In the series of healthcare price controls the Netherlands comes up with new ideas. Hans Hoogervorst, the Dutch minister of Health, who is a member of the Liberal Party and supposedly innovation-supporting, has agreed to new pharmaceuticals covenants for 2006 and 2007. Budget setting seems to be the structural solution now.

There have been many ways to cost containment in healthcare in Europe. To give a ‘short’ overview:

There is budget-shifting: reducing health expenditure of one budget by trying to shift it on to some other budget, especially that of patients themselves. Most of the authors who have studied the operations of co-payment systems in practice are skeptical about their supposed benefits ever being achieved to any significant extent.

Then there is treatment restrictions: Restricting the number and type of treatments that are funded by the insurer can lead to a one-off reduction in healthcare costs. The restrictions can be based on an examination of evidence concerning effectiveness, cost-effectiveness, and/or other considerations (increasingly cost-effectiveness studies seem to be the main determinants). Restrictions can take the form of positive or negative lists. A positive list details the treatments that will be funded by the insurer, negative lists detail those which are not.

Most European states have introduced restrictions on pharmaceuticals. These have usually been quite effective in the one-off reduction of costs. However, their impact was often reduced by a shift to prescribing patterns towards reimbursable drugs. Various researches show that the tendency of pharmaceutical expenditure is to rise again after a few years of control. Hence, there is another tool… Budget setting is the promising way to cost containment.

Budgets can be ‘hard’ in the sense that there are penalties for overspending and perhaps also rewards for underspending. (“Shadow” budgets on the other hand, keep records of the costs of transactions and the agent is ‘made aware’ of any overspending or underspending. It’s more of a ‘naming and shaming’ tool.)

In addition to budgeting, insurers can try to affect healthcare costs through controls on the way in which providers supply healthcare. Fees or payments paid to providers can be controlled, and, in state systems, the price of pharmaceuticals and other medical supplies can be regulated, as can the profits of pharmaceutical companies and of other medical suppliers. This is a trend which is common in European countries. The Netherlands seems to be the leader in all sorts of variants of these price control measures. And still the ministry needs additional measures to control the macro costs.

In the context of the new Dutch Health Reform Act it has been quite striking that Dutch pharmaceutical policy has not yet been decently  dealt with during the current government’s period. All meetings in parliament planned for 2004-2005 have been either postponed or cancelled (if there’s a difference at all). In the meantime, all interested parties gathered in the minister’s office to arrange things ‘in private.’

Since the Dutch government has allowed for generic substitution, pharmacies could make a lot of profits thanks to rebates and bonuses from pharmaceutical companies. They could not enjoy these profits for long as the Dutch government soon introduced a clawback measure in 1998 to make sure the majority of these profits would be creamed off. However, several adjustments to the clawback percentage did not make up for the total amount of calculated profits and other challenges. In 2003, Boston Consulting Group calculated that the total amount of profits had gone up to € 723 million, of which only € 200 was being creamed off. When the government wanted to increase the clawback percentage, a complicated process of lawsuits between the pharmacists and the ministry followed. The result? A pharmaceutical covenant.

In february 2004, healthcare minister Hoogervorst reached an agreement on a pharmaceutical covenant with the pharmacists’ alliance (KNMP), the health insurers alliance (ZN), and the generic producers' alliance (BOGIN) in the Netherlands: the cost price of generics would be lowered by 40%. Generics producers would not change the price in the meantime. This way, pharmacists would lower the reimbursement price to insurance companies and this would eventually benefit the insured. That is, if (and only if...) the insurance companies would subsequently lower their premiums as a result of the covenant...

The covenant was considered to be so successful, that Nefarma joined the covenant agreements in 2005 (voluntarily?). Not only would the generics prices be lowered, the price of innovative drugs would also be lowered by 8% and the covenant had to make up for € 685 million in 2005. And it did. The convenant has thus proved itself to be a succesful tool to achieve the budgetary aims. However, one may wonder about the long term objective of these measures. The ministry officially set itself three goals: apart from cost control, the ministry would also secure the quality and avalaibility of pharmaceuticals for Dutch citizens. An official government document sets the context for long term pharmaceutical policy, most importantly: division of care provision and purchase of care, modernization of the drug reimbursement system and deregulation and liberalization of the pharmacutical market. Even though these goals would be perfectly consistent with the objectives of the Dutch Reform Act, the pharmaceutical covenant seems to secure none of these long term goals.

Nevertheless, minister Hoogervorst has agreed to an extension of the covenant by two years to save expenses. In a letter to the parliament today, he writes that the covenant will hopefully make up for a total amount of € 843 million of savings in 2006 and up to € 971 million in 2007. The agreements with all covenant parties will have to lead to € 140 of savings per household, he adds. However, in the context of the soon to be implemented Health Reform Act, which will force Dutch citizens into one-size-fits-all packages (with defined pharmaceutical packages) and set nominal premiums, it is not difficult to guess who will gain from the covenant. It’s not patients, that’s for sure. Neither financially nor qualitatively.

The Dutch illustrate that cost containment policies can be perfectly intertwined: budget shifting, restrictions (by so-called reference pricing), and budget setting. Added to this, insurance companies now have tools to decide upon reimbursement levels of pharmacuticals, the Dutch will not only receive one-size-fits-all healthcare packages, they will soon receive one-size-fits all drugs. So much for innovation, the Dutch health minister seems to personify.