Wednesday, January 17, 2001

Health insurer cracks down on unpaid bills Large companies worry plan would thwart restructuring By Frantisek Bouc Struggling Czech companies looking to save a few crowns by putting off payment of health insurance bills are facing an unusually harsh threat: insolvency. The country's largest health insurer, General Health Insurance Company (VZP), has declared open season on its debtors by announcing its intent to file bankruptcy against the rising tide of companies that owe it money. The tab has grown to 16 billion Kc ($432 million) in VZP's eight years of existence. The state-owned insurance company is forced to take the drastic move, said General Director Jirina Musilkova, because the growing debts are hitting VZP at the same time the Cabinet is considering increasing charges for medical services. The price hike, expected to be decided on by mid-2001, would increase VZP expenses by a crippling 4 billion Kc, she said. The entire health care industry is struggling with financial problems. Insurance companies, thanks to debts like the ones VZP has, are already struggling to pay hospitals and pharmacies, which in turn, have been struggling to pay for drugs and other supplies. Though cracking down on the companies at the start of the chain of unpaid bills could help the industry's cash flow, many of VZP's debtors say the bankruptcy plan would do more harm than good and would wreck countless efforts at revitalization. "It's just unacceptable," said Vaclav Smejkal, financial director of Vitkovice steel works. "It's essential that VZP considers every company individually and it follows particular conditions in claiming debts." Because many of VZP's debtors are state-owned, the problem has become a political issue, said Wood & Co. analyst Jan Slaby. It's an unusual situation for any company to threaten mass bankruptcy filings, but it's especially absurd when the government owns both the debtors and creditors, he said. "Essentially, the state will be filing bankruptcy against itself," Slaby said, adding that he does not think the government will tolerate a steep increase in bankruptcies. He thinks VZP made the threat just to call attention to the problem. Bankruptcies increasing He may be right. In early January, the Cabinet decided it would be wise to help VZP and other insurance companies fill financial gaps. A plan was hatched to transfer billions of crowns of debt owed the country's five insurance companies to state bad-debt receptacle Konsolidacni banka. The transfer is scheduled for the end of February. Still, it won't solve VZP's problems, and will probably only erase about 5 billion Kc of its 16 billion Kc problem. Musilkova said the company will still need to follow through with its plan to file bankruptcies against remaining debtors. If VZP sticks with its plan, it will come at a time when bankruptcy filings are booming. According to the Justice Ministry, 3,398 bankruptcies were filed this year, a 4 percent jump over last year. Of these, judges actually declared bankruptcy in 1,818 cases, a 25.6 percent rise over the previous year. Rather than creating a negative image of the Czech economy, analysts say the growing bankruptcy numbers show a system of checks and balances is finally finding its footing, and that inherited financial problems from the past are finally being solved. Bankruptcies are rising, Slaby said, in part thanks to a long-awaited recent amendment to the country's bankruptcy law that strengthened creditors' positions and also simplified the bankruptcy process. "In the past, bankruptcies often ended with a particular company's liquidation and creditors had almost no chance to get their money back," Slaby said. "The increased number of bankruptcies adds further credibility to the Czech economy in the eyes of investors. They help to clean the slate." Frantisek Bouc's e-mail address is fbouc@praguepost.cz More business stories Industry on the chopping block Falling demand for beef starts to claim victims in meat processing business First convicted tunneler gets 10-year term Matoulek sentence is boost to troubled fight against economic crime Daewoo pulling toward partner? Italy's Iveco rumored to be interested in Prague truck facility Cashing in on Prague's leaky water pipes Bids from France, England exceed even optimistic predictions Bidding for LET is on the runway American customer among seven bidders interested in troubled aircraft maker Spaces & Places Portland plans a telehouse Movers & Shakers Musical Deloitte chairs