Page 192 - Effective healthcare cost containment policies Using the Netherlands as a case study - Niek W. Stadhouders

Chapter 8
options: when the provider budget is lowered, providers either: (1) reduce personnel; (2) reduce capital investments; (3) reduce inputs; (4) reduce profits.
In retrospective payment systems, the provider budget is endogenous: the result of the number of patients times treatment intensity times reimbursement rates. However, virtually no pure retrospective systems exist today. Practically all providers are limited in their ability to increase their budget. These limits are the result of purchaser-provider negotiations. Three possibilities can be discerned: (1) the reimbursement rate is negotiable, the number of patients is variable; (2) both the number of patients and the reimbursement rate are negotiable; (3) the budget is negotiable, while the number of patients and the reimbursement rate is variable (block grants). In order to include purchaser effects, the bargaining outcome is modelled.
I start by modelling negotiations on the reimbursement rate, and extent the model to allow negotiations on block grants and on both the reimbursement rate and the number of patients. I start with describing the bargaining equilibrium in the case of competing insurers, and later on relax this assumption to allow single payers. I model the outcome of the price negotiations as a Nash bargaining solution (Halbersma et al., 2011). The Nash bargaining solution is the maximization of the product of providers’ and purchasers’ surplus over the fallback option.
The bargaining equilibrium
In the bilateral negotiation, a provider and an insurer bargain over the height of the reimbursement rate. For the provider, coming to an agreement is valuable. If no agreement is reached, the provider misses out on patient flows that are redirected to contracted providers. The difference between the utility of agreement and the disutility of disagreement defines the range of reimbursement rates the provider is willing to accept. When the difference in utility of accepting the minimum reimbursement rate and the disutility of not being contracted is zero, the minimum reimbursement rate is obtained. This could be defined as the zero-profit reimbursement rate (see the provider budget equilibrium). For the insurer, disagreement on the reimbursement price excludes the provider from the network. This reduces patient choice and may reduce the value of insurance for the customer. The maximum price the insurer is willing to pay is the price where disutility of paying reimbursement price equals disutility of excluding the provider from the network. If the minimum price the provider is willing to accept is lower than the maximum price the insurer is willing to pay, then an agreement can be beneficial for both parties, and any reimbursement rate within the range is possible. The Nash bargaining solution is found by finding the reimbursement rate that maximizes the combined utility of
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