Financing medical specialist services in The Netherlands: Welfare implications of imperfect agency

Since 1995 the financing scheme for medical specialist services in the Netherlands has moved from a flee-for-service scheme to a capitation scheme. This paper analyzes the economic and welfare effects of this policy change. The paper adopts a numerical model that integrates demand and supply consideration sand that recognizes the potential roles of moral hazard and supplier-induced demand. The paper finds that the shift in financing regime has been welfare-reducing. The policy change induced medical specialists to lower the supply of the health services which was already lower than optimal before the policy reform. (C) 2008 Elsevier B.V. All rights reserved.