Budgetary bias in the Finnish public hospital system

• Date: 20 December 2019
• DOI: https://doi.org/10.1108/IJPSM-07-2019-0184
• Pages: 401-418
• Published date: 20 December 2019
• Author: Alpo Karila,Jarmo Vakkuri,Juhani Lehto
• Subject Matter: Public policy & environmental management,Politics,Public adminstration & management

Budgetary bias in the Finnish

public hospital system

Alpo Karila

Research, Development and Innovation Centre,

Tampere University Hospital, Tampere, Finland

Jarmo Vakkuri

Faculty of Management and Business,

Tampere University, Tampere, Finland, and

Juhani Lehto

Faculty of Social Sciences, Tampere University, Tampere, Finland

Abstract

Purpose –The purpose of this paper is to analyze the dynamics of budgetary biasing in the context of public

hospitals.

Design/methodology/approach –The study applies theories of accounting and budgeting behaviors in

the specific institutional context of health care systems. Based on the theoretical framework, data from

interviews with hospital budget officers were analyzed using qualitative content analysis.

Findings –A typology of biases is provided. It proved to be useful and highlighted the central empirical

assumptions and preliminary results of biasing dynamics.

Practical implications –Understanding the logic of budgeting actors and the drivers of bias may help

explain why bias so often appears in health care budgeting. It further contributes to understanding whether

the bias is functional or dysfunctional.

Originality/value –The concepts of budgetary bias are rarely used in the context of health care budgeting,

so the study fills a gap in research knowledge.

Keywords Typology of biases, Budgetary bias, Public hospital system,

Budget actors and budget community

Paper type Research paper

Introduction

Budgeting is the central administrative and management process for the allocation of resources

at all levels of government. It has multiple meanings: to predict, plan and control the future, to be

the baseline for performance evaluations and external accountability, and to serve as a tool to

motivate budget-holders. The aim of budgeting is to ensure the best use of the available

resources through negotiations using the power of the decision makers (Anessi-Pessina et al.,

2016; Huang and Chen, 2010; Schick, 2009; Wildavsky, 1975, 1988). However, although budgeting

is an important managerial tool, the budgeting process itself is not completely rational because

budget makers have inconsistent and conflicting aims, and they are boundedly rational human

beings who are inclined to gaming and bias in their actions and predictions (Thaler, 2015; Huang

and Chen, 2010; Van der Stede, 2000; Simon, 1991; Collins et al., 1987; Wildavsky, 1975, 1988).

Budgeting involves “ritualistic practices and actual behaviours”(Anessi-Pessina et al., 2016), and

the link between budget decisions and actions may be “averylooseone”(Brunsson, 1989).

There are many reasons why the health care context is subject to budgeting problems.

Cost containment, access to care, and quality assurance is a tricky combination in a world of

unlimited service needs and limited resources (Kissick, 1994; Johanson and Vakkuri, 2018;

Berwick Donald et al., 2008). Spending constraints in health care have the potential to

directly affect all voters, making health care a politically sensitive issue (White, 2013). There

Received 9 July 2019

Revised 15 September 2019

19 November 2019

Accepted 21 November 2019

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/0951-3558.htm

This study was financially partly supported by the Competitive State Research Financing of the

Expert Responsibility area of Tampere University Hospital.

Finnish public

hospital

system

InternationalJournalof Public

SectorManagement

Vol.33 No. 4, 2020

pp.401-418

©EmeraldPublishingLimited

0951-3558

DOI10.1108/IJPSM-07-2019-0184

401

are numerous principal–agent relationships and financial flows between actors, as well as

information asymmetries and problems in monitoring medical actions and their outcomes

(Ouchi, 1979; Smith et al., 1997; Eijkenaar, 2013).

Furthermore, the product of health services is intangible: its production and

consumption occur simultaneously in the face-to-face interaction between patients and

professionals (Pettersen, 1995). While the content of health care is heavily regulated by

legislation, health care organizations act together like a clan, emphasizing institutionalized

traditions and professional autonomy. The behavioral and output control of action is

managed through professional judgment and accepted medical practices (Ouchi, 1979;

Pettersen, 1995). Over the last three decades, hospital governance models have changed

(Saltman et al., 2011) toward more competition between hospitals, more patient choice and

more public–private collaboration (Scott et al., 2000; Kurunmäki, 2004), opening new, partly

unintended fields of gaming and biasing behaviors (Propper and Leckie, 2011).

The key concept in the paper is budgetary bias. The origins of budgetary bias grew out

of the concept of organizational slack in the behavioral theory of the firm (Cyert and March,

1963). Following Lukka (1988), intentional budgetary bias is “a deliberately created

difference between the budgeting actor’s forecast about the future, and his or her submitted

budget proposal.”Biasing is a tool affecting the standards against which performance is

assessed and, from another perspective, a means of obtaining unnecessary extra resources.

Furthermore, personal goals may introduce biasing behavior. Biasing behavior is possible

in all functions and at all levels of an organization.

Budgetary bias has two subcomponents: budgetary slack and upward bias. Budgetary

slack occurs whenthe budget proposal is intentionallymade easier to achieve than the honest

forecast, “underestimating revenues and productive capabilities and/or overestimating costs

and resourcesrequired to complete a budgeted task”(Dunkand Nouri, 1998). An upward bias

means biasing inthe opposite direction, a deliberate overstatement of budgetary targets. The

overstatement ofbudgetary targets may sometimes be a counterbiasing in orderto eliminate

the probable budgetary slack of other actors (Lukka, 1988).

The concepts of biasing are not widely applied in the context of health care research.

This became evident when we conducted searches of the Business Source Elite, Scopus

and Medline databases in February 2017. The time horizon of the database searches was

1990–2016, and the searches targeted the titles, abstracts, and keywords of peer-reviewed

articles. Budgetary bias and budgetary slack were found as concepts in 12 articles, which

is a small number considering the 6,000–8,000 articles related to health care budgeting

found in each database. Furthermore, budgetary bias and budgetary slack were not key

concepts in any of the articles. Thus, the study aims to fill this gap by extending

knowledge about budgeting in public sector health care organizations, especially in the

context of public hospitals.

Budgeting and budgetary biasing are multifaceted fields to investigate (Anessi-Pessina

et al., 2016). We apply theories on accounting and budgeting behaviors in the specific

context of the institutional characteristics of health care systems. The purpose of the study

is to introduce the concepts and forms of budgetary bias, analyze the mechanisms through

which budgetary bias is created and consider the impact of biases on the budgeting process.

The budgetary bias concepts and theories are illustrated and tested in an analysis of

budgeting processes in Finnish public hospital organizations.

The next section of the paper introduces the relevant conceptualizations for our

analytical framework. The empirical context, including a short overview of the health

care system in Finland, and the data and methods are introduced in the third section.

The fourth section reports the empirical analysis based on interviews with chief

financial officers (CFOs) of hospital districts. The final section presents the results,

discussion and conclusion.

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