Netherlands

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The Impacts of Managed Competition in Netherlands

March 26, 2012 in Health Insurance, International Health Care Systems, Physician Compensation | 1 comment

Financial incentives matter.  If one had to give economists (and health economists as well) a slogan, this would be it.

In 2006, the Netherlands instituted a form of managed competition. According to Van Dijk et al (2012) ”Before 2006, inhabitants had either compulsory social (sickness fund, 62%) or voluntarily private (36%) health insurance depending, among others, on income (below a gross annual income of €33 000 people were socially insured).  This combined system of social and private health insurance was replaced by a compulsory single universal basic health insurance covering a legally defined package of basic benefits including GP care. GPs act as gatekeepers for secondary care…”

The implementation of a managed competition system in the Netherlands cause two major changes to the primary care payment system.   First, cost sharing was abolished for privately insured individuals.  Second, whereas previously doctors treating socially-insured patients received a capitation payment and physicians treating  privately-insured beneficiaries received a fee-for-service payments, after 2006 all physicians received a mixed capitation/fee-for-service payment system.

How did these changes affect the number of primary care visits in the Netherlands?  The authors of the study used a sample of GP practices participating in the 2005-2007 Netherlands Information Network of General Practice (LINH) study to conclude the following:

“Abolition of cost sharing led to a higher increase in patient-initiated utilisation for privately insured consumers in persons aged 65 and older. Introduction of fee-for-service for socially insured consumers led to a higher increase in physician-initiated utilisation.”

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Dutch Hospital Industry

June 29, 2009 in Health Care Around the World, Hospitals | No comments

What are hospitals like in the Netherlands?  A paper by Blank and Van Hulst (2009) give some insight.  The paper studies Dutch general hospitals.  These hospitals make up 80% of beds on 70% of hospital costs.  Non-general hospitals include academic hospitals and specialty hospitals (e.g., eye clinics and rehabilitation clinics).

Hospitals in the Netherlands

“Hospitals, like other health-related institutions in The Netherlands, are owned and operated predominantly by locally controlled, private not-for-profit foundations (stichtingen).” [Saltman and de Roo (1989)]  The hospital sector in general is highly regulated.  Provider wages are regulated.  The central government regulates capacity and provides prospective payment budget.

“Budgets consist of a fixed component related to capacity and a variable component related to production. The fixed component is based on the so-called adherence (the number of patients potentially using the hospital), the number of beds, and the number of associated physicians. The production related component is based on regional agreements on the numbers of first-time visits, inpatient days, daycare patient days, and the number of discharges.”

Severity of cases and the type of specialists on staff can also affect budgets as well.  This budget, however, is a legal and not a monetary measure.  Insurance companies pay the hospital through prices set by the Central Tariffs Health Care agency.  Hospitals can not make a profit, but surplus revenue can go towards capital improvements.

“Another important feature of the Dutch hospital sector is that hospitals cannot choose their patients.Patients are referred to a hospital by general practitioners. They choose a hospital with a convenient location compared with other hospitals and based on availability of the appropriate specialties.Hospitals are obliged to treat any patient presented to them, provided that they have the medical knowledge required for the treatment. In practice, hospitals can attract patients by supplying particular specialties or a high quality of care. This implies that expansion of high-tech medical treatments may be another goal.”

Statistics and Trends

Statistics on the Dutch hospital industry can be found in this table.  We see that the number of general hospitals decreased from 109 in 1995 to 89 2002.  This was due to both closures and mergers.  First-time hospital visits increased at an annual rate of 4% per year, but the number of inpatient days decrease by about 4% per year.  This indicates a trend towards fewer overnight hospital stays.  Overall, costs rose by more than 6% per year in nominal terms or about 4% in real terms.

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Health Care Reform in the Netherlands: A Work in Progress

March 2, 2009 in Health Insurance, International Health Care Systems | 1 comment

In the Netherlands, the Health Insurance Act of 2006 mandates that all individuals have health insurance.  Health insurance is provided by the private sector and these private health insurers can charge any premium they please.  The government does provide some risk-adjusted payment to the insurance companies.  This means that the state gives insurance company more money if they take on sicker individuals.  Further, the state subsidies the cost of health insurance premiums for poor individuals.   Insurers are driving down prices by setting up their own pharmacies and primary care centers, and beginning to create preferred provider organizations.

In an earlier post, I wrote that the Dutch system could be a viable health reform option in the U.S.  A recent editorial in Health Economics, however, argues that the Dutch health reform is not complete.   Although there individuals have free choice between insurer they choose, insurers ability to negotiate prices with providers is severely limited.  For instance,

  • “in the hospital sector, most prices are still derived from a fixed global budget and are the same for all insurers.”
  • Insurers are responsible for the cost of building new facilities.  Only after they receive government approval will they be reimbursed for construction costs.  This creates significant uncertainty as to the cost effectiveness of plan hospital facility expansions.
  • Preferred-provider structures are still in a basic state because of much uncertainty as to provider quality.  However,there has been some progress in terms of quality measurement.  ”The Health Care Inspectorate (IGZ) started to develop a basic set of hospital performance indicators about quality (including structure, process and outcome indicators), safety, efficiency and accessibility, in cooperation with the hospitals and medical specialists…the Netherlands Health Insurers Association since 2006 annually publishes a guide with hospital performance indicators.”
  • Another reason for the limited use of preferred-provider contracts is consumer and provider backlash.  Both groups are weary of limitations to patient choice of provider.
  • Another impediment to reform is that most of the insurers hospital costs are eventually reimbursed by the government.  Although this protect insurers from catastrophic losses for a few very sick patients, insurers’ competitive advantage should be in measuring risk.  Further, if insurers are not on the hook for the downstream hospital costs, it gives them less of an incentive to improve the quality of care and reduce hospitalizations.

There are some positive developments.  The Dutch government began using Diagnosis Treatment Combinations (DTC) to pay insurers for patient hospitalizations.   This payment system–similar to the DRG system used in the U.S.–replaced per diem rates and gives an incentive to insurers to decrease the number of days an individual is hospitalized.

The Dutch health care reforms have made significant progress towards moving the country towards a “managed competition” model.  Despite the positive effects of many reforms, there remains significant room for improvement.

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Risk Equalization and deductibles

April 1, 2008 in Health Insurance, International Health Care Systems | Permalink

In this blog, I have written about the Swiss (part one, part two) and Dutch healthcare system extensively. Both systems have a “regulated competition” where insurance is mandatory and insurance companies are mandated to provide a specific insurance benefit package. In the Swiss system, 85% of medical expenditures are financed by insurance premiums and 15% are financed by user fees. In the Netherlands, 50% of expenditures are paid by income-related contributions, 45% are paid by insurance premiums and 5% are paid by user fees. In both systems, the government pays a risk equalization premium to insurance companies who have a higher percentage of sick people to help eliminate cream skimming. However, does this risk equalization system still function when voluntary deductibles are introduced?

This is the question which a paper by van Kleef, et al. (2008) attempt to answer. Currently, the Swiss only count net claims (medical claims paid by the insurance company, ignoring out-of-pocket payments by insurers). Is this a problem? Let us give one example:

Let us assume that Healthy Hank spends $1000 on health care per year and is insured by HealthNet and Sick Sally spends $2000 on health care per year and is insured by SickFund. In the Swiss system, insurance companies receive (pay) a risk equalization payment based on whether they have above (below) average medical expenditures. This would mean that insurance premiums would be $1500, the average of Hank and Sally’s expenditures. HealthNet would pay $500 into the risk equalization pool and SickFund would receive $500.

What happens in the presence of deductibles? Let us assume that HealthNet offers an insurance package with a $500 deductible and HealthNet offers an insurance package with no deductible. Healthy Hanks will sort into the HealthNet deductible package and Sick Sallys sort into the no deductible SickFund package. Now, we have that HealthNet will have $500 of net claims on average since Hank will pay $500 and the insurance company will pay $500. SickFund will still have $2000 of cost.

Now the insurance premium will be $1250 since the insurance premium is based on net claims [(2000+500)/2]. HealthNet will have risk equalization payment of $750 and SickFund will receive $750. The insurance premium for Healthy Harry will be $1250 ($500 + the $750 equalization payment) . The premium for SickFund will be $1250 as well ($2000-the $750 risk equalization payment). Thus, there will be no benefit to choosing the deductible since there is no premium benefit. Yet policy makers would like people to choose the deductible plan to reduce moral hazard. The paper gives a few other scenarios where the risk equalization scheme fails and cream skimming occurs.

In general, economist love choice. Yet in insurance markets, the more choice is given to consumers, the more incentive insurance companies have to cream skim. Despite policymakers best attempts to control cream skimming through risk equalization payments, no risk equalization scheme will be perfect. Like everything in life, there is a tradeoff. In this case, the tradeoff is between offering consumers more choice, and reducing cream-skimming.

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