Are Price Controls the Answer? Netherlands Edition

This post is co-authored with Misja Mikkers, who is Director of Strategy and Legal Affairs at the Netherlands Healthcare Authority and is affiliated with Tilburg University, the Netherlands and Copenhagen Business School, Denmark.
 

In a previous post one of us (Gaynor) examined some evidence on whether price controls are effective in slowing the rate of growth of health care spending, and how they compare with competition in private markets. In this post we examine some evidence from the Netherlands that may bear on the matter. In the previous post a data point from the Netherlands was shown as part of an international comparison, but it’s worthwhile to examine the Netherlands experience a bit further. The Netherlands is particularly interesting because they have employed rate setting in health care and subsequently deregulated much of their health sector to allow prices to be market determined. The question of whether the end of rate setting and the introduction of competition raised or lowered health care costs and prices in the Netherlands is hotly debated.

The article by Steven Brill in Time also led also to a lot of discussion in the Netherlands. Rob Wijnberg (former editor of the important Dutch Newspaper NRC-next) tweeted, “brilliant article about the reasons why competition in health care doesn’t work" (https://twitter.com/robwijnberg, Feb 26, translation M. Mikkers). 

Health reform in the Netherlands has been gradual and has had a number of different elements. Initially competition in health insurance was introduced (with an individual mandate), while maintaining rate setting for providers. A partial and gradual deregulation of provider prices followed. For hospitals some services have been deregulated (this is called the B Segment) and some services remain under price controls (the A Segment). The proportion of services in the deregulated B Segment has increased over time. In 2005 8% of hospital services were in the B-segment. This percentage then increased to 20% and 30% in 2008 and 2009 respectively. In 2012 virtually all elective care (70% of hospital services) was in the B segment.

The figure below (source: Market Scan Hospital Market 2011, Netherlands Healthcare Authority [in Dutch]) shows the percentage change in hospital prices over time in the price controlled A Segment and deregulated B Segment. As can be seen, growth in the deregulated segment, where prices are market determined, is substantially lower from about 2006-2007 onwards. In fact, from about 2008-2009 to 2010-2011 prices were falling in the deregulated segment while they were still growing in the price controlled segment. This doesn’t necessarily mean that competition controls prices and rate setting does not (lots of other things could be going on), but neither do we see what we’d expect if rate setting was doing a superior job of controlling prices.

The next figure (below, source: CBS [Dutch Central Bureau of Statistics] ) shows the growth rate in hospital spending in the Netherlands in the period before rate deregulation (2001-2005) and after deregulation began (2006-2011). The average annual growth rates between the two periods are virtually indistinguishable. Again, this isn’t scientific proof that rate setting doesn’t control costs (either in general or in the Netherlands), but there’s no slam dunk for rate setting in the patterns that we observe. We may be able to see more interesting patterns in the future. By 2014 and 2015 virtually all prices for elective care will have been deregulated and all parties in the market will be fully exposed to the consequences of their (price) negotiations.  

In sum, the Netherlands is a good place to look for the effects of rate setting versus markets on prices and spending, since they have employed both. A quick look at some descriptive statistics doesn’t yield any slam dunks for rate setting. If anything, shifting to markets may have substantially reduced price growth. However, careful study will be required in order to draw firmer conclusions. Last, while we believe that there are lessons for the US from experiences in other countries (and vice versa), we do have to be cautious in making strong inferences across very different health care systems and societies.