ECON4615 Health Economics
Spring 2005
Teachers:
Tor Iversen (TI) – [email protected] - 7 lectures/2 seminars
Kari Eika (KE) – [email protected] - 7 lectures/4 seminars
Information about health economics research at UiO:
http://www.hero.uio.no
Course outline
Lectures:
1.
Introduction
2.
Health systems
3.
Demand for health and health services
4.
Demand for health insurance
5.
Distributional considerations
6.
Health service provision
Characteristics of demand and supply of health care
Private physician practice
Hospitals
Seminars:
1.
Health systems, prevention and cure
2.
Demand for health and health services
3.
Demand for health insurance
4.
Equity/Health service provision
5.
Health service provision
TI: 18.01
TI:25.01
TI: 1.02, KE: 8.02, 15.02
KE: 1.03, 8.03
KE: 15.03
KE: 5.04, 12.04
TI: 19.04, 26.04
TI: 3.05, 10.05
KE: 17.02
KE: 3.03, 17.03
KE: 17.03
KE: 21.04
TI: 28.04, 12.05
Compulsory term paper: Questions available: 18.03. Deadline for submission: 8.04
Examination: 30 May 9:00-12:00
Some reasons for economists’ interest in the
health sector
1. Substantial and growing sector of the economy
Total expenditure on health services (% of GDP)
1960 1970 1980 1990 1998 2000
USA
5,1 6,9 8,7 11,9 12,9 13,0
Germany
4,8 6,3 8,8 8,7 10,6 10,6
France
4,1 5,7 7,4 8,6 9,3 9,5
Denmark
..
.. 9,1 8,5 8,4 8,3
Norway
2,9 4,4 7,0 7,8 8,6 7,5
Sweden
4,5 6,9 9,1 8,5 7,9
Great Britain
3,9 4,5 5,6 6,0 6,8 7,3
Finland
3,9 5,6 6,4 7,9 6,9 6,6
Average
7,4 8,0 8,0
OECD
Source: NOU 2003:1
Source: OECD 2001
Source: NOU 2003:1
2001: 59400 full-time equivalents per year
1990-2000 growth:12 000 full-time equivalents
Development in technical efficiency and cost efficiency in Norwegian
hospitals 1992-2003 (1992 = 100).
Source: Samdata Somatikk 2003. SINTEF Helse Rapport 1/04.
2. We need information of whether resources are properly used
• Do all health services have a positive impact on health?
• Are there services where the costs exceed the willingness to pay?
– Insurance implies low co-payment and few incentives for patients to
balance expected effect against social costs
• In public systems with global budgets: Are there services not being
provided even if willingness to pay exceeds costs.
• Do organization, financing and payment systems influence to what extent
health policy goals are expected to be fulfilled?
3.
Markets imperfections may prevent social efficiency
from being achieved
• External effects
– Positive external effects of vaccination against infectious disease
• Patients have inferior information about the quality of
health services: experience goods
• Irreversibility
• Asymmetric information related to health insurance
– The insurer has imperfect information of health risks:
Adverse selection
– The insurer has imperfect information on preventive efforts: Ex
ante moral hazard
– The insurer has imperfect information of necessary treatment: Ex
post moral hazard
4. Public sector allocation has its own challenges
• The government as a single provider of compulsory insurance
• What kind of health services should be provided by the public
sector?
• What kind of patients should have priority?
– The most severly ill?
– Those for whom treatment has the greatest health effect?
– Those with greatest health effect per krone used?
Prioritizing services and groups of patients according to explicit
goals
•
The importance of the content of the criteria for priority-setting
•
Consider an example
Group I
Treatment I
5 years survival without 5 %
treatment
5 years survival with
15%
treatment
Treatment cost per
100.000
patient
Number of patients
100
Cost per saved life
1000.000
Group II
Treatment II
30 %
Group III
Treatment III
92 %
60 %
97 %
100.000
100
100
333.300
100
2.000
Alternative rules (criteria) for making priorities:
A: Priority according to the seriousness (prospects without the treatment)
of the disease
Prioritize according to increasing survival without treatment
B: Priority according to treatment effect
Prioritize according to difference in survival with treatment and
without treatment, such that the group with the greatest difference is
given first priority.
C: Maximize total health within the resource constraint
Prioritize according to increasing cost per saved life, such that the group
with lowest cost per saved life is given first priority.
D: Priority according to the seriousness of the disease constrained by an
upper limit on cost per saved life.
E: Maximize total health constrained by a lower limit on the seriousness
of disease
The importance of criteria for prioritizing the three treatments
Treatment I
Treatment II Treatment III
A:Priority according to seriousness
1
2
3
B:Priority according to treatment effect
2
1
3
C: Maximize total health
3
2
1
1
2
1
Not compatible
with constraint
D:Priority according to seriousness given Not compatible
that cost per saved life is less than
with constraint
900 000
E: Maximize total health given that the
probability of survival without treatment
is less than 90%
2
Some implications:
Optimal priority-setting depends on the aims that the health sector is expected
to pursue
It is possible to obtain a considerable total health gain by prioritizing treatments with modest
effect given that they are sufficiently inexpensive
Criteria C and E is at a disadvantage for patients who, because of some reason, do not
manage to get much health out of the health services
The cost of treatment relative to other treatments should not influence priority according to
criteria A and B.
The introduction of cost saving technologies should influence priorities according to criterion
C (and possibly D and E), but not according to criteria A and B
Cost- benefit analysis are relevant for priority decisions only according to criteria C, D and E
Hence, if you are in favor of criteria A or B, it is inconsistent simultaneously to argue that
cost-benefit analysis should have an increased role as a means to allocating resources
within the health sector
Economic incentives should have no effect on priorities according to criteria A and B
• In recent legislation in many countries it is stated that there should
be a reasonable relation between the potential health effect of a
treatment and its cost.
• But what is a reasonable relation?
• How should the effect of a treatment be documented?
• How should health effects be valuated allowing for comparison
between groups of patients? Some treatments save life while others
mainly improves quality of life
• Calculation of costs in missing or non existent markets and prices
Further questions:
•
What is the optimal level of patient copayment for health services?
•
Should copayments be differentiated across services?
•
Does type of payment system have any effect on decisions made by health
service providers?
•
How do health service providers respond to the characteristics of the health
care market?
•
What is the optimal payment system for health service providers?
•
How should provision of health services be organized?
•
How should insurance be organized? Public or private? Compulsory or
voluntary?
Important tasks for economists in planning and managing
the health care sector
• Hospitals, regional health enterprises, municipality and county level
of government, ministry of health, ministry of finance, medicine
agency, pharmaceutical industry, national and international
organizations
• Analysis of costs and benefits of specific diagnostics and treatments
• To give advice concerning institutional setups: organization and
payment system
• Economics still controversial in the health sector – professional self
governance has been the tradition. Physicians know best.
• A strong tendency in the direction of economic thinking having a
more influential role in the managing of the health sector
About the reading list
1.
2.
3.
4.
Introduction
OECD, 2003. Health at a glance – OECD indicators 2003 (OECD, Paris).
OECD, 2004. Towards high-performing health systems (OECD, Paris).
Health systems
Cutler, D.,2002. Equality, efficiency and market fundamentals: The dynamics of
international medical-care reform. Journal of Economic Literature 40, 881-906.
Kornai, J. and Eggleston, K., 2001. Welfare, choice and solidarity in transition
(Cambridge University Press, Cambridge) 47-99.
Demand for health and health services
Grossmann, M., 2000, The Human Capital Model. In A. J. Culyer and J.P.
Newhouse,
eds., Handbook of Health Economics (Elsevier Science
B.V., Amsterdam) 348-408.
Hey, J. D. and M. S. Patel, 1983, Prevention and cure? Or: Is an ounce of
prevention better
than a pound of cure? Journal of Health Economics 2,
119-138.
Health insurance
Rees R, 1989, Uncertainty, information and insurance, in J. D. Hey, ed., Current
Issues in Microeconomics (Palgrave Macmillan, London).
Arrow, K. E., 1963, Uncertainty and the welfare economics of medical care,
American Economic Review 53, 941-973.
5. Distributional considerations
Williams, A., Cookson, R., 2000. Equity in Health. In A.J.Culyer and J.P. Newhouse
(ed.):
Handbook of Health Economics, Volume 1B (Elsevier Science,
Amsterdam) 1863-1910.
6. Health service provision
Biørn, E., Hagen, T. P., Iversen, T., Magnussen, J., 2003. The Effect of ActivityBased Financing on Hospital Efficiency: A Panel Data Analysis of DEA
Efficiency Scores 1992–2000. Health Care Management Science 6, 271–283.
Chalkley, M., Malcomson, J. M., 2000. Government purchasing of health services. In
A.J.Culyer and J.P. Newhouse (ed.): Handbook of Health Economics Volume
1A, (Elsevier Science, Amsterdam) 847-889.
Eika, K. 2003. Low Quality-effective Demand, Memorandum 36/2003. Department of
Economics, University of Oslo.
Iversen, T., 2004. The effects of a patient shortage on general practitioners’ future
income and list of patients. Journal of Health Economics 23, 673-694.
McGuire, T. G., 2000. Physician agency. In A. J. Culyer and J. P. Newhouse:
Handbook of Health Economics, Volume 1A (Elsevier Science, Amsterdam)
461-536.
Norwegian speaking students will find useful information about the Norwegian health
care system in:
NOU:2003:1. Behovsbasert finansiering av spesialisthelsetjenesten (Statens
forvaltningstjeneste, Oslo).