tariff setting in dutch healthcare system, johan van manen

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Page 1: Tariff setting in Dutch Healthcare system, Johan van Manen

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Page 2: Tariff setting in Dutch Healthcare system, Johan van Manen

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contents

• Introduction• Health care reform in the Netherlands• Tariff setting within the regulatory system– Calculation methods

• Results • Discussion

Page 3: Tariff setting in Dutch Healthcare system, Johan van Manen

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Introduction

• Health care tariff act 1983– Start of centralized tariff setting– Mix of budgeting and fee for service

• Two part insurance system (public/private)• Reform discussion started in 1987 (!) when present

system was outlined • Two lines of narrative in this presentation:– The mechanism of the regulatory model and product

pricing– The system of tariff setting

Page 4: Tariff setting in Dutch Healthcare system, Johan van Manen

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Health care reform in the Netherlands

• Health insurance act (2006)• Mandatory health insurance, universal coverage• Basic package determined by health ministry

– Compensation in kind – Refund of costs

• Both nominal fee and income dependent fee• Nominal fee not subject to price regulation• Free contracting between health care insurer and providers• Consumers can choose any health care insurance• Right to change insurance annually

Page 5: Tariff setting in Dutch Healthcare system, Johan van Manen

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Health care

insurerI

Health care

insurerII

Healthcare

insurerIII

Health care

insurerIV

Health care

insurerV

The competition model

Page 6: Tariff setting in Dutch Healthcare system, Johan van Manen

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Health care reform, before and after

Centralized regulation Model after reform

Government planning of capacity, investments

Decisions on investment left to provider

Centralized price setting Mix of price regulation and free negotiable prices

Mandatory contracting (public insurance) Free contracting

Collective bargaining (private and public) over volume

Bilateral contract negotiating between provider and insurers

Page 7: Tariff setting in Dutch Healthcare system, Johan van Manen

Tariff regulation before reform• Hospitals: budgeting model, limiting total expenditure per individual hospital

– 1983 until 2005– 2005-2012: two tier system

• Tariffs: – individual rate per bed day

• ( calculated budget-/-total payments procedures)/ (#bed days) = hospital’s rate per bed day– Fixed prices (national) per procedure– Separate billing for physician‘s fee

• Calculation of budget:– Standardized compensation for:

• Cost of labour (including taxes, pension contributions etc.)– Including employed medical staff

• Materials, medical devices• pharmaceuticals• Medical inventory

– Compensation dependent on:• Capacity (number of beds, number of specialists, population)• Production volume (admissions, day cases, etc.)

– Individual compensation:• Buildings and infrastructure

– Investments regulated until 2008

• Capital cost (interest on bank loans, no compensation for equity)

• Medical specialists (affiliated, non employees):– Fee for service– 2005: hourly rate

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Introducing DBC • The health reform model requires transparency in prices and

products, suitable for price-bargaining• Decision to design and implement DBC system:

– Prospective payment system– Loosely related to DRG– Covering both in- and out-patient procedures– 1st edition not based on any international standard classification, revised

edition based on ICD 10

Determined by:

Price consists of:DBC

Two part tariff

Hospital costs

RegulationHealth authority

NegotiationsContract parties

Physician’s feeRegulation

Health authority

DBC

• Consultations• Lab test• Radiology• Admission• Surgery• Medical

devices• Bed days• Physiotherapy• Control• Etc.

Page 9: Tariff setting in Dutch Healthcare system, Johan van Manen

Cost calculation• Costs in DBC tariff include:

– Salaries including pension benefits en social insurance contributions– Materials– Food, maintenance, energy– Taxes and insurance– Medical devices, disposables– Pharmaceuticals (standard)– Hospital inventory (depreciation)

• Additional compensation in tariff for:– Depreciation on buildings and fixed installations– Interest payments (bank loans )

• Separate in addition to DBCs: – Costs of intensive care– ‘High cost’ and orphan drugs

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Page 10: Tariff setting in Dutch Healthcare system, Johan van Manen

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Hospital cost Physician’s fees

Regulated Free negotiable Regulated

2005 90% (fixed) 10% 100% (max)

2008 70% (fixed) 30% 100% (max)

2012 25% (max) 75% 100% (max)

Regulation and the DBC system

year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

costs Cost calculation model I Cost calculation model II

Costs ofcapital

Average surcharge (8.7%)

fee Fee calculation model I Fee calculation model II Fee calculation model III IV

Regulated tariffs : different models of calculation

Page 11: Tariff setting in Dutch Healthcare system, Johan van Manen

DBC DBC1 DBC2 DBCn

Activity a1 a2 an a1 a2 an a1 a2 an

Hospital 1 F111 F121 F1n1 F211 F221 F2n1 Fn11 Fn21 Fnn1

Hospital n F11n F12n F1nn F21n F22n F2nn Fn1n Fn2n Fnnn

Averagefrequency

F11 F12 F1n F21 F22 Fnn Fn1 Fn2 Fnn

Cost calculation model I

Costs/Activity A1 A2 An

Hospital 1 Ca11 Ca21 Can1

Hospital n Ca1n Ca2n Cann

Average costs Ca1 Ca2 Can

Tariff (DBC1) = {F11*Ca1+F12*Ca2+F1n*Can}*(1+0.087)Tariff (DBC2)= {F21*Ca1+F22*Ca2+Fnn*Can}*(1+0.087)

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Page 12: Tariff setting in Dutch Healthcare system, Johan van Manen

Cost calculation model I

• Calculations are based on sample of hospitals (n=30, total population 100)

• Sampling is biased, little information on high complexity / low volume products

• Variation in costs has two causes:– Variation in number of procedures per DBC– Variation in cost per procedure

• Revising tariffs: 2-3 year time-lag

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Page 13: Tariff setting in Dutch Healthcare system, Johan van Manen

DBC DBC1 DBC2 DBCn

Hospital 1 C(dbc)11 C(dbc)12 C(dbc)1n

Hospital 2 C(dbc)21 C(dbc)22 C(dbc)2n

Hospital n C(dbc)n1 C(dbc)n2 C(dbc)nn

Average C(dbc)1 C(dbc)2 C(dbc)n

Cost calculation model II

Costs are calculated per hospital per product (DBC), not procedureTariff will be based on average per productAll hospitals will be required to respond to annual query

• Controlled calculation• Uniform model• Linked with annual account

Time lag: cost / volume 2012 => tariffs 2014 / 201513

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Hospital lumpsum (total)

• mln

/Dbc volume

•# estimate

*Time span per dbc

•Weighted average

=€ / dbc

•Remuneration per dbc

Model I Calculation of the remuneration per dbc (2005-2007)

income

•€ 161.000

+ Costs of practice

•€ 44.260

/ workload

•1555 hrs

= Hourly rate

•€ 132

Model II Calculation of the remuneration per dbc (2007-2010)

Step 1

Page 15: Tariff setting in Dutch Healthcare system, Johan van Manen

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Hourly rate

•€132

* Time span per DRG

•Determined by consulting medical association

= Tariff/ physician’s fee

•€ fee/ DBC

Step 2

•In 2010 and 2011 across the board tariff reductions up to 30%, following steep rise of expenditure•For the 2012 tariff setting, another approach was decided on

H.M. budget specialists

•€ 2.000 mln

/Dbc volume

•# dbc’s billed to insurers

*Time span per dbc

•Weighted average

=€ / dbc

•€ xxx/dbc•€1 - € 19.000

Model II

Model III

Calculation of the remuneration per dbc (2007-2010)

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Drawbacks • Calculation models:– Retrospective (historical costs and volume)– No (prospective) correction for increased volume or

productivity– Limited availability data on innovative methods,

instruments etc.– Time consuming and detailed procedures

• DBC system:– Lacking transparency– Frequent changes in definitions and prices– Wrong incentives

Page 17: Tariff setting in Dutch Healthcare system, Johan van Manen

1983-

2005

• Budgeting system hospitals• Fee for service and lumpsum specialists• Central planning and regulation• Two part insurance system

2005

• Introduction of DBC tariff system•Free negotiable prices (10%), hourly rate

2006

•Health insurance act•Health market regulation act

2007

•Decision to design and implement DBC II

2008

•Free negotiations on 30%, hourly rate II•Central planning and investment regulation abolished

2010/2011

•Repeated tariff cuts (both medical specialists and hospitals)•Hourly rate III (tariffs 2012)

2012

• Introduction of DBC II• Introducing mandatory collective income caps (specialists)• Free negotiations at 70%• Hospital budgeting model abolished, transitory model

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Summary & time line

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Results• Continuous increase in expenditure• Government interventions in prices / expenses

– Tariff reductions– Caps on income / revenues

• Covenant (2011) with insurance and provider associations:– Limit on annual increase 2,5% (2012-2014)– Reducing / concentrating hospital capacity

• Introducing quality criteria in contracting practices

– Caps on specialist income• To carry out the covenant , insurers base contracts on:

– Lump sum payments– Fixed caps on revenue

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Centralised regulation

Budgeting and

lumpsum payments

Health reform and

dbc payments

Nationalcovenants

Local budget and lumpsum payments

Circular evolution…

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Tariffs calculated

from budget

Calculation models I, II

Calculation hourly rate

Several revisions

Tariff reductions

..and in calculation technique

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Discussion Through the years, the Netherlands have relied on budgeting rather than price regulation to

limit health care expenditure. The health reform is meant to shift responsibility from government and central planning to

health insurers and local providers, who are expected to compete for patients' favour. In reality however, there is still a extensive government intervention, which undermines the intended incentives of competition in the health insurance and care markets.

The covenants tend to stimulate collective arrangements, with a great amount of (political) influence of both the various trade organisations. They tend to invest a lot of effort in successful lobbying.

Technically, the choice for a tailor made tariff system for the Netherlands has turned out badly. The tariff system was intended to facilitate negotiations between health insurers and providers. The sheer complexity of the system, combined with complex regulation has proved to be more of a burden than a support for the competition and participants' intended roles.

The decision to redesign the tariff system after it had been in use for only two or three years was understandable. On the other hand, the new system in 2012 robbed both hospitals and insurers of all frames of reference. This had several adverse effects: a prolonged transitory model and a step back to lump sum payments that diminish the incentives that the health reform of 2006 intended to introduce.

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Thank you for your attention