Blog 2: Financially secure environment

Make new arrangements with healthcare insurers to create leeway for the transition

By: Sander Visser, Marcel Otten  |  Published: July 2, 2018

Targeting ‘appropriate care aims’ calls for an alliance between healthcare insurers and care institutions. If your care institution has set itself the goal of delivering appropriate care, you will need to have healthcare insurers on side. An alliance provides the basis for a strategy that joins better quality for patients as individuals to acceptable costs for society. Be aware, however, that it takes time, mutual trust and clear-cut financial arrangements to build an alliance between a healthcare insurer and a care institution.

What our work in Strategy& has taught us is that cooperation of this kind, based on mutual respect, takes time. It calls on care professionals, care institutions and healthcare insurers to radically change their culture, and it also requires the right underlying conditions. In the past few years, healthcare insurer VGZ, in cooperation with Strategy&, entered into a quality care alliance with a number of care institutions to explore a new way of working together. In this new way of working, the focus is on quality, not quantity. It’s the opposite of the production-driven way of working to which care institutions and healthcare insurers have become accustomed. Supported by Strategy&, the relevant care institutions and VGZ made genuine work of ‘appropriate care’. Creating the right conditions is crucial because it allows the care provider and insurer to assume their role in society as a team.

Financially secure environment

Current arrangements penalise volume reductions

The current Dutch system rewards care institutions for every care-related activity that they perform. It simply multiplies the number and type of care-related activity by the pre-arranged fee for those activities. That means that care institutions are basically shooting themselves in the foot if they deliver less care, even if it’s actually better for the patient. Volume reductions are penalised, even though they’re crucial to meeting the aim of delivering appropriate care. For the transition to succeed, care institutions need financial stability and leeway to avoid being penalised for lower volumes.

 

Mutual trust

Trust has become a somewhat rare commodity in the present system. While healthcare insurers often acknowledge that care institutions are delivering better quality care than ever, they also see that institutions need more and more money to do so. Care institutions, on the other hand, believe that healthcare insurers are monitoring the cost to society, but at the expense of quality. There is also a feeling that the insurer’s costs are the care institution’s revenues. That feeling can be aggravated if a care institution deliberately aims to deliver less care if that’s better for the patient. It sticks its neck out and is then penalised by the insurer by a cut in revenue. It's a difficult situation involving ostensibly conflicting interests.

Ostensibly, because both healthcare insurers and care institutions play a legitimate role in society. Insurers monitor the rising cost of healthcare so that the man in the street can still afford his insurance premiums. Care institutions and their professionals monitor the quality of care so that patient health improves as much as possible. The two sides can start to agree by acknowledging each other’s views. After all, both quality and affordability are important to our society. The next step is to recognise that each side plays a different but legitimate role, and that those roles can in fact be mutually reinforcing. Only then can the two truly work together to achieve better and more affordable care.

Ab Klink, member of the Board of Directors at VGZ

‘In all our conversations with hospitals, we’ve consistently stressed the shared aim of delivering appropriate care. By emphasising this, and with the support of Strategy&, we’ve managed to arrive at satisfactory arrangements with various care providers.’

And the next step? ‘In all our conversations with hospitals, we’ve consistently stressed the shared aim of delivering appropriate care. By emphasising this, and with the support of Strategy&, we’ve managed to arrive at satisfactory arrangements with various care providers,’ says Ab Klink, member of the Board of Directors at VGZ. ‘But having a shared aim isn’t enough. You also need to trust each other. And since the relationship between hospital and healthcare insurer has traditionally involved auditing and, perhaps, mistrust, that may have been the biggest obstacle that we had to clear in this process. On both sides, in fact. Building mutual trust when entering into an alliance simply takes time in that it involves the two parties having a lot of conservations at many different levels of both organisations.’

Ab Klink, member of the Board of Directors at VGZ

‘But having a shared aim isn’t enough. You also need to trust each other. And since the relationship between hospital and healthcare insurer has traditionally involved auditing and, perhaps, mistrust, that may have been the biggest obstacle that we had to clear in this process. On both sides, in fact. Building mutual trust when entering into an alliance simply takes time in that it involves the two parties having a lot of conservations at many different levels of both organisations.’

Firm revenue agreement offers temporary security

The most pragmatic way to create a financially secure and stable environment is to agree to a fixed amount in revenue, at least for a few years. This gives care institutions the assurance that their revenue won’t be jeopardised if production levels off or declines, allowing them to plan ahead financially for several years. They then have the time and leeway to curtail volume where necessary and make the change possible. A fixed revenue also means that care insurers know how much they will be spending going forward. These sorts of arrangements cannot cover everything, of course. Care institutions and healthcare insurers that have entered into alliances must learn to trust each other. By making firm arrangements in the form of a guaranteed amount in revenue, they can finally get down to having a real conversation about the quality of care.

The size of the fixed amount in revenue should be based on historical revenue figures and on a business case that frames changes in production (e.g. as a result of appropriate care initiatives) in terms of the relevant cost level. Based on the necessary cost level, the parties can agree on the revenue amount for the years ahead. Potential cost reductions can thus be incorporated into the financial arrangements. The care institutions must, however, have enough financial leeway to go through the transition process successfully and to continue innovating. Care institutions have a duty of care in their catchment area that they must continue to fulfil. With a fixed amount in revenue, new criteria are required to monitor the transition. Strategy& can help. Waiting lists, outflow from the catchment area and a lack of innovation are undesirable and must be monitored.

Final remarks

Paying a fixed amount in revenue is a good way to remove production incentives, create leeway for change and build trust between care institutions and health care insurers – but it is a temporary solution. In the long term, the financial arrangements will have to be fine-tuned in ways that would be detrimental at the start of the transition. We’ll have more to say about this in blog 6. First, however, we’re going to kick off the change with a long-range transformation agenda.

 

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