Page 178 - Effective healthcare cost containment policies Using the Netherlands as a case study - Niek W. Stadhouders

Chapter 8
budget and the demand for hospital care. In turn, demand depends on socio-demographic factors (demand for regular care) and technological advances (the number of new technologies entering the market). More specifically, opportunity costs increase as the budget is reduced, as the need for regular care increases (e.g. ageing) and as the number of new technologies entering the market increases. These factors predict that the opportunity costs of a given new technology are rather flexible, while the assumption of fixed opportunity costs may not hold.
To illustrate, consider a standardised model of new technology (NT) adoption presented in figure 8.1. In a given year, a number of new technologies enter the market, ordered from high marginal value (cost-effectiveness) to low marginal value. Adding technologies to the benefit package under a fixed budget requires funding from within the healthcare sector. Liberating funds may displace valuable existing care. The chance of displacement will be small when the budget impact of all combined technologies is low, as funds may be liberated by productivity gains and waste reduction. For the first, very cost- effective new technologies entering the benefit package, value lost due to displacement is low, while net value gain is high (at the left side of figure 8.1). However, as more and more technologies are added to the benefit package the total budget impact will increase and displacement of valuable care becomes more likely, with opportunity costs increasing. Beyond point NT*, these opportunity costs become higher than the gains of the last new technology added to the benefit package. Any additional approved new technology will reduce total health, displayed as the coloured triangle ABC in figure 8.1. Total value gained in a year is equal to the integral of the new technology curve minus the displacement curve, displayed as the trapezoid in dark. For excessive NT close to NT*, the total net value gain to the health system is likely to be positive. In optimum, new technology will be adopted until the marginal value of the new technology equals the marginal value of displacement, which is at NT*. Suboptimal market outcomes could be a reason for government intervention. Total health may be increased by setting a threshold for new technology adoption equal to point A. This automatically ensures that new technologies to the right of NT* will be rejected.
In this model, a reduction in the hospital budget would shift the displacement curve to the left, since the budget reduction adds to the reduction in existing care. Hence, displacement costs will be higher when the hospital budget is reduced (Paulden, 2016). An increase in patient demand would make reductions in existing care more valuable, while also shifting the displacement curve to the left. More new technologies entering the market would shift the new technology curve to the right, increasing the opportunity costs in optimum. The chance that a specific new technology finds itself to the right of NT* therefore
170