TASR-Teraz.sk, 3.6.2013 EN

J. Martinková: Government misinforms about arbitrations

Bratislava 3 June (TASR)

Attorney-at- law rechtsanwalt lawyer Jana Martinkova-Advocatus Martinkova, Slovak Republic - arbitration-Achmea-health-insurance-ministry
Expropriating health insurance companies is not the only nor the most reasonable way of preventing their profits. Doing this will not save the government any money, claims Jana Martinkova, attorney-at-law and advisor of the Health Policy Institute, in an interview for TASR.

According to Martinkova, if the government wishes to avoid more failed international arbitrations, which are currently a looming threat, it will need to choose renowned and reputable firms to represent their interests.

- In the year 2009, you were against health insurance profits. Now you are against expropriation. Have you changed your mind?

No. I believe that health insurance profits and expropriation are unrelated. Expropriation is not the only and certainly not the most rational way of preventing health insurance profits. The public is told that these concepts are equal, and this at a time when one in five Slovaks are on the brink of poverty and the middle class is being destroyed by taxes and fees. Meanwhile, hundreds upon hundreds of millions of Euros are being wasted on nothing.

- Why wasted on nothing?

For a number of reasons, I am very skeptical of the official expectations for unified healthcare in Slovakia. One reason stems from the fact that I approach the issue as an attorney and notice the future risks of this process. I doubt that legal requirements are, or will be met. Although the general public does not like to hear this and lacks interest in expropriation, the legitimate purpose pursued by interference with property rights of shareholders can be achieved using less aggressive means.

The problem is the government failed to ensure the balance between its interests and those of the health insurance shareholders. Without the support of any relevant argument, the government chose the least rational and most expensive method possible.

- How else can we address health insurance profits? -

We have a pluralistic system without competition with a significant, possibly unconstitutional, benefit for certain companies. This is a consequence of the excessive profits of insurance companies. Only the introduction of fair competition and cost-effectiveness would have a positive result.

-What specifically? -

If the health insurance had legal options to offer payment tiers. For example, if the premiums would not depend the income of the insured, but would instead be a result of the chosen insurance plan. Another way would be to significantly increase the coverage of public health insurance that would different from other insurances in cost. This would allow patients to rationalize the use of the that insurance and effective purchase of healthcare because it would displace other favorable insurances. Then insurance companies could take the banned profits, which now significantly reduced by competition and coherent legal changes, and actually have earned them.

-If unifying healthcare is not the only way to prevent spill-over of public resources, why did the government choose this method? -

Either competent officials do not know how to legitimately create an environment in which public funds would serve their purpose - free health care, or this is the result of politico-economic ties and degradation effects in the health sector and their revival by new or long-time players.

-The Ministry of Health estimated that the introduction of a unified system would save hundreds of millions of Euros a year ... -

Here it is especially visible how the process of expropriation and subsequent disputes argumentation was unprepared. Such incompetent estimates only cause harm. You don't have to be an economist to understand that if three entities combine into a single one, it does not mean that hundreds of millions  that served for their maintenance in the years before, will be nullified. Maybe they will reduce by 25 to 30 percent. Unlike private insurance, the government does not have profits as their incentive.

While Slovakia takes pride in its legislature, most government officials do not perform their duties on the same professional and ethical level as more developed European countries. Additionally, their motivation and efficacy is questionable. Scandals in the health sector, where dozens to hundreds of millions of Euros disappear, and how they are handled or rather not handled is also a strong argument against unified healthcare.

- You do not expect that unified government healthcare will lead to reduced expenses? -

The fact that Slovakia ranks third in a corruption survey by Ernst & Young further supports my skepticism. Government enterprise has different motivations than profits, so we cannot expect any financial returns. Legislative changes so far lack the complexity and planning, resulting in excessive health insurance profits while confusing the flow of public resources. This is why expropriation of companies or the creation of a government monolith will not help. The media show put on by politicians for the public is something I observe with indifference.

- The selection of legal and economic representation for the expropriation is imminent. Some attorneys claim that the selection conditions are discriminatory against small businesses ... -

Conditions of turnover and minimum compensation are not uncommon even if they say nothing about the quality of services provided. I find it less harmful than requiring the firm in question to have at least one previous contract in an international arbitration dispute. This only requires a show of documents as proof, regardless of the results of the dispute. This means that the ministry can either be satisfied with local representatives in the arbitration that have zero experience in this area, or a firm that has failed such an arbitration before.

We need to realize that the expropriation process is only the beginning of the problem. Two factors will determine how the odds against Slovakia will increase in following disputes: legal amendments and the quality and independence of legal services for expropriation. The advisor must have comprehensive knowledge of law related to international investment disputes so they can determine the risks of future disputes and advise the correct course of action. If this is not the case, a single misstep by the advisor could lead to increased difficulty and negative results in future arbitrations.

- The Ministry of Health presented a requirement for their legal representation to be a competent and reputable company with high quality work. Former Minister Ivan Uhliarik argues that this is a waste of money and that the government should secure its own experts. -

The requirement by the Ministry of Health for advice and auditing to be handled by a reputable and experienced company is obvious and highly responsible, as is the independence of the advisor. That many high ranking civil servants work in services such as the financial group Penta is not a secret. Therefore I consider the argument by ex-minister Uhliharik as amateurish and populist. The government is going to risk legal steps, which undoubtedly result in litigation, and is doing it without taking advantage of their means? This is a gamble that we cannot afford. Shareholders of health insurance companies gladly capitalize on such amateurism.

Challenging a reputable and independent consultant would be much more difficult. However, based on the requirements that the Ministry presented, I do not have the feeling that independence was valued as much as professionalism. By underestimating these requirements, we are exposing ourselves to a real risk. The independence of the advisor could be successfully challenged as one of the key arguments for the illegality of the process, which would then have a fatal effect on the outcome of the arbitration.

-How do you imagine the selection of an independent consultant to be made? -

Certainly many reputable companies will have a conflict of interest and will be able to realistically evaluate this. I do not believe they would offer their services to the government if they had conflicting interests with current or past clients. This reduces potential candidates to a minimum. I hope that the government will not try to choose a company in a way to circumvent the independence criteria. If they choose a local consultant, as is common in international arbitrations, the consultant must be independent as well.

The SaS party recently filed a criminal complaint for an amount over € 13 million that Slovakia spent on legal services in the arbitration with Achmea. But the opposition has only spent € 3 million on representation. How do you rate this situation? -

Nice gesture, but nothing more. In this government things are not solved, only talked about. People usually follow other goals than they officially claim. For years, nobody cared that the selection of representatives circumvented the law for public procurement and EU directives. The excessive prices for legal representation and lost disputes are only a result of this.

-How does the Ministry of Finance of the Slovak Republic circumvent the law? -

They do not follow the laws on public procurement on the assumed grounds that they do not apply to arbitration. When the ministry supports an inconsistent interpretation of the law, then why should one assume that they respect the other principles of public procurement? They are violating the principles of equal treatment, non-discrimination of candidates, transparency, efficiency and fiscal responsibility. The exception on which the ministry relies, is only relevant to arbitrators and mediators in arbitrations and conciliations. It definitely does not apply to arbitrations as a whole. It is logical that the choice of arbitrators, who have the power of judgment, cannot be covered by public procurement law. Their selection is subject to the contractual terms of bilateral agreements. These contractual rights cannot be interfered with by any authority and must be respected. Law firms provide the same legal services in arbitrations as they do in any other legal proceedings. These services are not an exception, unlike those of judges. This position is also supported by the European Commission as per the Public Procurement Act and relevant EU directives.

-You mentioned this in an interview with TASR in 2009. Has anything changed since then? -

No, not really. Not my arguments. However, my view is now supported by other professionals and has been unambiguously confirmed by the European Commission.

-The procedure under the Public Procurement Act should therefore ensure efficiency? -

Formally yes. Public control would work better and maybe the government would not be represented by the same law firms so often. Currently, unsuccessful applicants do not even know the reason why they were rejected even though it is their legal right.

- The Ministry of Finance defended the high costs of legal representation by stating that from original requested sum of € 1.3 billion, they achieved 98 percent savings. Total costs of services related to representation of the Slovak Republic were thereby only 2.9 percent ... -

The problem is that the Ministry of Finance is only defending the costs for attorneys in the dispute with Achmea worth over € 13 million. However, this case concerns a dispute worth € 64,7 million. It is suspicious if they cannot excuse these payments independently. On one hand, the Ministry of Finance clearly hopes that the exorbitant costs of the dispute, which ended in a loss and seizure, will be "lost" by making a comparison to the € 1 billion arbitration with HICEE. On the other hand, why did the Ministry of Finance refuse the law firm that won this dispute and offered the same result for the Achmea case?

-According to the Economic News (Hospodarske Noviny), The Slovak Republic in its dispute with Achmea was first represented by the law firm KŠD Šťovíček for € 12.3 million. Later however, Rowan Legal took its place and the costs amounted to less than a million.

Regardless of the amounts they were paid, I do not think it is fair for the public to be kept in the dark about how much of these funds went to the general counsel, and how much to the other two representatives, and whether they were proportional to the completed work. Half a year after KŠD Šťovíček was contracted, the Slovak Republic hired two other law firms, Royan Legal and Baker Boots. All billing and payment until 29. July. 2011, when Rowan Legal took over, went through KŠD Šťovíček. This means that payments for those representatives were invoiced and paid through KŠD Šťovíček. Such vague and inconsistent information concerning payments only contributes to suspicions of violations of public procurement, especially efficacy and transparency of spending.

-Prime Minister Robert Fico on Sunday (June 2, 2013) Slovak television discussion program at 5 minutes, 12 seconds stated that the dispute between the Slovak Republic and Achmea is not finished. Is this valid? -

This statement was presented in layman's terms and was not adequate from a professional point of view. The arbitration with Achmea was finalized with correct legal procedure. There remains a small chance that Slovakia will have the funds returned, but only if the verdict of the arbitration tribunal is nullified.

TASR offers audio recordings of the interview. TASR is issuing a photo report on the interview.

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