Economics of Health Care Financing: The Visible Hand

292 Pages·2005·1.949 MB·English

by  Cam Donaldson, Karen Gerard et al.

ECONOMICS OF
HEALTH CARE
FINANCING
The Visible Hand
Cam Donaldson and Karen Gerard
with
Stephen Jan,Craig Mitton and Virginia Wiseman
Second Edition
© Cam Donaldson and Karen Gerard 2005
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ISBN 978-0-333-98431-4 ISBN 978-0-230-21573-3 (eBook)
DOI 10.1007/978-0-230-21573-3
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Library of Congress Cataloging-in-Publication Data
Donaldson,Cam.
Economics of health care financing / Cam Donaldson and Karen Gerard ;
with Stephen Jan,Craig Mitton,and Virginia Wiseman—2nd ed.
p.cm.
Includes bibliographical references and index.
ISBN 978-0-333-98431-4 (pbk.)
1.Medical economics.2.Medical care—Finance.I.Gerard,Karen.
II.Title.
RA410.D66 2004
338.4’33621—dc22 2004052091
10 9 8 7 6 5 4 3 2 1
14 13 12 11 10 09 08 07 06 05
CONTENTS
List of figures and tables vi
Notes on authors viii
Acknowledgements x
I MARKETS AND MARKET FAILURE IN HEALTH CARE 1
1 Health Care Financing Reforms: Moving into
the New Millenium 3
Introduction 3
The changing world of health care financing 4
Outline of the book 12
2 Markets and Health Care: Introducing the Invisible Hand 15
Introduction 15
What is a market and how does it work? 16
Markets: the panacea for health care ills? 23
The crucial assumptions 24
Consumer is sovereign? 27
Conclusions 28
3 Market Failure In Health Care: Justifying the Visible Hand 29
Introduction 29
Market failure and the UK NHS: Williams’ tale of
the duck-billed platypus 31
Risk, uncertainty and the failure of voluntary health care insurance 32
Externalities 41
Licensure and asymmetry of information 43
Relevance of economics to government intervention 47
Conclusions 50
II HEALTH CARE SYSTEMS AND THEIR OBJECTIVES 53
4 Methods of Funding Health Care 55
Introduction 55
iii
Contents
Public/private mix in finance and provision 57
Rewarding the providers 58
Private health care insurance 60
Direct tax system 64
Public health care insurance 67
Other financing mechanisms 69
Conclusions 70
5 ECONOMIC OBJECTIVES OF HEALTH CARE 73
Introduction 73
Efficiency 73
Equity 76
Confronting the confusion: what do we mean by equity? 77
The economics and philosophy interface – theories of equity 85
Towards some operational equity goals 86
Interaction between equity and efficiency 87
Conclusions 88
III AREVIEW OF EMPIRICALFINDINGS 89
6 Countering Consumer Moral Hazard 91
Introduction 91
Policy responses to consumer moral hazard 92
Evidence on countering consumer moral hazard 93
Conclusions 114
7 Countering Doctor Moral Hazard 116
Introduction 116
Methods of paying doctors 117
Fee for service: does supplier inducement really exist? 118
Alternatives to fee for service 125
Conclusions 141
8 Countering Moral Hazard in the Hospital Sector 143
Introduction 143
Theoretical perspectives 144
Methods of reimbursing hospitals: a case of
minding our Ps and Qs? 147
Empirical evidence on reimbursing hospitals 152
Does ownership make a difference? 165
Towards a solution: back to budgeting? 167
Conclusions 169
9 Achieving Equity 171
Introduction 171
The role of government in health care financing 172
iv
Contents
Evidence on vertical equity 173
Evidence on equity as access 180
Conclusions 195
IV FUTURE CHALLENGES 199
10 Future Considerations: Setting the Health Care Budget 201
Introduction 201
What are the determinants of total health care spending? 202
What is the appropriate level of spending? 208
Moving forward: from QALYleague tables to programme
budgeting and marginal analysis 211
Social determinants of health 214
Conclusions 218
11 Health Care Financing Reforms: Where Now for the Visible Hand? 219
Introduction 219
The contribution of economic theory 220
Empirical findings – how health services should be financed 221
Determining the size of the budget 226
Conclusions 226
Notes 228
References 232
Index 272
v
LIST OF FIGURES AND TABLES
FIGURES
2.1 Demand for and supply of health care 20
2.2 Long-run market equilibrium 22
3.1 Effect of insurance on demand for health care 36
4.1 Public/private mix in health care financing and provision 57
10.1 Health care expenditure as a percentage of GDP: US,
Canada and UK, 1979–99 206
10.2 Diminishing marginal returns to health care 208
10.3 Grossman model of inputs to and outputs from health 214
TABLES
3.1 Total health expenditure, percentage of total which is
public and ranking in terms of proportion of total which is public
in OECD countries (1990 and 1998) 51
4.1 Options arising from funding arrangements for health
services: controlling moral hazard and adverse selection 71
5.1 Operational definitions of efficiency 76
5.2 Operational definitions of equity 80
5.3 Some economists’ concepts of equity 86
5.4 Some philosophers’ concepts of equity 87
8.1 Retrospective versus prospective reimbursement: effects
on length of stay 153
8.2 Retrospective versus prospective reimbursement: effects
on outcome/quality of care 154
8.3 Effects of prospective payment on cost-shifting 156
8.4 Effects of prospective payment on patient-shifting 157
8.5 Effects of budgeting on costs and outcomes 159
8.6 Effects of competition on costs 160
8.7 Effects of competition on outcomes 161
8.8 Studies of effect of ownership on costs 166
9.1 Progressivity (Kakwani) indices for health care expenditures 174
vi
List of figures and tables
9.2 Redistributive effect of health care expenditure 175
9.3 Proportion of households with catastrophic health expenditures 177
9.4 Percentage of the population covered by government assured
health insurance in the OECD 1960 and 1997 182
9.5 Progress towards achievement of RAWPtargets in
UK NHS, 1993/94 to 1988/99 195
10.1 Per capita health care expenditure, 1998 203
10.2 Studies of the association between national income and
health care spending 204
10.3 Expenditure in health in low- , middle- and high-income countries 205
10.4 Health care expenditure per capita, male life expectancy and
perinatal mortality (OECD countries) 209
10.5 Percentage changes in age-specific mortality rates resulting
from a 10 per cent change in several variables 217
vii
NOTES ON AUTHORS
Cam Donaldson holds the Health Foundation Chair in Health Economics at the
University of Newcastle upon Tyne, where he is based in the Centre for Health
Services Research and jointly appointed to the School of Population & Health
Sciences and the Business School (Economics). He is a Public Service Fellow in the
ESRC Advanced Institute of Management Research (AIM) (for 2003–04) and
Research Professor at the University of Calgary. Cam has also held the Svare Chair
in Health Economics at the University of Calgary, where he was a Canadian
Institutes of Health Research Senior Investigator and Alberta Heritage Senior
Scholar, and has been a professor at the University of Aberdeen in the UK, from
where he obtained his PhD in Economics. He has published widely on his research
interests of financing and organisation of health care, measuring the benefits of
health care, economic evaluation and using economics in health care priority set-
ting. He sits on the editorial boards of Health Economicsand Health Policyand is an
advisory editor for Social Science and Medicine.
Karen Gerardholds the positions of Senior Lecturer in the Health Care Research
Unit, Faculty of Medicine, Health and Life Sciences at the University of
Southampton and Senior Visiting Fellow, Health Economics Research Centre at
the University of Oxford. She has published widely, her main research interests
relating to: health care financing systems; economic evaluation methods and
applications; using economic information to promote efficient and equitable
decision-making at patient and societal levels; and measurement and valuation of
economic outcomes, especially stated preference choice modelling techniques. She
has applied a number of these interests in a variety of contexts, most recently in
primary care and chronic disease. Karen also leads the health economics pro-
gramme of research and education at the University of Southampton.
Stephen Jan is a Lecturer in the Health Economics and Financing Programme,
Health Policy Unit, London School of Hygiene and Tropical Medicine and a mem-
ber of the Social and Public Health Economics Research (SPHERe) Group at Curtin
University of Technology. He completed his PhD at the University of Sydney
examining institutionalist economic approaches in the analysis of health sector
decision-making and evaluation – an area in which he has since published quite
viii
Notes on authors
extensively. His other research interests include the economics of health sector
regulation, dual job holding amongst medical practitioners in low- and middle-
income countries, equity in resource allocation and Aboriginal health.
Craig Mittonis a Research Scientist in the Centre for Healthcare Innovation and
Improvement in the British Columbia Research Institute for Children’s and
Women’s Health and Assistant Professor in the Department of Health Care
andEpidemiology at the University of British Columbia. From 2001–03, Craig held
a post-doctoral fellowship, funded by the Canadian Health Services Research
Foundation and based jointly in the Centre for Health and Policy Studies at the
University of Calgary and the Division of Health Sciences at Curtin University,
Perth, Australia. The focus of his research is in the application of health economics
to impact real-world priority setting activity in health organisations, an area in
which he is widely published.
Virginia Wiseman is a Lecturer in Health Economics in the Gates Malaria
Programme and Health Policy Unit at the London School of Hygiene and Tropical
Medicine. She is also a member of the Social and Public Health Economics
Research (SPHERe) Group based at Curtin University in Perth, Western Australia.
Her research interests include equity, the role of community preferences in priority
setting and the financing and delivery of heath care programmes in low- and
middle-income countries. Virginia has recently received a grant from the Gates
Malaria Partnership to investigate the social and economic determinants of
demand for malaria treatment and prevention in East and West Africa.
ix