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Contents lists available at ScienceDirect

Health Policy
journal homepage: www.elsevier.com/locate/healthpol

Corporate governance in Czech hospitals after the

transformation
Petr Pirozek a,∗ , Lenka Komarkova b , Ondrej Leseticky b , Tatana Hajdikova b
a
Masaryk University, Faculty of Economics and Administration, Lipova 41a, Brno, Czech Republic
b
University of Economics Prague, Faculty of Management, Jarosovska 1117, Jindrichuv Hradec, Czech Republic

a r t i c l e i n f o a b s t r a c t

Article history: Background: This contribution is a response to the current issue of corporate governance in
Received 12 September 2014 hospitals in the Czech Republic, which draw a significant portion of funds from public health
Received in revised form 13 April 2015 insurance. This not only has a significant impact on the economic efficiency of hospitals,
Accepted 3 May 2015
but ultimately affects the whole system of healthcare provision in the Czech Republic.
Therefore, the effectiveness of the corporate governance of hospitals might affect the fiscal
Keywords: stability of the health system and, indirectly, health policy for the whole country.
Management
Objectives: The main objective of this paper is to evaluate the success of the transformation
Corporate governance
in connection with the performance of corporate governance in hospitals in the Czech
Legal form transformation
Hospitals Republic. Specifically, there was an examination of the management differences in various
types of hospitals, which differed in their ownership structure and legal form.
Methodology/Approach: A sample of 100 hospitals was investigated in 2009, i.e., immediately
after the transformation had been completed, and then three years later in 2012.
With regard to the different public support of individual hospitals, the operating subsidies
were removed from the economic results of the corporations in the sample. The adjusted
economic results were first of all examined in relationship to the type of hospital (according
to owner and legal form), and then in relation to its size, the size of the supervisory board
and the education level of the senior hospital manager. A multiple median regression was
used for the evaluation.
Findings: One of the basic findings was the fact that the hospital’s legal form had no influence
on economic results. Successful management in the form of adjusted economic results is
only associated with the private type of facility ownership. From the perspective of our con-
cept of corporate governance other factors were under observation: the size of the hospital,
the size of the supervisory board and the medical qualifications of the senior manager had
no statistically verifiable influence on the efficiency of the hospital management, though
we did record certain developments as a result of the transformation process. The economic
results that were reported were significantly distorted by the operating subsidies from the
founder.
Practical Implications: The results can be used immediately on several practical levels: on
the macro level as part of the state’s formulation of health policy, particularly in the opti-
mization of the structure of healthcare providers, as well as for the completion of reforms
in legal forms and hospital founders, and on the micro level as part of the effective admin-
istration and governance of hospitals through corporate governance regardless of the form
of ownership.
© 2015 Elsevier Ireland Ltd. All rights reserved.

∗ Corresponding author Tel.: +420 549 49 4783; fax: +420 549 49 4783.
E-mail addresses: pirozek@econ.muni.cz (P. Pirozek), komarkol@fm.vse.cz (L. Komarkova), leseticky@fm.vse.cz (O. Leseticky), hajdikova@fm.vse.cz
(T. Hajdikova).
http://dx.doi.org/10.1016/j.healthpol.2015.05.002
0168-8510/© 2015 Elsevier Ireland Ltd. All rights reserved.

Please cite this article in press as: Pirozek P, et al. Corporate governance in Czech hospitals after the transformation.
Health Policy (2015), http://dx.doi.org/10.1016/j.healthpol.2015.05.002
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1. Introduction
As demands for greater economic efficiency from
healthcare providers have increased, the issue of the gov-
ernance and administration of hospitals has grown in
importance. In countries with a developed economic sys-
tem it is possible to encounter a sophisticated theoretical
background that reflects a distinct “blurring of the bound-
aries between the public and private sectors” [1].
At the same time there are also discussed here several
aspects of hospital administration where they lead to a
change in the health system in the sense of moving away
from a centrally regulated system to decentralized profit
and non-profit organizations [2]. In the countries of Cen-
tral and East Europe, where health reforms were carried
out in conjunction with changes to the political and eco-
nomic system, attention is focused on efficient hospital
governance and administration in an environment where
hospitals currently operate under public as well as private
ownership [3].
In this situation there is a proportional increase in the
importance of the quality of human resources for the suc-
cessful implementation of corporate governance, both in
publicly and privately owned hospitals [4]. This is com-
bined with demands for appropriate qualifications, skills,
knowledge of the specific environment, as well as the
prestige of people holding important positions in hospital
management [5,6].
The current state of knowledge and practice is based
on the general theory of corporate governance overlap-
ping into the administration and management of hospitals
[7]. The first studies dealing with this issue in the Czech
Republic and Central Europe are mostly focused on com-
paring healthcare systems and hospital governance issues
[8].
At present there is a lack of experience in the hetero-
geneous environment of a health system with a different
ownership structure and legal form of hospital. However,
at least there is a definition of the concept of hospital gov-
ernance in the context of selected European countries [9].
The initial findings from the Czech Republic, which were
based on a qualitative study of two selected hospitals, do
not point to a clear relationship between a hospital’s legal
form and its economic efficiency, while the factors influ-
encing the efficiency of hospital governance are difficult to
identify [10].
Moreover, it should be noted that several studies [11]
have failed to show a link between economic efficiency
and private ownership. There are also other views, combin-
ing greater autonomy at a hospital level with the flexibility
to solve specific problems of management [12], or which
demonstrate the advantages associated with higher moti-
vation, income, flexibility and responsibility, and on the
other hand, the disadvantages in the form of risk and the
fragmentation of autonomy in hospitals [13]. However,
to a large extent it was an argument based on previous
findings, where specific experience with the transforma-
tion of the legal form of hospitals was lacking [14,15].
In connection with the transformation of the legal form
of hospitals there have been several publications which
have highlighted the potential pitfalls associated with a
Please cite this article in press as: Pirozek P, et al. Corporate governance in Czech hospitals after the transformation.
Health Policy (2015), http://dx.doi.org/10.1016/j.healthpol.2015.05.002
combination of profit-oriented legal forms of public owner-
ship [16].
The actual transformation process of the legal forms
of hospitals (originally mainly contributory organizations
established at the time of merging district offices) to com-
mercial companies began after 2003 in the Czech Republic
and reached its peak in the period 2005–2006. The main
reason for transferring hospitals to joint-stock companies
was an attempt by the new founders (the regions) to
improve the economic efficiency of the service. In many
cases hospitals came under “regional administration” with
debts and losses (with negative economic results), and in
some regions the hospitals’ accumulative losses reached
into hundreds of millions of CZK (Czech Korunas). As
a joint-stock company, the new owners (administra-
tors) expected greater leeway for internal organizational
changes, dealing with assets or the organization’s budget,
and categorically rejected criticism that they were trying
to conveniently privatize healthcare facilities (or so-called
tunnelling) and repeatedly declared their intention to opti-
mize the structure, accessibility and quality of healthcare
for the public.
On the other hand, local opponents of such a trans-
formation process argued about the need to maintain the
public character of health services with the continued dom-
inant role of the state or the public sector amongst the
providers. They often referred to the social significance of
health, specifically health services, and to the inefficiency
or even failure of the market system in the health service
[17]. In discussions they downplayed the direct influence
of the form of hospital ownership on its management and,
on the other hand, emphasized the dangerous cases of
economic difficulties leading to bankruptcy proceedings,
receivership, sale of assets or their conversion to non-
medical subjects, all of which lead to a worsening in the
quality and accessibility of medical services [18]. In connec-
tion with the growing influence of regional governments,
there has already been mentioned the danger of the state’s
health policy emerging from the weakening of the direct
conceptual, managerial and supervisory role of the Min-
istry of Health.
In the individual regions the actual transformation pro-
cess was relatively autonomous and uncoordinated, while
there was significant interference by political representa-
tives (by the coalition of ruling political parties) on a local
as well as national level. The transformation of hospitals
then definitively stopped (it was de facto completed) after
the regional elections in 2008.
The aim of this paper is to evaluate the consequences of
the transformation process of hospital legal forms operat-
ing in the Czech Republic in the period 2009 until 2012, and
to discover the methods of implementing corporate gov-
ernance in Czech hospitals. This will be achieved through
an analysis and description of how corporate governance
works in relation to the size of the hospital, the members
of the supervisory board and the representation of doc-
tors on the supervisory board in the various ownership
structures of Czech hospitals. In view of the already pub-
lished (though more general) research results [10], we will
present the transformation process of the legal forms of
various types of hospitals over a wider sample of hospitals
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with different ownership structures. This article intends to
verify the assumption that there exists a difference in the
management (e.g., with regard to support from public
sources) within the defined sample of hospitals, and also
the assertion that there exist significant factors within
theoretical approaches which play an important role in
efficient corporate governance.
Unlike current research (and its associated findings) in
the specific area of hospital governance [9] we use the
classic concept of corporate governance taken from man-
agement and business theory [4] emphasizing mechanisms
by which corporate managers are held accountable for cor-
porate conduct and performance. Our concept of corporate
governance reflects relations among owners, governing
body, the executive management, regulators, auditors and
other stakeholders groups and presents the issue from a
business perspective specifically with regard to the use of
the appropriate legal forms [19,20].
One reason why we employ the classic concept is that
we included in our research sample all types of owner-
ship structures and legal forms which the Czech legislative
system defines for the area of business within the Czech
Republic’s health system.
Many governments throughout Europe have initiated
hospital performance assessments, motivated by objec-
tives such as quality management, improving account-
ability of hospital boards or informing the public. There
are in principle five different types of measurement of
hospital performance: regulatory inspection, surveys of
consumers’ experiences, third-party assessments, inter-
nal assessments and statistical indicators. The statistical
indicators represent an accessible means of performance
measurement [21].
One of the major challenges facing health services man-
agement researchers is the measurement of various aspects
of organizational performance, often based on the objective
financial performance data, mostly derived from various
reports (e.g., cash flow, asset turnover, mortality, compli-
cations, length of inpatient stay, cost per case, occupancy,
etc.) which represent a potentially useful set for evaluating
most hospitals and can also identify opportunities to make
the organization more successful [22].
2. Theory
Conceptually, the Czech health system stems from the
Bismarck model, which is characterized by funding which
comes mainly from compulsory health insurance, where
around 92% of health service funding comes from pub-
lic sources. The total annual expenditure on health in the
Czech Republic is estimated at 7.4% GDP (the equivalent
of almost 10 billion Euros), and almost half of the expen-
diture goes to inpatient care, while just under a fifth goes
on medicine and medical equipment. Within this system
operate seven public health insurance companies, with
the largest being the General Health Insurance Company
(around 70% of those insured) [23].
In order to evaluate the health system the basic ter-
ritorial units are 14 regions (note: regional authorities
act as the founders for 60% of hospital organizations). In
the Czech Republic both state and private providers of
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Health Policy (2015), http://dx.doi.org/10.1016/j.healthpol.2015.05.002
3
healthcare are relatively homogenous within the health
system in the form of a more or less hierarchical structure of
outpatient and inpatient healthcare: in 2012 there were
recorded 20,244 independent outpatient surgeries (includ-
ing 5331 general practitioners for adults) and 188 hospitals,
260 specialized therapeutic institutes and 89 spa treatment
centres [23].
When measuring the quality of healthcare using
the WHO methodology, which takes into account the
basic health parameters (average age of the population
and its growth, infant mortality, accessibility and price
of healthcare, mortality from certain diseases, quality
of life parameters, the number of selected, specialized
procedures, etc.), the Czech Republic ranks 24th from
approximately 200 countries that were monitored. In terms
of performance measured across 27 OECD countries, the
Czech health system is ranked “average to below average”
[24].
Although at first glance it might seem that there was
no shortage of reform attempts or conceptual proposals
from 1990 to 2014, in reality all of the changes have been
based largely on the concept of the health service as a pub-
lic service to citizens. Historically there has prevailed an
administrative-bureaucratic approach with preferred cen-
tral management at the level of senior local-government
units and the Czech Republic Ministry of Health, which
mostly intervenes administratively in the structures or vol-
ume of supply and demand for health services, or to adapt
the compensatory mechanisms to regulate the local health-
care system [25].
2.1. Corporate governance, hospital governance
The actual issue of hospital governance is quite broadly
defined and has not seen much practical usage until now.
The basic characteristics of the concept include “three dif-
ferent levels of hospital-related decision-making (macro,
meso and micro levels of hospital governance). Each level
has its own distinct characteristics, with its own separate
group of decision makers” [9].
It is clear that this is a vast and complex issue cover-
ing both the political dimension due to the transformation
examined, as well as the social and economic dimension
[26]. By using an agency-theory approach to hospital gov-
ernance, new insights into the case of hospitals owned by
churches can be provided [27]. Thus far there has been a
lack of research into the transformation of the legal form
of hospitals and the related requirement for the effective
and efficient work of the board, which may lead to a deeper
understanding of hospital governance. It is a specific topic
which merges the private and public spheres and which can
inspire each other in efficient and effective performance
management [28].
From the perspective of corporate governance, the sit-
uation of hospitals in the Czech Republic has not been
particularly well researched. Some publications present
the issue with a general description of new legal forms
on the principle of profit organizations and their impact
on healthcare in the Czech Republic [9,10] or compara-
tive approaches are adopted to analyse hospital governance
in an international context [8]. Far greater attention has
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been focused on the evaluation of the economic effi-
ciency of health facilities deriving either from general
approaches [29,30], from available validated economic
indicators from annual reports, or by evaluating economic
efficiency using the sophisticated Data Envelopment Analy-
sis methods [31–33] and Stochastic Frontier Analysis [34]
based on centrally available, though unverified, hospital
statistical data (ÚZIS [Institute of Health Information and
Statistics]).
The basic approach to the general issue of corporate gov-
ernance is based on resource-dependence approach theory
and agency theory [35,36]. Looking at the evolution of gov-
ernance in the transformed legal form of the hospital, it
is possible to utilize both the resource-dependence theory
[37–40], as well as the agency theory [41–43].
Due to this connection of public and private hospitals,
research has emerged which is linked to the composition
of the board and its associated efficiency, which has been
investigated using selected parameters [44]. It has been
stated that it is not always easy to transfer business prac-
tices to the performance evaluation of governing boards in
the public sector [45]. In this case it is necessary to mention
the views emerging from the research of public administra-
tions whereby managers must be regulated and monitored
by appropriate management mechanisms [28]. Building
an effective board is connected with a work environment
based on trust and openness, with the acceptance of an
open culture of opposition, the variability of board mem-
bers’ decisions preventing rigidity, and ultimately ensuring
the accountability and evaluation of performance [46]. The
selection of board members is influenced by the ownership
structure and orientation of the hospital. Some specific fea-
tures are presented for profit organizations [45] and there
are researchers who explore the effectiveness and effi-
ciency of the board in the public sector [44], or in non-profit
organizations [47].
Due to the predominance of public ownership of hospi-
tals in transition economies, including our cases, politicians
are often nominated to the boards, which raises the ques-
tion of their actual contribution to hospital governance. In
this context, there has been research into the supervisory
board structure involving politicians and linking the perfor-
mance with some aspects of a highly regulated economic
environment [48], specifically for the healthcare system in
the Czech Republic.
The skills of the supervisory board are another impor-
tant aspect of the performance of hospital governance.
Some of the most important criteria for evaluating the
CEOs and the board include the following competences:
the financial performance of hospitals ensuring a balanced
budget, relationships with physicians, strategies linked to
the vision of the hospital and ultimately the quality of
healthcare [8].
An important factor in evaluation skills is not just the
members of the board themselves, but also the information
and decision-making system associated with the perfor-
mance of hospital governance [49]. Equally important are
the group dynamics associated with the effects of social
forces. These were established by a study demonstrat-
ing the importance of board teamwork on the efficiency
performance of hospital governance, which indirectly and
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Health Policy (2015), http://dx.doi.org/10.1016/j.healthpol.2015.05.002
positively influences positive financial results [50]. A very
serious issue that is associated with corporate governance
is the principle of duality, where the director is also a
member of the board with implications for control and
independent decision-making that may lead to fraud [51].
In this context it has been shown that it is necessary to
look at the duality from the perspective of succession [28].
Diversity is also essential for the overall performance of
the board in achieving efficient and effective hospital gov-
ernance. As follows from existing research, the availability
of external information has a positive influence on team
performance [52]. This results in greater diversity of opin-
ion which promotes the discussion of views [53]. A specific
element of hospital governance is the representation of
physicians on the health board or the position of hospi-
tal director. Views on their role have been presented in
many studies [26,54]. However, there are clear references
to the involvement of physicians on the board [55]. They
define recommendations for the optimal size of the board
in terms of financial performance [56]. Specific quantifi-
cation differs in the territorial and cultural environment
in which proponents of opinion pluralism see the advan-
tages of using a larger board of stakeholders [57] or specific
recommendations which indicate the recommended opti-
mum number of board members at intervals ranging from
6 to 10 members [7,58].
The transformation of hospitals is a dynamic process,
where we can expect similar trends to other countries in
the development of hospital governance [4]. The improve-
ment of the work of the board, associated with an increase
in the effectiveness and efficiency of hospital governance,
can be drawn from experiences documented from abroad.
3. Data and methods
3.1. Data
The analysed data was collected from public sources
(hospital websites, ÚZIS [Institute of Health Information
and Statistics] and the administrative business register).
The data was acquired from annual reports which cor-
porations provide to the aforementioned public source.
All commercial corporations have an obligation to provide
statements and annual reports to the commercial register.
Self-governing commercial corporations and joint-stock
hospitals fulfil this obligation, though hospitals in the
form of limited-liability companies do not. In the Czech
Republic annual reports do not have a prescribed format
and the management decides what the content should
be. The majority of annual reports contain final audit
reports and financial statements, data concerning hospital
departments, the number of employees, employees’ quali-
fications, data on the structure of revenues and expenses,
the names of those on the management and supervisory
boards, etc. The size of these annual reports ranges from 2
to 150 pages, and in some cases the same hospital changes
the format over different years. They are also published in
a PDF format which prevents automated processing.
In the years under examination – 2009 and 2012 – hos-
pital care accounted for 45.3% and 46.7% of total health
insurance expenditure. Detailed information about the
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Table 1
Number of hospitals according to their owner and legal form in years 2009 and 2012.
Owner Legal form
State government State budgetary organizations
Region, town or municipality government Budgetary organizations or
Benevolent corporations
Region, town or municipality government Joint stock companies or
limited liability companies
Private Joint stock companies or
limited liability companies
Church Non-profit organizations
Total
type of hospitals in the Czech Republic with respect to
ownership and legal form is given in Table 1. In the year
2009, there were 191 hospital establishments operating
in the Czech Republic: 19 hospitals (teaching hospitals
and highly specialized centres) were administered by the
Ministry of Health, five hospitals were set up by other gov-
ernment departments (mainly by the DoD), 24 hospitals
were administered by regional authorities, 18 hospitals
were founded by the municipalities, 122 hospitals had the
status of profit legal forms of companies (52 of them owned
by the regional or municipal authority) and three hospitals
were founded by churches [59].
In 2012, three fewer hospitals were registered in com-
parison with 2009, i.e., 188. In particular, there was a
change in the number of non-state and non-church hospi-
tals. In 2012, 23 hospitals were managed by the regions, 17
by cities or municipalities, 121 hospitals were in the form
of commercial companies, and in 50 of them the region,
city or municipality had a majority share [23].
For individual hospitals, alongside the majority owner
and legal form, for the years 2009–2012 there was also
ascertained the economic results, the level of operating
subsidy, the size of the hospital measured by the number
of beds, the number of members of the supervisory board
and the level of education of the senior manager or main
representative of the statutory body. Despite the afore-
mentioned restriction in data collection, for the two years
under examination data was obtained from 100 identical
hospitals.
Table 1 Number of hospitals according to their owner
and legal form in 2009–2012. The sample of 100 hospi-
tals is made up of 14 state-contribution hospitals, of which
12 are managed by the Ministry of Health and two by
central authorities. Of 20 contributory organizations, 15
are managed by the region, one by the city and four by
the municipalities. There are 43 commercial companies
included in the sample, where the main owners are self-
governing bodies, 34 of which are joint-stock companies
(for 31 of them the majority owner is the region and the city
for three) and nine limited-liability companies (one where
the owner is the region, eight where the owner is the city).
21 commercial companies (12 joint-stock, 9 limited) have a
private owner, and in four cases of them this is an individual
person.
3.2. Methodology
Before the transformation most hospitals had the legal
form of contributory organizations with limited scope to
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5
Total Nr.2009 Total Nr.2012 Sample
24 24 14
42 40 22
52 50 43
70 71 21
3 3 0
191 188 100
influence performance, particularly in the area of fixed
costs. The pre-transformation form of budgetary or con-
tributory organizations did not have supervisory boards
and the hospitals were managed centrally through an
appointed director who adhered to the guidelines set out
by civil servants. Therefore, the supervisory board is new
and is connected to the transformation of legal forms.
The bodies associated with corporate governance in
the Czech Republic combine the one-tier and two-tier
approaches. In terms of legal form, a hospital can have
the statute of a commercial company (which includes a
joint-stock company or a limited liability company), which
utilizes the two-tier (or German) model, where the execu-
tive is made up of the board of directors including directors,
and the supervisory board represents the administrative
authority, while the obligation to appoint a supervisory
boards exists within a joint-stock company. For limited
liability companies the legal obligation to establish a super-
visory board does not apply, though it is permitted by law.
An alternative legal form is the public-funded organiza-
tion with the statute of a non-profit organization and with
a direct link to state or public budgets. The final legal form –
non-state, non-profit organizations – are financed by con-
tributions, donations and other economic activities which
do not directly involve making a profit. Public organiza-
tions (and corresponding legal forms) correspond to the
single-tier model, consisting of the hospital director and his
managers, as well as a possible board of directors. Some-
times a supervisory board is appointed for contributory
organizations, particularly at city hospitals and selected
regions. In connection with the corporate governance of a
hospital, it is interesting to observe the qualification struc-
ture of the executive. Unlike in the past when someone
within the statutory board had to have a medical educa-
tion, qualifications from non-medical disciplines are now
in evidence.
As the commercial and non-commercial legal forms of
hospital are only represented by self-governing bodies as
the owner, for the purposes of our analysis we will differ-
entiate the following four types of hospital:
• Type 1—A contributory organization owned by the state,
the director represents the executive.
• Type 2—Contributory organization, a public benefit cor-
poration organized by self-governing bodies, the director
represents the executive.
• Type 3—Commercial company, where self-governing
bodies have a majority share; the executive is repre-
sented by the executive board.
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• Type 4—Commercial company with majority private
ownership; the executive is the (a) executive manager
(b) the executive board.
Therefore, the first two types of hospital are non-profit
organizations, whilst the second are profit-oriented.
Since financial indicators as ROA (return of assets), oper-
ating earnings or operating margin are being considered
as the most valid subjective financial measures of hospital
performance [60], the efficiency of a hospital’s corporate
governance is primarily assessed through the economic
results minus the operational subsidies for 2009 and 2012.
Secondly, the efficiency of the hospitals was inves-
tigated in relationship to the type and size of hospital
(number of beds), the size of the supervisory board and
the medical qualification of the senior manager. A multiple
median regression was used and the statistical significance
was evaluated at ˛ = 5%.
4. Results
The sample of 100 hospitals consisted of 14 Type 1 hos-
pitals, 22 Type 2 hospitals, 43 Type 3 hospitals and 21 Type
4 hospitals. State hospitals (Type 1) are larger than the oth-
ers, whilst private hospitals (Type 4) tend to have a smaller
number of beds (see Table 2). The number of beds fell in 39
hospitals and rose in 20.
In private hospitals the supervisory boards had between
0 and 6 members. They did not operate in state hospi-
tals (Type 1). In 2009, Type 2 hospital supervisory boards
had a maximum of five members, in 2012, six members.
In both of these years the majority of these hospitals had
a supervisory board with 0. For Type 3 hospitals, in 2009
the supervisory boards had between three and nine mem-
bers, by 2012 the supervisory boards had increased to 12
members. Approximately half of the hospitals (52%, 50%)
have a senior manager with a medical qualification. In 2009
only three doctors had an MBA title, in 2012 there were
13.
Table 2 Hospital size and size of supervisory board
according to the type of hospitals in years 2009 and 2012 –
Summary statistics (Mean, Median, Lower Quartile, Upper
Quartile, Minimum, Maximum); Number of hospitals with
medical doctor as an executive senior manager – Abso-
lute (relative) frequencies. Of the 100 hospitals included
in the study, in 2009 77 finished the year in profit. In
2012 there were four fewer. The results (Table 3) show
that the operational subsidies heavily distort the economic
results, particularly for state hospitals. With the subsi-
dies removed, the private hospitals had the best economic
results in 2009. A similar situation can also be observed in
2012. However, in this year the economic results for state
and private hospitals were worse than in 2009. It is worth
noting that for self-governing hospitals, once the subsidies
have been removed it was the non-commercial company
hospitals which fared best.
Table 3 Economic results with and without operat-
ing subsidies (OS) according to the type of hospitals in
years 2009 and 2012 – Summary statistics (Mean, Median,
Lower Quartile, Upper Quartile); Number of profitable hos-
pitals (with and without operating subsidies) – Absolute
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(relative) frequencies. For further analysis the economic
results were used without the operating subsidy (abbrevia-
tion AER). The dependence of the AER on other factors (type
and size of the hospital, size of supervisory board, execu-
tive manager) was examined using the multiple median
(L1) regression. Median regression rather than the more
classical mean (ordinary least squares) regression was used
due to the distribution of the economic results exhibiting
outlying values. That is, our results show the influence of
the factors under consideration on the median of the AER
rather than on its mean.
Table 4 Results of the multiple median regression analy-
sis for both 2009 and 2012—Estimates of partial regression
parameters and corresponding p-values; Bonferroni Mul-
tiple comparison—estimates of differences of medians,
adjusted p-values. In 2009, on the basis of multiple median
regression, no statistical significant effect was seen. On the
other hand, in 2012, partial dependency of AER on the type
of hospital was proved. A multiple comparison, where the
p-values were adjusted using the Bonferroni method, was
performed to compare AER of hospitals of different type. In
2012, statistically significant difference was demonstrated
between state hospitals (Type 1) and others (Type 2, 3, 4)
and between commercial companies run by self-governing
bodies (Type 3) and private owners (Type 4). State hospi-
tals fared the worst while private ones fared best. If we
were to compare the order of the hospital types from both
years on the basis of estimates from multiple comparisons,
the result would be the same: (1) private hospitals (Type
4), (2) non-commercial self-governing hospitals (Type 2),
(3) commercial self-governing hospitals (Type 3) (4) state
hospitals (Type 1). The results show that the relative dif-
ferences between the individual types of hospitals has
widened between 2009 and 2012.
5. Discussion
This paper evaluated the results of the transformation
of the legal form of hospitals in the Czech Republic and
their associated economic success. This research showed
the influence of operating subsidies on the economic per-
formance of all types of hospitals. Thus, the objective was to
determine the true efficiency of hospitals when the operat-
ing subsidy was removed from the economic results. Only
in 2012 do the results demonstrate the statistically signifi-
cant effect of the type of hospital on the adjusted economic
results.
In 2009 no relationship was found between economic
results and any of the observed variables connected to
the corporate governance of hospitals. In 2009 a large
difference was recorded in economic performance, partic-
ularly in contributory hospitals owned by the state (Type1),
including university hospitals, which without subsidies
recorded significant losses. On the other hand, hospitals
with the legal form of a commercial company with a major-
ity private owner (Type 4) had positive economic results,
with or without subsidies.
As for achieving success in economic performance, in
2012 the individual types of hospitals again experienced
worsening economic results. For all types of legal forms,
for either state-owned or self-governing public hospitals
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Table 2
Hospital size and size of supervisory board according to the type of hospitals in years 2009 and 2012 – summary statistics (Mean, Median, Lower Quartile,
Upper Quartile, Minimum, Maximum); Number of hospitals with medical doctor as an executive senior manager – absolute (relative) frequencies.

Year 2009 Hospital size (Number of beds) Supervisory board Medical doctor as CEO
(Number of members) (Number of hospitals)

Type Mean Med LQ UQ Med Min Max Abs. (Rel.) Freq

1 1043 1080 323 1576 0 0 0 9 (64.3%)

2 396 364 196 556 0 0 5 11 (50.0%)
3 467 316 166 529 6 3 9 20 (46.5%)
4 202 162 142 259 3 0 6 12 (57.1%)
Total 477 314 161 542 3 0 9 52 (52.0%)

Year 2012 Hospital size (Number of beds) Supervisory board Medical doctor as CEO
(Number of members) (Number of hospitals)

Type Mean Med LQ UQ Med Min Max Abs. (Rel.) Freq

1 985 1000 323 1509 0 0 0 9 (64.3%)

2 395 400 167 548 0 0 5 9 (40.9%)
3 459 316 174 502 7 3 12 17 (39.5%)
4 205 158 120 271 3 0 6 15 (71.4%)
Total 465 315 162 542 3 0 12 50 (50.0%)

Table 3
Economic results with and without operating subsidies (OS) according to the type of hospitals in years 2009 and 2012 – summary statistics (Mean, Median,
Lower Quartile, Upper Quartile); Number of profitable hospitals (with and without operating subsidies) – absolute (relative) frequencies.

2009 Economic result in mil. CZK Adjusted economic result w/o OS in mil. CZK Profitable Profitable w/o OS

Type Mean Med LQ UQ Mean Med LQ UQ Freq. Freq.

1 25.3 10.8 4.8 28.9 −48.6 −5.6 −104.3 8.2 14 (100.0%) 5 (35.7%)
2 −1.7 0.1 0.0 5.2 −10.0 −2.7 −13.2 2.9 17 (77.3%) 7 (31.8%)
3 −4.1 0.3 −12.5 2.7 −18.6 −7.2 −23.4 0.3 26 (60.5%) 14 (32.6%)
4 15.8 8.9 1.7 20.4 11.5 5.3 0.1 15.8 20 (95.2%) 18 (85.7%)
Total 4.7 1.8 0.0 11.2 −14.6 −1.6 −16.3 5.3 77 (77.0%) 44 (44.0%)

2012 Economic result in mil. CZK Adjusted economic result w/o OS in mil. CZK Profitable Profitable w/o OS

Type Mean Med LQ UQ Mean Med LQ UQ Freq. Freq.

1 5.8 1.1 0.5 2.4 −100.7 −98.5 −107.3 −42.8 14 (100.0%) 0 (0.0%)
2 0.1 0.3 0.1 0.7 −8.7 −6.9 −19.2 −0.5 18 (81.8%) 3 (13.6%)
3 −6.0 0.0 −6.7 1.3 −34.1 −14.4 −37.0 −6.0 23 (53.5%) 5 (11.6%)
4 13.6 3.6 0.4 17.9 1.4 1.0 −1.1 5.7 18 (85.7%) 12 (57.1%)
Total 1.1 0.4 −0.1 2.9 −30.4 −10.8 −29.4 −0.4 73 (73.0%) 20 (20.0%)

Table 4
Results of multiple median regression analysis for the both years 2009 and 2012 – estimates of partial regression parameters and its corresponding p-values;
Bonferroni Multiple comparison – estimates of differences of medians, adjusted p-values.

Regression analysis 2009 2012

Variable Estimate Std. Error P-value Estimate Std. Error P-value

Type of hospital See effect of type below 0.175 See effect of type below <0.001
Hospital size −0.022 0.014 0.133 −0.003 0.010 0.780
Supervisory Board −0.345 0.748 0.646 0.399 0.744 0.594
Medical doctor −3.247 3.265 0.323 −4.786 3.977 0.232

Effect of type 2009 2012

Multiple comparison Estimate Std. error P-value Estimate Std. error P-value
(Bonferroni method)

Type 2 vs. Type 1 3.55 16.62 1.000 92.96 20.30 <0.001

Type 3 vs. Type 1 0.69 17.10 1.000 82.53 21.20 0.001
Type 4 vs. Type 1 9.71 16.77 1.000 99.78 20.73 <0.001
Type 3 vs. Type 2 −2.86 4.61 1.000 −10.43 6.79 0.767
Type 4 vs. Type 2 6.16 3.41 0.446 6.82 4.99 1.000
Type 4 vs. Type 3 9.02 4.71 0.353 17.25 5.66 0.018

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(Types 1, 2, 3), negative economic results were recorded,
and when subsidies were removed there was a signif-
icant decline, especially amongst state hospitals (Type
1). Moreover, in comparison with 2009 they have since
been subsidized to a far greater extent. It is interesting
to note that when subsidies are removed, the losses are
less for Type 2 hospitals – the contributory organization
– unlike the commercially oriented companies (Type 3)
with self-governing ownership. This is inconsistent with
some research connected to the greater efficiency of hos-
pitals with the statute of non-profit organizations [61] and
the assertions of some self-governing representatives, who
used the transformation of the legal form to a commer-
cial company (Type 3) in order to increase the hospital’s
efficiency. Therefore, it does not necessarily follow that
hospitals with self-governing ownership with the legal
form of commercial companies are automatically more
flexible and will achieve better economic results than con-
tributory forms of hospitals, which had been in widespread
use prior to the process of transformation. If we were to
summarize an evaluation of the transformation process of
the legal form of hospitals with various types of owner-
ship, it would prove to be at odds with other research
from abroad [62], suggesting that a hospital with a pri-
vate owner (Type 4) achieves better economic results than a
hospital owned by the state or one which is self-governing
(Types 1, 2, 3). One possible explanation that these were
smaller (and therefore more flexible) hospitals is mis-
placed because the effect of a hospital’s size was also not
demonstrated.
It is important to realize the importance of operating
subsidies and their impact on the economic results of the
hospitals. To estimate the extent of the negative effect dis-
torting so-called economic competition or influencing the
behaviour of hospital managers is beyond the remit of this
paper—but can be anticipated by the existence of profit-
able healthcare providers with positive economic results
which were not substantially subsidized by the owner.
There was a significant demonstration of positive economic
results in relation to private owners [11]. This also indicates
their importance for the network of healthcare providers,
with their positive impact on the financial management
of publicly funded health insurance. A very unorthodox
approach in the administration of operational subsidies
was discovered in some JSCs with public owners. The
amount corresponded to the remuneration paid to mem-
bers of the board of directors/supervisory board, consisting
mainly of individuals handpicked by political parties, sug-
gesting strong political interference in the operation of
transformed hospitals.
Originally the transformation process was justified by
the limited possibilities to influence the management of
loss-making hospitals and the associated lack of flexibility
in influencing the management of hospitals.
One part of the exercise of efficient corporate gov-
ernance of hospitals – namely, the members of the
supervisory board and the qualifications of the physician
connected to the position of director – was not statistically
proven in relationship to the economic results achieved.
When looking more closely at the exercise of corporate
governance of hospitals we discovered that the act of
Please cite this article in press as: Pirozek P, et al. Corporate governance in Czech hospitals after the transformation.
Health Policy (2015), http://dx.doi.org/10.1016/j.healthpol.2015.05.002
supervising an owner’s property and evaluating it (subject
to the supervisory board) differed greatly according to the
type of hospital under observation. A supervisory board is
a common feature in hospitals with private owners (Type
4), whereas paradoxically, state hospitals (Type 1) do not
implement supervisory boards, despite widespread use of
the subsidies to operate them.
Moreover we were unable to substantiate claims that
non-profit and university hospitals achieve more positive
results for economic efficiency [63], as the economic results
achieved are not unambiguous [64].
These results also produce interesting findings for pub-
lic hospitals with self-governing ownership with various
types of legal form: hospitals with the legal form of a
contributory organization (Type 2) are governed by a
considerably smaller supervisory board than for a hos-
pital with a commercial company legal form (Type 3).
With commercial companies in particular, members of the
supervisory board can be remunerated without any sig-
nificant state regulation, which may explain the higher
number of supervisory board members (up to 12 people)
for Type 3 hospitals, particularly in the light of the results
of the local elections. The staffing of public-owner boards
is strongly associated with political affiliations. The crite-
ria for selecting board members are not clearly formulated,
whilst the demand for specific managerial skills is “over-
ridden” by political loyalty [65]. The duality in the position
linking the managing director and board members was not
specifically investigated, but can be expected in hospitals
connected to JSC holding structures.
The results also show that in almost half of the cases a
physician occupies the position of director of the hospital’s
executive body. It was interesting to learn that in the period
under research from 2009 to 2012 there was a four-fold
increase in the number of physicians who also acquired
a qualification in economics, most commonly in the form
of the MBA programmes, and most probably in relation to
their duties as hospital director.
The research has not substantiated the fears of transfor-
mation opponents pointing to excessive cost, inefficiency,
ineffectiveness—all associated with the threat of market
failure in the healthcare services sector. The successful
transformation can be linked to the effective and efficient
administration and management of hospitals (so-called
hospital governance) for the owners of both private and
public hospitals [66]. If properly implemented, the power
from the executive and administrative authority, aligned
with clearly delegated, adequately staffed competences,
can lead to signs of success. It is easy to attribute such
results to the legal form transformation, but the relevant
evidence is still lacking and should be subject to further
research in this area.
The results suggest that successful transformation could
be linked to efficient and effective administration and
corporate governance of hospitals, not only in private sub-
jects/owners but also in public institutions [67]. If the
balance of power between the executive and adminis-
trative authority is implemented properly, together with
clearly defined and delegated competences and all key
positions adequately staffed, then successful economic
results will follow.
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Conflict of interest statement
None declared
Acknowledgements
The work was partially supported by the Czech Science
Foundation grant (GACR P403/12/1557)
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