Selective contracting for provider competition

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

The process of selective contracting was initiated to develop a transparent process for limited public health care resources use. Today it has become also the main tool for the EHIF to promote health care service provision in less attractive areas. Unexpected side-effect of the tender process is the fragmentation of service-provision as some narrow specialists sprawl out of hospitals into small private practices without public control providing only well-paid small-scale services.

Purpose of health policy or idea

The Estonian Health Insurance Fund (EHIF) started the process of selective contracting  as an initiative to develop clear contracting rules and a transparent process for the use of limited public resources for health care. It was first piloted for dental care in 2000, but after the introduction of  a new Health Insurance Law in 2002, it became mandatory for EHIF to purchase services on a competitive basis.

Thus, the idea was seen as driver for service quality improvement and tool to introduce mild market competition into health care provision.

Additionally, and this is now seen as the major role of the initiative, selective contracting has enabled to buy services in areas that are less attractive for providers.

The tool is used only for outpatient services and to the extent of annual budget that remains after first round 5-year agreements with providers of the National Hospital Master Plan. Secondly, competition is only among providers that do not belong to the list of Master Plan qualify for the selective contracting.

Main points

Main objectives

Objectives of the EHIF selective contracting are mainly:

• to develop clear contracting rules;
• to motivate service quality improvement;
• to introduce mild market competition into health care provision;
• to buy services in areas that are perceived less attractive by providers.

Type of incentives

The main incentive for providers is the opportunity for a 3-year contract for services paid by Health Insurance Fund. Interested providers are competing for the contract with EHIF on the preset volume of health care services in a certain geographical region or area. Quality and administrative criteria primarily and then price are used for assessment in the decision-making process by EHIF. These criteria are:

• proximity of service provision to patient;
• share of provision of services in day-care;
• experience of last contracting period (rejected claims for reimbursement, complaints by patients);
• price of services - lower price offered to EHIF giving preference.(1)

Groups affected

Providers (hospitals, ambulatory service providers), Individual physicians

Degree of Innovation	traditional		innovative
Degree of Controversy	consensual		highly controversial
Structural or Systemic Impact	marginal		fundamental
Public Visibility	very low		very high
Transferability	strongly system-dependent		system-neutral

Selective contracting has been used by many countries to buy health care services from private providers. In the case of Estonia, the principle was used systematically and widely - 20% of all ambulatory cases are paid through a selective contracting process. In some cases all or certain types of services were bought using tendering (dental care), or services in underserved area. Structural impact is rather marginal though some effect on service provision networks in less attractive areas and efficiency improvement is plausible. Quality improvement is rather modest. Public visibility was high only in the beginning when a few providers tried to sink the initiative; it is rather low in the wide implementation phase. In our opinion the policy is transferable to most systems where overall contracting capacity by purchasers is available.

Political and economic background

By the end of 1990s the number of private health care providers had grown to the extent that not all of them could be contracted for full or even half time by the EHIF. At the same time there were no political decisions upon the limits that the solidarity insurance should cover. However, since 2002 the new Health Insurance Law explicitly enables EHIF to use selective purchasing as an option, that was implemented as response to the increased supply of health care services.

As selective contracting is only supported by an optional contracting principle in the law, it is not accepted universally, not  even in the managing board of EHIF. This is mainly due to lack of solid indicators (or measurement capability) of quality and performance criteria for decision making.

Purpose and process analysis

Current Process Stages

	Idea	Pilot	Policy Paper	Legislation	Implementation	Evaluation	Change
Implemented in this survey?

Origins of health policy idea

The process of provider competition for  the Estonian Health Insurance Fund (EHIF) contracts was initiated by EHIF in an attempt to develop clear contracting rules and process. By the end of the 1990s, the supply of services by private health care providers had grown to the extent that not all of them could be contracted for full or half time by the EHIF.

This forced the EHIF to start s a elective contracting process. In 2000 a first experience was gained with selective contracting in dental care. Criteria were discussed and agreed upon with the Estonian professional society of dentists. The criteria included qualifications of the provider, level of equipment and lower visit-fee charged to patients.

Based on that rather successful experience, in 2002, after respective amendments in the Health Insurance Law, the EHIF opened a tender for outpatient specialist care services in selected specialties in two regions. Specialities were chosen (a) based upon either high concentration of providers in a regional setting, or (b) if there was lack of providers in certain locations, the tender was opened with the condition that an outside provider would offer services in the area. The objective was to contract quality health services, with lower level of co-payments for the patient, and closer to patients' residence.(2)

In 2003-2005 the EHIF has continued with tendering for specialist service contracts, however not expanding them in volume. Hospitals that are included in the Government-approved Hospital Master Plan are not subject to the competitive process but get their contract on priority basis.

The tender is held mostly for out-patient services - the competition is for a defined number of expected cases to be treated in a certain area. The main evaluation criteria include data on qualifications, earlier provider behaviour, and proposed co-payment level for the patient (with lower co-payment preferred) and average cost per case. Family physicians are included in the evaluation panels to evaluate the quality of the specialists.

By 2005 the selective contracting has become a routine practice for EHIF. However, as the majority of service contracts are assigned on a priority basis to providers belonging to the national Hospital Master Plan, the main purpose of the idea now is improve access to and coverage with health care services in under-served areas.(2) It is also an important tool  motivating the "outside" providers to follow EHIF standards of care and keep provider reserve for additional services readily available.(1)

Initiators of idea/main actors

• Providers: Generally supportive to the idea unless it contradicts their immediate business interests

• Payers: Health Insurance Fund has varying views among its managing board

Approach of idea

The approach of the idea is described as:
renewed: Refinement of internationally recognised practice for private providers into universal principle

Stakeholder positions

Main stakeholders are the providers and EHIF as the purchaser. Providers in Estonia are divided by either belonging or not to national Hospital Master Plan - a list of privileged providers that the Government has commited itself for long-term support (in Estonia all hospitals are legally private entities).

Among Hospital Master Plan providers the gripe is mainly over the fact that they are left out of the selective contracting process, for they have contracts already on a priority basis. Yet they may feel that the volume of the contract is not sufficient for them.

Among smaller providers that are not on the Master Plan list, the theoretical support is sometimes turned into dissatisfaction due to unsuccessful participation in the tender. The argument usually is criticising the appropriateness of the criteria, which are rather formal.

The National Health Insurance Fund as the main purchaser of services on the market has been the driving force behind the initiative. Recently opinions within the managing board have become variable with some hesitation towards the efficiency of the policy to achieve its goals.

Actors and positions

Providers
Large hospitals (Hospital Master Plan members)	very supportive		strongly opposed
Small privately owned providers	very supportive		strongly opposed
Payers
Health Insurance Fund	very supportive		strongly opposed

Influences in policy making and legislation

The policy of selective contracting was first initiated by EHIF with the support of formal agreement with dentists in 2000. It became possible for medical care only after the amendment in the Health Insurance Law in 2002.(4) In the latter selective contracting is stated as an option for EHIF to decide upon additional services beyond the capacity of Hospital Master Plan providers.

By today EHIF has found that they have legal obstacles to use specific quality indicators in the process of selective purchasing as all providers with the 5-year licence issued by Health Care Board are by definition providing services with adequate quality. Thus in order to impose quality criteria for the selection probably legal adjustments are necessary. However, the issue is not prioritised yet as to start the amendment of legislation.

Legislative outcome

success

Actors and influence

Providers
Large hospitals (Hospital Master Plan members)	very strong		none
Small privately owned providers	very strong		none
Payers
Health Insurance Fund	very strong		none

Positions and Influences at a glance

Adoption and implementation

First EHIF engaged professional societies and providers' representative organisations into discussions about the principles of the policy. Prior to the implementation all stakeholders were rather supportive to the whole idea. Anticipating problems with the implementation whenever selection is imposed EHIF knowingly chose specialities where professionals themselves where most supportive, such as orthopaedics, gynaecology, ophthalmology and dentistry. Also, for piloting less sensitive regions were chosen.

Once providers started to protest against selective preference of providers by EHIF, the latter had to explain the policies to the public through media. During 2002-2004 in several cases providers sued EHIF for having been left without contract in the process of tendering. The most troublesome specialities were dentistry (before the law was passed) and gynaecology. However, in all cases EHIF successfully defended itself against the claims for universal right for the contract by all providers in the region without any competition.

The experience from the first limited open tender was the following. In cases where EHIF was looking for a provider to cover an area not having a specialist provider, the competition worked well, and providers from near regions started consultation hours locally in some days of the week.

In conditions where there was high concentration of providers, the tender was successful in lowering co-payment levels. The most complicated area to evaluate, as expected, was the quality of services. Although family physicians were included in the evaluation panels to give an opinion based on their experience in cooperating with the specialists, they were not confident in judging upon the quality of work of their colleagues.

An unexpected side-effect of the tender process was a threat of increasing fragmentation of service-provision. As the Estonian legislation allows medical professionals to work for several employers, a trend emerged of doctors being employed by public (i.e. publicly owned) hospitals, setting up private practices and participating in the tender for EHIF contracts also through these.

In 2005 the practice is well accepted and no legal disputes on the principle per se are held. Also there is no high public interest in the matter any more as other issues have emerged (e.g. increasing waiting lists). 20% of all the ambulatory cases are reimbursed to the providers chosen by selective contracting. EHIF is probably not intending to increase this proportion.

Monitoring and evaluation

No formal monitoring process is in place. During the early implementation until 2004 the balanced scorecard of EHIF contained proportional target for cases paid by selective contracts.(5) As of 2005 the intended level (20% of all ambulatory cases) has been reached and no further target has been set. The latter also reflects the ambiguity within the management board about the role of selective contracting in the overall purchasing role of EHIF.

The managing board of EHIF is using qualitative analysis of negotiating and contracting process to formulate decisions for the next negotiation phase. EHIF also regularly monitors the satisfaction level of providers.

As an unanticipated side-effect EHIF noticed that physicians of certain narrow specialities (face-and-neck surgeons, ear-nose-and-throat physicians, neurosurgeons) sprawl out of publicly owned large hospitals into small private practices to participate in the tender. This is causing worrying fragmentation of service network as in some cases the small group of good specialists has a very strong position in the negotiating process over price and/or conditions (e.g. selection of services). EHIF has in some cases no good alternative among large Master Plan hospitals, where mitigation through other services or specialities can be used.

Expected outcome

Overall the tender process for EHIF contracts has led to more transparency in the contracting process. It has been most successful in cases where EHIF has looked for service provision in an area not having provider. This is today probably the strongest argument to continue and refine the policy of selective contracting in Estonia.

It has also had some success in lowering visit fees charged to patients by the providers. In terms of impact for improvement of quality, the competitive process for contracts has less effect than other methods of quality enhancement. It may however help to discontinue a contract with a provider who is non-responsive to patients' complaints.

Impact of this policy

Quality of Health Care Services	marginal		fundamental
Level of Equity	system less equitable		system more equitable
Cost Efficiency	very low		very high

Out of initially planned goals the impact has been most visible on service availability in underserved areas and some reduction in provider prices. Impact on service quality is rather low according to current implementation practice. However, the obstacle is a legal one (the purchaser is not allowed to set its own quality standards for selection) and not stemmed from the policy itself.

References

Sources of Information

1. Decision of Supervisory Board of EHIF nr.21, October 28, 2004 on Evaluation criteria for contracting health services, (available at www.haigekassa.ee, in Estonian)
2. H Tarien, Head of Health Care Department of Estonian Health Insurance Fund; interview on 14.10.2005
3. H Danilov, Head of EHIF Managing Board, and A Vask, Member of EHIF Managing Board,; interview on 11.10.2005
4. Health Insurance Law par. 36 (available at www.haigekassa.ee/eng/legislation, in English)
5. EHIF development plan 2003-2005 (Eesti Haigekassa arengukava 2003-2005, in Estonian) and EHIF Annual scorecard 2003 (Eesti Haigekassa tasakaalustatud tulemuskaart 2003; available at www.haigekassa.ee, in Estonian)

Author/s and/or contributors to this survey

Maris Jesse, Ain Aaviksoo, Helvi Tarien

Suggested citation for this online article

Maris Jesse, Ain Aaviksoo, Helvi Tarien. "Selective contracting for provider competition". Health Policy Monitor, October 2005. Available at http://www.hpm.org/survey/ee/a6/2