The marginal success of regulated competition policy in the Netherlands

Social Science & Medicine 52 (2001) 1183–1194

The marginal success of regulated competition policy in the Netherlands Harm Lieverdink* CTU, PO Box 459, 1180 AC Amstelveen, The Netherlands

Abstract In the second half of the 1980s the government in the Netherlands adopted a regulated competition policy as part of a comprehensive programme designed to restructure the health care system. The programme was a product of its social and political context, promoted by a group of political entrepreneurs and created to improve efficiency. Despite the initial political support and a long political debate the government had to acknowledge by 1992 that the restructuring would not take place. But changes fostered limited competition between sickness funds and more extensive competition in the small market for supplementary policies. This, however, has not led to sickness funds becoming powerful purchasers that forced hospitals and doctors to improve their efficiency. Rather, they compete for subscribers, become part of large insurance conglomerates, and market more supplementary options. Culturally, health care institutions have become more entrepreneurial, taken up more business concepts, and made the language of markets, products and consumer sovereignty more common. The impact of these changes on the health care system is still unknown, but they create pressure for more health care services, leaving the government with problems that equal those of the 1980s. # 2001 Elsevier Science Ltd. All rights reserved. Keywords: Regulated competition; Restructuring health care; Health care policy; The Netherlands

Introduction Health care reform has dominated the political agenda of many Western democracies since the 1980. Analysts often presume that politicians universally determined to reform health care systems were facing the same problems and agreed on the same solutions. The problems were a lack of efficiency and flexibility and rising costs, and their solution presumably lay in transforming health care into a market. This description, however, is much too simple since it neglects the substantial differences between the structural characteristics of national health care systems, their problems and political decision making (Marmor, 1997). For a sound analysis of the introduction of a policy targeted at markets in health care in a single country, one should *Tel: + 31 20 3475794/748; fax: + 31 20 3475766. E-mail address: [email protected] (H. Lieverdink).

take into account the specific dominant values and norms of a country, the current political goals, objectives and institutions within health care and its technical characteristics like payment and financing systems. The next possible step is to make an international comparison of health reforms and to draw conclusions about patterns of convergence between countries (Saltman, 1997). In this paper, this approach that underlines the social, political and institutional embeddedness of policies aimed at restructuring health care will be applied to the Dutch experience with competition policy in health care. An analysis will be presented of the circumstances under which the idea of competitive health care gained a firm foothold in the political community of health care. The acceptance of market elements in health care will be explained by highlighting the support of influential political actors and the political climate of the 1980s in the Netherlands. The subsequent governmental plans

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recommended introducing a Dutch version of managed competition1. The consequences for the organisation of health care will be described as well as the way in which the original proposals were transformed into various policy measures and how different stakeholders in health care reacted. Some have argued that the Netherlands are essentially carrying out a policy of regulated competition (Van de Ven, 1993). In contrast this paper shows that the implementation of a policy of regulated competition was highly political since the objectives of actors involved did not necessarily coincide. In addition, the effects of introducing markets in health care were at odds with politically espoused values and goals, leading to new discussions about the need for and virtues of competition in health care. Finally, we will take a look at the changing culture in health care in the context of the managed competition policy.

The political origins of competition policy The proposals to introduce a system of regulated competition were said to be a reaction to the problems in the health care system in the 1980s. In this section, the system will be described briefly as well as the supposed shortcomings. In general, patients enter the system of specialty services after having visited their general practitioner. General practitioners act as a gatekeeper to medical specialists. Most medical specialists treat their patients in a hospital setting. These specialists are organised into small groups of physicians in the same specialty within the hospital who control their own budget (maatschap). The number of specialists with a private practice apart from the hospital is limited compared with other countries. Most specialists practise in only one hospital; their mobility has traditionally been low. Hospitals are predominantly private and non-profit (Maarse, 1995). They offer acute inpatient care as well as out-patient treatments. Most acute hospitals have a regional orientation. Health care workers are paid by the institution they work in (salary) or by sickness funds and private health insurers. Different payment systems exist. General practitioners are paid on a capitation basis for their services to sickness fund patients, and on a fee-forservice basis for the privately insured. The vast majority of specialists in acute hospitals are still paid fee-forservice (Committee Modernizing Curative Care, 1994). These fees are based on a national fee schedule that is 1 I will use the term competition policy in a restrictive sense. I will refer to the policy of regulated competition that was based on the thoughts of the Dekker-committee (1987) and subsequent governmental papers. Competition in a broad sense – free markets in every domain in health care } has not been the object of governmental policy in the period described.

determined in national deliberations between representative organisations of medical specialists, private health insurers and sickness funds (Lieverdink & Maarse, 1995). The payment of medical specialists by sickness funds and private health insurers is separate from the payment of the hospital2. Hospitals have budgets in the form of an annual global expenditure limit. These budgets are negotiated on the regional level between sickness funds, private insurers and hospitals and then submitted for approval to the Central Authority for Health Care Charges (COTG) that executes the Act on the Health Care Charges (WTG, 1982). Governmental control on budgets as well as fees is strong because of precise guidelines the government has to approve. Sickness funds execute the Sickness Fund Act (1964) that regulates the social health insurance system. Sickness funds contract and pay health care workers and hospitals to guarantee that the covered services are delivered. Until 1992 they had a regional monopoly but were also obliged to contract with every health care provider that practised in the region. Moreover, funds have no autonomy to decide upon the services they buy. After consultation with advisory bodies, the government determines what services are to be included under statutory health insurance. The sickness funds are funded by a central fund which is administered by the Sickness Funds Council (since July 1999: The Council for Health Insurances). In the central fund the premiums of the insured are collected. The Sickness Fund Act obliges workers (and welfare recipients and elderly) with an income up to a certain ceiling to buy a social health insurance. The employees pay an income-related premium matched by a premium paid by employers. In contrast with other European countries, an extensive part of the Dutch population buys a private health insurance policy (approximately one-third of the population). These buyers have an income above the ceiling and are therefore not allowed to buy a social health insurance. The packages of private health insurance companies resemble the entitlements in the social health insurance scheme, a consequence of competing to offer the most comprehensive package of 2

The budget of the hospital is distinct from the budget of the specialty groups. Medical specialists are reimbursed directly by sickness funds and private health insurers. These revenues are used for paying salaries to the members of the specialty group and for paying costs of practice (secretaries, rent of offices, etc.). Hospitals, however, have to use their budget to pay for the operating costs of medical specialists (operating rooms, equipment, etc). Since 1995 the situation has become more complicated because of the introduction of a system of capitation for the budgets of specialty groups. In many hospitals the management has taken over the administration of the budget of specialty groups to monitor situations of overproduction (Lieverdink & Maarse, 1997).

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services. In 1987, 62 private health insurers offered health insurance within a competitive market that had been essentially unrestricted by governmental regulations. They were able to compete on premiums, entitlements and service (Maarse & Paulus, 1997). Small health insurance reforms in the second half of the 1980s reduced the autonomy of private insurers by regulating premiums and requiring entitlements for the elderly who bought a social health insurance until the reforms (Schut, 1995a). In addition to the social health insurance and private health insurance there is a national safety-net with a coverage for catastrophic risks known as the Exceptional Medical Expenses Act (Algemene Wet Bijzondere Ziektekosten or AWBZ, 1967). The Exceptional Medical Expenses Act is a tax-based and compulsory insurance for the total population. Taxes raised for exceptional medical expenses go to the General Fund for Exceptional Medical Expenses (Algemeen Fonds Bijzondere Ziektekosten). Resources from this fund flow to sickness funds and private insurers in order to pay for exceptional expenses for their insured. This health care system has been the product of a long organic growth. For a long time private health care organisations provided services within their professional domains without having an eye for the efficiency of the system they collectively produced. In the 1970s, politicians spoke disapprovingly of a ‘‘patchwork’’ of health care services as the result of unguided expansion in the decades after World War II. In reaction, the Dutch government introduced a health care programme with centralised regulation as the main characteristic. As part of a grand design, the government framed a triptych of legislation aimed at regulating health insurance, price setting and volume planning that was completed in 1982. In addition, the government relied on ad hoc interventions like setting global hospital budgets (since 1983) and fee controls for medical specialists (Schut, 1995b). With the beginning of this policy the government put an end to consensus-based policies that were characteristic for the prevalent neo-corporatist political system. As a consequence, peak organisations in health care lost much of their privileged positions in the policy-making process. Although the top-down policy successfully contained costs, it also contained a new comprehensive health services planning system with structural defects. Experiments with the system in the first half of the 1980s revealed serious flaws, resulting in a considerable loss of faith in the governmental strategy (Schut, 1995b).

An evaluation of the system: the problems of health care In the middle of the 1980s a consensus among important political actors existed about the shortcomings of the health care system and their causes (SCP,

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1988; Schut, 1995b). The organised sickness funds and the research bureaus of the Liberal, Christian Democratic and Social Democratic parties published reports with similar problem definitions. The Dekker-committee, whose members did not belong to the government nor to health care organisations, joined in and summarised the prevailing assessment. According to the committee, the provision of health care lacked flexibility and was inefficient. Freedom of choice for the patient did not exist, and cost control could not be reached (Committee Structure and Financing Health Care, 1987). The lack of flexibility was seen as a general shortcoming of the delivery system, especially the substitution of expensive, long-term institutional care by short-term deinstitutionalized care. Blame was placed on the system of insurance rules that blocked innovation and on the governmental control of volume and price that started in the 1970s. Besides lacking innovation and flexibility, the health care system was said to suffer from inefficiency. The Dekker-committee defined efficiency broadly as Dutch providers and insurers supplying and consumers asking for unnecessary and excessive care without being aware of the costs (Committee Structure and Financing Health Care, 1987). This waste was attributed to some perverse incentives intrinsic to the system. Physicians were rewarded by the fee-for-service system for doing more than necessary. General practitioners facing the capitation system were referring patients too soon and too often to medical specialists. Patients made exhaustive use of health care services in the absence of limits in the social health insurance package. Sickness funds were not interested in keeping costs low because they received complete reimbursement for their annual expenses by the central fund. Finally, the expenditure level in health care was said to be a compelling reason for restructuring health care. This popular picture overstated the gravity of the situation. For example, in hospital care a process of concentration and increase of efficiency took place. The number of hospitals decreased rapidly as a consequence of a considerable number of mergers: from 169 in 1982 to 109 in 1994. The number of hospitals with more than 600 beds increased from 17 to 27 (Boot, 1998). Also the number of beds declined sharply from about 5.3 per 1000 inhabitants in 1974 to 3.7 in 1992 (Health, 1994). Figures also show an extensive substitution of inpatient care by outpatient care. The number of admissions, inpatient days and the length of stay decreased steadily during this 20-year period, and the volume of day-care and outpatient treatments increased (SCP, 1984, 1992). In primary care, the number of primary health care centres in which various disciplines collaborated from 21 (1974) to 146 (1987). Approximately, 25 per cent of all family doctors, district nurses and social workers were appointed in some organisation for integrated primary health care (NIVEL, 1987). In

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mental health care, innovation took the form of inte-grated ambulatory care. These health services attracted many patients without, however, reducing the demand for institutional services. In addition, new forms of functional mental health care were developed in which institutional and ambulatory health care were integrated (SCP, 1992). So changes were taking place without, however, reducing the costs for institutionalized care (SCP, 1990; SER, 1987). Institutional care still absorbed the greater part of health care expenditures, although the number of ambulatory health care workers like physiotherapists rose spectacularly as the capacity of acute hospital care was being reduced. Most attempts to innovate health care were triggered by changes in the health insurance rules to enhance collaboration between health care workers and institutions. Making the entitlements in the social health insurance less restrictive promoted obviously the integration and innovation of care (NIVEL, 1987). But to what extent and in what domains of health care the current financing system prevented innovation was much less clear. Precise evidence about the effects of the policy of regulation was scarce (Gru¨nwald, 1987). Besides the assertion that the schemes of financing and paying for health care prevented innovation was onesided; other circumstances like professional domain struggles also contributed to stagnation. Health care was also criticised for its supposed lack of efficiency. This assertion was highly hypothetical. Extensive data gathering to support health care policy only started in the 1970. The explanation of the growth and variations of consumption in Dutch health care was an almost unexplored territory. The evaluation of efficiency was largely underdeveloped (Rutten & Bally, 1985). Scientists were not able to provide unambiguous evidence. For example, variations in consumption between sickness funds patients and people with a private health insurance policy suggested an overconsumption by sickness fund patients based on financial incentives (Van de Ven, Nanta, Van Vliet & Rutten, 1980). Other research, however, pointed out the differences in health status between the two groups as the main cause of variations in consumption (WBS, 1987). Also, studies in which the determinants of the growth of health care expenditure were investigated showed a much more complicated causal structure. Excessive consumption played a minor role; inflation in general, demographic developments, the growth of wages of health care workers and the introduction of advanced medical technology were of much greater importance (Health, 1995, Gru¨nwald, 1987). In sum, the argument that health care in the 1980s was inefficient and that overconsumption played a major role were in fact presuppositions without a sound basis for a new policy.

Finally, the picture of excessively rising expenditures on health care was imprecise and not consonant with actual trends. Until 1980 the percentage of the GDP spent on health care in the Netherlands stood well above the European average (Harrison, 1995). But the rapid growth of the 1970s (a 12.3 per cent yearly increase between 1973 and 1982) was followed by a modest growth in the early 1980s (4.3 per cent after 1982) (Health, 1995). The growth of expenditure on acute hospital care and medical specialist care was reduced considerably (Gru¨nwald, 1987; Maarse, 1995). In sum, the governmental policy of cost containment proved to be successful since it held down aggregate costs while improving the performance of hospitals (Harrison, 1995). It is not surprising that, given the modest development of total health care costs, foreign observers wondered at the drastic proposals to overhaul the system (Glaser, 1993; Kirkman-Liff, 1989). In the eyes of the critics, however, the successful policy of cost containment relied too much on ad hoc regulations that were not believed to improve efficiency and the innovative power of the system on the long run (Schut, 1995b).

Explaining the rise of market-based policies The rise of market-based policies did not follow inevitably from the perceived shortcomings of the Dutch health care system. The structural incentives to inefficiency and inflexibility had already been endemic for a long time and had already been countered by policies of a different kind. As we have seen, the definition of the problem was a constructed reality (Berger & Luckman, 1967). The growth of expenditures on health care was no longer dramatic, and the discussion about the efficiency of health care was ill-founded. The critics were right in their conclusion that substitution did not take place on a broad scale, but developments in the 1980s showed that the adjustments of the existing financing system worked. The need for markets was not obvious in this context. Rather, the government began to adhere to a market approach of health care in its policy papers without empirical testing (Van der Maesen, 1987; Light, 1995). What, then, were the forces that led to the advocacy of market solutions? In international health policy analysis at least two stories offer competing answers to this question. The first is what I would like to call the ‘‘rational economic story’’. The key element of this story is that Western societies all faced the same problems in their health care systems. The problems were said to be high costs, inefficiency and lack of quality. Competition was expected to offer an appropriate and generally applicable solution. To guarantee certain degrees of equity and

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solidarity, governments could set limits on competition, thereby producing regulated or managed competition. In the rational economic story, it is claimed that the reform proposals stem from an analysis of the deficiencies of existing health care systems. The main tools are economic models of market behaviour, which redefine roles in health care. Patients become buyers or consumers; health care providers become sellers. Financial incentives are the main variables in explanations of the functioning of health care systems and in policy proposals to improve them (Light, 1993; Stone, 1997). This analytical emphasis helps health policy makers stress the instrumentality of their market approach, which allegedly is free of any ideological stance. The rational economic story is not without problems. An important commentary is that it is full of convictions that have not been confronted with empirical investigation (Marmor & Maynard, 1991; Marmor, 1997). Some speak of American ‘‘armchair speculations’’ uncritically taken over by ‘‘disciples’’ (Glaser, 1993). The reliance in the rational economic story on general but not well specified terms like ‘‘efficiency’’ hinders empirical testing. Other researchers have tried to prove the failings of the dominant market theory in health care and the negative consequences of market policies (Hsiao, 1994; Light, 1995). Another objection holds that it does not pay attention to the socio-political context in which market policies were introduced. This context is addressed in the alternative, the social movement story (Light, 1999). Proponents of this view state that a competitive health care system was put forward by ‘‘prophets and moral entrepreneurs’’ whose solutions fitted the ideological climate in which ‘‘bureaucracy bashing’’, privatisation, deregulation and competition were promoted. Increasingly, doubts were raised about the capacity of governments to control health care costs (Stone, 1997). In addition, employers (and other powerful stakeholders) wanted to shift costs in order to secure their revenues (Evans, 1997). This view contrasts sharply with the rational economic story that portrays the development of market policies as a linear process of first objectively identifying the problems and then rationally designing the solutions. Insight in the change of direction in the Dutch health care policy is possible if we use the social movement theory. A coalition of adherents of a new direction constructed a deficient health care system in support of a new economic and market-oriented policy paradigm in health care. Among them were the liberal party (VVD) and the Christian Democratic Party (CDA). The promising effects of markets in health care were handed to them a few years earlier by health economists. A small but influential group of (health) economists adopted the ideas of managed competition by Alain Enthoven (Boorsma & De Bruine, 1984; Rutten & Bally, 1985; Van de Ven, 1983, 1986, 1987). The Department of

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Health proved to be receptive to the new economic ideas. Some of these economists were able to recommend market policies forcefully because of their role as advisors and members of committees that would recommend the market solution like the Dekkercommittee. The emphasis on increasing efficiency by fostering competition was initially supported by employers as well. Their main interest lay in reducing expenditures on health care and thus health insurance premiums. The sickness funds underlined the importance of a system of regulated competition, because it provided them with an opportunity to redefine their role in health care. In the first half of the 1980s, their position had been weak as a consequence of the direct governmental interventions in the financing of health care (e.g. the budgeting of hospitals and fee control for medical specialists). The suggestion to introduce competition in health care was closely connected to the political climate in the 1980s. This political climate promoted a policy of regulated competition in two ways: a general political stance towards favouring deregulation and privatisation, and a dislike of state intervention in health care. First, an important political force was the alliance of Christian Democrats and Conservative Liberals within the cabinet that strived after bringing down public expenses by deregulation and privatisation in almost every policy domain. As in other countries, the welfare state was the subject of a debate that the advocates of less government and more individual responsibility were winning. A coalition of neo-classical welfare economists and political commentators, critical philosophers and the advocates of ‘‘new realism’’ in the Social Democratic Party (PvdA) as well as in the Christian Democratic Party (CDA), stressed the need to counter the rise of public expenditures, the increased dependency of the citizen on the state, the lack of control and steering capacity and the ineffectiveness of the system (Okma, 1997). The Department of Health, known as a spending department, could not escape from this pressure. The need to deregulate and limit the role of the state spread willy–nilly to the political community in health care (Okma, 1997). This adherence to market-like reforms as an effective policy of cost containment was all the more strange because in the Netherlands the relationship between competition and total costs of health care was never established. Instead, economists who supported a competitive health care countered the statement that competition would result in cost containment as political and incongruent by asserting that theoretically a competitive health care system increases efficiency but also rewards economic growth (e.g. Van de Ven, 1996). Economists who participated in the discussion were fully aware of the latter effect of competition (e.g. Boorsma & De Bruine, 1984).

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Second, in response to the detailed government regulation that started in the 1970s dominated a political picture of a health care system in crisis that could not be dealt with by using the prevalent state interventions (Kirkman-Liff, 1989, Van de Ven, Van Vliet, Van Barneveld & Lamers, 1994). This evaluation cannot be seen independently from the shift in power between society and government that took place in the 1970s. The substitution of neocorporatist policies by direct state interventions produced a feeling of powerlessness in health care organisations. A policy favouring deregulation, privatisation and competition instead promised to return autonomy to society. In addition also the Department of Health experienced a decline of power to realise changes in health care since the start of top-down policies. As a consequence of the statist strategy, it could not produce consensus on measures to improve the system in which the government was dependent on the co-operation of health care actors (Lapre´, 1988). A comprehensive constituency for some form of competition in health care had come into being. The health department, academic researchers, political parties, health care professionals, sickness funds and employers all seemed to subscribe to a change of policy despite uncertainty about its contents or effects. The soon to be installed non-governmental Dekker-committee had to formulate a more precise policy proposal. The assignment was in accordance with the political climate; the committee had to draft a policy of deregulation in health care (Committee Structure and Financing Health Care, 1987). In other words, the Dekker-committee was established to spell out how the already prevalent competition paradigm was to be applied to health care.

Dekker: from transformation to stalemate In 1987, the Dekker-committee published its report recommending the introduction of market elements into the health insurance system in order to reduce health care costs. The government adopted the main conclusions but the policy proposals in the following years met fierce opposition from political parties as well as interest groups. The ultimate result would be a political stalemate by 1992 (Lieverdink & Van der Made, 1997). The Dekker-report (Willingness to Change) proposed the introduction of a national health insurance system combined with managed competition to improve efficiency and achieve cost containment (Maarse, 1995). It stressed the need for a simplified health insurance system with a compulsory package comprising 85 per cent of health care and a voluntary package consisting of 15 per cent of the health services. For the compulsory as well as the voluntary package, subscribers had to pay incomerelated and flat-rate premiums. The income-related premiums would go to the central fund that would

finance the health insurers. For the financing of health insurers by the central fund, a risk-adjusted capitation system would have to be developed in order to prevent health insurers from cream skimming. The flat-rate premiums would be paid to health insurers directly which, in order to encourage efficiency, would be allowed to adapt their flat-rate premiums. The distinction between private health insurers and sickness funds would disappear. Insurers would compete with each other for clients by using the flat-rate premium as the main market signal. Sickness funds would no longer have regional monopolies, as under the old system. Providers also would have to compete with each other for contracts with health insurers. Therefore, the legal obligation of sickness funds to contract with every provider in the region would be repealed. After the Dekker report the government launched several policy proposals that aimed at improving efficiency while maintaining solidarity.3 These proposals focussed on three issues: (1) the content and the volume of the compulsory health insurance package, (2) the ratio between income-related premiums and flat-rate premiums and (3) the development of a risk-adjusted capitation system for health insurers (Research Committee Decision Making in Health Care, 1994). In order to enhance flexibility and substitution, the government recommended a broad compulsory health insurance package comprising the greater part of health services. The remaining part could be left to the market of health insurance. According to the government, a broad compulsory package could be reached by gradually adding health services to the pool of catastrophic risks. In the final governmental policy proposal based on Dekker (1992) the government decided on a compulsory package of 95 per cent of the health services, thereby leaving only 5 per cent to the free health insurance market. The content and volume of the social health insurance package has always been a political issue in Dutch health care. The formal institutional structure only obliges the government to ask the Sickness Funds Council for advice but reductions of the package inevitably evoke political discussion in parliament on the issue of solidarity. An enlargement of the package raises questions about the premiums to be paid by employees and especially employers. The suggestions for a new broad compulsory health care package were no exception to this rule. The leftist parties opted for 95 per cent, the conservatives for 85 per cent or less. Employers disagreed with a comprehensive social health insurance scheme. Sickness funds favoured a large package comprising the services they already offered; on the other hand, the private health insurers foresaw a rising 3 Change assured (1988), Working on the innovation of care (1990), The modernizing of health care (1992).

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macro expenditure level. In sum, opinions based on partial interests were too widely divergent to reach consensus. To introduce competition in Dutch health care, the funding of sickness funds by the central fund would be adapted. An appropriate risk-adjusted budget system was seen as indispensable. A budget system would force health insurers to operate efficiently and to contract with efficient health care providers. The determination of budgets based on certain characteristics of the insured (age, sex, etc.) for the health insurers would prevent them from cream skimming (De Klein, 1997; Schut, 1995b). In this way, sickness funds were to become the intermediaries between providers and consumers (Van de Ven et al., 1994). The capitation of sickness funds would force them to a level of efficiency they lacked under the old system of complete reimbursement and would transform them ‘‘from purely administrative bodies into risk-bearing enterprises’’ (Van de Ven et al., 1994). In order to improve efficiency, furthermore, the budget would have to be lower than the total of the medical expenses of the health insurer. To make up the deficiency, health insurers would have to charge subscribers a flat-rate premium. This premium could be kept low if health insurers were able to contract with efficiently working health care providers. However essential the risk-adjusted budget system may have been to regulated competition, the design of it proved to be almost impossible. Technical discussions on what criteria the system should be based on were prolonged, without coming to clear conclusions. Furthermore, the sickness funds opposed. The initial risk-adjusted budget system the government proposed in their eyes ignored the differences between funds with regard to the health status of the insured population (e.g. sickness funds in ‘unhealthy’ cities versus rural sickness funds). It discriminated against sickness funds that were forced to ask for high flat-rate premiums to finance their health care expenses. This would lead to unjust competitive relations. The sickness funds also considered their market position to remain weak as long as the government regulated the supply side. In sum, the opposition of health insurers was fierce and effective; political support for this crucial pillar of the policy of regulated competition crumbled. The problem of the ratio between the flat-rate premiums and income-related premiums dragged the discussion about the restructuring of the health care system into a political debate about its redistributive effects. Adherents of markets pleaded for maximising the flat-rate premium, but labour unions and sickness funds feared the consequences for financial solidarity. Social health insurance was primarily financed by income-related premiums because of the principle that people with higher incomes should pay more than those with lower incomes. The increase of flat-rate premiums posed a threat to this principle and meant financial

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disadvantages for the low income groups because of the regressive effect. The latter issue created a political deadlock. Some discussants wanted to restore the redistributive effects of the health care reform by adjusting the ratio between flat-rate and income-related premiums. Fiscal measures outside the financing of health care (e.g. tax regulations) were not acceptable. The initially present broad consensus and optimism about a new system of regulated competition transformed gradually into a political stalemate. This can be explained by the combination of overestimating the powers of the government and underestimating how complex the design must be of fair rules for competition. Especially the neo-corporatist policy system, in which a multitude of actors share powers, proved to be an major obstacle to an early implementation (Lieverdink & Van der Made, 1997; Van der Grinten, 1996). Moreover, the empirical evidence was too thin to counter the increasing scepticism about the effects of regulated competition on health services (Van der Made & Maarse, 1995). The decreasing support for regulated competition was especially evident in the case of the employers. They initially supported the idea of a competitive health care, but said farewell to the market proposals because they considered the providers to be too powerful and the regional health care delivery oligopolistic. They also doubted the market power of health care consumers (Research Committee Decision Making in Health Care, 1994). The Social Democrats as well as the Christian Democrats also emphasized in 1992 alternative coordinating mechanisms (Okma, 1995).

From manifest failure to latent success Proposals for a new blueprint of Dutch health care did not overcome the threat of political veto. The period of ‘high politics’ has been followed by a period of gradual change in which the health care system has been adjusted, not restructured (Lieverdink & Van der Made, 1997). Specifically, there is more competition between sickness funds but primarily in the market of subscribers. In the market of health care services a trend toward regional bilateral monopolies can be observed. In addition, a compartmentalisation of health care has taken place. Finally, under influence of political and social forces, the health care sector witnesses a growing commercialisation. A compartmentalisation of health care Originally, the governmental plans following the Dekker-report were striving after a broad compulsory health insurance without a distinction between social and private health insurance. Instead, the government has introduced a compartmentalised health insurance

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system. The first compartment consists of the catastrophic risks traditionally included in the Exceptional Medical Expenses Act. Competition is excluded from this compartment. The second consists of the main packages of sickness funds and private health insurers comprising acute health services (approximately 52 per cent of health care expenses in 1999 (Health, 1998). In this second compartment, competition between sickness funds is enhanced by a more advanced capitation system to be described in the next pages. However, the government is still cautious in pursuing a rigorous programme of deregulation of volume planning and price setting which restricts the strategic power of sickness funds and health insurers vis a vis the health care providers. The third compartment comprises supplementary health insurance offered by sickness funds and private health insurers. Examples of benefits are extra physiotherapy and dental care for adults. Funds and insurers are free to set premiums and to select subscribers. In 1999, approximately 3 per cent of health care expenses will be financed by this compartment (Health, 1998). Despite the marginal volume of the third compartment it is becoming an increasing point of leverage as the government tries to reduce the scope of benefits of the second compartment and thus to increase the need for supplementary health insurance. This policy will increase the range of health services covered by ability to pay and thus reduce equity. In recent years, this strategy was applied to benefits like dental treatments and the contraceptive pill. The government claims to decide on basis of a list of criteria, like efficiency, effectiveness, necessity and self-responsibility, to be used for the rationing of health care. But as mentioned earlier, decision-making on this topic is highly politicised. The political value of solidarity hinders the enlargement of a voluntary market for health care services, and risk selection by insurers in this third compartment will only exabercate the problem (Schut & Krijvenaar, 1997).

Competition between sickness funds The main outcome of the political discussion on the ‘‘transformation of the health care system’’ has boiled down so far to fostering competition between sickness funds. Competition was enhanced by several measures. The freedom of sickness funds increased after 1992 because (1) they were allowed to contract providers outside their former regional borders, (2) they were free to determine their flat-rate premiums for subscribers, and (3) they no longer were obliged to contract with every provider. Other important measures were the introduction of the opportunity to negotiate prices lower

than the formal rates set by the Central Authority for Health Care Charges (COTG) and a simple riskadjusted budget system put in operation in 1992. In this system, the funding of the sickness funds by the central fund was based on two criteria: age and sex (in 1995 region } mainly indicating the level of urbanisation } and disability were added). In addition, the government gradually increased after 1992 the risk-bearing percentage of the reimbursement of medical expenses of sickness funds by the central fund. This meant that sickness funds increasingly faced a reduction of the reimbursement of budget overruns. The design of a budget system for sickness funds has been the object of continuous negotiations between the government and sickness funds because of partly opposite interests. Increasing the risk-bearing percentage of the reimbursement of sickness funds was necessary to give funds responsibility for containing costs. The funds in turn pointed to their limited capability to influence health care expenses as long as the government determines the entitlements in the social health insurance scheme, the delivery system’s capacity (e.g. number of beds and physicians), the prices of health services and the budgets of hospitals. The negotiations following the deadlock in 1992 have nonetheless resulted in the introduction of tentative risk compensating systems for sickness funds. They agreed to a simple risk-adjusted capitation system under the condition that the expected high risks would be compensated. Medical expenses of sickness funds are mutually balanced retroactively for up to 90 per cent (1995) and reimbursed retroactively by the central fund for up to 95 per cent (1997). As a consequence the actual financial risks of funds remained low. Since 1996, these percentages have differentiated between fixed payments to providers (e.g. beds, buildings) and variable payments to providers (e.g. bed days, outpatient treatments) which leads to higher risks for the sickness funds. The compensation for fixed payments remains to be high (95 per cent) but for some variable payments it has been reduced to 0 per cent in 1999. The differences in actual risk between sickness funds is said to be one of the main reasons for the current variation between sickness funds in flat-rate premiums subscribers have to pay. Funds increasingly charge different premiums, between DFL 345 (approximately $175) and DFL 441 ($222) per year in 1999 (Anonymus, 1999). The sickness fund is not allowed to differentiate between subscribers or risks. However, consumers do not change sickness funds on a massive scale despite the differentiation of flat-rate premiums. In addition, choice for consumers is limited, because sickness funds are not able to differentiate their packages because of the determination of the entitlements in the social health insurance at the national level (Schut & Krijvenaar, 1997).

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Did the introduction of the risk-related capitation system lead to sickness funds competing for efficiently working providers? This was not the case. Until now funds have mainly tried to increase their share of the market of subscribers by mergers with other health insurers.4 Since funds were no longer restricted to their regions merging offered the opportunity to enter the supra-regional/national market. The wave of mergers led to sizeable health insurers organisations more interested in the national market share than in competition within health care regions. Instead, health insurers employ regional representatives who are increasingly interested in uniform regional agreements with care providers on contracts and budgets (RVZ, 1998). In addition, health insurers were being confronted with well-organised providers who were assisted by the professional bureaus of their interest organisations and commercial consultants. Trading in health care providers by sickness funds hardly occurred. Nor were prices negotiated on a large scale below the maximum level determined by the Central Authority for Health Care Charges (COTG). In sum, governmental policies have contributed to a trend towards bilateral monopolies within regions. On the other hand, the emphasis on sickness funds as a countervailing power has led to more participation in the management of care. Among other things, information about the behaviour of providers of health care services becoming available enables sickness funds to engage in the improvement of health care delivery. To date, the creation of incentives for sickness funds to behave like riskbearing enterprises did not lead to powerful purchasers pushing hospitals and doctors to improve their efficiency. For a fully fledged countervailing power for sickness funds, some conditions still have to be met. First, the capitation system for sickness funds has to be completed successfully. For this the financial risks for sickness funds should increase. Another remaining problem is the inclusion of the very expensive health care for chronically ill into the criteria of the capitation system. This would prevent sickness funds which are facing tighter budgets from cream skimming (Van Vliet, 1996). Second, the government has to change its price and volume policies. The present legal frameworks prevent the sickness funds from influencing the volume of their services at a decentralised level. Also, the budgets for hospitals are determined separately from the budgets for sickness funds without 4

The result being that the number of sickness funds has decreased from 53 in 1985 to only 31 in 1998. Another consequence is that the historically determined distinction between sickness funds and private health insurers is blurring. Although juridically they are still independent entities, often sickness funds and private insurers are part of one holding organisation (Maarse, 1997).

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co-ordination. Finally, the funds have to commit themselves more strongly to their role as a purchaser willing to improve the delivery of health care services (Hurts, 1996). These conditions are not easily realised since they are politically contested. The completion of the capitation system for sickness funds depends on a solution for highly complex administrative issues and intense negotiations between health insurers and the government. In these discussions opinions about the social responsibility of health insurers are reflected (Maarse, 1997). A change in policies on prices and volume demands the government to leave the path of a reasonably well effective policy of cost containment.

A changing culture within health care Notwithstanding the difficulties that typify the introduction of regulated competition in the Netherlands, one can observe a change in the culture in health care. Thinking in terms of markets, products and consumer sovereignty has become more common. Sickness funds have discovered the advantages of alliances with commercial health insurers in the context of the market of subscribers. A competitive posture of health insurers is furthered by their inclusion in for-profit insurer companies with a broad package of insurance products (Maarse & Paulus, 1997). This raises questions about the identity of sickness funds: should they be health insurers with a social mandate or just commercial insurance companies (Maarse, 1997)? Health care institutions have become more entrepreneurial, and concepts from business and industry are being applied (Harrison & Lieverdink, 2000). The third compartment of health insurance gives them the possibilities to offer additional, sometimes luxurious services. Also, consumer organisations spread information about the quality of health care which enables patients to make more deliberate choices in health care. Health practitioners underline the importance of a demand oriented organisation of care as well as the government that provides some categories of patients (e.g. for home care) with personal budgets to be used to buy services without interference by health insurers. The related increase of competitive thinking is brought about not only by the policy of regulated competition. The developments in health care reflect a changing social climate since the 1980s in which individual responsibility, entrepreneurship and less governmental control are highly valued. Also, health care is affected by changes in other parts of social policy like social security. The disability and sickness insurance systems have been privatised, meaning that individual employers have to continue the salary of the sick employee. This increase of the financial responsibilities has led employers to demand health care facilities that

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guarantee a quick re-entry of sick employees into the production process. Since these facilities cannot be offered within the present restrictive health insurance packages and governmental volume guidelines business companies are willing to buy health care facilities like physiotherapy and ambulatory psychiatric care to cure stress-related diseases. Health insurers as well as some health care providers are willing to agree to the proposals of business companies (Brouwer & Schut, 1999). Insurance companies also offer services that promise disease prevention. Although still limited these initiatives illustrate that providers of health care services respond to developments as being on a market of health services. The political reaction, however, also is characteristic. The initiatives of employers have been criticised by the government for their impact on the solidarity between workers and non-workers. The argument is that people without a job (including retired persons and persons entitled to social benefits) would not benefit. The latest governmental point of view is that employers should be allowed to buy health care services, but under strict conditions.

Conclusion As we have seen in this paper health care in the Netherlands was not without problems in the 1980s but the logical relationship between regulated competition policy as a solution and these problems was tenuous and contradicted by the facts. To understand the sudden attractiveness of this policy we should conceptualise it as a constructed reality of its time and social and political context, promoted by a group of political entrepreneurs. The debates over regulated competition ended in a stalemate between countervailing powers (Light, 1995,1997). In policy fields governed by countervailing powers, it is difficult for a government to implement drastic changes in the system (Gross & Harrison, 2001; Lieverdink & Van der Made, 1997; Van der Grinten, 1996). In the Netherlands, the countervailing powers were all the more important because the discussion on regulated competition was embedded in deliberations about a just reconstruction of the health insurance system. This reconstruction touched the interests of different parties. The stalemate was additionally brought about by the increase of doubt about the effectiveness of regulated competition. Finally, regulated competition implied a challenge to vested interests which made it vulnerable for the obstructive effect of networks of power. Also, introducing regulated competition entails a great deal of regulation (Light, 1995). And because each rule will have to pass the political veto, delay is inevitable. In the Netherlands the undervaluation of the design of a fair system of rules for competition in health care has prevented a rapid implementation of

competition policy too. The difficulties in developing a system of risk-related budgets for sickness funds still hinder a furthering of regulated competition. Despite the political stalemate of 1992 the government tried to strengthen the position of sickness funds in their relation with providers of health services by introducing new rules. Sickness funds would have to push providers towards more efficiency, like purchasers elsewhere (e.g. Light, 1998). This would happen if sickness funds would compete with each other for health services. In addition, the government compartmentalised health care in order to point out in which part this form of competition would be allowed. Catastrophic risks (the first compartment) were not to be submitted to market forces, but sickness funds could compete with respect to the services included in the social health insurance package (second compartment). For a relatively small package of supplementary services a free health insurance market exists (the third compartment). To date competition between sickness funds exists only for subscribers and in the third compartment. These two forms of competition are congruent: by offering supplemental policies with premiums they can determine themselves, health insurers are more attractive to subscribers who need the basic health insurance package as well. But, sickness funds have not become the powerful purchasers the government intended since there is no competition in contracting providers of health services included in the social health insurance package. This delay is caused by the strategic preference of sickness funds to increase their national share of subscribers in stead of to compete with other funds on a regional level. On the other hand, the policy of the government is ambivalent. It aims at a well-developed budget system for sickness funds in order to let them control the providers of health services, but at the same time the top-down regulation of the supply and prices of health services is merely adjusted at a small pace. Some have called this an ‘‘odd’’ situation (Van de Ven, 1993). This paper makes clear that a mixture of competition policy and governmental control is inevitable because of the incompatibility of the values and certain effects of competition and politically adhered wishes like cost containment and the preservation of solidarity and equal access to health care. In this sense the structuration of Dutch health care is the product of an ongoing struggle of countervailing powers. Despite the manifest failure of the policy of regulated competition, a commercialisation of health care took place in the last decade under influence of societal and political force’s wish for regulated markets. This latent success of the policy of regulated competition can result in the improvement of health care by attending to the wishes of clients. The commercialisation, however, can also produce a decrease in solidarity and endanger equal access to health care. It can also lead to offering

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unnecessary health care products and thereby to promoting inefficiencies in health care, the problem the advocates of regulated competition were trying to solve.

Acknowledgements I would like to thank Donald Light for his challenging comments and the referees for their helpful remarks. I also wish to thank other researchers who have discussed with me the history and prospects of regulated competition in the Netherlands.

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