DOT and the rising cost of healthcare
Hospitals are increasingly realizing that a liquidity squeeze may hit them with the introduction of the ‘DBCs Towards Transparency’ plan (‘DOT’). This plan introduces new case-mix healthcare products as successors to the current diagnosis treatment combinations (DBCs). In our view such a squeeze will develop not so much from the introduction of a new pricing system, but from the expectation that the negotiations between the hospitals and healthcare insurers on the prices of the significantly expanded “B segment” of treatments will prove very tortuous.
While there is no agreement, there can be no invoicing. And without invoices, there will be no money. The Netherlands Hospitals Association (NVZ) and the Association of Dutch Health Insurers (ZN) are currently trying to arrange pre-financing to give room for the price negotiations. But there is a concern – expressed in articles in Het Financieele Dagblad, for instance – that the pre-financing will not get sorted despite these consultations. That would mean that hospitals would have to call on banks.
If the liquidity squeeze were to amount to EUR 25 million for an average hospital, this would come to a total of EUR 2,5 billion for around 100 hospitals to be pre-financed by banks. These days we may be used to large fi gures, and in the light of the debt crisis this may sound like a manageable amount to some people. But it would still constitute an unwelcome addition to the banks’ balance sheets. This runs counter to Basel III, the new capital adequacy guidelines for banks, and political pressure to raise capital ratios even higher. So it is at least doubtful whether the banks will be willing or able to pre-finance this amount. At the same time, the health insurers will be sitting on a mountain of cash. They will not be able to invest this money for the long term, since once a contract has been concluded, the money will have to be transferred. So it will not generate a high investment return.
On the one hand, then, the hospitals will face the costs of borrowing from the banks, and they will have to pay not only a debtor premium but also higher funding costs (liquidity premium or market premium). On the other hand, the insurers have to invest their money at low risk, and therefore will not be able to achieve a return much above the Euribor rate. There will be lost, at a rough estimate, at least 1.50% on balance, which for EUR 2,5 billion amounts to EUR 3 million per month - money that will not be available to the health service. This loss will come at a time when the senior coalition party, the VVD, wants to confront patients with the cost of treatment and to make the public more aware of the rising costs of healthcare.
Negotiating prices on a range of treatments is fair enough, especially if volume and quality are also taken into account. But the process needs to be open and should acknowledge these side effects. Let’s hope that the negotiations between the hospitals and health insurers are brought to a satisfactory conclusion. That would save the health service unnecessary expenditure, and would mean hospitals can avoid having to ask the banks for loans, which the latter would prefer not to grant. It will, of course, be a diff erent ball game if insurers are not able to pre-finance as a result of new solvency demands.
