This presentation by Kurt R. Brekke was made at the workshop on Competition in Publicly Funded Markets (28 February 2019). Find out more at http://www.oecd.org/daf/competition/workshop-on-competition-in-publicly-funded-markets.htm

1. INCENTIVISING COMPETITION
Health Care in Norway
Kurt R. Brekke
OECD Workshop, 28 February 2019

2. Health care in Norway
• Health care is a significant part of the Norwegian economy
– More than 10% of GDP (and 12% excluding oil)
– Second largest per capita spending after Switzerland when adjusted
for purchasing power (more than 4800 EURO PPP)
• Health is the largest publicly funded “market” in Norway
– Public expenses amount to 50% of GDP (yes, that’s correct!)
– Pensions & social benefits is largest part (40%) but not provided in a
market context
– Health is second largest category (17%), followed by education (11%),
and has “market-like” provision

3. National Health Service
• Covers the whole population (no surprise – it’s mandatory!)
– And offers a comprehensive set of services (private insurance is very low)
• Secondary care is provided mainly by state-owned hospitals with mixed
DRG and block grant funding
– There are some private non-profit within the NHS, and also some private for-
profit with NHS contracts (including private specialists)
• Primary care is provided mainly by private practice GPs with mixed
capitation and fee-for-service funding
– But there are some public GPs with fixed salary contracts
• Patients have free provider choice
– But needs a referral from GP to access secondary care (gatekeeping
• Co-payments are de facto low due to annual expenditure cap (€ 200)
– 100% coverage of expenditures exceed the cap
– Some medicines (acute treatments) are not reimbursed

4. Primary care: Supply-side
• Municipalities
– Responsible for primary care provision
– Announce vacancies and contract with GPs
– Partly funding: Salary or capitation
• General practitioners
– 10% public employees with fixed salary contracts
– 90% private practices funded by capitation and
fee-for-service (FFS)
– GP decides list size (within 500 to 2500 patients)

5. Primary care: Demand side
• Patient choice of GP
– Free choice of GP (not restricted to municipality)
– Change GP at most twice per year
– Administrative allocation to preferred GP
– GPs cannot reject patients unless closed list
• Co-payments
– In principle significant co-payments for primary care
– But effectively very small co-payments due to annual
expenditure cap (approx. € 200)
– When cap is reached there is 100% coverage

6. Nature of competition
• Most strategic variables are regulated
– Entry, location, prices…
– Patient selection (cream-skimming, dumping)
• Only available strategic variable is quality
– Clinical quality, service quality, accessibility, waiting times,
opening hours, etc.
• Demand likely to respond to quality differences
– Patients trade-off distance against (perceived) quality of
the GP
• Non-price competition
– GPs can attract (avoid losing) patients by offering better
services (quality)

7. Incentives to compete
• Financial incentives
– GPs with private practice gain higher payments
(capitation and fee-for-service)
– GPs with fixed salary contract gain “more work”
• GP objectives
– Profits or altruism (patient welfare)?
– Selection of GPs into public and private contracts
(more profit-oriented with private practice?)

8. Do (Norwegian) GPs respond
to financial incentives?
Brekke KR, Holmås TH, Monstad K, Straume OR. Do
treatment decisions depend on physicians financial
incentives? Journal of Public Economics 155 (2017)
74-92.

9. Brief sketch of study
• Large literature on the topic but few studies on causal effects
– And most focus on single dimensions such as number of visits
• Research design
– Exploit exogenous change in GP fee schedule due to certification as “specialist
in general medicine” resulting in higher consultation fee (with remain fees
constant)
– Compare service provision by the same GP service provision shortly before and
after the fee change
– DiD-like design as GPs are certified continuously around the year
– Short window controls for other factors that may affect GP service provision
• Data
– Rich administrative data on claims and GP and patient characteristics
– Covers whole population of patients and GPs
• Result: Find sharp (immediate) effects on GP service provision
– Higher consultation fee induces more consultations by the GP
– But also fewer services (tests, procedures, etc) per consultation
– However, first effect dominates as total income per consultation increases.

12. Is payment scheme
important in incentivizing
competition?
Brekke KR, Holmås TH, Monstad K, Straume
OR. How does the type of remuneration affect
physician behaviour? Working paper (2019)

13. Method
• Research question
– What is the impact of “removing” incentives for GPs to compete
(proxied with fixed salary contracts)?
• Key identification issue
– Self-selection of GPs into types of practices (public vs. private)
and thus payment schemes (salary vs. FFS/Capitation)
– Problem: Service provision is due to GP type and not incentives
to compete (payment system)
• Method to overcome selection problem
– Compare service provision by the same GP under public fixed
salary contract and private FFS/capitation contract
– Analysis focuses on locum GPs who is allocated into vacancies
with different remuneration schemes

14. Results
• The (same) GP offer
– More consultations per day
– More services per consultation
– Fewer hospital referrals
– Fewer adverse (emergency) events
• When having a private FFS/capitation contract than a
public fixed salary contract
• Assuming fixed salary GPs have limited (no) incentives
to compete, these results imply
– that competition induces GPs to provide more services,
better access, and higher quality.

15. Welfare implications
• Paying GPs fee-for-service instead of fixed salary
yields the following results:
– Higher primary care costs
– Lower secondary care costs
– Better patient health outcomes
• Back-of-the-envelope calculations suggest a net
welfare improvement of inducing GPs to compete
– Higher primary care costs are exceeded by the lower
secondary care costs and better health outcomes

16. Competition policy in health care
• Competition law enforcement (by the NCA)
– Regulation substitutes for (crowds out) competition law
enforcement in primary health care
– No cartel cases (GP collusion on quality?)
– No merger cases (GP practices are very small)
• Advocacy (by the NCA)
– Ensure that payment scheme gives incentives for competition
among GPs (capitation, fee-for-service, performance pay)
– Ensure sufficient capacity in local markets to facilitate patient
choice and thus competition among GP (vacancies and list sizes)