income. Therefore, the SSN was held to pursue a social objective and implement the principle of solidarity. [paras 155-156]

Presence of competition

Then the Court considered Casa Regina’s claim concerning the presence of competition as a result of patients’ freedom to choose the hospital for their treatment and the possibility of unrestricted market entry by new health providers. The Court acknowledged that the reforms that had been instituted in the relevant period had opened up competition. [paras 158-163]

However, according to the judgment of the Court of Justice in the Dôvera case, the introduction of a competitive element, intended to encourage operators to improve their management and offer their services in the most efficient and least expensive way, did not modify the nature of the Italian system. [para 164]

The principles of universality and solidarity were not affected by the freedom of patients to choose hospitals. Patients exercised that freedom only within the SSN system. [paras 166-169]

The General Court concluded that Casa Regina’s reasoning was based on the erroneous premise that the principles of solidarity and universality excluded all competition and good management, and vice versa. [para 172]

With respect to the presence of economic activities within SSN hospitals, the Court observed that the same entity, such as certain SSN public hospitals, could carry out both economic and non-economic activities on condition that it kept separate accounts. That condition was fulfilled in the present case. [para 183]

Given that all of the pleas of Casa Regina were unsuccessful, the General Court dismissed the appeal in its entirety.


[1] The full text of the judgment, in languages other than English, can be accessed at:

https://curia.europa.eu/juris/fiche.jsf?id=T%3B223%3B18%3BRD%3B1%3BP%3B1%3BT2018%2F0223%2FP&oqp=&for=&mat=PEM%252CCONC.AIDE%252Cor&lgrec=en&jge=&td=%3BALL&jur=C%2CT%2CF&etat=clot&dates=%2524type%253Dpro%2524mode%253D8D%2524from%253D2021.05.26%2524to%253D2021.06.03&pcs=Oor&lg=&pro=&nat=or&cit=none%252CC%252CCJ%252CR%252C2008E%252C%252C%252C%252C%252C%252C%252C%252C%252C%252Ctrue%252Cfalse%252Cfalse&language=en&avg=&cid=9243916


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Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He presently holds positions at the College of Europe and the University of Maastricht. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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