This paper evaluates the impact of market competition on health care volume and cost. At the start of 2005, the financing system of Dutch hospitals started to be gradually changed from a closed-end budgeting system to a non-regulated price competitive prospective reimbursement system. The gradual implementation of price competition is a ‘natural experiment’ that provides a unique opportunity to analyze the effects of market competition on hospital behavior. We have access to a unique database, which contains hospital discharge data of diagnosis treatment combinations (DBCs) of individual patients, including detailed care activities. Difference-in-difference estimates show that the implementation of market-based competition leads to relatively lower total costs, production volume and number of activities overall. Difference-in-difference estimates on treatment level show that the average costs for outpatient DBCs decreased due to a decrease in the number of activities per DBC. The introduction of market competition led to an increase of average costs of inpatient DBCs. Since both volume and number of activities have not changed significantly, we conclude that the cost increase is likely the result of more expensive activities. A possible explanation for our finding is that hospitals look for possible efficiency improvements in predominantly outpatient care products that are relatively straightforward, using easily analyzable technologies. The effects of competition on average cost and the relative shares of inpatient and outpatient treatments on specialty level are significant but contrary for cardiology and orthopedics, suggesting that specialties react differently to competitive incentives.
There is much debate about the effect of competition in healthcare and especially the effect of competition on the quality of healthcare, although empirical evidence on this subject is mixed. The Netherlands provides an interesting case in this debate. The Dutch system could be characterized as a system involving managed competition and mandatory healthcare insurance. Information about the quality of care provided by hospitals has been publicly available since 2008. In this paper, we evaluate the relationship between quality scores for three diagnosis groups and the market power indicators of hospitals. We estimate the impact of competition on quality in an environment of liberalized pricing. For this research, we used unique price and production data relating to three diagnosis groups (cataract, adenoid and tonsils, bladder tumor) produced by Dutch hospitals in the period 2008–2011. We also used the quality indicators relating to these diagnosis groups. We reveal a negative relationship between market share and quality score for two of the three diagnosis groups studied, meaning that hospitals in competitive markets have better quality scores than those in concentrated markets. We therefore conclude that more competition is associated with higher quality scores.
This study analyses the effect of spatial concentration of general hospitals, the appearance of independent treatment centers (in Dutch: Zelfstandige Behandelcentra: ZBCs) and the concentration of health insurers on production volume and costs since the introduction of market-oriented health care reforms in the Netherlands. We use regression analyses of 1,345,144 patient-level hospital data for fifteen major diagnosis treatment combinations (in Dutch: Diagnose Behandeling Combinaties: DBCs), representing 70% of the managed competition segment (the so-called B-segment). We find that spatial concentration of hospitals and concentration of insurers do not affect health care production volume. More competitive hospital markets are associated with higher cost of most DBCs studied. Surprisingly, hospitals operating under insurers with high monopsonic power incur higher average DBC-cost than hospitals operating under insurers with more dispersed power. The number of independent treatment centers in the hospital’s vicinity is positively related to health care volume and average cost.
This paper explores the question how much detail a cost system needs to have in order to provide reliable cost information at a reasonable price. In general, fine-grained cost systems with a lot of detail (in product definition, in cost drivers and in cost pools) are expected to provide more reliable cost information than coarse- grained cost systems with less detail. This paper takes as an example the DBC cost system that has been developed for the Dutch hospital sector. The fine-grained DBC system with over 40,000 health care products appears to outperform lowergrained DRG systems with only 15,000 and 6,000 health care products on cost homogeneity and predictive validity. It does so however at the cost of a high number of products with measurement and specification errors, caused by a large number of outliers and by a low number of observations in product groups. The cost-effectiveness of the DBC system is not very high: only 3% of all DBC-codes explains 80% of total costs, whereas the lower-grained DRG system uses 14% of the codes to explain 80% of total costs. Combined with the high administration cost of the DBCsystem, it was from an economic perspective, a sensible idea to replace the finegrained DBC-system by the coarse-grained DOT system.
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