Purchasing in a managed competition setting

Chapters 5 and 6 demonstrate that selective purchasing does not seem to function as intended in the hospital sector. Reallocations of provider budgets were low, and in the case of assisted reproduction, reallocations were not directed towards high-quality hospitals. Some potential explanations may be high hospital market power, in combination with high information asymmetry, high hospital fixed costs and low patient acceptance of restrictions through purchasing. This may be illustrated by the multi-equilibrium model in appendix 7.1. For example, the bargaining equilibrium predicts that budget outcomes reflect relative bargaining positions determined by each party’s disutility of no agreement. The disutility of no agreement may be higher for insurers compared to hospitals, shifting market power towards hospitals. More specifically, not reaching an agreement for a hospital could have limited budgetary consequences, since emergency care is fully reimbursed for out-of-plan hospitals, and non-contracted care still needs to be reimbursed by law up to about 75% of the costs (Schut and Van de Ven, 2011). The budgetary consequences of exclusion from a single restricted choice plan might be rather small. For an insurer, not reaching an agreement could result in negative publicity, reputation loss and loss of customers. Furthermore, insurers are legally required to purchase sufficient care. Therefore, the threat of selective contracting might not be very credible, shifting market power to hospitals.

The provider budget equilibrium predicts that reductions in the hospital budget may be compensated by budget increases for other activities. Given that hospital expenses such as capital and wages may be relatively fixed, hospitals might aim to smooth income (Boterenbrood, 2014), which, in combination with high market power, could explain low reallocations. Potentially, hospitals compensate budgetary reductions due to selective contracting by increasing costs for other insurers. This type of cost shifting has been observed in the US (Frakt, 2011). Lastly, the patient market equilibrium predicts that if access to care has been restricted by active purchasing, excess demand may lead to patients switching to another hospital. Insurers therefore may be required to increase the budget of contracted hospitals in response to selective contracting, given the legal duty to provide sufficient care, thereby further reducing the gains of selective contracting. Based on these considerations selective contracting may currently not be a credible treat for hospitals, because it reduces the capabilities for insurers to purchase actively.

Several policy recommendations could be distilled to improve the purchasing function. A number of recommendations, formulated by Van de Ven and colleagues in 2013, are still deemed relevant (Van de Ven et al., 2013; van Kleef et al., 2014). One major recommendation was more stringent merger control. Effective antitrust policy may improve the bargaining positions of insurers. For example, insurers appear to have sufficient

bargaining power in mental care, which is less concentrated than hospital care (Westra et al., 2016). Other recommendations include improvement of risk equalisation, improvement of quality transparency, and improvement of payment mechanisms (van Kleef et al., 2014). New payment mechanisms could include outcome-based payment schemes (Vlaanderen et al., 2018), while some additional policy recommendations could also be made. Besides reducing legal requirements to contract sufficient care and reimburse 75% of non- contracted care, the government could improve the relative bargaining position of insurers by increasing public acceptance of selective contracting. These measures reduce the disutility of no agreement for insurers and make selective contracting a more credible treat. As free choice of healthcare providers is an important value in the Netherlands (Victoor et al., 2012), this would require a paradigm shift in public opinion. However, evidence from the US and the Netherlands suggests that patients may be willing to trade off free choice for a lower premium (Bes et al., 2017; Mobley, 1998a; Zwanziger et al., 2000). This is also demonstrated by increases in the uptake of restricted choice plans and voluntary deductibles (NZA, 2017b). However, the managed care backlash in the US demonstrates that public opinion, supported by a strong hospital lobby, could quickly turn against selective contracting, requiring a significant amount of policy scrutiny (Blendon et al., 1998). Secondly, a more flexible labour market would provide hospitals with more room to manoeuvre on the expenses side. This could lower the disutility of no agreement for hospitals and make it easier to accommodate changes in the income side. Thirdly, addressing patient demand could reduce the mismatch between available (limited) supply and demand. This may require patient education, empowerment and person-centred care (Ekman et al., 2011). Insurers find it rather a challenge to steer patients to efficient providers due to a lack of trust (Klink et al., 2017). More research will be necessary on how insurers can influence demand and align interests to steer patients towards the most efficient providers. One reason for low acceptance may be patients’ expectations that insurers mainly contract on price and not on quality. For example, in mental care insurers selectively contract on price in the absence of quality indicators (Westra et al., 2016). While contracting up to now primarily focuses on price or lumpsum payments, it should be more focused on quality (den Exter and Guy, 2014). Lastly, the question how purchasers could stimulate quality improvements requires more attention. A well-functioning managed competition system should provide sufficient incentives for hospitals to improve quality. The issue of how hospitals could create an innovative environment where health professionals may continuously strive to improve quality while containing costs may require more research. A number of promising developments are currently taking place in this area, for example at the hospitals Bernhoven and Rivas (Kroon, 2018). Chapter 6

demonstrates that even in the absence of sufficient incentives, hospitals could still improve quality. Possibly, factors such as the intrinsic motivation of health professionals should be taken into account in purchasing.

What are the implications for countries contemplating installing or expanding principles of managed competition in their health systems? While qualitative evidence is mixed, empirical evidence of positive effects tends to be scarce in Dutch health care: only limited effects on inpatient costs and volume following the 2006 reform were found (Krabbe-Alkemade et al., 2017). Chapters 5 and 6 demonstrate that managed competition may not have had the intended effects in terms of active purchasing. Given the important role of purchasing in stimulating efficiency, each country needs a well-working purchasing system. However, the problems faced by active purchasing in the Netherlands are likely to be expected in other health systems as well. Theoretically, managed competition may be the best bet to improve purchasing, as supported by sparse empirical evidence demonstrating positive effects of competition in the US setting (Melnick and Zwanziger, 1988, 1995; Mobley, 1998b). Therefore, although the managed competition system in the Netherlands has its shortcomings, in potential the system could be a promising option to obtain efficient purchasing. This may be a time-consuming process, requiring continuous government intervention (Van Ginneken, 2015). Countries implementing managed competition should therefore not expect any immediate improvements, but in the long run, managed competition may be the best bet to improve active purchasing. Empirical evidence on the effects of active purchasing in other sectors is very much needed.