A transparent system based on uniform and objective award criteria could prevent inefficiently managed hospitals from continuing to be subsidised with millions in taxpayers’ money.
Whether covering annual deficits, providing investment and operating subsidies, increasing equity capital, offering low-interest loans or providing liquidity assistance – so-called deficit compensation has established itself in many federal states as a financial rescue tool for economically stricken state hospitals. According to a study by the consulting firm Curacon from June 2025, local authorities used between four and five billion euros of taxpayers’ money in 2024 to cover the deficits of their own hospitals. This translates into a subsidy of around 20,000 euros per hospital bed under municipal ownership.
However, non-profit and private hospitals have not yet received such deficit compensation. This is surprising, as the same legal framework applies to all hospitals in Germany, regardless of their ownership, in particular the same principle of dual hospital financing. There is no apparent objective reason for such unequal treatment.
Such deficit compensation only for state hospitals places a double burden on citizens: they have already paid for their hospital services through their health insurance contributions, and now they also have to compensate for the losses of state hospitals with their tax money.
Cologne clinics: an example with a signal effect
According to the Taxpayers’ Association (Bund der Steuerzahler e. V.), the Cologne clinics run by Stadt Köln gGmbH are a particularly illustrative example (see ‘Es geht um die Gesundheit. Oder?’ [It’s about health. Isn’t it?] by Jens Ammann in: Die NRW Nachrichten 4/2025). Their high losses have been known for years, and are covered by the city’s taxpayers. Even when a special investigation in December 2018 resulted in a correction and thus a retroactive increase in the deficit for 2016, the necessary countermeasures were not taken.
The result: the deficits grew to alarming proportions. In the past ten years alone, the annual shortfalls amounted to 477 million euros. According to the 2025/2026 budget, the clinics received an unscheduled operating subsidy of 67.2 million euros in 2023. In 2024, €73.3 million was already needed. Further operating subsidies were planned for 2025, meaning that by 2029 they will have accumulated to around €460 million. From the perspective of the Taxpayers’ Association, this development suggests that the factor of economic efficiency may not have been given the necessary priority to date (cf. ibid.).
Joint responsibility of local politicians
Local politicians often justify such one-sided deficit compensation with special care mandates for municipal hospitals, even though these have been proven not to exist. All hospitals included in the respective hospital plan, regardless of their ownership, have their assigned care mandate. Deficits usually arise from inconsistent management.
Not all measures that are necessary and possible within the framework of economic principles are taken. However, deficits are certainly also contributed to by the fact that the federal states do not sufficiently fulfil their legal and constitutional obligation to cover the necessary investment costs of the hospitals included in the hospital plan – although this applies to all hospitals, regardless of their ownership.
Lack of transparency at federal level
It is not possible to quantify exactly how many such compensation payments are actually made nationwide. There is no central, publicly accessible register of the scope, recipients and award criteria, meaning that previous estimates have been based on the few published data or random surveys. This lack of transparency makes it difficult to carry out a fact-based assessment and prevents an open socio-political debate on the distribution of scarce tax revenues.
Consequence: a ban on deficit financing?
The most effective measure against such a waste of taxpayers’ money would logically be a legal ban on deficit financing. However, for legal reasons, a blanket ban on such deficit compensation does not appear to be feasible: municipal hospital operators, just like non-profit or private operators, have the right to provide financial support to their hospitals. However, unilateral deficit compensation exclusively in favour of state hospitals is unlawful and unconstitutional. This is confirmed by a legal opinion commissioned by the independent hospital operators (see legal opinion by Prof. Dr. Frauke Brosius-Gersdorf commissioned by the Federal Association of German Private Hospitals, the German Protestant Hospital Association, the German Red Cross and the Catholic Hospital Association of Germany, November 2023). Selective deficit compensation by a state only for state hospitals violates the legal and constitutional requirement of equal treatment of planned hospitals; selective deficit compensation by municipalities only for their own (municipal) hospitals violates the principle of diversity of providers under state law and the constitutional requirement of equal treatment. Furthermore, compensation payments by municipalities or federal states limited to their own hospitals constitute unlawful aid within the meaning of Article 107(1) TFEU and are therefore incompatible with EU state aid law. Since all planned hospitals provide services of general economic interest (SGEI), they must be treated equally under EU state aid law when it comes to state compensation payments for the fulfilment of their duty to provide care.
Our approach
The basic prerequisite for solving the problem is to remedy the structural underfunding within the current system of financing hospital services by the federal and state governments. In our view, the introduction of objective award criteria for corresponding compensation payments could also contribute to the solution. To this end, binding provisions must be included in the relevant legislation, such as the Hospital Financing Act (KHG), stipulating that deficit compensation by federal states, municipalities and municipal associations must be granted to all hospital operators – regardless of their ownership structure – according to uniform and objective criteria.
Objective benchmarks in this sense are compliance with the principles of economic efficiency and the needs of the hospital in question. In addition, a comparison of key figures could be used. Such a comparison of key figures could, for example, include information on revenues based on the number of patients treated per specialist department or service group, as well as the costs incurred for care.
Other parameters such as the density of care for the hospital service in question, disease burden and case severity, length of stay, bed occupancy, quality of results of the services provided (QSR, PROMs and PREMs) and waiting times should be set in an appropriate relationship to each other. The aim of this regulation is to ensure that only those hospital operators that operate economically, based on a comparison of key figures, receive financial support in the form of deficit compensation. It is important to avoid a situation where inefficient hospital management is rewarded by compensating for the resulting deficits from tax revenues.
These key figures must be disclosed in a publicly accessible transparency register before the political decision is made. This could be located, for example, at the local government supervisory authority of the federal states. The payment of deficit compensation should be subject to approval by the local government supervisory authority. This would create, for the first time, a structured and transparent procedure that avoids misguided incentives and strengthens accountability.
The measures described would ensure that scarce tax revenues are not used in an uncontrolled manner: questionable business decisions, such as 600 free electric cars for nursing staff while there are deficits in the double-digit millions, would be questioned. This could make a sustainable contribution to stabilising hospital financing and relieving the burden on public budgets.
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