Page 197 - Effective healthcare cost containment policies Using the Netherlands as a case study - Niek W. Stadhouders

General Discussion
most cited cost containment policies in detail: budgeting, cost sharing, benefit package restrictions and managed care organisations.
Budgeting is interpreted in the model as reducing the total budget T. Table 8.2 shows that reductions in the total budget invoke either a reduction in the number of providers or in the budget per provider (or both). Which of the two effects is predominant depends on the bargaining equation. A need for cost containment increases the purchaser’s value of excluding a provider from the contract, which reduces the purchaser’s bargaining surplus and reduces the agreed-upon budget. Therefore, it is more likely that reduction in the total budget manifest as reductions in the providers’ budgets rather than reductions in the number of providers, although some exits may occur to add credibility to the threat of no contract. Reductions in the number of providers are automatically adjusted for in the other equations but the last, which is indifferent to both options.
Budgeting
If provider budget reductions are most likely, in the third equation either the number of patients, the reimbursement rate or treatment intensity needs to be reduced. If reimbursement rates are flexible, as in the case of block grants, it is conceivable that providers reduce the reimbursement rates while keeping patient numbers and treatment intensity intact. However, the reimbursement rate can only be reduced up to the point where the reimbursement rate equals the cost price of treatment (given by the profit margin in the expense equation), and therefore reductions in the reimbursement rate are limited. This depends on profit status and competition in the market. A large reduction in the total budget, non-profit providers and competitive markets make it more likely that providers will either reduce treatment intensity or reduce the number of patients. Of these rationing strategies, the second is most likely: doctors may aim to help each patient as well as they can without concessions on treatment intensity, and then help the next patient, until the budget is depleted. In fact, this will lead to waiting lists if demand remains unchanged. Providers also have to reduce their expenses. Due to budgeting, therefore, a reduction may be expected in providers’ profitability, employment, capital investment and inputs. How providers cope with budget reductions on the expenses side is an empirical question, but some general effects may be expected. Capital expenses are relatively fixed, while labour tends to be slightly more flexible. The extent to which profits may be reduced depends on the proprietary status of providers and the competition in the market. Highly competitive, non-profit providers have fewer possibilities to reduce profits. Therefore, in competitive, non-profit markets, employment is most likely to be reduced. Lastly, the demand equation: if providers respond to budget reductions by reductions in reimbursements or reductions in
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