Erasmus University Rotterdam 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

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.

Erasmus University Rotterdam 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

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

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

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

Erasmus University Rotterdam Insurer as purchaser of care Insurer Consumer Provider of care Insurance policy contract

Erasmus University Rotterdam Central Fund Consume r Sickness Fund income-related contribution risk adjusted premium subsidy The Dutch mandatory sickness fund insurance premium contribution

Erasmus University Rotterdam Dutch system: consumer premium subsidy contribution Swiss system: Central fund subsidy contribution consumer insurer premium + contribution Central fund insurer

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

Erasmus University Rotterdam Explicit choice Who is the third-party purchaser of care: 1.Government, or a cartel of sickness funds; 2.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.

Erasmus University Rotterdam 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.

Erasmus University Rotterdam 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.).

Erasmus University Rotterdam 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).

Erasmus University Rotterdam 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).

Erasmus University Rotterdam 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.

Erasmus University Rotterdam 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.

Erasmus University Rotterdam 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 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.

Erasmus University Rotterdam 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.

Erasmus University Rotterdam Dutch system: consumer premium subsidy contribution Swiss system: Central fund subsidy contribution consumer insurer premium + contribution Central fund insurer

Erasmus University Rotterdam 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.

Erasmus University Rotterdam Selection activities 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.

Erasmus University Rotterdam Adverse effects of selection Selection may threaten Good quality care for the chronically ill; Solidarity; Efficiency.

Erasmus University Rotterdam Risk adjusters in the Netherlands YearNew risk adjuster 1992Age/gender 1995 Region, Being an employee (yes/no), Disability 1997Age/disability 2002Pharmacy-based Cost Groups (PCGs) 2004Diagnostic Cost Groups (DCGs) Being self-employed (yes/no)

Erasmus University Rotterdam Additional annual premium subsidy Risk Group Additional annual premium subsidy (in €) DCG 0Reference group0 7Brain injury1735 9Colon cancer Liver disorders Rectal cancer Congestive heart failure Hypertension, complicated Neurologic disorders Brain / nervous system cancers Chemotherapy Diabetes with chronic complications Pulmonary fibrosis and brochiectasis HIV / AIDS Renal failure / nephritis24020

Erasmus University Rotterdam Additional annual premium subsidy Risk GroupAdditional annual premium subsidy (in €) PCG 0Reference group0 1Asthma / COPD876 2 Epilepsy Rheumatism Heart diseases Crohn’s disease/ c. ulcerosa Stomach diseases Diabetes (insuline dependent) Parkinson Organ transplants Cancer Cystic fibrosis HIV / AIDS Kidney problems 18225

Erasmus University Rotterdam 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.