‘Home-care and competitive bidding; is it a match?’

In this master thesis an analysis has been performed about the use of competitive bidding to purchase home-care in the Netherlands. Competitive bidding is being used by purchasers as allocation mechanism to select providers for contracting and with that making enough health services available for their insureds or citizens. The research question that has been answered, is the following: “Under which conditions is competitive bidding a useful purchasing method for home-care in the Netherlands?” The master thesis has been started by executing a study of literature to the general process of purchasing health services and distinguishes three different stages: selecting, contracting and financing. It has become clear that those three stages are related to each other in each purchasing process. When choosing competitive bidding as purchasing method to select providers for contracting, the purchaser should be aware of picking a way of financing that does correlate with the incentives the competitive environment brings along. For example, when competitive bidding is meant to increase competition and with that efficiency, it would not be correct to award contracts with duration of 10 years and pay providers by fee-for-service, which decreases competition and may lead to supplier induced demand, which may even cause an increase in total costs. After having described the general process of purchasing health services, a study of literature has been performed to the different types of competitive bidding and its use in other developed countries. The purpose of competitive bidding is most often to increase competition on the market to reduce costs or improve the level of quality of care. The stages of the purchasing method are the following: specification of the health service, selection of winning bidders, determination of reimbursement, monitoring and evaluation. All stages must be included to make competitive bidding a successful purchasing method and it should be used when the health services are suitable to being purchased by competitive bidding. The health services should therefore (i) not needed to be delivered with urgency; (ii) be possible to specify in detail, including goals, activities and expected outcome; (iii) not be highly specialised or top-clinical; (iiii) needed to be provided for only a short time. The study of literature also provided lessons from other countries that should be considered to become aware of the possible effects and consequences. For instance, the level of competition on the market must be high enough, because providers with an economic dominating position do not experience incentives to operate more efficient and reduce their production costs. Another lesson that can be learned is that when providers are not monitored adequately, they may experience an incentive of reducing their level of quality of care, while reducing their production costs. The study of literature was ended by creating a checklist 4 that has been used later on to score the Dutch home-care market and the use of competitive bidding by Dutch purchasers. The master thesis has been continued with an analysis of the current market for home-care in the Netherlands. Home-care is the umbrella term for all sorts of care that is provided to clients who live independently with some professional support. Two relevant purchasers in two different contexts are present for home-care in kind: municipalities purchasing housekeeping services financed by the Social support act (WMO) and regional care offices purchasing the rest of the types of home-care financed by the Exceptional Medical Expenses Act (AWBZ). It has become clear that the concentration on the market for home-care in kind is too high, meaning that the competition level among providers is low. The goal of purchasers is to increase competition and stimulate incumbents to reduce their production costs while maintaining or improving the quality of care. New providers should therefore be stimulated to join the bidding procedure. However, the context of the AWBZ has significant entry barriers such as the monopsonistic position of regional care offices and the fact that only 10% of the total production volume is being allocated by competitive bidding (while the rest is being guaranteed to incumbents). The context of the WMO does not come up with certain entry barriers and most municipalities have contracted 3 to 5 providers in a mix of incumbents and entrants. Municipalities seem to have succeeded to increase the level of competition in the market for housekeeping services. The quality of care has been measured by means of process quality indicators; output quality indicators are not yet developed. After the analysis of the home-care market, attention is paid to the preliminary results of the use of competitive bidding in the Netherlands. Regional care offices have been using competitive bidding for two years now to allocate 10% of the total production volume to entrants and incumbents that are willing to grow. The rest of the production volume is being guaranteed to incumbents to make sure all clients in need of long term care can stay with the provider they are familiar with. An increase in efficiency can be observed: more volume is being purchased for the same amount of resources. The increase in efficiency can be explained as result of the use of competitive bidding, but also as result from the Covenant the Ministry of VWS has agreed with the present parties in the market. The concentration on the market is still too high and the NZa states that prices can still be lowered if providers are more stimulated to reduce their production costs. The development on the level of quality is not known, although more providers have become certificated in the last two years, which is positive, but does not guarantee a high level of provided quality and therefore an improvement or reductions in the level cannot be measured accurately. Municipalities have been purchasing home-care for the first time, since the home-care type housekeeping services has been transferred from the AWBZ to the WMO in January 2007. Municipalities are obliged to use competitive bidding according to the European directive on public 5 procurement, just like regional care offices. They seem to have succeeded to increase the competition on the market for housekeeping services, although the concentration on the market is still unknown and the element of subcontracting is expected to have large effects on the market and must therefore also become transparent. The market has changed significantly by the mentioned transfer, because it had became possible for cleaning companies to join the bidding procedure for housekeeping services and incumbents have lost the freedom to be able to decide which type of housekeeping services was needed by their clients. Because of that, incumbents are currently dealing with too less low-educated (cheap) personnel and too much overqualified personnel to answer the indicated need for home-care of clients accurately, resulting in financial problems and the risk of discontinuity of care, waiting lists and less available capacity although it has been contracted. The quality of provided housekeeping services is also mainly measured by process quality indicators. The checklist that was created as result of the study of literature is used to be able to draw conclusions about whether competitive bidding is a useful method to purchase home-care under the current market conditions in the Netherlands. The following conclusions are drawn: - Home-care is suitable to be purchased by competitive bidding. Chronically ill clients in need of long term home-care may experience a burden when the indicated care is delivered by another provider each contract period, but there is no evidence about actually harming clients in that case. The absence of output quality indicators causes a risk, because providers cannot be monitored whether they have actually delivered the level of quality they have promised when bidding on a contract. This may create the incentive to providers to reduce their level of quality of care while reducing their production costs. - The concentration on the market for home-care financed by the AWBZ is too high to create incentives to stimulate providers to reduce their production costs. The existing entry barriers may prevent new providers to enter the market and increase competition. Regional care offices and the NZa should make an effort to reduce the entry barriers by for instance performing a study about whether guaranteeing such a high percentage of production volume to incumbents is really necessary. - The inexperienced municipalities were able to lower the prices on average. In the next year it will become clear whether the prices are too low and lead to bankruptcies. Municipalities should focus on developing purchasing skills by learning from their hired external consultants. They should also perform studies to the level of concentration on the market and the amount and effects of subcontracting. Stabilising the market while maintaining the increased level of competition in the market and support the contracted providers that deal with personnel problems are also relevant recommendations when becoming experienced purchasers. - All purchasers should develop output quality indicators to prevent cheap providers lowering their quality to an unacceptable level in the interests of clients.