Competition in the Dutch hospital sector: an analysis of health care volume and cost

Y. J F M Krabbe-Alkemade*, T. L C M Groot, M. Lindeboom

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper evaluates the impact of market competition on health care volume and cost. At the start of 2005, the financing system of Dutch hospitals started to be gradually changed from a closed-end budgeting system to a non-regulated price competitive prospective reimbursement system. The gradual implementation of price competition is a ‘natural experiment’ that provides a unique opportunity to analyze the effects of market competition on hospital behavior. We have access to a unique database, which contains hospital discharge data of diagnosis treatment combinations (DBCs) of individual patients, including detailed care activities. Difference-in-difference estimates show that the implementation of market-based competition leads to relatively lower total costs, production volume and number of activities overall. Difference-in-difference estimates on treatment level show that the average costs for outpatient DBCs decreased due to a decrease in the number of activities per DBC. The introduction of market competition led to an increase of average costs of inpatient DBCs. Since both volume and number of activities have not changed significantly, we conclude that the cost increase is likely the result of more expensive activities. A possible explanation for our finding is that hospitals look for possible efficiency improvements in predominantly outpatient care products that are relatively straightforward, using easily analyzable technologies. The effects of competition on average cost and the relative shares of inpatient and outpatient treatments on specialty level are significant but contrary for cardiology and orthopedics, suggesting that specialties react differently to competitive incentives.

Original languageEnglish
Pages (from-to)139-153
Number of pages15
JournalThe European Journal of Health Economics
Volume18
Issue number2
DOIs
Publication statusPublished - 1 Mar 2017

Keywords

  • Hospital competition
  • Hospital costs
  • Hospital production
  • Prospective payment system

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