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The following OECD assessment and recommendations summarise chapter 4 of the Economic survey of Luxembourg published on 1st July 2008.
Greater efficiency is needed in the health care sector
The health care system offers nearly unrestricted access to a medical system that has been improved and modernised over the past decade. This has been achieved without sharp increases in social security contributions, as the contribution base has been expanding rapidly in tandem with the number of cross-border workers. Many of these cross-border workers are relatively young and therefore, for now, make few demands on the health care system. In relation to GDP, total health care spending (8.3%) was in 2005 below the average for the OECD (9.0%), but spending per capita (both in terms of resident and cross-border population) in purchasing power parity terms was among the highest in the OECD, reflecting the high cost of delivery. Despite high spending, the health status of the population – measured by life expectancy at birth – is about average by OECD standards. This is surprising given the country’s high income level, an important factor behind a healthy population. This partly reflects non-medical determinants, such as the high number of road accidents (linked to the commuting of workers), a relatively high prevalence of obesity and a higher incidence of liver diseases and cirrhosis than in other European countries. Thus, there is scope promoting preventive care and lifestyle changes. But there appears also to be potential for improving medical care, as shown by the weakness of care quality indicators, even though such indicators have to be used with a great degree of caution because they can be difficult to interpret and they are not entirely comparable across countries.
The planned health insurance fund should act as a “wise” buyer of healthcare services
At present, the public health insurance fund is close to financial balance. Each year, under the constraint of a legal requirement that the budget is balanced, contribution and reimbursement rates are determined by the UCM taking into account the advice of the “quadripartite” (trade unions, employers, government, and health care providers). Unexpected shortfalls may be covered through a reserve fund (of between 10 and 20% of total expenditures), which subsequently must be replenished through higher contribution or lower reimbursement rates. The annual discussions include a negotiation of price parameters between the UCM (Union des Caisses de Maladie) and the country’s associations of health care providers. The price benchmark is largely based on historical cost developments with limited systematic use of international comparisons. To strengthen the bargaining position of the UCM, it should be encouraged to act as a “wise” buyer of health care services, making more frequent use of cost-efficiency analyses and, when appropriate, comparative international benchmarks. The planned merger of some of the nine sectoral health-insurance funds will create a broader and more powerful agency, which should be given some degree of autonomy in the purchase of services, as well as being subject to a high degree of accountability. The merger goes in the right direction as it should be allowed to reap the benefits of economies of scale. Further productivity gains should be achieved by merging the remaining four funds and reducing administrative cost.
There is excess hospital capacity
Mergers and investments in the hospital sector have reduced the number of small and inefficient hospitals. Nevertheless, Luxembourg is left with an internationally high number of hospital beds relative to the population, partly reflecting the large number of general hospitals. As a result, occupancy rates are low and the average length of stay is relatively high. Further consolidation of the sector requires reducing the number of excessive acute care beds and shifting from hospital care towards more ambulatory care. Moreover, spending appears to be increased by the incentives faced by doctors, who are generally paid on a fee-for-service basis, although they use medical equipment in hospitals for free. The fee-for-service system for hospital doctors and the lack of authority over investment decisions, which are authorized by the Ministry of Health, mean that hospital management has little autonomy and, therefore, little incentive for seeking efficiency gains. To rectify this situation, hospital managers should be given more autonomy, while becoming more accountable for their budget decisions and the overall results of their hospitals. This could be achieved by introducing activity based funding through a DRG system inclusive of the remuneration of hospital doctors, in order to better align incentives faced by hospitals and doctors. The latter should also include capital depreciation to improve decision-making with respect to hospital investments.
Competition with hospitals in neighbouring regions should be encouraged
Exploiting areas of expertise is already being done within the Grande Région as patients requiring certain types of intervention are regularly treated in neighbouring countries. These patients have to seek prior authorisation from a government agency (Contrôle médical), which in practice requires a doctor’s justification for why treatment is not provided in Luxembourg. In a medical system with strong corporatist ties, this leads to a strong inward orientation of the system. To enhance competitive pressures from the Grande Région and to better exploit comparative advantages in different areas of expertise, patients should have better access to treatment abroad. This would be facilitated by better information on services offered and treatment effectiveness, and should be achieved by lowering the associated administrative burden and introducing the “money-follows-the-user” principle.
Incentives faced by outpatient doctors could be realigned
In ambulatory care, patients have relatively unrestricted access to services with only a moderate ceiling on the number of consultations per month. Doctors are generally remunerated through a fee-for-service system, providing few incentives for cost-efficient treatments. Increased out-of-pocket payments would restrict excessive demand for ambulatory services. This would be further strengthened by the introduction of a gatekeeper system, where the exchange of information should be facilitated through a harmonised electronic patient dossier system. Incentives for excessive medical treatment could be further reduced through the introduction of a mixed capitation and fee-for-services system. Moreover, even though there is in principle freedom of establishment for doctors, new doctors need prior authorisation for their patients to be reimbursed. This authorisation is given by the Minister of Health on advice of the Collège Médical, a professional self-regulating body that informs them on national legislation and verifies language competences for non-EU candidates. In order to enhance informed patient choices, the authorities should grant authorisation to practice as a doctor on the basis of medical qualifications, transparency of treatment results and life-long training.
There is overconsumption of drugs
Doctors are free to prescribe any drugs that appear on the relatively short positive list. Nevertheless, low co-payments have contributed to an internationally high consumption of drugs – in itself creating health concerns. Doctors’ prescription habits are barely monitored and only in clearly excessive cases will the UCM be alerted. To reduce excessive consumption of drugs, prescriptions should be monitored and doctors that do not follow state of the art and efficient prescription practises should possibly be sanctioned. Moreover, the authorities make only few specific recommendations about which drugs to prescribe on the positive lists. Thus, to encourage cost-efficient drug prescription, doctors should be encouraged to prescribe recommended drugs. This could be reinforced with more differentiated reimbursement rates which would provide patients with incentives for using the most cost-efficient drugs. Another issue is that it takes a relatively long time for a new drug to be put on the positive list, limiting the benefits of introducing technological advancements in the pharmaceutical market. This “time-to-subsidy” should be shortened by more frequent updating of the positive list and be made more efficient by taking advantage of comparative-effectiveness tests as practised in other OECD countries. The market for pharmacies is constrained by high barriers to entry. The overall number of pharmacies is strictly regulated and half of them are owned by the state, but run on concession that are awarded on the basis of seniority. New pharmacies are only allowed if there is an unfilled demand. Competition in the pharmacy market should be introduced by lifting these barriers to entry. Pharmaceutical practises are also strictly regulated as pharmacists are not allowed to offer alternative equally efficient drugs than those prescribed, denying customers access to cheaper generics or cheaper identical medications. To boost the use of cost-efficient drugs, pharmacists should be permitted to offer cheaper substitute drugs and the availability of non-harmful non-prescriptive over-the-counter drugs sold outside pharmacies should be increased.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Luxembourg 2008 is available from:
For further information please contact the Luxembourg Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Jens Christian Høj, Ekkehard Ernst, Arnaud Bourgain and Patrice Pieretti under the supervision of Patrick Lenain. Research assistance was provided by Laure Meuro and secretarial assistance by Heloise Wickramanayake.