Page 29 - Effective healthcare cost containment policies Using the Netherlands as a case study - Niek W. Stadhouders

Policy options to contain healthcare costs: a review and classification
market oriented policies. A budget forces containment of prices and/or volumes. Governments can use a market oriented approach to increase efficiency and ultimately lower total costs. Market oriented policies refer to policies influencing market processes and market players rather than policies that stimulate ‘free markets’ or competition. Market oriented policies could very well add restrictions to ‘free’ markets. These policies are therefore not exclusive to market-based systems (Brown, 2003).
The effects of different types of cost containment policies in terms of volumes and prices depend on a number of factors, such as the reimbursement model, the cost-structure (e.g. level of marginal costs), or the services mix. For example, lower reimbursement prices could induce higher volumes as physicians try to compensate income losses (Barer et al., 1996). A decrease in the price of inpatient care might lead to increases of both prices and volumes for outpatient care (Davis and Russell, 1972). Restricting the number of physicians might lower the number of treatments, but also can lead to scarcity with upward pressures on treatment prices (Barer et al., 1996). Services with high marginal costs might be more responsive to cost containment policies than those with high fixed costs (Moreno-Serra, 2014). Also, cost containment of public expenditures could lead to increased private expenditures, i.e. cost shifting. However, assessing the effects of cost containment policies is beyond the scope of this paper. We base our framework on policy targets rather than outcomes in terms of prices and volumes, as targets may be more invariant. In this framework we therefore identify four primary targets for cost containment: 1) direct price controls, 2) direct volume controls, 3) budgeting and 4) market oriented policies. We hypothesize that all cost containment policies can be classified to one of these four categories. These four main categories can be further specified using second-level concepts.
Governments can control prices by targeting reimbursement prices or production costs. Reimbursement prices can be contained by rate-setting on health services. Production costs include costs of inputs as well as the costs of capital and labor (Mankiw, 2014). As total health care costs are the product of capital and labor inputs at a fixed level of technology, input factor prices are considered important targets for cost containment. Reimbursement prices can differ from production costs, the difference being provider profits. Therefore, the effect of policies targeting containment of production costs is likely to be larger in public provision systems and highly competitive systems, as lower production costs are more likely to translate into lower reimbursements. Conversely, in market oriented system with weak competition lower production costs may merely result in higher provider profits.
Policies aimed to control volumes target the number of services providers might be able to provide (supplier side volume controls); or control the number of treatments patients are willing or able to consume (demand side volume controls). Further, budgets can be
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