Hospitals are financed by the federal government and the states. The statutory health insurers will pay for the running costs. The federal states are responsible for the construction of clinics, infrastructure and investments in large-scale equipment. The hospital system costs a lot of money. Health insurers spend one-third of their expenditures on the approximately 2.100 hospitals in Germany, which amounts to around 50 billion euros a year.

Since the health reform of 1993, hospital budgets have been "capped" with the aim of keeping contributions and thus ancillary wage costs as stable as possible. Budgets must not increase more than wages and incomes of insured persons. The rate of increase is calculated by the Federal Ministry of Health. In 2008, it amounted to 0.64 percent. This means that health insurers are only transferring half a percent more money to hospitals this year than in the previous year.At the same time, expenditures are exploding: 25 percent more for energy, eight percent more due to tariff increases, ten percent more for material costs, according to the German Hospital Federation (DKG) for 2008 and 2009. Added to this were savings requirements from the black-red health reform. The hospital association calculates that hospitals will be short 6.7 billion euros by the end of 2009.The financial squeeze is exacerbated by the federal states. For years, the federal states have been investing less money in hospitals than necessary. In order to be able to modernize nevertheless, many hospitals have diverted money from current operations – according to calculations by ver.di 800 million euros annually. According to the union, this misappropriation of health care funds alone has cost 16,000 jobs nationwide.000 jobs nationwide. Massive savings can only be made in personnel. Personnel costs account for about two-thirds of hospital budgets.In the past 15 years, the legal limits on hospital spending have led to privatization, hospital mergers, the outsourcing of entire operations such as kitchens, cleaning and laundry services, and massive staff reductions in the nursing sector. The rationalization was politically desired. But now Federal Health Minister Ulla Schmidt (SPD) admits "that the efficiency reserves are exhausted and the situation of many hospitals is strained". According to the German Nursing Council, one in six nursing jobs has been cut in the past ten years, 50 percent less than in the previous year.000 jobs in total. Despite the reduction in the number of beds, the number of patients has not decreased.Schmidt's bill to reform hospital financing envisages abolishing the link between hospital budgets and wage trends in three years' time. Then the overall budget is to be calculated on the basis of standardized average costs for treatments and care. In the short term, hospitals are to be helped with three billion euros. There are to be 21.000 additional nursing staff as well as two years of tariff increases to be co-financed by the federal government. The insured will have to pay higher contributions.

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