Ismo Linnosmaa

Price-cost margin in the pharmaceutical industry

This contribution estimates the price-cost margin in the Finnish pharmaceutical industry. The estimation is based on the method developed by Hall who shows that under constant returns to scale total factor productivity growth depends on the growth of output-capital ratio if the market is imperfectly competitive. Measurement of the price-cost margin is based on this theoretical result. We utilize data on the Finnish pharmaceutical industry. The data cover the years 1975–1999 and include information on output, labor hours, and capital stock. The results show that the estimated price-cost margin is in the range 0.59–0.67, which is close to the estimates obtained in the United States market.

The Association between Freedom of Choice and Effectiveness of Home Care Services

Objectives: The aim of this paper is to study home care clients’ freedom to choose their services, as well the association between the effectiveness of home care services and freedom of choice, among other factors. Methods: A structured postal survey was conducted among regular home care clients (n = 2096) aged 65 or older in three towns in Finland. Freedom of choice was studied based on clients’ subjective experiences. The effectiveness of the services was evaluated by means of changes in the social-care-related quality of life. Regression analyses were used to test associations. Results: As much as 62% of home care recipients reported having some choice regarding their services. Choosing meals and visiting times for the care worker were associated with better effectiveness. The basic model, which included needs and other factors expected to have an impact on quality of life, explained 15.4% of the changes in quality of life, while the extended model, which included the freedom-of-choice variables, explained 17.4%. The inclusion of freedom-of-choice variables increased the adjusted coefficient of determination by 2%. There was a significant positive association between freedom of choice and the effectiveness of public home care services. Conclusion: Freedom of choice does not exist for all clients of home care who desire it. By changing social welfare activities and structures, it is possible to show respect for clients’ opinions and to thereby improve the effectiveness of home care services.

Public health care providers and market competition: the case of Finnish occupational health services

BackgroundAs reforms in publicly funded health systems rely heavily on competition, it is important to know if and how public providers react to competition. In many European countries, it is empirically difficult to study public providers in different markets, but in Finnish occupational health services, both public and private for-profit and non-profit providers co-exist. We studied possible differences in public providers’ performance (price, intensity of services, service mix—curative medical services/prevention, productivity and revenues) according to the competitiveness of the market.Materials and methodsThe Finnish Institute of Occupational Health (FIOH) collected data on clients, services and personnel for 1992, 1995, 1997, 2000 and 2004 from occupational health services (OHS) providers. Employers defray the costs of OHS and apply for reimbursement from the Social Insurance Institution (SII). The SII data was merged with FIOH’s questionnaire. The unbalanced panel consisted of about 230 public providers, totalling 1,164 observations. Local markets were constructed from several municipalities based on commuting practices and regional collaboration. Competitiveness of the market was measured by the number of providers and by the Herfindahl index. The effect of competition was studied by ordinary least square regression analysis and panel models.ResultsThe more competitive the environment was for a public provider the higher were intensity, productivity and the share of medical care. Fixed panel models showed that these differences were not due to differences and changes in the competitiveness of the market. Instead, in more competitive markets public providers had higher unit prices and higher revenues.

Market competition, ownership, payment systems and the performance of health care providers - a panel study among Finnish occupational health services providers.

Many health care reforms rely on competition although health care differs in many respects from the assumptions of perfect competition. Finnish occupational health services provide an opportunity to study empirically competition, ownership and payment systems and the performance of providers. In these markets employers (purchasers) choose the provider and prices are market determined. The price regulation of public providers was abolished in 1995. We had data on providers from 1992, 1995, 1997, 2000 and 2004. The unbalanced panel consisted of 1145 providers and 4059 observations. Our results show that in more competitive markets providers in general offered a higher share of medical care compared to preventive services. The association between unit prices and revenues and market environment varied according to the provider type. For-profit providers had lower prices and revenues in markets with numerous providers. The public providers in more competitive regions were more sensitive to react to the abolishment of their price regulation by raising their prices. Employer governed providers had weaker association between unit prices or revenues and competition. The market share of for-profit providers was negatively associated with productivity, which was the only sign of market spillovers we found in our study.

Assessing the effects of price regulation and freedom of choice on quality: evidence from the physiotherapy market

In health care, many aspects of the delivery of services are subject to regulation. Often the purpose of the regulated health care system is to encourage providers to keep costs down without skimping on quality. The purpose of this paper is to analyse the effect of price regulation and free choice on quality in physiotherapy organised by the Social Insurance Institution of Finland for the disabled individuals.We use the difference-in-differences method in our effort to isolate the effect of the regulation and for this task we have defined the regulated and non-regulated firms and their quality before and after the regulation. The variables needed in the econometric modelling were collected from several registers as well as by carrying out questionnaires on the firms.We show that price regulation decreased quality in physiotherapy statistically significantly and the mechanism was unable to incentivise firms to invest in quality. Most likely, our results are caused by cost reduction associated with price regulation. It seems that cost reduction was carried out through quality reductions in physiotherapy instead of increasing productivity. The result is sensible because comparable quality information is not published to support patient choice in this sector.

Does Competition Have an Effect on Price and Quality in Physiotherapy

We estimate the effect of competition on quality and prices in physiotherapy organised and financed by the Social Insurance Institution of Finland for disabled individuals. Within the physiotherapy market, firms participate in competitive bidding, prices are determined by the market, services are free at the point of use and firms are allowed to react to patient choice only by enhancing quality. Firm-level data (n = 854) regarding quality and price were analysed. Using 2SLS estimation techniques, we analysed the relationship between quality and competition, and price and competition. Our study found that competition has a negative (yet weak) effect on quality. Prices on the other hand are not affected by competition. The result is likely caused by imperfect information, because it seems that the Social Insurance Institution of Finland has provided too little information for patients to make adequate choices about proper service providers. We argue that by publishing quality information, it is possible to ease the decision-making of patients and influence the quality strategies of firms active in the physiotherapy market. Moreover, we found that competition appeared as an exogenous variable in this study. Copyright

An economic model to assess the cost-benefit of BNCT

We have constructed a formal model on cost-benefit of new technology in health care, and apply it on boron neutron capture therapy (BNCT). We assume that the patient health benefit from getting cured in acute treatment is always higher than the patient utility resulting from any long term treatment or death. This assumption makes it possible to evaluate the monetary cost impacts of a new technology and relate these measures to the patient health benefit.

Income as a Determinants for Old Age Institutional Care in Finland

Aim and Motivation: This paper investigates the income and socio-economic effects on institutional long-term care demand (LTC) in Finland from an economics perspective. If lessons are learned from major contributors of care needs and costs then preventative measures can be designed to answer these challenges. The motivation for this paper is that LTC costs are expected to increase in Finland by 50 percent per annum in the next 25 years due to the doubling of the 65 years old population (by 2039). Aging of populations and workforce is a European wide phenomenon. Definitions: LTC for old age people is by definition care for chronic sickness and disability in the last years of life. It can be either formal or informal care (or both) delivered to a homelike environment (home care) or given at an institution (institutional care).Methods: The economics of LTC care are reviewed based on existing literature. Next the econometric and institutional context is described. A longitudinal competing risks and multinomial logit model are estimated. The two competing risks are institutional entry or death outside institution. Data: Finnish Health2000 individual level survey data from year 2000 linked with a day-by-day care register follow-up till end of 2010. The sample consists of N=3245 over 50 year old age population.Results: It is found that higher household (OECD) and personal income reduce demand for institutional LTC care controlling for health, functional capacity and key living habits. The difference between extreme income quintiles (lowest vs. highest) is 1,3 percent for men and 0,6 percent for women. This result suggests that institutional care may include disutility from a consumer preferences point of view. The highest risks of institutional LTC care are found among small income, single living and cognitively disabled highly aged people (over 80, 90 years old). Neurological diseases and cancer are the biggest risk factors of institutional entry. For deaths outside institution the biggest risks are dementia and cancer. ADL problems and old age frailty contribute to both competing risks.Policy conclusions: There are significant socio-economic inequalities in institutional LTC care entry. Prevention of neurological and living habits diseases (smoking, weight disorders) has potential for cost savings in institutional care services.