Auditor-general fears forced sale of hospitals if health services tank

Auditor-general Odysseas Michaelides has assessed that the state health services organisation (Okypy) will be unable to cover its budget deficit by 2024, the date when the state support is due to end.

In a letter on state support of Okypy’s deficit that Michaelides sent to the House health committee on Wednesday, he cautions parliament to take action to avert the scenario “of the forced sale of public hospitals”.

Michaelides said that in 2019 Okypy owed the state €245.4 million for the payroll of 5,099 civil servants seconded to the organisation and another €224.9m to cover the expenses of state hospitals the same year. The equivalent debt for the 2020 payroll has not been paid to the state yet, the letter said.

“Based on the above, from data and planning to-date, Okypy’s failure to diminish its deficits by 31.5.2024 is deemed a certainty,” Michaelides said.

According to the law on the establishment of Okypy, the state may cover any deficits in the organisation’s budget for the first five years following the introduction of Gesy’s outpatient care which was introduced in June 2019. This means the state will cover any deficits until May 2024, Michaelides said. This presupposed the smooth transition of state hospitals to administrative and financial autonomy.

The auditor-general referred to the payroll which, he said, amounts to 55 per cent of Okypy’s budget while overtime, allowances and incentives amount to around 38 per cent of employees’ earnings.

He also gave as an example some salaries earned last year by doctors seconded to Okypy or working on contract on the highest salary, including overtime reaching €222,204. The salaries ranged from €41,838 to €95,162 while with the overtime pay and other allowances, including incentives this rose from €100,139 to €222,204.

Michaelides said Okypy’s responsibility was to ensure the productive utilisation of staff and that the payroll safeguards the organisation’s viability.

He also said that Okypy overlooks that one part of the problem is the failure to achieve its revenue targets for patients that choose public hospitals, and the other part is the failure to rationalise costs.

He said that in the incentive agreement for the staff that is valid until the end of 2021, the revenue target for activating the incentive concession concerns receipts of €220m, while in practice, the revenue will be around €50m.

According to the letter, in 2019, Okypy hospitals served around 955,000 outpatients and 87,500 inpatients while in the first 10 months of 2020 the numbers dropped to 430,000 and 52,800 respectively because patients had the option of using Gesy-affiliated private hospitals.

What’s important, he said, is that Okypy regains a larger share of all patients and adjusts its expenses to its income.

He added that Okypy’s attempt to downplay the problem strengthens the suspicions against it, but the fact that the organisation commissioned an audit firm to prepare a business plan that will include the financial forecasts in the medium term was a positive step.

Michaelides called on parliament to ensure that “the gloomy picture” his letter describes will be reversed to prevent nightmarish scenarios of the forced sale of public hospitals. He advised that if deficits cannot be eliminated, not even with prudent management, then Cyprus should timely seek an extension by the EU of the five-year period of authorised state aid.