Page 191 - Effective healthcare cost containment policies Using the Netherlands as a case study - Niek W. Stadhouders

General Discussion
treatments per patient) and the reimbursement per treatment. For many health systems that use DRG-systems, this is intuitive: the provider budget is the sum of all DRGs, which have a reimbursement price, are tied to patients, and each patient may have multiple DRGs. This disaggregation is explained more clearly by the response options of providers: when the provider budget is reduced, providers can either: (1) reduce the number of patients; (2) reduce the treatment intensity per patient; (3) reduce the reimbursement price per treatment. For example, in health systems with fixed reimbursement prices, budget reductions must materialize in fewer patients or lower reimbursement per patient (lower treatment intensity). When providers are budgeted through block grants, if the budget is reduced and providers manage to retain patient numbers and treatment intensity, the (shadow) price per treatment must be lower. Mathematically, the budget (b) of provider (s) is disaggregated into the number of patients (v), the treatment intensity (i) and the reimbursement price (r):
The provider budget, independent of whether it is reimbursed through block grants or DRGs or other payment systems, constitutes the provider income. To further zoom in, the provider budget equilibrium is expanded by the identity that income equals expenses. Providers use the income to pay for labour, capital and inputs, while obtaining a profit as the margin between income and expenses. Labour is defined as the number of employees times the wage rate. This can be extended by introducing different educational and employment profiles, but for the purpose of our model, it suffices to assume a homogenous labour market. Capital expenses consist of interest payments, capital stock depreciation, inputs and a profit margin. For simplicity, we assume that the interest rate equals the depreciation rate, so interest payments are equal to the capital stock times the interest/depreciation rate. The production input component includes medicines and assistive devices supplied by the provider. Differences between income and expenses are profits, which I include under expenses to complete the provider budget equilibrium identity:
Which states that the number of patients times treatment intensity times reimbursement rate should be equal to the labour costs (number of staff times the wage ), capital costs (interest rate times capital stock ), input costs ( and profits ( ). We assume the wage rate and interest rate are exogenous. Again, this results in a number of provider response
183