Page 182 - Effective healthcare cost containment policies Using the Netherlands as a case study - Niek W. Stadhouders

Chapter 8
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.
8.5 Purchasing in a managed competition setting
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
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