Bulgarian Hospital Reform and the New Public Management Model: A Change of Role of State or a Change of Mind?

Introduction

Hospital reform is simultaneously institutional, financial and managerial change. Moving from a centralised state system toward contractual relations, autonomous hospitals and market mechanisms transforms ownership, financing, state responsibility and the relationships among patients, purchasers, providers and regulators.

Aim and analytical framework

The analysis evaluates New Public Management (NPM) as a framework for Bulgarian hospital reform and asks whether improved performance requires less state control, stronger market regulation or a combined model of supervised competition. The discussion integrates public-management theory, agency theory and new institutionalism.

Four health-system models

1. Beveridge — strong public financing and state role;
2. Bismarck — social health insurance and cross-subsidisation;
3. Semashko — centralised planning and state ownership;
4. Kennedy / market model — predominantly private provision and market regulation.

New Public Management

NPM transfers result orientation, contractual relations, autonomy, competition, accountability and performance assessment from private-sector management into public administration. It separates the provider role from the purchaser/controller role and shifts emphasis from formal procedures toward mission and outcomes.

Agency theory: two risks

Contractual relationships create two classic problems: adverse selection, where the principal cannot fully assess the agent's capabilities, and moral hazard, where effort and goal alignment cannot be fully observed. Market mechanisms therefore do not remove the need for governance, incentives and accountability.

Bulgarian reform milestones

System transformation began after 1989; radical reorganisation started in 1997; hospital-sector reform accelerated after 2001; and from 2002 contracting with the National Health Insurance Fund and clinical pathways became central financing mechanisms. Hospitals received legal, financial and managerial autonomy and patient choice and accreditation were introduced.

Structural problems

Despite closure of approximately one third of municipal and regional hospitals, excess bed supply, relatively low occupancy, long length of stay, ageing infrastructure and workforce imbalance remained. Other problems included hospital debt, limited managerial capacity, inconsistent regulation, corruption risks, informal payments and dissatisfaction with quality and access.

Two hypotheses explaining weak reform outcomes

Hypothesis 1: insufficient understanding and application of NPM by public institutions and hospital management teams. Hypothesis 2: market regulation itself creates market failures and agency problems, especially when liberalisation is not matched by sufficient regulatory capacity.

Institutional inertia

New institutionalism explains why legal reform does not automatically generate behavioural change. Market-contractual and bureaucratic logics may coexist, producing formal changes without equivalent changes in incentives, behaviour and power relations.

Supervised competition

The proposed “third way” combines competition with regulatory capacity. The state retains two complementary roles: a regulatory authority protecting public interests and a competition authority safeguarding fair competition and limiting monopoly formation.

Main contributions

• treats hospital reform as a change in managerial logic rather than legislation alone;
• connects NPM with agency theory and new institutionalism;
• formulates two competing explanations for weak reform outcomes;
• identifies the gap between formal autonomy and managerial capacity;
• proposes supervised competition between state monopoly and uncontrolled market regulation;
• defines a dual regulatory and competition role for the state.

Conclusions

Changes in ownership, financing and legal status are insufficient without changes in management capacity, incentives and institutional culture. Sustainable hospital reform requires autonomy with accountability, competition with regulation, and managerial freedom with protection of access, quality, efficiency and the public interest.

Scientific Key Terms