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Dynamics of Health System Decentralization in Unitary and Federal Polities:Italy and Canada Compared

ANDREA TERLIZZI

Ph.D. CandidateScuola Normale Superiore

Institute for Humanities and Social [email protected]

9th ECPR General Conference26 – 29 August 2015

Université de Montréal, Montréal, Canada

DRAFT PAPER – Please do not quote without the author’s permission

Abstract

This paper focuses on the functioning and territorial organization of the Italian and Canadianhealth systems. Though to a different extent, health care governance in these countries is decentralized.Decentralization is a term rich of conceptual and empirical meaning, and can designate static anddynamic processes. The distinction between decentralized and centralized systems, as well as betweenfederal and unitary states, is a matter of degree, rather than a fully-fledged dichotomy. The articleexplores the dynamics of decentralization in health care, investigating why and how the territorialorganization of health systems changes or remains stable. Through a comparative historical analysisof the institutional arrangements and reform trajectories in light of the decentralization process, anddistinguishing between three dimensions of decentralization (political, administrative and fiscal),I aim at reconstructing and tracing the process through which distinct patterns of health systemdecentralization have occurred over time in the selected countries.

INTRODUCTION

Health systems, defined as sets of «social, economic and political processes concerned with the finance,provision and regulation of health care» (Freeman and Frisina 2010: 164), can generally be distinguishedinto national health service (NHS) and social health insurance (SHI) types, which bring us to thedistinction between Beveridgean and Bismarckian models (Blank and Burau 2014; Freeman 2000;Hassenteufel and Palier 2007; OECD 1987; Saltman and Figueras 1997; Wagstaff 2009). While SHIsystems are financed out of social contributions, and coverage is linked to labour market participationand/or membership of schemes tailored to specific categories, NHS systems are financed out of generaltaxation and are committed to ensure universal, equal and almost free access to health services for allcitizens as a matter of individual social right.

This paper focuses on the functioning and territorial organization of Beveridgean NHS models. Overthe past several decades, most developed countries have decentralized key dimensions of decision-making

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2 Dynamics of Health System Decentralization in Unitary and Federal Polities

authority to lower levels of government. The wave of decentralization, of course, has not exclusivelyinterested the health policy area. It has involved the public sector and the welfare state in general.The rationale behind decentralization rests upon a powerful idea: «smaller organizations, properlystructured and steered, are inherently more agile and accountable than are larger organizations» (Saltman,Bankauskaite and Vrangbæk 2007a: 1). The main argument for advocates of decentralization is thatthe shift of authority towards lower levels may constitute a successful mean in bringing governmentcloser to the people, enhancing accountability and responsiveness. Decentralization can better reflectheterogeneity of preferences among citizens, and it may increase knowledge of local problems, resultingin better penetration of national public policies and greater administrative capability at the local level,with public services reflecting local preferences and providing tailored-made responses to problems (cf.Charbit 2011; De Vries 2000; Marks and Hooghe 2004; Moreno and McEwen 2005). Arguments infavor of decentralization also point at highlighting positive outcomes both in terms of effective democracythrough citizens’ participation at the local level, and of good practices and policy innovation, thanks tocompetition and comparison between local governments (cf. Charbit 2011). In a nutshell, decentralizationhas often been considered as a panacea that can be applied everywhere and in every policy area, and as anormatively superior mode of allocation of authority.

However, decentralization also has drawbacks. First of all, it may affect the distribution of equity:problems mainly concern the effectiveness in reducing interregional and interjurisdictional disparitieswithin countries (Prud’homme 1995). It has also been argued that decentralization may result in a ‘raceto the bottom’ stemming from the competition among local governments. As highlighted by Pierson(1995: 452) «territorially-dispersed authority over social policy create[s] opportunities for competitivederegulation [emphasis in original]». A competitive environment can become damaging, with localgovernments ‘fighting’ against each other to attract profitable business and more investments (think to taxrate cuts or limited implementation of standards of any sort) (cf. Charbit 2011; De Vries 2000; see alsoTreisman 2007). Other arguments concern the multiplication of administrative tiers with the possibility ofduplication of tasks, and the possible failure in meeting national objectives with subnational governmentspursuing policies that are inconsistent with national goals. Complexity due to multiple units at differentlevels of government may also undermine attempt of reform and hinder policy implementation (cf. Charbit2011).

It seems clear that the concept of decentralization points at the territorial organization of governmentand governance, and it is a relevant phenomenon to be investigated in both unitary and federal polities.In fact, though important differences remain between unitary and federal countries, when it comes tothe study of the territorial division of powers and responsibilities over public policies the distinctionbetween the two is not clear-cut. As argued by Braun (2000: 17), «elements of the territorial division ofpower in unitary countries may have . . . affinities with federal structures, and conversely, some federalcountries may demonstrate relatively unitary and centralising dynamics». Therefore, in every politicalsystem power is shared to a greater or lesser extent between different levels of government, and this raisesseveral important questions regarding why and how power is decentralized.

This article aims at investigating health system decentralization in a unitary and federal polity,accounting for its dynamics and varieties. What have been the dynamics of continuity and change ofhealth system decentralization over time? Why and how does the territorial organization of health systemschange or remain stable? The countries selected for the study are Italy and Canada, which share thesame type of health system, namely a decentralized Beveridgean NHS model. In the literature, while thebelonging of Italy to the NHS family is widely accepted, there is no such agreement about Canada (for

Dynamics of Health System Decentralization in Unitary and Federal Polities 3

exhaustive discussions of health system classifications and typologies see Burau and Blank 2006; Freemanand Frisina 2010; Marmor and Wendt 2012; Wendt 2009; Wendt, Frisina and Rothgang 2009). However,as argued by Hacker (2004: 695), Canada is in key ways similar to Britain, which is a classic exampleof NHS country, and both are distinct from Germany, which instead is a classic example of SHI country.In fact, the Canadian system is predominantly tax-funded and in several studies it has been classifiedas a Beveridgean NHS system (Rothgang et al. 2005; Wagstaff 2009). We can therefore consider Italyand Canada as sharing overall similarities with regard to their health systems. Through a comparativehistorical analysis of the institutional arrangements and reform trajectories in light of the decentralizationprocess, my aim is to reconstruct and trace the process through which distinct patterns of health systemdecentralization have occurred over time in the two selected countries.

The paper is organized as follows. Section two surveys the relevant literature, providing a conceptualand operational definition of decentralization in health care, and illustrating the explanatory framework.In section three, I provide a descriptive and explanatory account of the dynamics of health systemdecentralization in Italy and Canada. Finally, section four concludes.

RESEARCH DESIGN

CONCEPTUALIZING AND OPERATIONALIZING HEALTH SYSTEM DECENTRALIZATION AND ITS CHANGE

When studying institutional and policy change it is of crucial importance to clearly define and delimitthe explanandum of the analysis, namely which aspect(s) of a policy field we are interested in studying(Campbell 2004; Capano 2009; Capano and Howlett 2009). There can be changes in policy instruments,strategies, goals and values, problem definition, actors’ role, resource distribution, institutional settings.In this paper I am interested in studying changes occurring in the institutional arrangements and territorialorganization of health systems in light of the decentralization process.

In broad terms, decentralization can be defined as the transfer of power and responsibility over policiesfrom the national to subnational governments (De Vries 2000; Falleti 2010; Smith 1985). Simply put,decentralization is a matter of allocation of authority and responsibility. However, the concept involvestwo major issues: decentralization of what and to which level of government? (Adolph, Greer and Massardda Fonseca 2012; Bankauskaite, Dubois and Saltman 2007; Mills 1994; Saltman and Figueras 1997).The what question concerns the tasks that are decentralized: these mainly include revenue raising, policyplanning, resource allocation, funding of service provision. The question of the level of government towhich tasks are decentralized is important in terms of intergovernmental relations: generally, it can besaid that tasks are decentralized from the national to regional or local (municipal) levels. Building uponthese two questions, in this section I provide a conceptual and operational definition of health systemdecentralization.

In the literature, an oft-cited definition of decentralization is that provided by Rondinelli, Nellis andCheema (1983), who suggest a distinction between four different dimensions, namely deconcentration,delegation, devolution and privatization. Deconcentration shifts administrative authority or responsibilityto lower levels within central government ministries and agencies. Delegation means the transfer ofmanagerial responsibility for specifically defined functions to organizations outside the central governmentand that are only indirectly controlled by the latter. Devolution implies the creation or strengthening ofsubnational units of government (local governments; local authorities; municipalities) that are substantiallyindependent from the central government with respect to a defined set of functions. Privatization means atransfer of responsibilities and in some cases ownership from public to private entities. This conceptual


framework, which has been applied to the study of health systems as well (Mills 1994, Mills et al.1990), has also been highly criticized since it does not really tell us what decentralization means. Here,the concept of decentralization is made up of four dimensions which refer to almost every form ofadministrative and political change, incurring in conceptual stretching (Sartori 1970) and rendering thedefinition analytically confused and misleading. In particular, and most importantly, privatization concernssomething very different from the other three dimensions, and it is not useful to conceptualize it as a formof decentralization (cf. Costa-Font and Greer 2013a; Peckham et al. 2008). This paper embraces thiscritique: since I am interested in studying the territorial organization of the state/government, I do notconsider privatization as a form of decentralization.

Although definitions of decentralization abound, and there is little agreement on what decentralizationmeans and how it should be operationalized, most scholars would agree on its ‘negative identification’(Sartori 1970: 1042): the transfer of power and responsibility to the central government is not decentral-ization. Thus, what is commonly shared is the assumption that decentralization consist in the transferof power and responsibility away from the central government (Schneider 2003). Starting from thegeneral definition of decentralization as the transfer of power and responsibility over policies from thenational to subnational levels of government, I articulate the concept of decentralization in health carein terms of three different, albeit strictly intertwined, dimensions: political, administrative and fiscal(Falleti 2010; Mitchell and Bossert 2010; Rodden 2004; Saltman and Bankauskaite 2006; Schneider2003; Treisman 2007). As Campbell (2004: 47) points out, when studying patterns of institutional changeit is in fact crucial to identify the institutional dimensions we are interested to track, and therefore to‘unpack’ the institutional arrangement under study. Accordingly, political decentralization means thetransfer of political control over health policy-making to lower levels of government. Administrativedecentralization means decentralizing to lower levels the organization and management of service delivery,with the national government retaining control over policy-making. Fiscal decentralization means thedecentralization of the power to raise health care funds. By providing this three-dimensions definition Ipoint at stressing the multidimensionality of the concept, rather than considering decentralization as thetransfer of a fixed and unique block of authority and responsibility. Moreover, such a conceptualizationhas an important analytical rationale: it allows me to study the dimensions separately, at the meantimehelping me in understanding their interaction.

As far as operationalization is concerned, the distinction between decentralized and centralized healthsystems is a matter of degree rather than a fully fledged dichotomy. By the same token, institutional andpolicy change should not be viewed as a dichotomous variable: it as a matter of degree and has to beanalyzed as such (Benz and Broschek 2013a: 2; Campbell 2004: 58). In the literature, several indexesmeasuring countries’ institutional decentralization (beyond the single health policy sector) have beenprovided, most notably by Lijphart (1999) and Hooghe, Marks and Schakel (2010). As regards the healthpolicy field in particular, Adolph, Greer and Massard da Fonseca (2012) have provided a detailed databaseon the allocation of authority for various health policy areas and tasks to different levels of government.Precious hints for operationalizing the concept also come from Bossert (1998), who proposes a decisionspace approach to the study of decentralization. In developing a systematic framework for research onhealth system decentralization, Bossert sees the relationship between the center and periphery as dynamicand evolving. The concept of decision space is defined as the range of effective choice that is allowed bythe central government to be utilized by local authorities. Decision space is defined for various functionsand activities over which local authorities have choice: finance (sources of revenues), service organization,human resources (salaries, civil service), access rules and governance rules. For each of these functions


and activities it is specified a range (degree) of choice allowed to the local authorities by the centralgovernment: it can be narrow, moderate or wide. The strength of this approach lies in the fact that it allowsus to disaggregate the functions over which local governments have a defined range of discretion. Ashighlighted by Vrangbæk (2007b: 53), «comparisons of the degree of decentralization in health systemsshould be based on composite evaluations rather than one-dimensional quantitative measures».

There are important questions to be addressed in operationalizing the degree of decentralization.As regards the political dimension, it is crucial to ask which is the level of government that makesdecisions on the ‘content’ of health policy in terms of planning and priorities setting. Is it national(central) or subnational (regional or local)? And if it is subnational, is there any coordination role bythe national level? The administrative dimension concerns the organization and management of servicedelivery. In this regard, what is relevant to investigate is: the extent to which hospitals are independentlymanaged at subnational level; whether subnational governments are able to enter into contracts withorganizations to deliver specified services; the ability of subnational governments to determine budgetaryallocations; the discretion they enjoy over expenditure decisions (Bossert and Mitchell 2010). Finally, inoperationalizing the fiscal dimension, it is crucial to ask whether subnational levels of government havethe power to levy taxes in order to finance the services. However, assessing discretion of subnationallevels of government within the fiscal dimension involves more than this. It also crucial to investigate: theright of subnational governments to determine the tax rate and what type of taxes should be raised; theirright to raise and determine user-fees; the types of grants allocated from the national level to subnationallevels (conditional or unconditional); the percentage of the national and subnational funding; whetherredistribution or equalization mechanisms (vertical or horizontal equalization) are present1 (Bankauskaite,Dubois and Saltman 2007). It is important to note that, unlike other definitions of fiscal decentralizationthat consider both spending and revenue raising powers of subnational governments, in this definitionfiscal decentralization refers to revenues, whereas expenditures are part of administrative decentralization(see Falleti 2010).

Table 1 summarizes the conceptual and operational definitions of health system decentralizationalong the political, administrative and fiscal dimensions. The operational definitions tell us to whatextent subnational levels of government have political, administrative and fiscal autonomy and discretion.Patterns of change are thus differentiated according to these three dimensions.


Table 1: Dimensions of Health System Decentralization: Conceptual and Operational Definitions

Dimension Conceptual Definition Operational Definition

Political Transfer of political control over healthpolicy-making to lower levels of govern-ment.

Extent to which subnational levels of gov-ernment have power to make decisions onthe content of health policy in terms of plan-ning and priorities setting.

Administrative Transfer of the organization and manage-ment of service delivery to lower levels ofgovernment, with the national governmentretaining control over policy-making.

Extent to which hospitals are independentlymanaged at subnational level; ability of sub-national governments to enter into contractswith organizations to deliver specified ser-vices; ability of subnational governments todetermine budgetary allocations; the discre-tion they enjoy over expenditure decisions.

Fiscal Transfer of the power to raise health carefunds to lower levels of government.

Power of subnational levels of governmentto levy taxes in order to finance the services;their right to determine the tax rate and whattype of taxes should be raised; their right toraise and determine user-fees; the types ofgrants allocated from the national level tosubnational levels (conditional or uncondi-tional); the percentage of the national andsubnational funding; the presence of redis-tribution or equalization mechanisms (verti-cal or horizontal equalization).

Source: Author’s eleboration.

EXPLANATORY FRAMEWORK

Decentralization in both developed and developing countries, and in both federal and unitary states, is alively issue in the fields of political science and public policy (see e.g. Ashford 1979; Benz and Broschek2013b; Braun 2000; Castles 1999; De Vries 2000; Falleti 2010; Fesler 1965; Greer 2006; Hooghe,Marks and Schakel 2010; Litvack, Ahmad and Bird 1998; Prud’homme 1995; Rodden 2004; Rondinelli,Nellis and Cheema 1983; Schneider 2003; Sharpe 1988; Smith 1985; Swenden 2006; Treisman 2007;Wachendorfer-Schmidt 2000). Processes of decentralization have been the subject of a great deal of debateamong scholars of the welfare state (e.g. Banting 1987; McEwen and Moreno 2005; Obinger, Leibfriedand Castles 2005; Pierson 1995), and among those interested in health policy and health systems researchin particular (e.g. Adams 2001; Banting and Corbett 2002; Bossert 1998; Costa-Font and Greer 2013b;Mills et al. 1990; Fierlbeck and Palley 2015; Saltman, Bankauskaite and Vrangbæk 2007b).

Research on the dynamics of federalism and decentralization has focused on several factors and drivingforces, including territorial interests, political parties, ideas and institutions (see Benz and Broschek 2013b;Falleti 2010). As far as decentralization in health care is concerned, drawing on arguments from politicalscience, public administration and organizational theory, Vrangbæk (2007a) identifies three categories ofdriving forces, offering a platform to understand why and how decentralization in health care occurs. Theauthor distinguishes between a) performance issues, b) legitimacy issues, and c) self-interest issues. Thetheoretical perspective relying on performance issues depicts health systems as «organisms that can readily


be adjusted to new contingencies by policy analysts and decision-makers» (2007a: 63). Performanceissues that can come into play are several: efficiency, equity, quality, cost containment, accountability etc.In this view, however, it is stressed that the context and the historical situation matter, in that «[d]ifferentsituations call for different structural responses and the specific historical, social and cultural trajectory isa factor in building arguments and driving the process» (2007a: 69). Context, history, political institutionsand the broader value base in society all have influence on the appropriateness of a particular choice,in terms of decentralization or recentralization, in particular circumstances. According to the secondperspective (legitimacy issues), health systems are conceived as organizations and are embedded in abroader ‘system’ of values, rules, norms and interpretative schemes (March and Olsen 1989). Sharedvalues and norms are important for the level of trust in the system. In this view, «legitimacy and culturalfit are important for decision-makers at all organizational levels in order to build support and facilitatechange processes» (Vrangbæk 2007a: 71). In addition to performance-related arguments, symbolic actshave a role in reform processes. In this sense, the introduction of decentralization reforms may be drivenby quests for legitimacy. In ‘bringing government closer to the people’, decentralization can be seen aspart of a general policy trend «to gain legitimacy by adjusting to value perceptions in various settings andcountries» (2007a: 64). Finally, the third perspective (self-interest issues) focuses on material interests asdriving forces. According to this view, «health policy should be seen as an ongoing struggle for powerand influence among individual and collective actors operating within institutional structures that provideboth constraints and opportunities» (Vrangbæk 2007a: 73). Here, the dynamics of who has power andwhere the veto points are in the decision-making process are crucial explanatory variables.

The above discussed three categories of driving forces, which mainly concern the role of ideas,interests and institutions in institutional and policy change, offer a valuable platform for explainingthe dynamics of health system decentralization. In this paper, I mainly point at the interplay betweeninstitutional and ideational factors. In identifying the explanans, namely the specific configuration ofexplanatory factors, I draw from historical and sociological institutionalism (March and Olsen 1989; Halland Taylor 1996), and from the extensive literature on institutional and policy change (e.g. Campbell2004; Capano and Howlett 2009; Pierson 2004; Mahoney and Thelen 2010; Streeck and Thelen 2005b).

To begin with, I follow Gerber and Kollman (2004) who suggest to distinguish, within the broadcategory of causes of what they call ‘authority migration’ (a neighboring concept of decentralization),between sources and mechanisms (see also Benz and Broschek 2013a). While sources point at thefoundational factors that stimulate demand for change, mechanisms refer to «the pathway or process bywhich an effect is produced or a purpose is accomplished» (Gerring 2008: 178) (Figure 1).

Figure 1: Sources and Mechanisms of Health System Decentralization Dynamics

Source: Adapted from Benz and Broschek (2013a).

I see the sources of change as being endogenous to the health systems themselves. In this regard,


performance issues constitute the factor that creates demand for change. As noted above, performanceissues mainly regard the efficiency, quality and equity of the systems. These are the issues than canstimulate demand for change in the institutional arrangements and territorial organization of the healthcare systems, towards either decentralization or (re)centralization. However, performance issues can beseen as necessary, but not sufficient, conditions for change. In addition to them, I thus focus on otherthree explanatory factors, the configuration of which designs the mechanisms through which demandsfor change are translated into distinct patterns of health system decentralization. The factors I considerare the policy beliefs and ideas, the formal institutional setting, and the nature of intergovernmentalrelations. Movements towards reform are often driven by policy beliefs and ideas about how to copewith performance issues and problems of the health care systems. So conceived, policy beliefs andideas can be seen as programs (Campbell 2004), namely «cognitive concepts and theories that enableor facilitate decision making and institutional change by specifying for decision makers how to solvespecific problems» (2004: 98). The same performance issue can be addressed in different ways indifferent countries, depending on the prevailing policy beliefs and ideas in relation to the health care policyfield. In this sense, there can be tensions between different value positions such as: efficiency throughlocal management versus efficiency through economies of scale; quality through national standards andmonitoring versus quality through locally adjusted solutions (Vrangbæk 2009: 59; on the role of ideasand beliefs in health care research see also Béland 2010). As far as the formal institutional settingand the nature of intergovernmental relations are concerned, I follow Colino (2013) who, in analyzingchange in federal systems, proposes to focus on the formal institutional framework of the federal systemand the federal relations. The shape of federal (or intergovernmental) relations, namely «the degree ofcollaboration or competition among constituent units [(or subnational governments)], together with theformal framework and its typical pathologies, will structure the dominant issues and the discussions andideas on reform» (2013: 64). I believe that these factors are relevant also in the study of decentralizationin a particular policy domain such as health policy. The investigation of intergovernmental relations wouldalso help us to understand the role of territorial (regional) interests (see also Falleti 2010).

The configuration of variables that I have identified interacts with two further factors. In the explana-tory framework, what certainly cannot be underestimated is the context within which changes in healthsystem decentralization occur (or not) (on the role of context in explanatory research see Falleti andLynch 2009). The context does matter since decentralization can be seen as part of an overall strategyof governance and government. In this sense, decentralization may actually be part of a larger reformpackage which also includes other policy areas. The other factor I have to consider is constituted by theoccurrence of conjuctures (Mahoney 2000: 527; on the role of conjunctures in health care reforms seealso Freeman and Moran 2000).

HEALTH SYSTEM DECENTRALIZATION: DYNAMICS OF CONTINUITY AND CHANGE

ITALY: INSTITUTIONAL EVOLUTION THROUGH BRICOLAGE AND LAYERING

The turning point in the history of the Italian health system is the 1978 reform (Law 883/1978), whichmarked a paradigm shift from a Bismarckian SHI system to a Beveridgean NHS (Servizio SanitarioNazionale, SSN). As Ferrera (1995: 279) puts it, the fundamental idea underlying the process of reformwas «that the state should provide free and equal benefits to every citizen . . . with absolutely nodifferentiation or discrimination among citizens and no economic barriers at the points of use».

The new Italian NHS was based on a decentralized organizational structure including three distinct


tiers: the central government, the regional governments and the local health units (Unità SanitarieLocali, USLs). The share of some competences between the national government and the regionswas in line with the Constitution which came into force in 1948. Government decentralization (ofcourse, beyond the single health care sector) was clearly aimed at reversing the concentration of powerin the hands of the center that Italy experienced during the Fascist regime. The central governmentwas responsible for overall health planning and financing through compulsory contributions and taxes2.Regional governments were responsible for local planning according to the objectives specified atnational level and for organizing and managing health care services within their jurisdictions. USLswere responsible for providing services through their own facilities (e.g. ambulatory units, hospitals) orthrough contracts with private providers, and were run by managing committees elected by assembliesof representatives from municipal governments (Ferrera 1995b). The idea behind the involvement ofmunicipalities in health care management and organization was that of democratic accountability. Whatis worth stressing here is that regional and municipal governments did not have the power to levy taxes.Subnational autonomy was limited to restricted administrative and organizational powers. According toour three-dimensions definition of decentralization, the new health system was based on a (weak) politicaland administrative decentralization, but not on a fiscal one.

After the 1978 reform, however, the dividing line between state, regional and municipal responsibilitiesremained blurred, and health care was not coherently planned at the national and subnational levels. Duringthe 1980s, this new institutional setting revealed two crucial problems: excessive politicization and thelack of rational financial incentives. As regards the first problem, USLs were managed by politicalbodies formed on the basis of party considerations and recruitment. Management committees were, inpractice, arenas of political exchange and party competition. This institutional framework also led tocorruption, clientelism and fraud episodes. The second problem stemmed from the separation betweencentral financing responsibilities and regional spending power. Financing was centralized because at thetime the NHS was set up the dominant belief was that this was necessary on order to guarantee the nationalcharacter of the system. This asymmetry in the allocation of financing and spending responsibilities canbe seen as the main culprit of inefficient use of financial resources. The central level tried to containspending by deliberately under-financing health care and by setting tight budgetary ceilings, which regionsregularly failed to respect (France 2007). Since regions did not have responsibility in collecting revenues,they were not encouraged to respect the ceilings as local politicians knew that the central governmentwould have ultimately ‘paid their bill’: such an arrangement certainly did not favor the developmentof cooperative intergovernmental relations (Fargion 2005; Ferrera 1995b: 281-282). The fundamentalproblem, thus, was not so much the overall level of public health expenditure, which was in fact in line, oreven lower, with respect to some other OECD NHS countries (Table 2). During the 1980s, the share ofpublic health expenditure was between 5 and 6% of GDP. In 1989, the share was 5.7 % of GDP, less thanCanada, Norway, Iceland, Denmark and Sweden. The crucial issue was rather that the central governmenthad limited power in controlling how the USLs spent the funds: this division of funding and spendingresponsibilities triggered regional deficits, creating a situation of permanent financial crisis (France andTaroni 2005).


Table 2: Public Health Expenditure in Selected OECD Countries, % of GDP, 1980-1989

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989Australia 3.9 3.7 3.7 4.0 4.5 4.5 4.6 4.5 4.3 4.3Canada 5.2 5.4 6.0 6.2 6.0 6.0 6.2 6.1 6.1 6.2Denmark 7.9 8.0 8.0 7.7 7.3 7.3 6.9 7.1 7.3 7.1Finland 5.0 5.2 5.3 5.3 5.3 5.6 5.7 5.8 5.7 5.7Greece 3.3 4.0 3.2 3.7Iceland 5.5 5.8 6.0 6.6 6.0 6.3 6.6 6.9 7.3 7.1Ireland 6.7 6.4 6.1 6.0 5.7 5.6 5.5 5.1 4.7 4.5Italy 5.6 5.5 5.5 5.7 5.7New Zealand 5.1 5.4 5.2 5.1 4.7 4.3 4.4 4.9 5.3 5.4Norway 5.9 5.9 6.0 6.1 5.8 5.6 6.1 6.5 6.6 6.4Portugal 3.3 3.5 3.0 2.7 2.7 3.0 3.2 3.1 3.3 3.0Spain 4.2 4.3 4.4 4.8 4.5 4.4 4.2 4.3 4.7 4.8Sweden 8.1 8.1 8.2 8.1 8.0 7.6 7.3 7.3 7.2 7.3United Kingdom 5.0 5.2 5.0 5.2 5.1 4.9 4.9 4.9 4.8 4.8

Source: Freeman (2000), Maino (2001), OECD (2015).

Therefore, since its inception and throughout the 1980s, the Italian NHS suffered from very poorperformance, with inefficiency being the most crucial issue. Several reform bills were proposed, but anychange occurred until the early 1990s. Once established in 1978, the new institutional arrangementsof decentralization have become locked-in and have proved difficult to change: mechanisms of self-reinforcement and positive feedback effects were at work (Pierson 2004). In fact, as we have seen, thoughthe system was characterized by limited political and administrative decentralization, political parties atregional and local levels were strong players in its management. The field of health care was actually‘occupied’ and ruled by political parties (Ferrera 1995a), and this rendered the costs for changing the‘rules of the game’ extremely high.

Contrary to the 1980s, in the 1990s the decentralized architecture of the Italian NHS as it was set upin 1978 experienced major changes. Two Legislative Decrees in 1992 and 1993 launched a ‘reform of thereform’, involving a process of further decentralization of political, administrative and fiscal authority toregions. This process provided regions with more autonomy in policy-making, health care administrationand management, resource allocation and control (Lo Scalzo et al. 2009). In line with New PublicManagement (NPM) ideas, decentralization was paralleled by a process of managerialization, which hadimportant implications for the territorial organization of the system, especially with respect to the politicaland administrative dimensions. The main ideas associated with NPM mainly include the introduction ofprofessionalism, competition and private sector management techniques into the public sector, which areseen as crucial for improving the effectiveness and efficiency of public service delivery and governmentperformance in general (see Bevir 2009). Accordingly, USLs and major hospitals were converted intoautonomous bodies more independent from political influence and party control: the ASLs (AziendeSanitarie Locali) and the AOs (Aziende Ospedaliere) respectively. Both ASLs and AOs were governed bygeneral managers chosen by the regions for their technical expertise, and enjoyed greater financial anddecision-making autonomy, with the top management team having responsibility for the resources usedand the quality of service delivered. As regards the financing of the system, the central level maintainedoverall planning functions and a basic financial responsibility, paying for a standard set of services


that must be guaranteed to each citizen in each region. Therefore, the central government continued toallocate a predetermined amount of resources to regions by capitation, but whatever remained to be paidin addition to its standard yearly endowment must be covered with regional resources, namely throughhigher co-payments or taxes (Ferrera 1995b). It is important to note that these changes signified a drasticreduction of the role of the municipalities, and an increase in the role of the meso level, namely the regions.At the subnational level, we could therefore speak of a process of centralization in the hands of the regions.However, in line with our definition of decentralization as the transfer of power and responsibility awayfrom the central government, and in light of the fact that the powers at the national level were reduced, wecan still refer to these reforms as involving a process of decentralization.

These major changes concerning the overall functioning and territorial organization of the Italian NHSoccurred in a particular conjunctural moment and have to be put in context. First of all, in 1990 a lawon local government was adopted, which redefined the overall arrangement of subnational governments,assigning to the regions functions concerning the establishment of general socio-economic and territorialobjectives, and delegating local governments to a more consultative and executive role (Cotta andVerzichelli 2007). Few years later, Italy was hit by a profound political and economic turmoil. Between1992 and 1994 the core parties of the so-called ‘first republic’ collapsed due to corruption scandals whichalso involved the health sector (the regulation of pharmaceuticals specifically) (Ferré et al. 2014). Thepolitical vacuum was exploited by the Northern League, a regionalist party advocating regional autonomyfor northern regions, fiscal federalism and even separatism. The Northern League was crucial in fuelingthe decentralization debate in crucial policy areas such as health care and labour policy and in shaping thenature of intergovernmental relations during the 1990s (Fargion 2005; Maino 2001). In addition to thepolitical earthquake, a severe financial crisis and the high level of public debt forced Italy to leave theEuropean Monetary System. This ‘coming together’ of events opened up a window of opportunity forreform: between 1992 and 1994 two technical governments launched major reforms, including the abovediscussed decentralization measures in health care, marking a break with the stalemate of the 1980s.

The conjuncture of the early 1990s de-locked the institutional arrangements of decentralization asthey functioned during the 1980s. The changes that occurred in the Italian NHS were certainly significant,and they seem to have marked an abrupt and revolutionary institutional breakdown and replacement(Streeck and Thelen 2005a; see Pavolini and Vicarelli 2013). This was certainly true in terms of healthcare management, which was separated from political dynamics. However, in terms of decentralization, Iargue that these were instead times of rapid evolutionary changes. In fact, as stressed by Capano (2009:10), «evolutionary changes can be so fast that they may seem to be revolutionary, but in reality theyrepresent a certain continuity with the past rather than any true novelty». I therefore see this period asinvolving a rapid process of change within evolutionary dynamics. In fact, since its inception in 1978the system has always been based on a – though weak – decentralized architecture. The 1992-1993reforms did not put the decentralization paradigm into question, which was instead revised and, above all,strengthened. The institutional arrangements of decentralization were reconfigured along the political,administrative and fiscal dimensions through a mechanism bricolage. As Campbell (2004: 69) puts it,«actors often craft new institutional solutions by recombining elements in their repertoire through aninnovative process of bricolage whereby new institutions differ from but resemble old ones». In order toface the poor performance that the system experienced during the 1980s and to render it more efficient,the already existing three-tier architecture of the health system was reconfigured and redesigned to correctthe system’s drawbacks and meet the new objectives.

The process of decentralization was further promoted by several legislative measures approved


during the period 1997-2000 under center-left governments, and a constitutional reform in 2001 whichconsolidated legislative powers of the regions in many policy areas, including health care. A process oftransition toward a (quasi-) federal state went hand in hand with the progressive introduction of a ‘weak’fiscal federalism (Liberati 2001: 16), transferring (part of) the funding of the system from the central to theregional level, strengthening the fiscal autonomy of the latter. Before 1998 taxation and social insurancecontributions were the largest share of financing of the system. In 1998 social insurance contributions werereplaced by two new types of regional tax earmarked for health. A regional corporation tax imposed onthe value added of companies (IRAP)3, and a regional tax imposed on top of the national personal incometax (addizionale IRPEF). These regional taxes (around 36% of total funding in 2012) are supplemented bycentral government transfers (around 47% of total funding in 2012) including, among others, a nationalequalizing fund4 (Ministero dell’Economia e delle Finanze 2012). In 2001, the government established bydecree a set of ‘essential levels of care’5 (Livelli Essenziali di Assistenza, LEAs), defined as the servicesthat the SSN is required to provide uniformly in all regions. As for non-LEA services, regions canbasically do what they want. They are allowed to generate their own additional revenue and guarantee awider range of services. Moreover, since the regional level is financially responsible for covering deficitswith their own resources, those regions facing health care deficits can also increase IRAP and IRPEF ratelevels (Ferré et al. 2014). To sum up, the health system financing introduced by the ‘federalist’ reformsof the late 1990s and early 2000s rests on two main sources: (1) central government transfers and (2)regional taxes. In addition to that, a small portion of financing consists of users’ co-payments for servicesand of transfers from a national health fund (targeted to specified objectives) (Ferré et al. 2014; Thomson,Foubister and Mossialos 2009). However, even in presence of an equalization mechanism, the new systemhas generated, and is generating, wide interregional differences. Problems are concerned with largedifferentials in fiscal capacity, mainly due to interregional gaps in the corporate tax base, consequentlyleading to financing inequalities. In 2009, for example, while in the North the share of own resourcesderiving from IRAP and addizionale IRPEF out of the total funding was 47.8%, in Southern regions itwas 15.3% (Turati 2013).

The reforms of the late 1990s and early 2000s took place in a different context with respect to thoseof 1992-1993. First of all, the external economic pressure mainly deriving from the accomplishment ofthe Maastricht Criteria and the process of European Monetary Unification tended to decrease after 1997,allowing center-left governments to launch comprehensive reform in key social policy areas, includinghealth care (France and Taroni 2005). Moreover, in this period there were important changes in thesystem of subnational government. In 1999, a constitutional correction introduced the direct election ofregional governments, empowering the regions in their relation with the central government, and severalbills concerning the reorganization of public administration and the nature of intergovernmental relationswere adopted, marking the «busiest and most innovative period in Italian local government since theestablishment of the regions» (Gilbert 2000, cited in Cotta and Verzichelli 2007: 189). Through theinstitutionalization of the State-Regions Conference as an ‘instrument’ for addressing intergovernmentalconflicts and for reaching joint-agreements, a system of ‘cooperative federalism’ was put in place (Cottaand Verzichelli 2007; Fargion 2005). Intergovernmental cooperation can be seen as a factor favouringa more clear definition of the national and subnational powers and responsibilities in health care. Inthis regard, as we have seen, regional and local levels certainly gained more political, administrativeand fiscal autonomy. However, center-left governments that were in power during those years werecommitted to territorial uniformity in social citizenship rights, and therefore were willing to reserve animportant role to the national level in order to face the potential drawbacks of decentralization. In fact,


the 1999 health care reform (Legislative Decree 229/1999), labelled ‘third reform’ after those in 1978and 1992-1993, emphasized the universal character of the SSN. While the reform of the early 1990s wasconcerned with efficiency issues, the 1999 reform dealt with issues of (geographical) equity. Federalismand decentralization may in fact prove to be inconsistent with a NHS type of health system, which shouldensure universal and equal access to all citizens, regardless of their socio-economic status and geographiclocation. Thus, decentralization in a policy area such as health care needs to be counterbalanced bystandardization. To this aim, similarly to what was happening in the British NHS at that time, nationalstandards and goals (such as the definition of the LEAs) were emphasized, with the central governmentassuming control and monitoring functions. As highlighted by France and Taroni (2005), in terms ofpolicy beliefs and ideas, there was a considerable borrowing from the English White Paper ‘The New NHS’(Department of Health 1997). The Italian reform law begins by stressing that health is a fundamentalindividual right to be guaranteed through a universal health system under government control. By thesame token, a statement within the above mentioned White Paper effectively summarizes the BritishLabour government commitment: «if you are ill or injured there will be a national health service thereto help: and access to it will be based on need and need alone - not on your ability to pay, . . . or onwhere you live» (1997: 2). This had to be achieved through a «genuinely national [emphasis added]service», at the meantime making «the delivery of healthcare against these new national standards a matterof local [emphasis added] responsibility» (1997: 10). In this reform season, change occurred throughlayering, «which involves the partial renegotiation of some elements of a given set of institutions whileleaving others in place» (Thelen 2003: 225). Layering does not create new institutions, but rather involvesamendments or revisions to existing ones. Legislative Decree 229/1999 actually modified the legislationof the early 1990s, emphasizing the importance of national standards and government control, preservingmuch of the core of the inherited institutional arrangements of decentralization. The same holds for the2001 constitutional amendment.

The above described changes resulted in a system of ‘centrally steered decentralization’. During thelast fifteen years, institutional evolution continued to proceed through layering, with new intergovernmen-tal agreements functioning as a tool for the central government to steer the decentralized arrangement ofthe SSN. The national level faced the need to strengthen the budget constraint by increasing regulatoryinterventions, conditioning future funding to actions aimed at preventing regional deficits, and strengthen-ing control over the weakest regions (Tediosi, Gabriele and Longo 2009). In 2001, few months before theLEAs were defined, a memorandum of understanding between the central government (center-right) andthe regions was signed. The accord established the allocation of additional funds to the regions to helpthem to cover deficits accumulated since 1994, on condition that the regions showed to be able to avoidfuture deficits through careful planning. Sanctions for regions unable to contain health spending were alsoestablished. Moreover, the principle that deficits should be covered by the level of government that createdthem was emphasized, meaning that, if there were deficits, regions had to find the resources to cover them(by increasing regional taxes and/or patients’ co-payments, for example). Though this was certainly acrucial agreement in terms of cooperative intergovernmental relations, it proved to be uneffective: between2002 and 2005 a total deficit of around 21 million euro, of which 84% was attributable to regions, wasaccumulated (France 2007). Another agreement was signed in 2005, which imposed tougher conditions onregions. Since then, regions have to provide Budgetary Balance Plans (Piani di Rientro)6 to be agreed withthe Ministry of Health and the Ministry of Economy and Finance, who also have monitoring and controlpowers. It is clear that these were measures aimed at granting the national level powers with respect tofailing regional institutions, in line with the course undertaken in several social policy areas at the end of


the 1990s (Fargion 2005). The strategy of using central spending power (through conditioned additionalfunds) to limit regional autonomy was clearly at odds with the way the fiscal and administrative dimensionsof decentralization worked during the 1980s and early 1990s. (Re)centralizing measures continued to beadopted during the second half of the 2000s. Since 2006, the central government (both center-left andcenter-right) and the regions have signed three-years Pacts for Health, aimed at guaranteeing territorialuniformity and financial sustainability within the SSN. In particular, the last 2014-2016 Pact insists on theneed of reducing interregional disparities within the country. Additional resources to the health sectorwere allocated, in contrast to the reduction in health funding during the period 2011-2013, which tookplace in a general context of public spending review under the pressure of severe international economicand financial crisis (Ferré et al. 2014; Maresso et al. 2015; Neri 2014). However, geographical inequity inaccess to health care still constitutes a crucial policy issues, with some regions unable to guarantee theLEAs.

To conclude on Italy, in table 3 I summarize the dynamics of health system decentralization, highlight-ing the mechanism of continuity and change occurred over time. Following the operational definition ofdecentralization I have provided in section two (see Table 1), I also assign degrees of decentralization tothe political, administrative and fiscal dimensions, accounting for changes within each of them7. Whileduring the 1980s no change has occurred, during the 1990s there have been changes towards greaterdecentralization in all the three dimensions as a response to efficiency issues. During the last decade,issues of geographical equity and fiscal sustainability have created demand for recentralizing measures.However, there have been changes mainly in the administrative dimension, which has moved from a highto a medium degree of decentralization.

Table 3: Dynamics of Health System Decentralization in Italy

Period PerformanceIssue(s)

Mechanisms of Continuityand Change

(Change in the) Degrees ofDecentralization

1978 – late 1980s Efficiency Continuity throughself-reinforcement

Political: lowAdmin.: mediumFiscal: low

early 1990s Efficiency Change through bricolage Political: low to mediumAdmin.: medium to highFiscal: low to medium

late 1990s – 2014 Geographical equity(late 1990s – early2000s);Geographical equityand financial sustain-ability (early 2000s –2014)

Change through layering Political: mediumAdmin.: high to mediumFiscal: medium



CANADA: INSTITUTIONAL REPRODUCTION AND CONTINUITY THROUGH INCREMENTAL CHANGES

The development of publicly funded health care in Canada dates back to 1947, when the provincialsocial-democratic government of Saskatchewan first introduced a universal hospital services plan, whichwas extended to physician services in 1962. Saskatchewan was closely followed by British Columbiaand Alberta. In 1957, the federal government passed the Hospital Insurance and Diagnostic ServicesAct, aimed at providing financing to implement provincial hospital insurance across the whole Canadianterritory, allowing provincial governments to receive shared-cost financing8 through federal transfers.In 1966, the federal government introduced another cost-sharing mechanism for medical services underthe Medical Care Act (Maioni 2002; Marchildon 2013). In order to allow provincial governments todevelop their programs, the (co)financing arrangement remained open-ended. Moreover, federal fundingto provincial governments was conditional upon respect of specific principles: provincial health systemshad to be publicly administered (public financing and administration on a non-profit-making basis),comprehensive (all medically necessary services should be covered), universal (every citizen is coveredon uniform terms and conditions), and had to allow portability of benefits (citizens are covered in allprovinces). Behind the introduction of these Acts, as stated by the Minister of National Health andWelfare in a speech to the House of Commons in 1966, there was the fundamental idea that «health is nota privilege but rather a basic right which should be open to all . . . regardless of means, of pre-existingconditions, of age or other circumstances» (cited in Charles and Badgley 1999: 115). These measureswere also intended to reduce geographical disparity in the distribution of health services. By 1971, abouttwenty years after the first Saskatchewan’s universal health care program, all Canadian residents werecovered for hospital and medical services.

The actual Canadian health system is thus the product of provincial policy innovation, then extendedto the whole country thanks to the role of the federal government that encouraged its diffusion nation-wide. The division of power and responsibilities in health care between the federal government and theprovinces was already defined in the Constitution Act of 1867, which grants exclusive jurisdiction oversocial policy, including health care, to provincial and territorial governments, while assigning taxationpowers (also) to the federal government. Therefore, though formally health care is primarily a matter ofsubnational political responsibility9, the national level does have an important role, which mainly stemsfrom his fiscal and spending power. In this regard, it is also important to mention the 1940 Report ofthe Royal Commission on Dominion-Provincial Relations. Appointed in 1937, the Commission wasconcerned with the distribution of functions between the federal government and the provinces, aimingat a realignment of administrative and fiscal responsibilities in line with the belief that «in the interestsof national unity it is highly desirable that every province should be able to provide [social] services inaccordance with average Canadian standards» (Report of the Royal Commission on Dominion-ProvincialRelations, cited in Maxwell 1948: 7). The Commission recommended a greater role for the federalgovernment in fiscal stabilization, redistribution, and design of national social programs. In practice, thefederal government should have assisted the provinces through cost-sharing or fiscal transfers. This isactually what the Canadian government did in the field of health care through the above mentioned 1957and 1966 Acts. Therefore, since the first federal government intervention in provincial health care, thenature of intergovernmental relations between the two levels of government can be identified with themodel of shared-cost federalism (Banting 2005), according to which the federal government providesfinancial support to provincial governments on specific terms and conditions.

During the 1970s, the newly created Canadian NHS experienced rising health care expenditures. Cost


control became the dominant theme in Canadian health policy. On the one hand, the federal governmentwas worried about the cost-sharing and open-ended funding arrangement, and wanted to regain controlover the federal budget. On the other hand, the provinces were concerned about the limited flexibilitythey enjoyed in providing less costly services, due to the conditionality of federal funds (Charles andBagdley 1999). The federal commitment to ensure geographical equity was thus constrained by the need ofcontrolling health care costs. These issues led to the adoption of a new funding mechanism in 1977, underthe Established Programs Financing (EPF) Act. Cost-sharing was replaced by block funding. In additionto a block grant, indexed to population size and average GDP growth, the federal government transferredtax points10 to provinces allowing them to access to greater tax revenues and therefore strengtheningtheir fiscal autonomy. Moreover, poorer provinces benefited from equalization payments. Under the EPF,federal funding was thus no longer linked to provincial expenditures in that the national governmentcommitment to match provincial spending increases with increased federal expenditures was eliminated(Jordan 2008). The EPF did not only have an impact on the fiscal dimension of decentralization, but alsoon the administrative one. In fact, the federal government allowed the provinces to treat the block grant asgeneral revenue, leaving them high discretion in spending decisions11: the EPF funded both health andpost-secondary education, and the provinces were free to allocate funds to the two policy fields as theywished.

During the late 1970s and early 1980s, the implications of the new federal-provincial financingarrangement constituted a matter of concern for at least three reasons: a) the federal government’s share ofhealth care funding was declining (but this was actually one of the objectives of the shift from cost-sharingto block funding); b) the greater fiscal autonomy of the provinces put the federal capacity of maintainingnational standards under risk; and c) provincial governments were allocating federal health care fundingto other purposes, since funding was no longer tied to specific programs (Charles and Bagdley 1999:124-125; Fierlbeck 1997). During this historical period, intergovernmental relations were of a conflictualnature, with the two levels of governments complaining about each other’s role in the health system. Whileprovinces blamed the national government for underfunding the system, the latter blamed the former fordiverting the funding to other uses (Rocher and Smith 2002). As Fierlbeck (1997: 20) convincely putit, «health care policy in Canada remains an awkward tango between these two levels of government[federal and provincial], each dependent upon the other but desiring autonomy of action». Paradoxically,provincial governments claimed for greater autonomy, at the meantime complaining about the decliningfederal role. For its part, the federal government wanted to retain maximum influence on the system,but at minimum costs. As a response to financial difficulties, the provinces started to increase privateprovision and to introduce extra-billing12 for medical services and user fees for previously free healthservices, threatening the fundamental principles of the health system (Jordan 2008). This led to furtherchanges in the federal-provincial financing arrangement during the 1980s.

In 1981, a Parliamentary Task Force issued a report (Fiscal Federalism in Canada) focusing on,among other things, fiscal equalization and tax collection. The report concluded that federal fundingfor health care was adequate, but that it should not have been reduced in the future. Moreover, itwas recommended to ban extra-billing for medical services (Charles and Bagdley 1999). In 1982, aconstitutional revision made equalization a constitutional principle: under the Canadian Constitution,the federal government is committed to ensure that provincial governments have sufficient revenues toprovide reasonably comparable levels of public services by means of equalization payments. Equalizationis clearly aimed at facing geographical inequity issues which may result from fiscal decentralization dueto provincial differences in tax bases. In terms of intergovernmental relations, it is of great salience that


such a measure enjoys constitutional status. Two years after this constitutional revision, a new legislativeact was passed by a Liberal government, with the support of all federal political parties, in the field ofhealth care. The 1984 Canada Health Act replaced the 1957 Hospital Insurance and Diagnostic ServicesAct, and reinforced the role of the national level vis-á-vis the subnational levels of government withinthe political dimension of decentralization. The Act clearly embodied the Liberals’ vision of nationalunity, and confirmed their «willingness to intervene in areas of provincial jurisdiction and to use thefederal government as an instrument to build national identities» (Rocher and Smith 2002: 9). Therewere few intergovernmental consultations on the introduction of this Act. The provinces claimed thatthe federal government acted unilaterally, violating the provincial exclusive jurisdiction on health care.However, while the Act was opposed by the provinces, it was strongly supported by Canadian citizens(Banting 2005). The federal government was able to reassert the ‘national’ character of the health systemwithout increasing its funding role. The conditions for federal funding were reaffirmed and strengthened.In addition to the four original conditions (public administration, comprehensiveness, universality andportability), provincial health-care plans must respect the principle of accessibility, whereby any financialbarrier impeding or precluding access to health care had to be removed. Following the 1981 parliamentaryreport, extra-billing and user fees were thus banned. Financial penalties, by means of reductions in federalcontribution, were provided for those provinces who failed to meet these principles. Though extra-billingand user fees were not completely eliminated across the country, by the end of the 1990s the extent of thispractices was strongly minimized (Charles and Bagdley 1999: 127)

During the late 1980s and early 1990s the intergovernmental climate continued to deteriorate. Withina context of recession, the most important issue at the center of the debate was deficit reduction at bothfederal and provincial level, and therefore cost containment (Fierlbeck 2001). In 1995, under Liberalgovernment, the EPF was replaced by the Canada Health and Social Transfer (CHST) which funded healthcare, post-secondary education and social assistance. The new funding mechanism was in continuity withthe previous one in that it was still based on (conditional) cash payments and (unconditional) transfers oftax points, and the cash portion continued to be reduced (Table 4).

Table 4: Evolution of Federal Transfers for Health Care, % Provincial Health Expenditures, 1975-2000

Year Cash Tax Total1975 41.3 41.31977 25.2 17.1 42.31980 25.3 17.7 43.71985 23.8 15.6 39.71990 17.9 16.0 33.91995 16.4 15.8 32.12000 12.8 16.5 29.3

Source: Banting (2005).

The introduction of the CHST was, again, an unilateral federal act. After all, as noted by Banting(2005: 95), since under shared-cost federalism «the federal government decides when, what and how tosupport provincial governments, and provincial governments decide whether to accept the money and theterms . . . this model [of federal-provincial relations] contains the potential for unilateralism». Though theCHST provided the provinces with even more discretion in resource allocation (funding could be devoted


to health care, post-secondary education or social assistance according to provinces’ own priorities), itcertainly affected provincial capacity to finance health care. Of course, all the provinces were dissatisfiedwith the new funding mechanism, which was seen as a way to off-load the federal deficit to the provinces(Maioni 1999). The provinces proved to be willing to build up a more cooperative relationship withthe federal government, and to ‘institutionalize’ intergovernmental relations within a more structuredframework. In fact, federal-provincial relations in Canada have traditionally been relatively informaland unstructured, with no effective mechanism to resolve controversies (Banting 2005). Provincial andterritorial ministries created a Ministerial Council on Social Policy to discuss on social policy issues. In1997, the Council issued a report (Renewed Vision for Canada’s Health System) calling for a partnershipbetween federal and provincial/territorial governments, «with the federal government providing its fairshare of resources in the form of adequate, predictable, and stable, cash transfers at levels high enough toprotect and preserve the national health system» (cited in O’Reilly 2001: 22). The document also calledfor the establishment of a conciliation body to resolve intergovernmental disputes.

During the early 2000s, the federal and provincial governments entered into a series of agreementsto strengthen and renew the health system. In 2004, the CHST was split into two new transfers: theCanada Health Transfer (CHT), providing funding for health care, and the Canada Social Transfer (CST),devoted to post-secondary education, programs for childhood development and childcare, and othersocial services. This measure was aimed at improving the transparency and accountability of federalsupport to the provinces. During the same year, federal and provincial governments negotiated a 10-YearPlan to Strengthen Health Care. The accord guaranteed an increase in federal funding by 6% per yearfor the following decade, on condition that the provinces proved to make progress in achieving keypolicy priorities concerning reduction in waiting times and improvements in access to health services(Department of Finance Canada 2014; Marchildon 2013). In 2013, ten years after this accord was signed,the Health Council of Canada (now no longer operating) issued a report expressing concerns about thefederal government’s role in shaping health care, which is considered «far less evident than it was 10years ago» (Health Council of Canada 2013: 20). In its conclusion, the report calls for pan-canadiancollaboration in health care:

Canadians are free to live in the province or territory of their choosing. And most people assumethat their own provincial or territorial health system provides care and yields outcomes similar tothose in other parts of the country. In fact, this has not been the case for some time. Provincialand territorial leaders can expect Canadians to object as increasingly divergent systems lead to moreexplicit differences in access to, and the quality of, health services across the country. The federalgovernment’s funding formula provides the provinces and territories with significant latitude in howthey use the health care dollars provided . . . However, the federal government has traditionally playeda central role in ensuring a level of equity across Canada . . . This responsibility for equity providesthe most compelling reason for the federal government to actively engage in shaping our health system. . . The federal government’s active participation in health system planning . . . and its provision ofappropriate funding support, brings a critical ‘Canadian’ perspective to all discussions and decisionsabout health care. At the same time, the provinces and territories must not use their jurisdictionalresponsibility for health care as a dialogue-ending argument . . . They need to consciously recognizethat they are co-owners of a national system and, as a result, have a shared responsibility to ensurethat each jurisdiction delivers comparable results (2013: 34-35).

Despite these recommendations, in the last few years discussions mainly regard the reduction inequalization payments and in the use of the federal spending power. Institutional development within the


Canadian health system seems thus to undertake a path towards greater decentralization, with provincialgovernments able to set their own priorities, standards and goals in health system planning, financing andadministration (Marchildon 2013). However, at the time of writing no major reform has been adopted inthis sense13.

The analysis of health system decentralization in Canada has showed that its institutional developmenthas been mainly characterized by gradual and incremental change. However, incremental changes havenot led to truly transformative results, but have instead supported institutional continuity trough whatStreeck and Thelen (2005a) label reproductive adaptation. As the two authors convincingly put it:

There is nothing automatic about institutional stability – despite the language of stasis and stickinessoften invoked in relation to institutions. Institutions do not survive by standing still, nor is their stablereproduction always simply a matter of positive feedback or increasing returns. Quite to the contraryinstitutions require active maintenance [emphasis added]; to remain what they are they need to bereset and refocused, or . . . recalibrated and renegotiated (2005a: 24).

Two factors have been particularly crucial to the mechanisms of continuity: the formal institutionalsetting deriving from constitutional provision, and the nature of intergovernmental relations characterizingCanadian federalism. Of course, continuity does not mean that any change has occurred over time inresponse to performance issues of the system (geographical equity and cost containment in particular).Quite to the contrary, changes have in fact occurred, and they have mainly interested the financing of thesystem. As we have seen, there have been several amendments to the funding arrangements through amechanism that recall that of layering, with implications for all the three dimensions of decentralization.However, renegotiation and recalibration of previous institutional arrangements have resulted in theirreproduction over time, and have not led to substantial change in the the degree(s) of decentralization.

Table 5: Dynamics of Health System Decentralization in Canada

Period PerformanceIssue(s)

Mechanisms of Continuityand Change

(Change in the) Degrees ofDecentralization

1957 – late 1970s Geographical equity(1957 – late 1970s)Cost containment(1970s)

Continuity throughreproductive adaptation

Political: mediumAdmin.: highFiscal: medium

1980s (Geographical)equity

" "

1990s Cost containment " "

2000s Quality and financialaccountability

" "



CONCLUSION

Although important differences remain between unitary and federal countries, when it comes to the studyof the territorial division of powers and responsibilities over public policies the distinction between thetwo becomes blurred. This paper has explored the decentralization phenomenon in health care in Italyand Canada. Formally, while Italy is a unitary polity, Canada is a federal one. By mainly focusing onthe performance issues of the health systems, the policy beliefs and ideas, the formal institutional settingand the nature of intergovernmental relations, the article has investigated why and how the territorialorganization of health systems changes or remains stable over time.

Italy and Canada share overall similarities with regard to their health systems, in that they bothbelong to the Beveridgean NHS model. Moreover, though to a different extent, both health systems aredecentralized. Through a diachronic analysis of the institutional arrangements and reform trajectories inlight of the decentralization process, I have traced the process and reconstructed the mechanism throughwhich distinct patterns of health system decentralization have occurred over time. In conceptualizingand operationalizing health system decentralization and its change, I have distinguished between threedifferent, albeit strictly intertwined, dimensions: political, administrative and fiscal. Patterns of continuityand change have been thus differentiated according to these three dimensions.

While during the 1980s the Italian health system has been characterized by continuity, since the early1990s it has experienced changes within all the three dimensions of decentralization. The general trendhas been toward greater decentralization, though during the 2000s there have been (timid) recentralizingmeasures within the administrative dimension. The relevant mechanisms of change at work have beenthose of bricolage and layering. Currently, the Italian health system is characterized by medium degreesof political, administrative and fiscal decentralization.

Contrary to the Italian case, the Canadian heath system has showed a pattern of continuity within thethree dimensions of decentralization. However, continuity has not meant absence of change. In fact, therehave been incremental changes which have mainly interested the federal-provincial financing arrangements.Recalibration and renegotiation of these arrangements over time have supported institutional continuitythrough a mechanism of reproductive adaptation. Thus, since its inception, the Canadian health systemhas been characterized by a high degree of administrative decentralization and medium degrees of politicaland fiscal decentralization.

The medium degrees of political and fiscal decentralization that nowadays characterize both the Italianand Canadian systems reflect the commitment of the national level to guarantee territorial uniformityand to preserve the national character of the health systems. Decentralization may in fact prove to beinconsistent with a NHS type of health system, which should ensure universal and equal access to allcitizens, regardless of their geographic location. Therefore, decentralization needs to be counterbalancedby the setting of national standards which implies an important steering role to be reserved to the nationallevel. However, surveys on citizens’ satisfaction with the health system show that geographical inequitystill constitutes a crucial policy concern in the two selected countries, confirming that ‘where you livedoes matter’ (see e.g. Health Council of Canada 2013, 2014; Istat 2014). Interregional inequities can bethe result of differences in the fiscal capacity of subnational governments, namely their capacity to raiserevenue in order to fund health services, which may persist even in presence of equalization mechanisms;or can also be due to differences in their choices and preferences regarding, for example, budgetaryallocations. These elements of diversity represent challenges for the geographical uniformity in thedistribution of health services across a country’s territory. While this paper has focused on the dynamics


of health system decentralization without directly investigating the implications for geographical equity, itrecognizes that these are crucial issues deserving further research.

NOTES

1Equalization mechanisms are crucial in that, as highlighted by Blöchliger and Charbit (2008: 2), «the primary objectiveof fiscal equalization is horizontal equity among the residents of different jurisdictions, i.e. ensuring that, subject to localpreferences, all persons . . . in a country can obtain comparable public services».

2The reform introducing the NHS set up a mixed financed scheme, combining general taxation and health insurancecontributions. However, the aim was that of progressively moving to a fully tax-based system.

3IRAP is collected nationally but 90% of its revenue is allocated back to the regions in which it is levied.4This fund is mainly financed by a fixed proportion of national value-added tax (VAT) revenue.5Uniform and essential levels of care were already contemplated, but not clearly defined, in the 1992-1993 legislation. In

2001, the LEAs were also constitutionally formalized.6Currently, Budgetary Balance Plan are imposed on Lazio, Abruzzo, Campania, Molise, Sicilia, Calabria, Piemonte and

Puglia.7The assignment of degrees of decentralization – though rough and fuzzy – is a preliminary attempt to provide a qualitative

measure of health system decentralization for comparative purposes, and it certainly needs further elaboration8Cost-sharing basically meant that the federal government reimbursed the provinces for about half of their expenditures on

health.9I use the terms ‘national level’ and ‘subnational level’ to refer to the federal government and the provincial governments

respectively.10Transfers of tax points involves the federal government lowering its taxes and the provinces raising their taxes by the same

amount (Banting 2005).11According to my operational definition of decentralization, spending decisions are part of the administrative dimension.12Extra-billing is the practice by which physicians charge patients more than that negotiated with the provincial medical

association (Maioni 2002).13 Since the early 2000s, the general trend is towards greater centralization at provincial level, a trend similar to the one Italian

regions are experiencing. However, following the conceptual and operational definition of decentralization I have provided,centralization at subnational level is not a concern of this paper.

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Dynamics of Health System Decentralization in Unitary and ... · 4 Dynamics of Health System Decentralization in Unitary and Federal Polities framework, which has been applied to