sustainability of public health spending: the role of ...sustainability of public health spending:...

Sustainability of Public Health Spending: the role of Policy and

Institutions

JORNADA ANUAL SOCIETAT CATALANA DE GESTIÓ SANITÀRIA

Barcelona, 26 Nov 2015

Joaquim Oliveira Martins (OECD and PSL, University Paris-Dauphine)

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In 2013, OECD countries allocated on average around 9% of GDP to Health spending

Note: Excluding investments unless otherwise stated.1. Data refers to 2012.2. Including investments.

Health expenditure as a share of GDP, 2013 (or nearest year)

Source: OECD Health Statistics 2015, OECD; WHO Global Health Expenditure Database.

Health expenditure per capita varies more widely across OECD and non-OECD countriesHealth expenditure per capita, 2013 (or nearest year)

Note: Expenditure excludes investments, unless otherwise stated.1. Includes investments.2. Data refers to 2012.

Source: OECD Health Statistics 2015, OECD; WHO Global Health Expenditure Database.

The public sector is the main source of Health financing in most OECD countries (around 70% on average)

1. The Netherlands report compulsory cost-sharing in health care insurance and in Exceptional Medical Expenses Act under social security ratherthan under private out-of-pocket, resulting in an underestimation of the out-of-pocket share.2. Data refer to total health expenditure (= current health expenditure plus capital formation).3. Social security reported together with general government.

Expenditure on health by type of financing, 2013 (or nearest year)

Source: OECD Health Statistics 2015, OECD

After the crisis several European countries cut their health spending

Annual average growth rate in per capita health expenditure, real terms, 2005 to 2013 (or nearest years)

1. Mainland Norway GDP price index used as deflator. 2. CPI used as deflator.


6Source: OECD Health Statistics 2015

OECD average

Pharmaceutical and prevention spending have been the main areas for cuts in OECD countries

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Growth in health spending is starting to pick-up again after the fall during the crisis

-1%

0%

1%

2%

3%

4%

5%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Est.

Per capita health spending growth rates, in real terms2001-2014

OECD OECD (EU) OECD (non-EU)

Source: OECD Health Statistics 2015

Public Health spending has displayed a long-term tendency to increase in % of GDP

Public Health and LTC expenditure as a % of GDP, OECD countries

8Source: OECD Health database (2011).

Future Health expenditure pressures are sizeable (much larger than pension systems)

9

0

2

4

6

8

10

12

14

16

18% 2006-2010

Cost pressure, 2060

Cost containment, 2060

Projections by country of Public Health + Long-term care expenditures (in % of GDP)

Source: de la Maisonneuve and Oliveira Martins (2013)

The age structure of Health expenditures will significantly change

Expenditure shares below and above 65

0

10

20

30

40

50

60

70

2010 2030 2060

People aged below 65People aged over 65

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NB: Non-demographic effects are assumed to be homothetic across ages, so they do not change the age structure of spending

Main health expenditure drivers

Health care expenditure

Demography(I)

Income(II)

Residual(III)

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It is not ageing per sethat will create

expenditure pressures

Only an income elasticity of 1.8 could explain most of the

expenditure growth in the OECD

The share of population aged over 65 and 80 countries will increase sharply between 2010-50

Source: OECD Historical Population Data and Projections Database, 2015

3X2X

Cross section of OECD countriesSources: EC + National sources

Spending p.c. in group [i]

normalised by GDP p.c.

13

010

2030

% o

f GD

P pe

r cap

ita

2 7 12 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97age (middle of 5-years age brackets)

Health care expenditures per capita increase by age groups, but not because of ageing per se

Health income elasticity is not very high

Source: Getzen (2000) and authors’ compilation. 14

Papers ElasticityIndividuals (Micro)Newhouse and Phelps (1976) <1Manning et al. (1987) ≈0Regions (Intermediate)Feldstein (1971) 0.5Backer (1997) 0.8Nations (Macro)Newhouse (1977) 1.3Fogel (1999) 1.6

Taking into account cointegration Baltagi and Moscone (2010) <1Bech et al . (2011) ≈1Dreger and Reimers (2005) ≈1Freeman (2003) ≈0.8Narayan et. al (2011) <1

Using Instrumental VariablesAcemoglu et al. (2009) 0.7

Holly et al (2011)0.75-0.95

(In the fixed effect model and much smaller in the dynamic one)

This paper 0.5 - 1.0(Depending on the specification)

What is the size of the unexplained expenditure residual?

Average annual growth rate 1995-2009 of health expenditures per capita (in %)

15With an income elasticity of 0.8

Health spending Age effect Income effect Residual

Memo item : Residual with

unitary income elasticity

Selected countries:

Austria 3.3 0.4 1.3 1.5 1.2Denmark 3.7 0.2 0.8 2.7 2.5Finland 4.1 0.6 2.0 1.5 1.1France 1.6 0.5 0.9 0.3 0.0Germany 1.7 0.6 0.8 0.2 0.0Italy 3.1 0.6 0.4 2.1 2.0Japan 2.7 1.2 0.8 0.7 0.5Korea 11.0 1.1 3.1 6.5 5.7Netherlands 5.2 0.5 1.4 3.3 2.9Portugal 4.6 0.6 1.5 2.4 2.0Spain 3.4 0.5 1.5 1.4 1.0Switzerland 2.9 0.4 0.9 1.6 1.4United Kingdom 4.6 0.2 1.5 2.8 2.5United States 3.6 0.3 1.1 2.3 2.0

OECD total average 4.3 0.5 1.8 2.0 1.5BRIICS average 6.2 0.5 3.2 2.5 1.7Total average 4.6 0.5 2.0 2.0 1.5

Unbundling the expenditure residual

Residual(III)

a) Relative prices

b) Technology

c) Institutions and policies

If price elasticity is below 1 then price increases also

increase expenditure 16

Unbundling the expenditure residual

Residual(III)

a) Relative prices

b) Technology

c) Institutions and policies

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More recent work investigates (1) the relationship between policy and institutional factors and healthcare expenditures and (2) how much policy/institutions can explain of cross-country dispersion in expenditures (work in progress)

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Future health gains could be achieved through efficiency-enhancing reforms and

better management of health systems

Characterizing health care systems: country groups

Source: Joumard, André and Nicq (2010), "Health Care Systems: Efficiency and Institutions " , OECD Economics Department Working Papers. No. 769.

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No health care system clearly outperforms the others

Source: Joumard, André and Nicq (2010), "Health Care Systems: Efficiency and Institutions", OECD Economics Department Working Papers, No. 769.

The correlation between health care spendingand outcomes suggests efficiency gains

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72

74

76

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0 1000 2000 3000 4000 5000 6000 7000 8000

Total expenditure on health per capita, US $ PPP

Life expectancy at birth, years

Source: OECD Health Data 2010.

The average length of stay in hospital has fallen in nearly all OECD countries, reflecting efficiency gains

Average length of stay in hospital, 2000 and 2013 (or nearest year)

1. Data refer to average length of stay for curative (acute) care (resulting in an under-estimation).


Policy and Institutional

determinants of Health spending

The information concerning the set of different policies and institutions used in this

paper was derived from official questionnaires sent to governments by the OECD. This qualitative information

(269 variables) was transformed into quantitative indicators, ranging from 0-6.

This set of indicators for policies and institutions was subsequently limited to 20

(see Paris et al., 2010).

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Policy and institutions indicators

Category Institutional aspect Variable name Short definition and interpretation

Effect on health spending Expected Estimated

Linear model Estimated Non-Linear model

Supply-side Provider payment

Physician payment Incentives for higher volume in physician payment mechanisms (primary care, outpatient and inpatient specialists): predominant mechanism(s) from salary, capitation, FFS (higher score = stronger incentive to generate volume)

Positive Negative Negative


Hospital payment Incentives for higher volume in hospital payment mechanisms: line-item or prospective global budgets, per case/DRG, per procedure/diem, retrospective funding, and their combinations (higher score = stronger incentive to generate volume)

Positive No effect No effect


Incentives for quality Incentives for health care quality (patient outcomes and satisfaction): guidelines/protocol adherence incentives (including financial) and sanctions for physicians and/or specialists and/or hospitals (higher score = stronger incentives)

Ambiguous Positive Positive

Supply-side Provider competition

Choice among providers Degree of patient choice of physician, specialist and hospital (higher score = more choice)

Negative No effect No effect

Supply-side Insurer competition

User choice of insurer Single or multiple insurers; degree of patient choice of insurer for basic coverage and their market shares (higher score = more choice)

Ambiguous No effect Positive

Supply-side Insurer competition

Lever Existence of levers for competition in insurance markets: whether insurers have some control on benefit package, level of coverage and premia, and whether they can selectively contract with providers (including pharmaceutical companies); existence of risk-equalisation/risk-adjustment schemes; availability of consumer information on premia/coverage (higher score = more levers for competition)

Negative No effect Negative

Supply-side Workforce supply

legislation

Regulation of physician supply

Existence of quotas for medical students, specialties and location; policies for shortage/redistribution (higher score = stronger regulation)

Ambiguous Positive No effect

Supply-side Hospital supply legislation

Regulation of capital investment

Regulation of hospitals (opening, bed supply, services, high-cost equipment): quotas, authorisation at local and/or central level (higher score = stronger regulation)

Negative Negative Negative

Supply-side Provider price regulation

Regulation of price for physician services

Regulation of prices/fees for physician services: degree of flexibility for charges (higher score = less flexibility, stronger regulation)


Category Institutional aspect Variable name Short definition and interpretation

Effect on health spending Expected Estimated

Linear model Estimated Non-Linear model

Supply-side Workforce supply

legislation

Regulation of physician supply

Existence of quotas for medical students, specialties and location; policies for shortage/redistribution (higher score = stronger regulation)

Ambiguous Positive No effect

Supply-side Hospital supply legislation

Regulation of capital investment

Regulation of hospitals (opening, bed supply, services, high-cost equipment): quotas, authorisation at local and/or central level (higher score = stronger regulation)



Regulation of price for physician services

Regulation of prices/fees for physician services: degree of flexibility for charges (higher score = less flexibility, stronger regulation)



Regulation of price for hospital services

Regulation of prices for hospital services: degree of flexibility for setting charges (higher score = less flexibility, stronger regulation)



Regulation of pharmaceutical price

Regulation of pharmaceutical prices: degree of flexibility that companies have to set their prices (higher score = less flexibility, stronger regulation)



Regulation of prices charged to third-party

Regulation of prices/fees paid to providers by third-party payers


Supply-side Budget caps Stringency of budget constraint

Expenditure targets or strict health budget and their allocation levels; consequences of budget constraint, including waiting times and compensation from providers to NHS/SHI (higher score = stronger presence and effects of budgets)


Supply-side Budget caps Control of volume Monitoring, regulations and controls on volumes of care: activity volume, monitoring of guideline adherence, drugs advertising to consumers, physician payment reduced according to exceeded volume targets (higher score = stronger controls)

Negative Positive Positive

Demand-side Gatekeeping Gatekeeping Requirement/incentives to register with primary care physician and/or referral to secondary care (higher score = more stringent gatekeeping)


Demand-side Cost-sharing Depth of basic insurance Basic primary services coverage with or without copays for 10 care functions (higher score = wider scope and more depth of coverage)

Ambiguous Positive Positive

Policy and institutions indicators (ct’d)

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Model 1: traditional determinants of spending (income, age, prices and technology/quality), time and country-specific effects – FE estimation

Econometric specifications

Model 2: country-specific effects replaced by time-invariant policy and institutional variables (k = 20) – pooled OLS estimation

Model 3: non-linearities through interactions between the vector of policy and institutions and all other explanatory variables – non-linear LS estimation

Baseline results:

Publichealth

spendingper capita

Similar results for:Total health spending

Indicators added one-by-one

Institutions explain well and expenditure residuals across countries

Note: Residuals after age, income, relative prices and technology have been taken into account.

– Reasonably good fit between expected signs of coefficients for the institutional indicators and actual estimates: • The models including policies can explain most of of

cross-country dispersion in health expenditures

– Policies and institutions matter for differences in health care spending:• Supply (e.g., competition, tighter regulation of service

prices) and demand (e.g., more explicit definition of the publicly funded benefit package) matter for cost-containment

Main conclusions

OECD References:

• Joumard, André and Nicq (2010), "Health Care Systems: Efficiency and Institutions", OECD Economics Department WorkingPapers, No. 769.

• de la Maisonneuve, Christine and Joaquim Oliveira Martins (2014), “The future of health and long-term care spending”, OECD Journal: Economic Studies.

• de la Maisonneuve, Moreno-Serra, Murtin, Oliveira Martins (2015), ”The role of Policy and institutions on Health Spending”, OECD Economics Department Working Papers (forthcoming; presented at iHEA, Milan, July 2015)

• OECD (2015), Health at a Glance, Paris www.oecd.org/health/healthataglance

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Moltes gràcies!Thank you!

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