Selective contracting: a key element of the Dutch health care reforms

1. Selective contracting: a key element of the Dutch health care reforms Vertragsfreiheit: ein sinnvoller weg fur das Schweizer Gesundheitswesen? Zurich, 13jan05 Wynand P.M.M. van de Ven Professor of Health Insurance Department of Health Policy and Management Erasmus University Rotterdam

2. Dutch health care system • health care costs 2004: 10% GNP; • much private initiative and private enterprise; • much (detailed) government regulation; • GP-gatekeeper; • seperation of finance and delivery of health care; • nearly the whole population has health insurance.

3. Role of government 1865: Act on Medical Licenses 1941: Sickness Fund Act 1968: Exceptonal Medical Expenditures Act 1971: Hospital Facilities Act 1982: Health Care Tariffs Act 1985: Health Care Facilities Act 1986: Act on Access to private health insurance 1988: “Dekker Reforms” 1998: New Competition Act

4. Dutch Health Insurance System 2004 Supplementary Insurance 4% Sickness Fund Insurance (mandatory) Private Health Insurance (voluntary) 52% National Health Insurance for Catastrophic Risks (AWBZ) 46%

5. Why Dekker reforms? • uncoordinated financing structure; • lack of incentives for efficiency; • detailed government regulation: unworkable; • problems with Dutch health insurance system.

6. Dekker-reform proposal (1987) • compulsory health insurance for everyone; • regulated competition: - among insurers; - among providers of care.

7. Insurer as purchaser of care Insurer Insurance policy contract Provider of care Consumer

8. The Dutch mandatory sickness fund insurance Central Fund risk adjusted premium subsidy income-related contribution Consumer Sickness Fund premium contribution

9. Dutch system: Central fund contribution subsidy consumer insurer premium Central fund Swiss system: subsidy contribution consumer insurer premium +contribution

10. Rationale The rationale is to stimulate the sickness funds to improve efficiency in health care production and to respond to consumers’ preferences.

11. Explicit choice Who is the third-party purchaser of care: • Government, or a cartel of sickness funds; • Individual risk-bearing sickness funds. In the first option it is hard to think of any rational argument for giving consumers a periodic choice among risk-bearing sickness funds.

12. Towards regulated competition According to the declaration of policy of the Dutch government (May 2003): “The central planning by government has failed and will be replaced by regulated competition as soon as justifiable”. With these last 4 words, government on the one hand stresses the urgent need for reform and on the other hand indicates that not all preconditions for regulated competition are yet fulfilled.

13. Proposed changes from 01jan06 • In sep04 Government submitted a Health Care Insurance Bill to Parliament proposing a mandatory health care insurance for the whole population from 01jan06; • No distinction between SF (10 mln.) and private health insurance (6 mln.).

14. Preconditions Managed Competition • Selective contracting; • Sufficient freedom in contracting (price, quality); • Prices must reflect costs; • Adequate competition policy; • Good risk adjustment (or risk equalization); • Consumer information (price, quality).

15. What has been realised? • Selective contracting with individual providers (1992); • Maximum rather than fixed fees (1992); • Consumer choice among risk-bearing sickness funds (1992); • Risk-adjusted premium subsidies (1992); • Competition Act (1998).

16. Managed Care • From 2002 sickness funds and hospitals are allowed to set up new pharmacies. Some sickness funds and some hospitals do it (sometimes together). • From 2003 sickness funds have some flexibility in purchasing (on average at most for about 60 euro per insured per year) health care outside the defined benefits package and not subject to the national price-regulation.

17. Managed Care (2) • From 2003 sickness fund are allowed to set up outpatient primary care centres. Some sickness funds do it. • From 2005 prices for physiotherapy will be free; • From 2005 hospitals will be paid on the basis of so-called Diagnostic-Treatment-Combinations (DTCs); • From 2005 for 10% of these DTCs sickness funds and hospitals are allowed to freely negotiate prices and to selectively contract. Contingent on the results this percentage may further increase.

18. Competition policy • Since 2000 we see a more active role of the Competition Authority in health care, both on the insurance market and the provider market. • In the period 2000-2003 the Competition Authority focussed its attention primarily on outpatient care. • Recently the Competition Authority also focusses on (mergers of) hospitals. • The health care sector is a priority on the 2004-agenda of the Competition Authority.

19. Dutch Health Care Authority ( > 2006) • Responsible for managing the competition among health care providers / insurers; • Supervises (sub)markets in health care (costs, prices, contract conditions); • Supervises the heath care insurance market; • Close cooperation (and in the long run a potential merger) with the Dutch Competition Authority.

20. Dutch system: Central fund contribution subsidy consumer insurer premium Central fund Swiss system: subsidy contribution consumer insurer premium +contribution

21. Are age and gender sufficient? If the premium subsidies are based on only age and gender, then an insurer will, roughly speaking, make: • a predictable loss of about 100% for the 10% of the population with the worst health status; • a predictable profit of about 25 to 40% for the healthiest half of the population.

22. selective contracting; limited provider plans (HMOs/PPOs); other managed care techniques; design of benefits package; supplementary health insurance; selective advertising; virtual (internet) sickness fund; employer-related (group) sickness fund. Selection activities

23. Adverse effects of selection Selection may threaten • Good quality care for the chronically ill; • Solidarity; • Efficiency.

24. Risk adjusters in the Netherlands

25. Additional annual premium subsidy

26. Additional annual premium subsidy

27. Conclusions • Dutch health care : towards regulated competition; • Selective contracting : a key component of regulated competition; • Essential preconditions for regulated competition: • Adequate competition policy; • Good risk adjustment / risk equalization.