Europe Editor Sean Whelan goes to the Netherlands to examine a radical new way of running a health service.

Fine Gael is proposing a reform of the Irish healthcare system based on the model recently introduced in the Netherlands.

It calls it 'managed competition', - a new way of funding and organising the health service. The system is making waves in the complex world of health politics, because the Netherlands is the first advanced country where the state is deliberately backing away from the business of healthcare.

Since 2006 Holland is the only country in Europe – and probably the world – where it is compulsory for everyone to have private medical insurance.

Like most of continental Europe, the Netherlands is long used to a system of universal health insurance, but it has been a mix of public and private schemes. Now it’s all private.

The key to the system is something that has been very controversial in Ireland – community rating – under which everyone pays the same insurance premium for cover, regardless of age or health status.

In Holland the premium is about €1,100 a year, plus a social insurance tax of 6.5% on income.

The state organises a risk equalisation fund into which everyone pays, so the out of pocket cost of an insurance premium is the same for all. There is then an income related subsidy, so the lower your income, the less you actually pay of the €1,100.

Around 70% of the population qualify for a subsidy, with the top 30% of income earners paying the full amount. OAPs and under 18s get free insurance.

In effect, the state has handed over responsibility for buying health services to privately owned insurance companies. They are now taking over from the state as the buyer of healthcare services from hospitals and doctors.

As almost all hospitals and doctors are private sector, the state has chosen to step back and become the regulator of a market in health care services. Hence the term managed competition.

All the health insurance companies are in competition with each other, as are the private hospitals and doctors. As the cost of insurance is regulated by the community rating system, the insurers have little room to compete on price: instead they compete on quality of service.

As the hospitals and the doctors who work in them are dependent on throughput of patients to earn money, they have had to improve their service and customer care.

Hospital league tables

A key driver of the system is information. The health ministry now publishes league tables ranking hospitals on 25 different measures of quality.

As patients have the right to choose which hospitals or doctors treat them, they tend to go to the higher ranked providers: The failing hospitals lose customers and therefore money.

Although the system does not yet allow comparison of individual medical specialists’ performance, it is moving in that direction. Part of the state agenda has been to shift power away from medical professionals and towards the customers, by publishing performance data.

Insurance companies have started to strike deals with healthcare providers, offering to cut premiums to customers if they take the preferred providers rather than retaining absolute free choice.
If customers/patients are dissatisfied with their insurance company or its offering, they have the right to change provider once a year, with no loss of rights or privileges.

They Dutch system is making hospitals and doctors more businesslike in delivering their services, as they have to compete for custom.

Some like the fact that they have more freedom to run their hospitals the way they see fit, rather than the ‘command and control’ approach of the old health ministry: but the less able or less business oriented can struggle with adapting to the market.

It is making the allocation of health resources less bureaucratic, as it is the insurance companies who are buying services, not the civil service. And the state is hoping that it will slow down medical inflation, which always grows faster than general inflation.

Irish differences

Does it work? Well the Dutch consumers association say they have noticed a big change in the way doctors and hospitals treat patients, as they now have to be much nicer and more attentive, because the patient can vote with their feet and take their custom elsewhere.

They also like the fact that more information is being made available to compare performance and outcomes: not all hospitals are equal, not all surgeons are equally skilled – without performance data patients are flying blind.

As for the economic arguments it is still too soon to say if the Dutch system is achieving its main aim, that of ensuring the prudent, rational buying of healthcare services. And controlling medical inflation is notoriously difficult.

It is a new way of doing things, an alternative to the old choice of a fully private medical system where the patient has to fend for themselves, or a centralised system, where the state acts on behalf of the patient.

Could it work in Ireland? One difficulty is that in Ireland the State is simultaneously a regulator of a part private medical system, a buyer of medical services, and a provider of services, through its ownership of some hospitals and direct employment of medical staff.

Such a conflict of interests would make it difficult to import the Dutch model directly into Ireland. Logically if the state is to play the role of a regulator, or referee in the game, it can’t be a player as well.

In practice this could mean having to dispose of hospitals and staff to private organisations – a process fraught with political difficulty.