ABSTRACT:The Dutch government has decided to proceed with managed competition in health care. In this paper we report on progress made with health-based risk adjustment, a key issue in managed competition. In 2004 both Diagnostic Cost Groups (DCGs) computed from hospital diagnoses only and Pharmacy-based Cost Groups (PCGs) computed from outpatient prescription drugs are used to set the premium subsidies for competing risk-bearing sickness funds. These health-based risk adjusters appear to be effective and complementary. Risk selection is not a major problem in the Netherlands. Despite the progress made, we are still faced with a full research agenda for risk adjustment in the coming years.
In 19 8 8 t h e d u tc h g ov e r n m e n t began to implement radical marketoriented reforms in health care. Central government planning was to be replaced by a system of managed (or regulated) competition.1 Competing health insurers were to act as prudent buyers of care on behalf of their members. However, the transformation of a centrally planned health care system into managed competition appeared to be politically, technically, and institutionally complex. Workable competition cannot be introduced overnight. It requires prolonged investments in developing an adequate system of risk adjustment, product classification and quality management, an appropriate consumer information system, and, last but not least, an effective competition policy. None of these preconditions was in place in 1988, which explains the substantial time gap between the adoption of the market-oriented reform plans and their actual implementation.In the past fifteen years, however, successive governments consistently worked to realize these preconditions. Much progress has been made-for example, with respect to competition policy and risk adjustment. In this paper, as a follow-up to our earlier paper, we report on progress toward health-based risk adjustment in the Netherlands in the past decade. First, we discuss some key elements of the Dutch financing system and the rele-