Karen Gerard

Economics of health care financing : the visible hand

Contents PART ONE: MARKETS AND MARKET FAILURE IN HEALTH CAREnHealth Care Financing Reforms: Moving into the New MilleniumnMarkets and Health Care: The Basic TheorynMarket Failure in Health Care PART TWO: HEALTH CARE SYSTEMS AND THEIR OBJECTIVESnMethods of Funding Health CarenEconomic Objectives of Health Care PART THREE: A REVIEW OF EMPIRICAL FINDINGSnCountering Consumer Moral HazardnCountering Doctor Moral HazardnCountering Moral Hazard in the Hospital SectornAchieving Equity PART FOUR: FUTURE CHALLENGESnFuture Considerations: Setting The Health Care BudgetnHealth Care Financing Reforms: Where Are We Now?

A cost utility analysis of mammography screening in Australia

Cost utility analysis is the preferred method of analysis when quality of life instead is an important outcome of the project being appraised. However, there are several methodological issues to be resolved in implementing cost utility analysis, including whether to use generalised measures or direct disease specific outcome assessment, the choice of measurement technique, and the combination of different health states. Screening for breast cancer meets this criterion as mammographic screening has been shown to reduce mortality; and it is said that earlier treatment frequently results in less radical surgery so that women are offered the additional benefit of improved quality of life. Australia, like many other countries, has been debating whether to introduce a national mammographic screening programme. This paper presents the results of a cost utility analysis of breast cancer screening using an approach to measuring outcome, Healthy Year Equivalents, developed within this study to resolve these problems. Descriptions of breast cancer quality of life were developed from surveys of women with breast cancer, health professionals and the published literature. The time trade off technique was then used to derive values for breast cancer treatment outcomes in a survey of women in Sydney, Australia. Respondents included women with breast cancer and women who had not had breast cancer. Testing of (i) the effect of prognosis on the value attached to a health scenario; and (ii) whether the value attached to a health scenario remains constant over time has been reported. The estimate of the net costs of screening are reported. The costs of breast cancer screening include the screening programme itself, the further investigations and the subsequent treatment of breast cancer cases. Breast cancer is treated in the absence of screening, many commentators claim earlier treatment is costly but there is little evidence. Therefore we have investigated current patterns of breast cancer treatment, current use of investigations for women presenting with symptoms and current use of covert mammography screening. The results are extrapolated to obtain estimates of the costs and outcomes presented as cost per healthy year equivalent. This analysis produces important information for the Australian policy debate over mammography. It also contributes to the development of cost utility analysis and the approach developed here can be applied more generally.

Cost-utility in practice: A policy maker's guide to the state of the art

In recent years QALYs (quality adjusted life years) have achieved considerable fame or perhaps even notoriety in health services policy making. Yet little has been done to date to assess the potential benefit in policy terms of studies that have used cost-utility analysis (CUA). It was in recognition of this fact that this particular investigation was undertaken. An evaluation of 51 cost-utility studies is reported in the paper. Several criteria were applied to each study including aspects of technical and policy relevance. The main findings were: few studies had been undertaken; they were limited to few areas of health care; their technical execution was often of poor quality; the majority of studies used the empirical findings of health state valuations obtained from original developers of different quality of life techniques; and many claimed their results to be favourable (i.e. efficient interventions). This claim, however, is misguided because individual results get fed into generalised QALY league tables which ignore the context of specific studies and use results not performed on a common basis. Consequently, the state of the applied art of CUA is currently open to considerable question.

Setting priorities in the new NHS: can purchasers use cost-utility information?

It could be argued that the success of the new NHS depends, to some extent, on the production of accurate cost-utility information. This raises questions about the quality of this information, whether it can be transferred from one study setting to another and whether such information can reasonably be used at the negotiating table. The quality of some studies is open to question. Some agreement is needed on issues of principle and more work is required to make cost-utility analyses more applicable locally.

Countering Consumer Moral Hazard

The problem of moral hazard, and possible solutions to it, is one of the most researched areas in the economics of health care, as witnessed by the content of the following three chapters. Let us briefly review the concept of moral hazard introduced in Chapter 3. Inefficiency in health care arises because insurance-based systems, in common with tax-financed systems, face the problem of potential excess demand: that is, a demand in excess of what it is felt the system ought to provide as a result of the benefits of this excess demand being exceeded by benefits forgone (or opportunity cost). The reasons for the existence and persistence of such excess demand are basically twofold: the problem arises from the absence (or the lowering) of a financial barrier to care on the side of demand; and, on the side of supply, financial arrangements enable (even encourage) providers to supply wasteful amounts. Supply-side effects are often exacerbated by a legal environment that encourages what has become known as ‘defensive’ medicine, a style of practice that minimises the probability of legal action for malpractice — but often only at considerable cost. The problem of changing attitudes of consumers and suppliers of care in response to such ‘perverse’ financial arrangements has become known in the literature as the problem of ‘moral hazard’, and it is moral hazard which leads to potential excess utilisation of health care.

Countering Doctor Moral Hazard

Provider moral hazard can take one of two forms: specifically, that which occurs within identifiable actors in the health care system, for the most part doctors; and, more generally, that which occurs within institutions, without being narrowed down to the behaviour of identifiable individuals or groups of people. In this chapter, we are concerned with the former of these. In the next chapter, the latter issue will be addressed within the context of different financial arrangements for payment of hospitals for the care they provide.

Market Failure in Health Care

It takes but a moment’s thought to realise that not many markets possess all of the ideal characteristics outlined in the previous chapter. Thus, many commodities are not traded in perfect markets. Even in the most market-orientated economies a common, everyday commodity like food is subjected to some level of government intervention in its financing, and sometimes in its provision. On the demand side of the market, income subsidies are provided to certain groups of people to give them the ability to purchase the basic necessities of life, including food. On the supply side, many countries have farming subsidies and employ a food inspectorate to monitor the standards of food and its packaging, and to impose restrictions on certain food imports while promoting their own exports.

Economic Objectives of Health Care

In this chapter the economic objectives of health care systems are explored in some detail. The point of doing this is to come up with some operational definitions that can be systematically used to judge performance. The key economic objectives relate to efficiency and equity. Defining the term efficiency is somewhat more straightforward than defining the term equity, so this chapter is deliberately devoted more to the equity debate than to the efficiency one. This imbalance is further justified by the fact that, up to now, we have given more space (in Chapters 2 and 3) to the notions of efficiency than to notions of equity.

Countering Moral Hazard in the Hospital Sector

Financial incentives operate on institutions as well as on individual actors within any health system. Therefore, it is important to review the effect of different methods of financing on hospital behaviour. This is not only because there is a large, though incomplete, volume of literature on the subject of hospital financing but also because hospitals are the single most identifiable group of users of health care resources in any economy. For instance, in 1982, the hospital sector accounted for approximately 42 per cent of health care expenditures in the USA and Australia, 41 per cent in Canada and 62 per cent in the UK (OECD, 1987). Obviously, then, the nature of reimbursement of the hospital sector will play an important role in determining not only the level and nature of hospital activity itself but also the extent of control over total health service costs.

Health Care Financing Reforms: Challenges for the 1990s

The financing arrangements of many health care systems world wide are under reform, or at least their reform is anticipated. The key to judging such reforms is whether they make things better or worse for the population at large. Our primary objective has been to show the essential role of economics in assessing performance within this climate of change. The two powerful economic criteria against which change should be assessed are, of course, efficiency and equity; the former being concerned with the need to finance services in a way that maximises the well-being of the community and the latter with access to health services for less well-off groups in need. When examined against these criteria, the economic arguments are as strong as the social and ideological arguments in favour of extensive government intervention in health care financing.