Thesis Master Health Policy, Economics & Management

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Thesis Master Health Policy, Economics & Management

  1. 1. The financial position of Independent Treatment Centres in the Netherlands: Big business or a flash in the pan? An explorative study on the market for ITCs in the Netherlands and the market for free- standing day hospital facilities in Australia J.E. Wagemans i246468 Master of Public Health – Health Policy, Economics and Management Supervisor: Prof. Dr. J.A.M. Maarse Second examiner: J.H. van der Made, MA Maastricht University Faculty of Health, Medicine and Life Sciences December 2007
  2. 2. Preface I Preface This thesis is written as part of the Master Health Policy, Economics and Management at Maastricht University. When I started with the Master thesis project in April 2007, I was hoping to finish my Master thesis in a shorter period of time than my Bachelor thesis. Since Independent Treatment Centres are a relatively unexplored topic of research and because I started a study of law in September 2007, however, this plan did not succeed! Nonetheless, I worked on this thesis with pleasure and I enjoyed carrying out a small research myself. The nice cooperation with Mieke and Annick surely added a lot to the pleasure with which I worked on my thesis. For this, their helpfulness, and all the chats we had (both in the library, the ‘BEOZ-hok’ and at the coffee corner), I would like to thank Mieke and Annick. I enjoyed working with you very much! I would also like to thank Mr. Maarse for his critical feedback and for giving me enough time to finish my thesis after I started with my study of law. In addition, I would like to thank Mr. Maenen and Mr. Wijnen for making me a little bit more acquainted in the world of bookkeeping. My student days in Maastricht would not have been the same without ‘Subtiel’. Therefore, I would like to thank Sanne, Karin, Marlien, Lisette en Samanta for being interested in my thesis and listening to all my frustrations about it! Thanks for your friendship and all the pleasant evenings! Last but not least, I would like to thank my parents and brother for letting my go my own way during my thesis and my study in general, and for having trust in me. J.E. Wagemans
  3. 3. Abstract II Abstract This exploratory study describes the development of the legal framework for ITCs, discusses the financial position of ITCs and compares the Australian market for free- standing day hospital facilities with the Dutch market for ITCs. Independent Treatment Centres (ITCs) can currently be defined as provider organisations established for the delivery of inpatient and outpatient care to patients. The greater part of their activities consists of ambulatory care covered under the Health Insurance Act. As far as inpatient care is concerned, the centres are only permitted to deliver care for which no central tariff regulation by the Dutch Care Authority exists. In the past, a very restrictive governmental policy was pursued towards ITCs. However, a stepwise acceptance took place and ITCs are called IMSZ type I since the WTZi came into force in 2006. Consequently, ITCs are allowed to provide all types of care in the B-segment and the differences between hospitals and ITCs have diminished. Major shareholders of ITCs are the holding of the ITC, medical specialist(s), the concern the ITC belongs to, and external parties that are active in the health care sector. The legal forms under which the ITCs in the Netherlands operate show a high variety, but the majority has a foundation. The financial risk of ITCs included in the analysis has decreased over the period 2004-2006, but the ITCs have problems satisfying their financial obligations on both the short and long term. The net-annual turnover of almost all the included ITCs has been positive. Remarkably, the magnitude of the operating results shows a high variety. The market for ITCs in the Netherlands is not (yet) big business and ITCs should specifically pay attention to their solvability and liquidity, but profit is made by the majority of the ITCs and the flow of patients is stable to increasing. Free-standing day hospital facilities in Australia are either managed by an existing hospital or are operating independently. The market for free-standing day hospital facilities in Australia has developed some years before the market for ITCs in the Netherlands and can thus considered to be more mature. This can be derived from the fact that the share in terms of income of this type of facilities on the hospital market is higher than in the Netherlands even though the share in terms of number of facilities is lower than in the Netherlands. J.E. Wagemans
  4. 4. Table of contents III Table of contents Preface..................................................................................................................................I Abstract .............................................................................................................................. II Table of contents ............................................................................................................... III List of tables and figures .................................................................................................... V 1. Introduction ..................................................................................................................... 1 1.1 Developments in Dutch health care .......................................................................... 3 1.2 Day treatment facilities from an international perspective ....................................... 7 1.3 Aim, relevance, objectives and research questions ................................................... 8 1.4 Theoretical framework ............................................................................................ 11 1.5 Methods of research ................................................................................................ 12 1.6 Readers’ guidance ................................................................................................... 13 2. Independent treatment centres....................................................................................... 14 2.1 Rules and regulations in the Dutch health care sector ............................................ 14 2.1.1 Hospital planning............................................................................................. 14 2.1.2 Hospital financing............................................................................................ 16 2.1.3 Capital expenses............................................................................................... 18 2.1.4 The A- and B-segment ...................................................................................... 19 2.1.5 Profit motive..................................................................................................... 20 2.1.6 The health insurance market ............................................................................ 22 2.1.7 Supervision ....................................................................................................... 23 2.2 History of ITCs........................................................................................................ 24 2.2.1 The 1998 Regulation ........................................................................................ 25 2.2.2 Criteria under the 1998 Regulation ................................................................. 26 2.2.3 A significant change in perspective and legislation regarding ITCs............... 27 2.2.4 Overview of development regarding ITCs ....................................................... 29 2.3 Common level playing field.................................................................................... 29 2.4 Conclusion............................................................................................................... 30 3. Financial analysis of independent treatment centres..................................................... 32 3.1 Methods................................................................................................................... 32 3.1.1 Index numbers .................................................................................................. 33 3.1.2 Repeated-measures design ............................................................................... 35 3.2 Legal forms and the deposition of annual accounts ................................................ 35 3.3 Results ..................................................................................................................... 36 3.3.1 Legal form and shareholders of all ITCs in the Netherlands........................... 37 3.3.2 The outcome of the selection procedure........................................................... 40 3.3.3 Legal forms of the included ITCs ..................................................................... 40 3.3.4 Index numbers of the analysed ITCs ................................................................ 42 3.3.5 The net annual turnover and the operating results before tax-payment .......... 50 3.3.6 Overview of the financial position of ITCs in 2006 ......................................... 54 3.3.7 Results of the in-dept interviews....................................................................... 55 3.4 Discussion ............................................................................................................... 56 3.5 Conclusion............................................................................................................... 58 J.E. Wagemans
  5. 5. Table of contents IV 4. Free-standing day hospital facilities in Australia.......................................................... 61 4.1 Australia and its governmental system.................................................................... 61 4.2 The Australian health care financing system .......................................................... 62 4.2.1 The Australian health insurance system .......................................................... 63 4.3 Health services delivery .......................................................................................... 64 4.4 Trends in the hospital sector.................................................................................... 66 4.4.1 The history of the development of day surgery ................................................ 67 4.4.2 Principles for day surgery................................................................................ 69 4.4.3 Types of day surgery facilities.......................................................................... 70 4.5 Free-standing day hospital facilities........................................................................ 71 4.5.1 Development of the number of free-standing day hospital facilities................ 71 4.5.2 Geographical distribution of free-standing day hospital facilities .................. 74 4.5.3 Medical Specialties .......................................................................................... 75 4.5.4 Production........................................................................................................ 75 4.6 Characteristics of the market for ITCs in the Netherlands...................................... 76 4.6.1 Development of the number of ITCs and their share on the hospital market .. 76 4.6.2 Geographical distribution of ITCs ................................................................... 77 4.6.3 Medical specialities provided by ITCs ............................................................. 78 4.6.4 Production of ITCs ........................................................................................... 78 4.7 Comparison between the market for free-standing day hospital facilities in Australia and the market for ITCs in the Netherlands .................................................. 78 4.7.1 Types of free-standing day surgery facilities and ITCs.................................... 79 4.7.2 Private sector activity....................................................................................... 79 4.7.3 Share on the total hospital sector..................................................................... 79 4.7.4 Development of the number of facilities........................................................... 80 4.7.5 Geographical distribution and medical specialties provided .......................... 80 4.7.6 Incentives created by free-standing day hospital facilities and ITCs .............. 80 4.7.7 Principles and regulations ............................................................................... 81 4.7.8 Supervision ....................................................................................................... 81 4.7.9 Interest groups.................................................................................................. 82 4.7 Discussion ............................................................................................................... 84 4.8 Conclusion............................................................................................................... 84 Conclusion......................................................................................................................... 86 Discussion ......................................................................................................................... 89 References ......................................................................................................................... 91 Appendix 1 – Glossary...................................................................................................... 96 Appendix 2 – Structured questionnaire............................................................................. 97 Appendix 3 – Interview questionnaire .............................................................................. 98 Appendix 4 – List of included ITCs................................................................................ 102 Appendix 5 – Repeated-measures design........................................................................ 106 J.E. Wagemans
  6. 6. List of tables and figures V List of tables and figures Table 2.1 Developments regarding ITCs 29 Table 2.2 Common level playing field 30 Table 3.1 The application of the inclusion criteria 40 Table 3.2 Legal forms of the ITCs included in the financial analysis 41 Table 3.3 Specialties provided in the ITCs included in the financial analysis 42 Table 3.4 Rotation time of debtors (in days) 43 Table 3.5 Solvability (in %) 45 Table 3.6 Current ratio 47 Table 3.7 Current ratio adjusted 47 Table 3.8 Cover of interest 49 Table 3.9 Net annual turnover (in €) 51 Table 3.10 Operating results before tax-payment (in €) 52 Table 3.11 The financial position of ITCs in 2006 55 Table 4.1 Development of the number of hospitals in Australia 72 Table 4.2 Development of the percentage of free-standing day hospital facilities on the total number of hospitals in Australia 72 Table 4.3: Amount of free-standing day hospital facilities in Australia 73 Table 4.4: Population density in Australian States and Territories 75 Table 4.5: Type of centres in Australia in 2005-2006 75 Table 4.6: The hospital sector in the Netherlands 77 Table 4.7: Medical specialties provided in ITCs in the Netherlands 78 Table 4.8 Comparison between the Netherlands and Australia 83 Appendix 5 – Table 1: SPSS results for the rotation time of debtors 107 Appendix 5 – Table 2: SPSS results for the solvability 107 Appendix 5 – Table 3: SPSS results for the current ratio 108 Appendix 5 – Table 4: SPSS results for the cover of interest 108 Appendix 5 – Table 5: SPSS results for the net annual turnover 109 Figure 3.1 Legal forms of ITCs in the Netherlands 38 Figure 3.2 The shareholders of ITCs in the Netherlands 39 Figure 3.3 Rotation time of debtors (in days) 44 Figure 3.4 Rotation time of debtors (in days) above 90 days 44 J.E. Wagemans
  7. 7. List of tables and figures VI Figure 3.5 Solvability (in %) 46 Figure 3.6 Current ratio 48 Figure 3.7 Cover of interest 50 Figure 3.8 Net annual turnover (in €) 51 Figure 3.9 Operating results before tax-payment (in €) 53 Figure 3.10 Development of the number of ITCs with a positive index number or operating result 53 Figure 4.1 Free-standing day hospital facilities in Australia 73 Figure 4.2: Free-standing day hospital facilities in Australian States and Territories 74 Figure 4.3: Geographical distribution of free-standing hospital facilities in Australia in 2005 – 2006 74 Figure 4.4 Geographical distribution of ITCs in the Netherlands 77 J.E. Wagemans
  8. 8. 1. Introduction 1 1. Introduction This Master thesis discusses the Dutch market of the so-called ‘zelfstandige behandelcentra’, or Independent Treatment Centres. Independent Treatment Centres (ITCs) can currently be defined as provider organisations established for the delivery of inpatient and outpatient care to patients. The greater part of their activities consists of ambulatory care covered under the Health Insurance Act (Zorgverzekeringswet or Zvw). As far as inpatient care is concerned, the centres are only permitted to deliver care for which no central tariff regulation by the Dutch Care Authority (Nederlandse Zorgautoriteit or NZa) exists. Three examples of ITCs are ‘Medinova’, which has locations in Rosendaal (1994), Haarlem (1996), and Rotterdam (1999), and provides general surgery, orthopaedics, plastic surgery, and ophthalmology; ‘MS Centrum Nijmegen’ (1996), which is settled in Nijmegen and provides neurology; and ‘Eye Centre de IJssel’ (2006) settled in Gorssel and provides ophthalmology. An ITC can be established by a medical specialist entrepreneur, a non-medical specialist entrepreneur, a hospital, an investment company, or a combination of those parties. ITCs should not be confused with private clinics, which exclusively provide care that is not covered under the Zvw. Furthermore, a distinction should be made between ITCs and specialised outpatient departments in hospitals (for example the ‘Inguinal hernia centre’ in the Diakonessenhuis in Zeist, and the still to be established ‘Eye tower’ in the Maastricht University Hospital). The regulations regarding ITCs have been subject to alterations. As a consequence of recent changes, the distinction between hospitals and ITCs has diminished. In fact, the term ITC is now even superseded. The blurred situation regarding ITCs is nicely illustrated by the fact that no complete, up-to-date overview of these centres in the Netherlands is available. This Master thesis, which is part of a cooperative project (see section 1.3), attempts to bring more clarity to the ambiguous market of ITCs by providing insight in the characteristics of and the developments in this market. Over the last years, ITCs and private clinics received a lot of attention from the media and politics. Some headings from newspapers include ‘Toezicht klinieken in kinderschoenen’ (de Volkskrant, 19-04-2007), ‘Hausse private ziekenhuiszorg lokt financiers’ (Het Financieel Dagblad, 08-12-2005), ‘Gerommel in de privé-sfeer; Inspectie constateert systematische J.E. Wagemans
  9. 9. 1. Introduction 2 tekortkomingen’ (de Volkrant, 06-12-2003), ‘Aan de dood ontsnapt na laserbehandeling’ (Algemeen Dagblad, 10-07-2007), ‘Ziekenhuis enthousiast over markt’ (de Volkskrant, 26-10- 2006). According to reports from the Health Care Inspectorate (Inspectie voor de Gezondheidszorg or IGZ), care provided by ITCs is often insufficient. This is due to incompetent staff and undersized medical equipment (Echte prive-klinieken; daar is het wachten op, 2005). In addition to these poor results, hospitals accuse ITCs of ‘cherry picking’. Hospitals state that there is no common level playing field since ITCs only treat the ‘easy patients’ and are able to charge lower tariffs for the same treatment. This feeling of discrimination is two-sided however. ITCs incur a higher risk on capital expenses; it can be less attractive for health insurers to contract an ITC due to the so-called ‘closing tariff’ of hospitals in the A-segment; and the risk exists that hospitals cross-subsidise (Nederlandse Zorgautoriteit, 2007a; Raad voor de Volksgezondheid & Zorg, 2003). As a consequence of the changing rules and regulations in the Dutch health care sector, the differences between ITCs and hospitals are diminishing. The current unequal position is underlined by the existence of legal proceedings. Several legal proceedings and conflicts concerning the tariffs ITCs and private clinics are allowed to charge, have taken place (College van Beroep voor het bedrijfsleven, 20-06-2000; Maassen & Visser, 2002). In addition, in 2006, the Dutch Competition Authority (Nederlandse Mededingsautoriteit or NMa) received a complaint from the Hofpoort hospital because it felt restricted in its possibilities to establish an ITC (Nederlandse Mededingsautoriteit, 2007). The occasion for the complaint was that the medical specialist involved claimed to receive extra earnings from the ITC, on top of the lump sum earning from the hospital, but did not get an approval for this. The NMa ruled, however, that a sufficient amount of other possibilities for the hospital to establish an ITC was available (e.g. other specialists not involved in the specific lump sum could be attracted or the specialist could decide to be employed in the ITC exclusively) (Nederlandse Mededingsautoriteit, 2007). The term ‘zelfstandige behandelcentra’ is translated differently all over the world. In the United Kingdom terms such as ‘Independent Sector Treatment Centres’ and ‘Surgicentres’ are used, while in Australia the term ‘Free-standing day hospital facilities’ is more common. Finally, terms such as ‘Specialty Hospitals’, and ‘Ambulatory Surgery Centres’ are frequently used in the J.E. Wagemans
  10. 10. 1. Introduction 3 United States. This Master thesis uses the term Independent Treatment Centres (ITCs), because the focus is on treatment centres that are managed independently from a hospital. This does not exclude the possibility that an ITC is established by a hospital. 1.1 Developments in Dutch health care The relatively recent development of the market of ITCs should be regarded in the broader perspective of the Dutch health care sector. This section presents a brief overview of the general trends that can be observed on the Dutch health care market during the past decennia. Subsequently, relevant trends on the hospital market in specific are discussed. A first serious attempt to restructure the health care sector in the Netherlands can be observed in 1974. In this year, the Dutch government published the Memorandum on the Structure of the Health Services (Structuurnota Gezondheidszorg), which advocates an integrated policy for the entire health care market (Bjorkman & Okma, 1997). The objectives of this health care reform were to reduce the use of specialist care and to control the growing health care costs. This reflects the political spirit of that time: by means of legislation and an extension of government intervention, the government intended to gain a larger influence on society (Jansen, 2006). In the second half of the 1980s, the Dutch government announced a plan to move towards a regulated competition model as part of a comprehensive programme designed to restructure the health care system. These proposals to introduce a system of regulated competition were said to be a reaction to the problems in the health care system and the political climate in the 1980s. According to the Dekker-committee, which published its report in March 1987 under the title ‘Willingness to Change’, the provision of health care lacked flexibility and efficiency. In addition, freedom of choice for the patient did not exist, and cost control could not be reached (Lieverdink, 2001). The Dekker report proposed the introduction of market elements in order to reduce health care costs. In doing so, the committee suggested a shift from a policy directed at the supply side of health care, to a policy directed at the demand side. The shift also implied a less prominent role for the government (Lieverdink & Van der Made, 1997). Several proposals of the government aimed at improving efficiency while maintaining solidarity, followed the Dekker report. However, the restructuring process generated growing J.E. Wagemans
  11. 11. 1. Introduction 4 opposition and, despite of the initial political support, by 1992 the government came to the conclusion that political and social support for its reform was largely absent and that the restructuring would not take place (Bjorkman & Okma, 1997; Lieverdink, 2001). The originally present broad consensus and optimism about a new system of regulated competition changed gradually into a political stalemate. Eventually, this period of ‘high politics’ was followed by a period of gradual change in which the health care system was adjusted, but not restructured (Lieverdink, 2001). Nevertheless, the concept of market competition has developed over the last years as an important issue in Dutch public policymaking (Maarse, Groot, Van Merode, Mur- Veenman, & Paulus, 2002). The earlier mentioned developments can be seen in the scope of a transition process. Starting in the mid eighties with the intentions to introduce market competition, followed by the shift from a supply-driven orientation towards a demand oriented organisation in the 21st century. Gradually, steps where taken to realize a shift of governmental responsibility to other actors on the health care market. Individual responsibility was highly valued and the attention for the concept of entrepreneurship in health care increased. Concepts of demand-driven care, market competition and entrepreneurship are often confused with each other. The introduction of market competition in health care does not automatically lead to more entrepreneurship in this sector. Whereas market competition especially concerns the organisation or the structure of care, entrepreneurship refers to the behaviour of parties that are closely associated with the care. Still, these concepts are closely related to each other. Market competition stimulates entrepreneurship and conversely does entrepreneurship demand space for market competition (Leers & Maarse, 2006). Nevertheless, it has taken a long time before the plans to introduce market competition were actually implemented. Just in 2006, the first phase of market competition – awareness – has been closed, and the first true step towards market competition has been made. In this year, regulations came into force which realized a transition from a focus on the supply-side of the health care market to the demand-side of this market. However, the government remains responsible for the public interests of access, quality and affordability of health care. The core of the new health care system is the introduction of as much market incentives as possible (Exter A., Hermans H., Dosljak M., & Busse R., 2004). In order to stimulate the parties on the health care market to compete on efficiency and quality, the transparency of (the actors on) the market and the responsibility of the J.E. Wagemans
  12. 12. 1. Introduction 5 actors themselves should increase. In addition, from a competitive perspective it is necessary to create a common level playing field in order to reach equal competition. The government attempted to achieve this by means of new Acts such as the Zvw, the Health Care Market Organisation Act (Wet Marktordening Gezondheidszorg or WMG), and the Care Institutions Authorisation Act (Wet Toelating Zorginstellingen or WTZi), which were introduced in 2006. At present however, no common level playing field between hospitals and ITCs yet exists. As mentioned before, ITCs can set their own tariffs, whereas hospitals could cross-subsidise. Although, these new Acts are nice attempts to stimulate competition, the current legislation needs to be further adapted over the years to come in order to promote a common level playing field. The development over the years illustrates that the process of transition is rather slow. It underlines the evolutionary and incremental policy making of the Dutch government. Health care policy making is often not linear: policy decisions may be revoked at a later point of time. This could be referred to as the concept of half-way implementation that indicates a process in which the introduction of a reform is adjusted half-way or even broken off under political pressure (Maarse et al., 2002). The government has now introduced market competition in health insurance and has already taken a few market making decisions concerning hospital care, such as the introduction of case-based payment, the B-segment, and the WTZi. However, various other market making decisions are planned for the near future. One can think of the extension of the B- segment and the introduction of the profit-motive. In addition, it should be noted that a transition process is not merely a result of top-down influences, but is influenced bottom-up as well. Since ITCs are active on the hospital market, it is of relevance to discuss the most relevant trends on this specific market. The consolidation of the hospital sector, technological advances, and the subsequent shift from intramural to ambulatory care, are considered to be the three most important interrelated developments. Over the past decennia, an increase in scale of the hospital sector can be understood as one of the most striking developments in the health care sector. Mergers between hospitals have been the primary cause of this development. The government policy has been strongly related to the number of mergers. For instance, several small hospitals disappeared in the sixties and seventies due to the standards of the government regarding the quality of health care. Since merged hospitals received a higher budget than two separate hospitals together would receive, the J.E. Wagemans
  13. 13. 1. Introduction 6 incentive caused by the so-called ‘function oriented budgeting system’ (FB-system) was another factor that encouraged the number of mergers. Finally, the government started to promote market competition and subsequently, mergers between hospitals (Maarse et al., 2002). Hospitals intended to obtain certain economies of scale and economies of scope by merging with another hospital. It was assumed that an increase in scale of a hospital would lead to a higher level of quality of the health care provided, more client focused care and finally to a higher efficiency in hospitals. Maarse et al. (2002) expect that the development of mergers will continue over the coming years. An alternative scenario is the rediscovery of small specialised hospitals (Maarse et al., 2002). The current trend regarding ITCs exemplifies the point of view of this latter scenario. Besides an increase in scale of the hospital sector, a shift from intramural care to ambulatory care can be noticed, encouraged by the increasing need for effective cost control. This shift can partially be attributed to another trend on the hospital market, namely the development of new medical technologies. Technological developments play an essential role for hospitals that focus on a particular specialisation. As a consequence, not only the range of medical treatments has increased significantly, but the possibilities of providing health care that requires a short stay in ambulatory settings, such as ITCs, has increased as well. This latter element is highly important for the topic of research. The complex and expensive treatments will probably continue to be mainly performed in large hospitals (Maarse et al., 2002). A continuing increase in scale and concentration on the hospital sector can be perceived as an obstacle to market competition, since a healthy market system requires a sufficient number and perhaps even an increase of health care providers (Maarse et al., 2002). As mentioned before, medical technologies make it possible for medical specialists to perform certain treatments in outpatient clinics. Subsequently, the development of ITCs can partially be attributed to the development of new medical technologies. Since ITCs increase the number of health care providers, the expansion of ITCs will have a positive influence on market competition. It is noteworthy, that the expansion of ITCs is at odds with the trend of mergers on the hospital market. J.E. Wagemans
  14. 14. 1. Introduction 7 1.2 Day treatment facilities from an international perspective As a consequence of the development of new surgical techniques and short-acting anaesthetics, the number of day surgery procedures performed has enormously increased internationally over the last two decades (Castoro, Bertinato, Baccaglini, Drace, & McKee, 2007). Day surgery can be defined as ‘the performance of surgical procedures that are more complex than office procedures, which are usually done under local anaesthesia, but are less complex than major procedures that require prolonged post-operative monitoring and hospital care in order to guarantee the patient a safe recovery and a desirable outcome’ (Fong Yuk Fai, 1988). Several types of day surgery facilities can be distinguished. Among these are day surgery units situated within a hospital and freestanding day surgery facilities. As described before, this thesis focuses on treatment centres (surgical as well as non-surgical) which are managed independently from a hospital. The foundations of modern day surgery were laid in Scotland at the turn of the 20th century. Primarily due to resistance of medical professionals however, the report produced at that time did not have much results (Castoro et al., 2007). Since 1962, some hospitals in the United States applied the concept of developing facilities for ‘walk in walk out’ surgery (www.aams.org.au, n.d.). In 1968, the first free-standing ambulatory surgery centre in the United States was founded. Due to too little interest from the public, this centre failed (Fong Yuk Fai, 1988). In 1970, the first successful free-standing clinic in the United States opened (Pyrek, n.d.). The motivation for the medical specialists to develop this centre was to respond to the demand for innovation in order to reduce the health care costs. ‘Prominent among the recommendations that have been made have been proposals to perform minor surgery on an outpatient basis, eliminating the need for hospitalisation and its attendant costs (and with findings that) a safe and efficient facility, for the performance of general anaesthesia and minor surgical procedures need not be affiliated either administratively or geographically with a hospital’ (www.aams.org.au, n.d.). The first private clinic in the Netherlands dates back from 1989. Although this clinic was involved in several complicated legal proceedings, the clinic is still operational. Some of the other private clinics established in this first phase that have been involved in legal proceedings do no longer exists (ZKN, 2007). J.E. Wagemans
  15. 15. 1. Introduction 8 The emergence of private clinics fits the increase of entrepreneurship in the health care sector. Opportunities for entrepreneurship in health care are present in the field of less complex elective care, which is characterised by a high volume and limited medical risks and can be organised monodisciplinairy. Some specific specialties that are most suited for entrepreneurship are dermatology, ophthalmology, rheumatology, orthopaedics, ENT, plastic surgery and many kinds of diagnostics (Leers & Maarse, 2006). The evolution of day treatment facilities has forced the government to respond by developing and changing policies and regulations. The adjusted and developed policies and regulations regarding ITCs are explained in the next chapter. 1.3 Aim, relevance, objectives and research questions ITCs are a relatively new phenomenon in the health care sector and as their number is expected to grow in the future, it is of importance to gain insight in this new market. In January 2007, the NZa published a report on ITCs. This report described the role of ITCs in the hospital market and their influence on the quality, accessibility and affordability of this market (Nederlandse Zorgautoriteit, 2007b). It was stated that the number of ITCs has increased considerably during the last years. Over the period 2000-2006, the quantity of licences granted by the Board for Hospital Facilities (College bouw ziekenhuisvoorzieningen or Cbz) and the Ministry of Health, Welfare and Sports (Volksgezondheid, Welzijn en Sport or VWS), raised from 31 to 158. Remarkably however, the share of ITCs in the total returns of the hospital care has remained quite limited, that is less than 1%. According to the report, the specialties of ophthalmology, dermatology, orthopaedics, surgery, and plastic surgery are currently most provided in ITCs. In general, tariffs charged in the B-segment by ITCs are 22% lower than those charged by hospitals. The NZa observed that these lower tariffs of ITCs are apparently no incentive for hospitals to charge lower prices in the B-segment. This can possibly be attributed to the small production of ITCs. In the A-segment as well, prices charged by ITCs are lower than those charged by hospitals (Nederlandse Zorgautoriteit, 2007a). With regard to the recent developments on the Dutch health care market, it is of importance to gain more knowledge concerning the aspects not addressed in the NZa-report. Therefore, a thesis J.E. Wagemans
  16. 16. 1. Introduction 9 which clarifies these aspects is considered to be of relevance. Moreover, the market of ITCs is a highly complex phenomenon. The distinction between ITCs, private clinics, and specialised outpatient departments of hospitals is ambiguous and the term ITC is already replaced for ‘Institution for Medical-Specialist Care’ (Instelling voor medisch-specialistische zorg or IMSZ) type 1. This Master thesis is a part of a cooperative research project on the market for ITCs. Due to complexity and the magnitude of the research and the time constraints related to a Master thesis project, the decision is made to split the results of the research into three parts. The other researchers are Mieke Jansen (Jansen, 2007) and Annick van Kollenburg (van Kollenburg, 2007). During the retrieval of information concerning the market for ITCs in the Netherlands, a lot of cooperation has taken place. The results were reported in individual chapters however, with one author being the main responsible. In this Master thesis, several of the results described in the theses of both Mieke Jansen and Annick van Kollenburg are used. The development of ITCs in the Netherlands is described in the cooperative research project with the help of literature research, theories, questionnaires and in-depth interviews. Next, an analysis of ITCs in three other countries is performed in order to illustrate what the market of ITCs in other countries looks like. The results of this analysis can be used as a tool for benchmarking. In addition, an overview of the market increases transparency and therefore competition between health care providers. Competition stimulates the efficiency and quality of health care, which is of social relevance. Subsequently, transparency is of social relevance since consumers are able to make a well considered choice for the health care provider of their desire. Besides, it is of value to gain understanding of the hampering and promoting factors that influence Dutch ITCs. This could contribute to an appropriate view on the future regarding new entrants on the market. The policy concerning ITCs has shifted from highly restrictive to ‘ever more friendly’. The first objective of the cooperative research project is to give an overview of the development of the legal framework for ITCs over the years. In addition, the development of the framework for cost reimbursement and capital investments should be described. The first research question is: How did the legal framework for ITCs develop since the early 1990s? This research question is addressed in all three Master theses. J.E. Wagemans
  17. 17. 1. Introduction 10 Though ITCs have received a lot of attention from the media and politics, the market can be characterised by a lack of transparency. No complete registration of active ITCs exists, nor is there sufficient knowledge concerning the number of centres that is affiliated to a hospital. Therefore, the second objective of the cooperative research project is to gain insight in the development and the characteristics of ITCs in the Netherlands. Consequently, the second research question is: What is the current structure of the market for ITCs and which developments have occurred recently? This research question is addressed in the Master thesis of Annick van Kollenburg (van Kollenburg, 2007). A third objective of the cooperative research project is to identify the hampering and facilitating factors of this development. Moreover, it would be interesting to gain knowledge with respect to the effects of the development of ITCs in order to be able to make some forecasts concerning the market of ITCs and the health care market in general. An additional goal is to investigate the influence of ITCs on the health care sector, especially with respect to the intended introduction of market competition. Accordingly, the third research question is: Do ITCs encourage competition on the Dutch health care market? This research question is addressed in the Master thesis of Mieke Jansen (Jansen, 2007). Furthermore, it is interesting to investigate whether the market for ITCs is indeed characterised by entrepreneurship and whether external financiers are active on this specific market. Therefore, the fourth objective of the cooperative research project is to gain more insight in the financial details of ITCs. When more information concerning the financial position of the ITCs is known, more valid forecasts with respect to the development of this market can be made and it can be assessed whether ITCs can considered to be a real competitor for hospitals. Consequently, the fourth research question is: What is the financial performance of Dutch ITCs and what is their situation with regard to their legal form and shareholders? This research question is addressed in this Master thesis. The amount of day surgery procedures performed in various countries shows a wide variation. The number varies from less than 10% in Poland to over 80% in the United States. Furthermore, a large variation between procedures in the various countries can be observed (Castoro et al., 2007). By means of a comparison between the Dutch situation regarding ITCs and the situation on similar markets in other countries, lessons can be learned. Hence, the fifth objective of the J.E. Wagemans
  18. 18. 1. Introduction 11 cooperative research project is to compare the Dutch market of ITCs with a comparable market in three other countries, namely the United States, the United Kingdom, and Australia. Consequently, the fifth research question is: How does the market for ITCs in the Netherlands compare to the market for this type of care in the United States, the United Kingdom, and Australia and which lessons can be drawn from this comparison? The United States and the United Kingdom are addressed in the Master theses of Annick van Kollenburg and Mieke Jansen respectively. The situation on a market similar to the Dutch market for ITCs is described in this Master thesis. Consequently, the specific research questions addressed in this Master thesis are: 1) How did the legal framework for ITCs develop since the early 1990s? 2) What is the financial performance of Dutch ITCs and what is their situation with regard to their legal form and shareholders? 3) ‘How did free-standing day hospital facilities in Australia develop and how does the market for ITCs in the Netherlands compare to the market for this type of care in Australia?’ 1.4 Theoretical framework The research question ‘Do ITCs encourage competition on the Dutch health care market?’, which is addressed in the Master thesis of Jansen (2007), is answered with the help of the ‘Five competitive forces model’ of Porter. In his ‘Five competitive forces model’, Porter (1980) distinguishes five basic competitive forces which determine the intensity of competition in a specific industry: threat of entrants, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among current competitors. The maximum amount of profit that can be obtained in the industry (measured in terms of long turn return on invested capital) depends on the aggregate of these five competitive forces (Porter, 1980). Knowledge of these five forces, among others, emphasizes the essential strengths and weaknesses of the organisation, draws a picture of the organisation’s position in the industry, and provides insight into the areas where the most profitable strategic changes can be made (Porter, 1980). The five competitive forces model of Porter that is used in J.E. Wagemans
  19. 19. 1. Introduction 12 this thesis is based on the model of Leers and Maarse (2006), which is for the purpose of this thesis adjusted to the market of ITCs. 1.5 Methods of research In order to gain knowledge concerning the new phenomenon of ITCs, a descriptive explorative research design is used (Bouter, Van Dongen, & Zielhuis, 2005). The results of the cooperative research project are based on a combination of different sources, this is called ‘sources triangulation’ and increases the internal validity of the research (Maso & Smaling, 1998). This Master thesis especially deals with quantitative information. The methods of purchasing the required information for the research project can be divided into three phases. In the first phase a quick scan of available digital sources and sources obtainable in the library was completed. This phase consists of a desk research and provides background information on the topic. In the second phase, an overview of available information of specific ITCs is conducted. At first, a structured questionnaire is presented to all observed ITCs in the Netherlands (see appendix 4). The outcomes of the structured questionnaire are presented in the Master thesis of van Kollenburg (2007). Additional information is retrieved by visiting the internet sites of the ITCs concerned. Next to the information that is provided by the questionnaire, the available annual accounts and reports of ITCs are analysed in this phase as well. The results of the financial analysis are presented in chapter 3 of this Master thesis. The final and third phase of the data collection concerns the in-depth interviews, of which the majority of the outcomes is presented in the Master thesis of Jansen (2007). After the completion of all the questionnaires, the ITCs can be divided into three categories. At first, a distinction can be made between ITCs which have been established by hospitals and ITCs which have been established by medical specialist entrepreneurs or non-medical specialist entrepreneurs. The latter group can be divided into individual ITCs and umbrella organisations, which encompass several ITCs. Thus, three categories of ITCs can be distinguished. From each category, two ITCs are selected to conduct an interview with members of the management boards. In total six members of ITCs are selected. In addition, an interview with the secretary of the institution ‘Zelfstandige J.E. Wagemans
  20. 20. 1. Introduction 13 Klinieken Nederland’ (ZKN) – an organised interest group for Dutch ITCs and private clinics – is conducted. The questionnaires of the in-depth interviews are attached in appendix 3. The desk research, the questionnaires, annual accounts and reports, and in-depth interviews generate the basis for the final analysis. The final date of the data collection of new ITCs was set on June 1st 2007. This means that ITCs observed after June 1st 2007 are not included in the analysis. Annual accounts published after July 15th, are not included in the analysis as well. It should be noted that it is hard to generalise the results of the in-depth interviews with members of the ITCs since each ITC is unique and has its own financial position and characteristics. The three countries selected for the international comparison are Australia, the United Kingdom, and the United States. The selection of these countries is based on similar developments, personal interests, the practical consideration that literature about these countries is English-language, and because the countries are located on three different continents. However, the selection of countries can result in bias, since the criteria are not based on previous data. A selection on the basis of the health care systems present in each country could have been a more reliable selection criterion. Due to the time limitation only English-language countries are selected. 1.6 Readers’ guidance The next chapter provides an overview of the legal framework regarding ITCs in the Netherlands. The third chapter analyses the financial position of ITCs. A comparison between the Dutch market for ITCs and the market for free-standing day hospital facilities in Australia is made in the fourth chapter. A critical reflection on the cooperative research project is made in the discussion. Finally, a conclusion is drawn. J.E. Wagemans
  21. 21. 2. Independent treatment centres 14 2. Independent treatment centres This chapter provides an overview of the development of ITCs. The research question discussed is: ‘How did the legal framework for ITCs develop since the early 1990s?’ Currently, an ITC can be defined as ‘an institution for medical specialist care that can be claimed under the Zvw, with the exception of care that requires overnight stay and for which a tariff has been determined based on the Health Care Tariffs Act (Wet Tarieven Gezondheidszorg or WTG)’ (Zorgverzekeraars Nederland, 2006)1. The first section of this chapter discusses the general rules and regulations of the Dutch health care sector that are of relevance to ITCs. The second section describes the development of ITCs and the specific rules and regulations designed for these centres. An overview of these developments is presented in table 2.1. Finally, this chapter ends with a short conclusion. 2.1 Rules and regulations in the Dutch health care sector Over the last two decades, the Dutch hospital care sector is characterised by important changes concerning the rules and regulations. This section is dedicated to the changes that are of relevance to ITCs. The first subsection focuses on hospital planning regulation, whereas the second and third subsection address reimbursement regulations in the hospital sector. In the subsequent subsections, the A- and B-segment, the profit motive, the health insurance market, and the supervision on the Dutch health care sector are discussed. 2.1.1 Hospital planning The objective of the Hospital Facilities Act (Wet Ziekenhuisvoorzieningen or WZV) of 1971 was to plan the capacity of health care providers (hospitals, nursing homes, etcetera). Planning the capacity was seen as a cornerstone of the governmental policy to control health care expenditures (‘a built bed is a filled bed’). The WZV gave the government a formal instrument to regulate hospital capacity, 1 “Instelling voor medisch specialistische zorg, welke zorg behoort tot de ingevolge de zorgverzekeringswet te verzekeren prestaties met uitzondering van medisch specialistische zorg die wordt verleend in combinatie met verblijf als bedoeld in artikel 10 onder g ZVW én waarvoor een tarief is vastgesteld op grond van de Wet tarieven gezondheidszorg (WTG)” (Zorgverzekeraars Nederland, 2006). J.E. Wagemans
  22. 22. 2. Independent treatment centres 15 since hospitals were not permitted to extend their capacity in terms of beds, specialist units or otherwise without a governmental license. In reality however, hospital planning was not only used to regulate the extension of hospital services, but to implement significant bed reductions as well. However, this system of central hospital planning was at odds with a market model. In 2006, the disadvantages of the WVZ led to its abolishment and the introduction of a new act, the WTZi. Disadvantages of the WZV were the bureaucratic regulations, administrative costs, and the system of retrospective reimbursement of the costs of capital investments. The latter implied that neither hospitals nor loan givers did incur any financial risk on capital investments. This made hospitals less cost-conscious and limited their incentives to perform efficiently (Tweede Kamer der Staten- Generaal, Vergaderjaar 2004-2005a). On January 1st 2006, the WTZi came into force. At the same time, the Board for Hospital Facilities (College Bouw Ziekenhuisvoorzieningen or CBZ) changed its name into the Board for Health Care Institutions (College Bouw Zorginstellingen or CBZ)2. The primary objective of the WTZi is to expand the liberties and responsibilities of the intramural sectors in the health care market (Tweede Kamer der Staten-Generaal, Vergaderjaar 2004-2005a). The WTZi should guide the shift from a system with a central steering from the supply-side to a decentralised system which is steered from the demand-side. In the new system, the capacity should be determined by the parties involved in the provision of care, and the governmental task should be restricted to the creation of preconditions (Tweede Kamer der Staten-Generaal, Vergaderjaar 2000-2001). Thus, the fundamental principle of the WTZi is that hospitals are responsible for their own planning decisions. This results in a more equal common level playing field, since ITCs already are responsible for their own planning decisions. If health care providers want to establish a new medical centre, they are responsible themselves to assess whether there is sufficient market demand for the new initiative. In addition, they should find financial partners to acquire the capital resources needed. The WTZi still requires a governmental license for hospitals to operate, but this license is no longer a planning instrument but an instrument to guarantee the quality of care and to secure good governance. The WTZi intends to encourage competition between health care providers and to restrict governmental planning. However, the government still has formal power to impose obligations upon hospitals and health 2 The abolition of the CBZ has been announced and will take place by 2010 the latest (Tweede Kamer der Staten- Generaal, Vergaderjaar 2006-2007b). J.E. Wagemans
  23. 23. 2. Independent treatment centres 16 insurers (Tweede Kamer der Staten-Generaal, Vergaderjaar 2006-2007b). First, the government may intervene when it believes that the access of hospital care is at risk. Second, the government retains its responsibility for specific types of medical care because the Special Medical Treatments Act (Wet Bijzondere Medische Verrichtingen or WBMV) is not abolished. To conclude, the alterations result in a more equal common level playing field between hospitals and ITCs, since they are both responsible for their own planning decisions. Still, the government has formal power to intervene. 2.1.2 Hospital financing In the early 1980s the open-ended hospital funding system was replaced with a new system of fixed budgets. In 1988, the latter system of historical budgeting was fundamentally revised in order to achieve a situation in which hospitals receive an equal budget when performing equal tasks (Maarse, Van der Horst, & Molin, 1993; www.nvz-ziekenhuizen.nl, n.d.). This new ‘FB-system’ rested upon a normative allocation model. The parameters that were developed in order to achieve the goal are related to the availability component, capacity component and production component of the budget (Maarse et al., 1993). Hospitals increased their budget with expense accounts (e.g. blood examinations) charged from the health insurer. A balance between the budget and expense accounts was made at the end of each year. An important aspect of the FB-system was the fact that hospitals had to avoid underproduction since this causes the hospital to receive an allowance on the patient tariffs allocated for the next year. In contrast, hospitals with overproduction received a discount on the patient tariffs (www.nvz-ziekenhuizen.nl, n.d.) Over the years, the imperfections of the FB-system became apparent. The demand for health care exceeded the supply which resulted in waiting times. In addition, the centrally regulated tariffs were artificial and did not give hospitals insight in the costs of hospital services. The most significant problems however, were the lack of a relation between costs and revenues, i.e. an insufficient link between tariffs and performance, and the absence of a powerful incentive for hospitals to optimise the full cycle of hospital care to patients (www.nvz-ziekenhuizen.nl, n.d.). In order to resolve these problems, all parties involved worked on the development of a new hospital financing system based on the principle of case-based payments. The first initiative for such J.E. Wagemans
  24. 24. 2. Independent treatment centres 17 a change came from the committee-Biesheuvel. In 1995, this committee advised the government to rescind the system of fixed global budgets and to adopt a new financing system in which both hospital and specialist remuneration were based on the volume of care delivered. During the following years, hospitals and health insurers discussed the formulation of diagnosis and treatment profiles and the concept was further developed (www.minvws.nl, 2007; www.zn.nl, n.d.) In the meantime, in 1995, the lump sum financing system was introduced. The lump sum implies that the returns of medical specialists are fixed – apart from trend based adjustments – and that their income is partially separated from their actual production (Commissie Onderbouwing Normatief Uurtarief Medisch Specialisten, 2005). Not until August 2000, the Minister of VWS took the initiative to base the financing system in the curative sector on the production delivered (www.zn.nl, n.d.). On January 1st 2005, a change in the way health insurers reimburse hospitals was introduced. Prior to that date, hospitals sent separate invoices to health insurers or patients for the different episodes of the treatment, e.g. a visit to the outpatient clinic, a hospital admission, a surgery, and outpatient examinations. As of January 1st 2005, however, an experiment was started in which the reimbursement of hospitals by health insurers is based on case-based payments (Diagnose Behandeling Combinatie or DBC). A DBC is an administrative code which combines the diagnosis, treatment and all related costs involved in the care process of the specific disease of one particular patient. A DBC therefore includes the entire set of activities and interventions performed by the hospital and medical specialists from the first consultation and diagnosis to the final check-up (DBC-onderhoud; Minister van Volksgezondheid Welzijn en Sport, 2006; www.dbconderhoud.nl, n.d.). The new DBC structure is expected to increase competition between hospitals, because health insurers will inflict greater pressure during contract negotiations. The reimbursement will no longer be based on performances and nursing days. Instead, the earnings of hospitals and specialists will be based on the type and number of realised DBC’s and the tariff of each DBC agreed upon with health insurers (Commissie Onderbouwing Normatief Uurtarief Medisch Specialisten, 2005). From January 1st 2008, the fixed global budget system will gradually be replaced with case based payments. Physicians will no longer receive a fee-for-service (lump sum) but instead will J.E. Wagemans
  25. 25. 2. Independent treatment centres 18 receive a single uniform standard hourly rate for medical specialist care (Tweede Kamer der Staten-Generaal, vergaderjaar 2006-2007a). The replacement of the FB-system and the lump sum by means of the introduction of DBC’s can not be introduced overnight. From 2005 on, the declaration of all hospital care occurs on the basis of DBC’s. For the time being however, the financing of hospital care on the basis of DBC’s will only take place for care that is provided in the B-segment (see subsection 2.1.4). Central regulation of hospital tariffs (A-DBC’s) applies to 90% of the hospital budget (Engberts, Kalkman-Bogerd, & Hendriks, 2006; Tweede Kamer der Staten-Generaal, Vergaderjaar 2005- 2006a). In contrast, the financing system of ITCs is based on the volume of care delivered. The new system of DBC’s will improve the insight of hospitals into the costs involved in treating the many different kinds of patients. The perceived benefits of the implementation of DBC’s are an improvement in the organisation and quality of medical care in the coming years. Moreover, more transparency concerning the supply of care will promote competition between health care providers and is therefore of special relevance for ITCs since this supports the competition among ITCs and between hospitals and ITCs as well (Maarse et al., 2002). 2.1.3 Capital expenses Capital expenses are the costs of interest and depreciation as a result of investments in buildings and other capital goods. In the current system, those costs are integrated in the budget of hospitals, by means of a full cost covering mark-up on the per diem rate of inpatient care. Consequently, neither hospitals nor loan givers did incur any financial risk on capital investments. In contrast, the reimbursement scheme of ITCs misses a component for capital expenses as hospitals do receive. As a result, ITCs do run a financial risk on their investments. This indicates that there is no common level playing field concerning capital expenses between hospitals and ITCs yet. Since market competition requires hospitals to incur a risk on capital investments, the government decided that hospitals should be responsible for the consequences of their investment decisions. Starting on January 1st 2008, hospitals will take investment decisions at their own expense and risk. From 2009 on, the subsequent ex post calculation of capital expenses will no longer take place anymore. In addition, the capital expenses of hospitals will be integrated in the J.E. Wagemans
  26. 26. 2. Independent treatment centres 19 tariffs of medical specialist care by means of a normative mark up upon the DBC tariffs. The idea is that all health care providers should recover their capital expenses by the provision of care (Tweede Kamer der Staten-Generaal, Vergaderjaar 2006-2007b). The expectation is that the increased risk of hospitals regarding their capital investments will make hospitals more critical on this aspect. In addition, hospitals are assumed to operate as entrepreneurs in negotiating with financial agents on capital and other financial services. Furthermore, new financial agents such as investment companies, venture capitalists and real estate companies have discovered health care as a promising field for investing and partnership. These developments on the capital market, that are still in their initial stage, are controversial and politically quite sensitive, because various hospitals claim that they may go bankrupt (Maarse, 2007). This can be illustrated by the cautious policy on a profit motive in the health care sector, which is described in subsection 2.1.5. The issue of the revision of capital investments is highly relevant for ITCs since it attributes to a common level playing field between ITCs and hospitals. 2.1.4 The A- and B-segment Currently, the prices of most diagnoses and related procedures are fixed at national level. This is also known as the A-segment, which consists of 90% of the former hospital budget and is not open to full price competition. However, the Dutch government decides in 2007 whether the current budget system will be replaced by a more competitive system, based on yardstick competition (YC) (NZa, 2007c). According to the Netherlands Bureau for Economic Policy Analysis (Centraal Plan Bureau or CPB) ‘YC is a regulatory scheme that rewards regulated firms on the basis of how their performance compares with the performance of similar firms in the same sector’ (Centraal Plan Bureau, 2000, p.15). This model of YC is envisaged for the A- segment of hospital care. For the remaining 10%, also known as the B-segment, no fixed prices are determined. In the B-segment health care providers and health insurers can negotiate on the number of DBC’s, their price and the quality provided. So, this part of hospital care is already open to full price competition. With respect to transparency, care institutions are obliged to publish their price list of the DBC's in the B-segment (DBC-onderhoud; Minister van Volksgezondheid Welzijn en Sport, 2006; www.dbconderhoud.nl, n.d.). J.E. Wagemans
  27. 27. 2. Independent treatment centres 20 So far as the end of 2006, the Minister of VWS at that time, Minister Hoogervorst, intended to adjust the financing of hospitals by January 2008. This would imply that health care providers and insurers could, with regard to 70% of the hospital care (which is 95% of the elective care), negotiate on the tariffs of care products (the B-segment). The characteristic features of elective care are that it concerns routine and non-urgent care and is provided in a high number by the majority of the health care providers. For the availability of acute care, highly clinical and speciality care, education, and expensive and orphan medicines (the A-segment), regulation will remain in place. For this regulation, financing based on performance will be one of the principles (Tweede Kamer der Staten-Generaal, Vergaderjaar 2005-2006a). In 2007, however, the new Minister of VWS, Minister Klink, announced that the B-segment would be enlarged to only 20% as of January 1st 2008 (Tweede Kamer der Staten-Generaal, Vergaderjaar 2006-2007b). In contrast to the intended 70%, this restriction of 20% is a clear example of an evolutionary, cautionary, and incrementalist approach. There are various reasons for slowing down the introduction of price competition. First, there is much concern about the complexity of the DBC-system. In addition, health insurers might not be capable enough to function as an effective countervailing power in price negotiations. A third reason is a lack of transparency, which is an essential condition for effective market competition. Regarding B-DBC’s, hospitals and ITCs can compete on tariffs. So, full price competition is possible in this segment. With regard to the A-segment (90%), there is no full price competition possible, and hospitals have to charge the tariffs regulated by the NZa. ITCs however, can apply these regulated tariffs as maximum tariffs. As a consequence, these centres frequently arrange deductions with health insurers which leads to tariffs that are 10 to 20 % lower than those of hospitals (Nederlandse Zorgautoriteit, 2007a). 2.1.5 Profit motive The articles 10 and 15 of the WZV stated that a license could exclusively be granted to a legal person whose activities are not aimed at gaining profit. This is based on the not-for-profit character of intramural health care providers. The WTG prevents a profit motive as well since there is no possibility to include a profit component in the current tariffs. According to article 5 section 3 of the J.E. Wagemans
  28. 28. 2. Independent treatment centres 21 WTZi, a profit motive in the sense of the distribution of profit to members or shareholders is only allowed for an institution which belongs to a category assigned by an ordinance (Exter A. et al., 2004). Before an institution is allowed to operate as a for profit provider with external shareholders (e.g. private insurers), it has to comply with several conditions. The institution should have an integral financing system based on performance (including the costs of accommodation) and the institution should be fully risk-bearing with respect to fluctuations in the amount of care provided. It is expected that the distribution of profit by health care providers will be possible by the year 2012. In exceptional cases, a profit motive can be allowed by a cabinet decision to institutions that already comply to the conditions described above before the year 2012 (Tweede Kamer der Staten-Generaal, Vergaderjaar 2004-2005a). Recently, however, Minister Klink restricted the possibility of the profit motive. The argument for this is that the current capital position of health care providers was created in a completely ‘protected environment’ of subsequent calculation3. Therefore, institutions can be expected to permanently reserve their amassed capital for care purposes. The policy regulations of the WTZi encompass an ‘anti-leaking-condition’ (anti-weglekbeding) which forbids health care providers to leak away capital: profit should be reinvested in the health care sector. The intention is to legally establish this condition as from 2010 (Tweede Kamer der Staten-Generaal, Vergaderjaar 2006-2007b). However, the view of Minister Klink is re. If he means that health care providers are not allowed to pay a return on investments to shareholders, he is actually killing the idea on a profit motive in health care. Probably, he only means that the current reserves of health care providers, amassed in a ‘protected environment’ may not leak away to private investors. This illustrates the cautionary approach of the government as well. If it is ensured that capital amassed in a protected environment will be reserved for health care, the government is willing to enlarge the choice for other legal forms such as a private or public limited company. Those limited companies are attractive for institutions since it expands their access to the capital market. Moreover, health care providers will experience more pressure from shareholders to perform efficiently. In addition, new entrants will stimulate existing institutions to provide good and efficient care. However, the minister envisions some disadvantages of care institutions that are a private or public limited company. First, it is not certain that the social involvement of care 3 ‘Nacalculatie in Dutch’ J.E. Wagemans
  29. 29. 2. Independent treatment centres 22 institutions will naturally increase. Depending on the intentions of financiers, adverse effects may occur. The goal to quickly make profit, for example, can endanger the quality of care (Tweede Kamer der Staten-Generaal, Vergaderjaar 2006-2007b). Maintaining a ban on the profit motive was considered to be not in accordance with the freedom of establishment within the meaning of the treaty of the European community. Moreover, profit is not a totally new phenomenon on the health care market. Within hospitals, the majority of the medical professionals is joined in a partnership (maatschap) and their salary depends on the profit made by this partnership. Furthermore, a part of the existing ITCs puts out their activities to subcontractors (e.g. medical professionals) who are employed in an organisation with a profit motive (Exter A. et al., 2004). Finally, the expansion of possibilities to have a profit motive is in line with the increasing responsibility given to all parties on the health care market. Since the WTZi came into force, the possibilities of a profit motive increased significantly. This will increase market competition, and attracts external investors and new entrants on the market for ITCs. 2.1.6 The health insurance market During the ‘Purple’ cabinets, the compartments-model was designed and introduced. The first compartment contains long-term care and uninsurable medical risks. The provision and financing of this type of care is primarily arranged by the government through the Exceptional Medical Expenses Act (Algemene Wet Bijzondere Ziektekosten or AWBZ). The second compartment includes short- term medical care which should be accessible for everyone. From January 1st 2006, this type of care is ranged under the so-called ‘basic-insurance’ which is implemented by competing private health insurers. Third compartment care encompasses care which is not insured by law and for which every citizen can voluntarily take out a complementary health care insurance (Exter A. et al., 2004; www.snellerbeter.nl). As of January 1st 2006, a single universal scheme came into effect in the Dutch health insurance system. The aim of this new system is to make the insurance system more efficient, innovative and consumer-driven. A key feature of the new health insurance system is the combination of a single mandatory scheme and regulated market competition (Bartholomée & Maarse, 2006). J.E. Wagemans
  30. 30. 2. Independent treatment centres 23 Hence, the obligation for health insurers to contract each hospital provider has expired. The reason for this is that the new health care system is aimed at the development of competition among health insurers and negotiations between health insurers and providers regarding the tariffs and volume as well as on the quality of health care. Since health insurers are no longer obliged to sign contracts with all health care providers, they can apply selective contracting and have better possibilities to satisfy the specific demands of their insured (Werkgroep 'Burgers kunnen beter kiezen', 2004). Still, the NZa complained about a lack of variation in policies that results in less freedom of choice for the consumer. As mentioned before, the new health insurance system is mandatory and covers the entire Dutch population. Fundamental in the new legislation is the fact that health insurers are obliged to accept every applicant and are forbidden to vary premiums on the basis of age, sex or specific health risk. Finally, the new health insurance scheme has a private character, and is arranged under private law by the government (Bartholomée & Maarse, 2006). 2.1.7 Supervision Although a well functioning market is expected to be able to correct itself, supervisors play an important role with respect to the optimal performance of the market. In case the market fails, the supervisors can intervene. This especially holds true for a market like the Dutch health care market that has recently been reorganised on a free-market basis. Many regulatory and supervisory tasks on the Dutch health care market are delegated to Independent Regulatory Agencies (Zelfstandige Bestuursorganen of ZBO’s). A ZBO is ‘a regulatory agency on the central governmental level which is not hierarchically subordinated to a minister and is not an advisory organ’ (Aanwijzingen inzake Zelfstandige Bestuursorganen, 124a)4. The main objectives of the delegation to ZBO’s are to increase both expertise and credibility. Supervision on the Dutch health care sector can be divided into generic and specific supervision. The NZa and the IGZ are responsible for the specific supervision. The NZa investigates the competitive positions and the market behaviour on the health care market, determines the tariffs in the 4 ‘Een bestuursorgaan op het niveau van de centrale overheid, dat niet hiërarchisch ondergeschikt is aan een minister en niet is een adviescollege, als bedoeld is de Kaderwet adviescolleges, waarvan de adviestaak de hoofdtaak is’ (Aanwijzingen inzake Zelfstandige Bestuursorganen, 124a). J.E. Wagemans
  31. 31. 2. Independent treatment centres 24 A-segment; and supervises whether the health insurers comply to the obligations laid down in the Health Insurance Act (Zorgverzekeringswet or Zvw) (Tweede Kamer der Staten-Generaal, Vergaderjaar 2004 - 2005). The IGZ supervises the quality, safety and accessibility of the health care and guards over the rights of patients (www.igz.nl, n.d.). However, as it turns out in the Master thesis of Mieke Jansen, the supervision of the NZa and the IGZ on the market of ITCs leaves room for improvement. 2.2 History of ITCs Since the mid eighties, an emergence of private clinics can be observed. These clinics arose in order to reduce existing waiting lists and to fulfil the need for more patient focused care. They particularly developed as private initiatives. A private clinic is a provision that should, with respect to its character, comply with the current regulations, but is by its initiator(s) purposefully kept out of these regulations (Van Zenderen, 1992). The objective of private clinics is not so much to make profit, but more to compete with the existing providers to which the regulations do apply (Knoors, Vrijland, & Zenderen, 2000). Initially, the government was resistant to these clinics and started legal procedures against them or compelled them to apply for a license. However, since 1991, a policy of tolerance came into force (Van Zenderen, 1992). Yet, they were still perceived as undesirable by the Dutch Government (De Brouwer, 2004; Knoors et al., 2000). According to the State Secretary of Public Health at that time, State Secretary Simons, private clinics are allowed in case they comply with three requirements: the performance of the clinic may not result in an increase in health care costs; private clinics should be accessible to everyone; and private clinics should provide quality care ("Privekliniek mag onder voorwaarden", 1990). In the ‘Besluit werkingssfeer WTG 1992’, private clinics were classified as separate bodies for health care. This emphasised the fact that private clinics can only charge a tariff that is approved on the basis of the WTG which is determined by the Central Authority for Health Care Charges (Centraal Orgaan Tarieven Gezondheidszorg or COTG) (College bouw Ziekenhuisvoorzieningen, 1999). The new Minister of VWS, Minister Borst, was more resistant to private clinics. According to this Minister, medical specialist care should be provided inside hospitals as the multidisciplinary J.E. Wagemans
  32. 32. 2. Independent treatment centres 25 approach to care is an important aspect in the Dutch health care system (College bouw Ziekenhuisvoorzieningen, 1999). Since this approach is lacking in small categorical institutions, like private clinics, these clinics did not fit into the policy of that time. Moreover, the Minister argued that a drain off of hospital production should be prevented. In 1997, the Minister proposed an emergency law, which was intended to temporarily prohibit the new establishment of private clinics (Minister van Volksgezondheid Welzijn en Sport, 1998). However, following the advice of the Council of State, this emergency law did not came into force (Minister van VWS, 1998). 2.2.1 The 1998 Regulation In February 1998, ITCs were classified under the jurisdiction of the WZV. Since this classification, the ‘Regeling Zelfstandige Behandelcentra’ (1998 ITC regulation) came into force (Minister van VWS, 1998). As a consequence, the construction and exploitation of ITCs was prohibited, unless the ITC had a WZV license (Tweede Kamer der Staten-Generaal, Vergaderjaar 1998-1999). If an ITC complied with the criteria laid down in the new policy regulations, on the basis of article 3 of the WZV, the license was in principle granted (Tweede Kamer der Staten-Generaal, Vergaderjaar 1998-1999). The 1998 ITC regulation was aimed at legalizing existing treatment centres and, at the same time, to prevent an expansion of these centres (Knoors et al., 2000; NZa, 2007a). The most important reason for the 1998 ITC regulation was the assumption that ITCs could play a part in the reduction of the waiting lists in the Dutch health care sector (CBZ, 1999). The Minister explicitly declared that hospitals were in charge of the final responsibility of the care delivered (Tweede Kamer der Staten-Generaal, Vergaderjaar 1998-1999). ITCs were defined as ‘organisational partnerships which deliver medical specialist care that can be claimed under the Sickness Fund Act (Ziekenfondswet or ZFW), and which do not function on behalf of a hospital’ (Minister van VWS, 1998)5. The idea was that the specialty care provided in ITCs would be competitive with regard to hospitals. ITCs are oriented towards 5 “Organisatorische verbanden die niet deel uitmaken van en of fungeren ten behoeven van een ziekenhuis en die strekken tot de verlening van medisch-specialistische zorg als waarop ingevolge het bepaalde bij of krachtens de Ziekenfondswet aanspraak bestaat (reguliere zorg), ongeacht de wijze waarop de kosten daarvan worden vergoed” (Minister van VWS, 1998). J.E. Wagemans
  33. 33. 2. Independent treatment centres 26 activities which do not require the complex medical-technical infrastructure of a hospital (CBZ, 1999). Consequently, ITCs provide elective care. Furthermore, inpatient care was not permitted (i.e. overnight stay). Under the terms of the ZFW, ITCs were classified as ‘admitted institutions for medical specialist non-clinical care’ (CBZ, 1999). In general, the type of surgery is the decisive factor for the appropriateness of providing this surgery in an ITC. However, the physical status of the patient is the most important aspect, since day surgery is not sensible for patients with serious heart diseases, severe diabetes, severe respiratory problems or marked anaemia (www.aams.org.au, n.d.). Since the 1998 regulation came into force, the term ‘private clinic’ is only used for institutions which exclusively provide third compartment, i.e. privately paid, care (Minister van VWS, 1998). Motives for a regulation were, among others, the quality aspect, the integration of medical speciality care, equal access and solidarity. Furthermore, the regulation intended to discourage the dichotomy in the health care sector (Knoors et al., 2000). 2.2.2 Criteria under the 1998 Regulation In order to apply for a license, an ITC ought to meet certain criteria, which are laid down in a policy regulation (ex art. 3 WZV) in June 1999. These criteria include the following: o An ITC should consist of an organisational partnership, which means that two or more specialists should mutually cooperate. Single specialist units or multiple single-specialist units in one building with a common administration are not considered an organisational partnership; o an ITC should provide medical-specialist care which can be claimed under the ZFW. Thus the ITC should deliver second compartment care. This distinguishes an ITC from a private clinic, which exclusively delivers care from the third compartment; o the health care provider should posses corporate personality (rechtspersoonlijkheid) and the ITC should be a non-profit institution. Frequently, a foundation is used as legal framework. Although a foundation is allowed to make excess revenues, certain J.E. Wagemans
  34. 34. 2. Independent treatment centres 27 restrictions exist with respect to the payment of the profit; the payments should have a social or idealistic tendency; o the general requirement from the WZV applies as well: the health care provider should maintain a hospital provision. This means a constructional accommodation in which insured care is consistently provided; o the ITC should be accessible to all insured citizens, which implies that the centre should be contracted by health insurers. It should be mentioned that ITCs and healthcare insurers do not have any obligations to contract each other, therefore selective contracting can occur (Hermans & Buijsen, 2006; NZa, 2007a).; o the ITC is not allowed to exceed the desired capacity of supply; o an ITC should have a cooperation agreement with nearby hospitals; o the intended activities of the ITC are exclusively directed at the provision of medical- specialty actions for which considerable waiting times exist in the area in which the clinic is established. Before a license can be granted, the initiator of the ITC should posses a ‘certificate of need’. In 2000, about 45 of the existing private clinics (approximately 110) have been converted into an ITC, based on the Regulation of 1998 (CBZ, 2003b). 2.2.3 A significant change in perspective and legislation regarding ITCs Between 2000 and 2003, the perspective on ITCs has changed significantly. During the formulation of the ‘Regeling zelfstandige behandelcentra’, ITCs were perceived to be ‘a necessary evil’. In 2003, however, the government gave priority to the elimination of waiting lists and realised the objections against ITCs were not founded (Minster van VWS, 31 March, 2003). ITCs had proven to stimulate the dynamics in the health care market, and to be more efficient than hospitals. Moreover, the bureaucracy and overhead is lower compared to hospitals and the working environment is attractive for medical professionals. Furthermore, ITCs had proven to reduce the existing waiting times (CBZ, 2003b; Hermans & Buijsen, 2006; Nederlandse Zorgautoriteit, 2007a). Thus, the entrance of new ITCs on the health care market was perceived to be desirable in 2003. J.E. Wagemans
  35. 35. 2. Independent treatment centres 28 In order to facilitate the entrance of new health care providers, the regulation has been revised in 2003 and four criteria were cancelled: the existence of a waiting list in the specialty area on which the ITC will focus; a cooperation agreement with a nearby hospital; a statement of need of nearby hospitals and the health insurer with an important position on the market in the specific region; and the approval of the province where the ITC was located (Hermans & Buijsen, 2006; Minster van VWS, 31 March, 2003; NZa, 2007a). Since this revision, the establishment of new ITCs by hospitals is no longer excluded. However, hospital participation may not be aimed at displacing costs and tariffs, but should be aimed at the provision of extra production in order to decrease the waiting lists (CBZ, 2003a, 2003b; Hermans & Buijsen, 2006). Since the WTZi came into force in 2006, the 1998 ITC regulation has been cancelled. The official name of an ITC changed into ‘Institution for Medical-Specialist Care’ (Instelling voor Medisch-Specialistische Zorg or IMSZ). However, the term ITC is still used in daily practice. Since this act came into force in 2006, it became possible for ITCs to deliver all kinds of B- segment care, as no centrally regulated tariffs exist for this kind of care. Furthermore, overnight stay in the B-segment is allowed under the WTZi. As a result, the provision of care in the B-segment can be either with or without overnight stay. Care in the A- segment can only be delivered when residence is not required, this is also called the ’24-hours criterion’ (ZN, 2006). Under the WTZi there is no longer a clear distinction between ITCs and hospitals as both can deliver all types of care in the B-segment. The aim of such a common level playing field for hospitals and ITCs is to improve the competition on the health care market (NZa, 2007a). In the WTZi, two types of IMSZ’s are distinguished. Type 1 does not provide care that includes overnight stay to patients with a DBC in the A-segment. On the contrary, type 2 does provide this kind of care. An institution type 1 is in fact the former ITC. In addition, both types IMSZ should in principle be non-profit and should comply with the same transparency requirements (College Bouw Zorginstellingen, 2006). Since the term ITC is more commonly known and provides a more clear distinction between hospitals and ITCs, this term, and not the term IMSZ type 1, is used in this thesis. J.E. Wagemans
  36. 36. 2. Independent treatment centres 29 2.2.4 Overview of development regarding ITCs Table 2.1 presents a brief overview of the history of ITCs in the Dutch health care market. Table 2.1 Developments regarding ITCs Time period Development regarding ITCs Mid ‘80s Rise of private clinics. 1991 Policy of tolerance with respect to private clinics, but unfriendly financial system. 1992 Classification of private clinics as separate bodies for health care. 1997 Minister Borst proposes an emergency law to temporarily prohibit the new establishment of private clinics. This proposal was not sent to the Parliament. 1998 The ‘Regeling Zelfstandige Behandelcentra’ comes into force. 2003 Revision of the 1998 ITC regulation which resulted in the elimination of four criteria: - the existence of a waiting list in the specialty area on which the ITC will focus; - a cooperation agreement with a nearby hospital; - a statement of need of the health insurer with an important position on the market in the specific region and nearby hospitals; - the approval of the province. 2006 The WTZi comes into force and the 1998 Regulation is cancelled. ITCs are allowed to provide care with overnight stay in the B-segment. 2.3 Common level playing field The rules and regulations discussed in the previous (sub)sections are aimed at establishing more market competition in the hospital sector. Market competition can be achieved by creating a common level playing field, which implies that all competitors have to comply with the same rules and regulations. Table 2.2 presents a clear overview with regard to the (future) existence of a common level playing field between hospitals and ITCs. J.E. Wagemans
  37. 37. 2. Independent treatment centres 30 Table 2.2 Common level playing field Rules and Clarification Common level regulations playing field Hospital planning Hospitals responsible for own planning decisions + Hospital financing FB-system gradually replaced for DBC’s: more transparency + Capital expenses From 2008, investment decisions of hospitals for their own risk + From 2009, subsequent ex post calculation is cancelled A- and B-segment A-segment (90%): for hospitals tariffs fixed at national level, for - ITCs maximum tariffs B-segment (10%): full price competition + Profit motive From 2012, profit motive allowed under certain conditions = Health insurance Obligation to contract each hospital has expired + market WTZi - both hospital and ITC are an IMSZ + - overnight stay in B-segment allowed for ITCs + more equal - less equal = no difference 2.4 Conclusion With respect to the view on ITCs, a transition process can be observed. In the past, ITCs were confronted with a very restrictive and unfriendly policy, not only with regard to planning, but also with regard to reimbursement. There was a prevailing planning and cost control policy paradigm plus a strong and effective hospital lobby for not accepting these ‘cherry pickers’. However, a stepwise acceptance took place. ITCs were integrated into a legal framework and even perceived as helpful to reduce existing waiting lists. They perfectly fit in the intended model of market competition in the hospital sector. In order to facilitate market competition, a stepwise process to achieve a common level playing field in hospital care has occurred. Several regulations were revised and new Acts, such as the WTZi came into force. The WTZi aims to create more freedom and responsibility for health care providers by means of less involvement of the government. Other examples of taken decisions are the introduction of case-based payment, full price competition in the B-segment, and the abolition of the obligation for health insurers to J.E. Wagemans
  38. 38. 2. Independent treatment centres 31 contract each hospital. Nevertheless, quite a few market making decisions are yet to be taken in order to promote a common level playing field. One can think of the introduction of a profit- motive, the extension of the B-segment, and the revision of arrangements for capital investments. The latter implies that the capital expenses will be integrated in the tariffs and have to be recovered by means of the provision of care. In sum, the market for ITCs was characterised by a restrictive policy, but ITCs were eventually perceived as helpful and gradually more and more regulations to facilitate the development of the market for ITCs came into force. Nevertheless, market competition in health care has by far not reached its full potential and has a long bumpy way to go. J.E. Wagemans

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