Investing in Health: More Than Just Containing Costs

1
Investing in Health More Than Just Containing
Costs

• Marco R. Di Tommaso
• University of Ferrara
• Stuart O. Schweitzer
• University of Ferrara and
• University of California, Los Angeles (UCLA)
• Presented to the Ferrara Graduate School in
  Industrial Development Policy, September 2002

2
The Association between Health Expenditures and
Prosperity is Strong

• Do wealthier countries spend more on health
  services?
• National Income Health Expenditures
• Or do healthy populations improve a nations
  wealth?
• Health Expenditures National Income
• The answer is BOTH!
• Greater Health
  Expenditures
• Wealth
  Higher Productivity

3
New evidence shows the effect of increased health
expenditures on wealth applies to industrialized
countries as well as to developing countries

• The Health Industry Project of the University of
  Ferrara has studied the macroeconomic effects of
  spending on high-technology RD for
  industrialized countries
• The World Health Organization (W.H.O.) has just
  completed a study of investment on health in
  developing countries
• Jeffrey D. Sachs, et al., Macroeconomics and
  Health Investing in Health for Economic
  Development Report of the Commission on
  Macroeconomics and Health (Geneva W.H.O.), 20
  December 2001

4
We look at the effect of Health and Health
Expenditures on Economic Development in

• Developing Countries
• The W.H.O. Framework
• Industrialized Countries
• The University of Ferrara Health Industry Project

5
The W.H.O. analyzes the effect of health
expenditures on

• Disease erradication
• Childhood Education
• Sick children dont learn well
• Maintenance of family structure
• Families without mothers or fathers suffer
• Improved worker productivity
• Countries have to improve the ability of workers
  to learn new skills

6
Prevalent diseases of poor countries can be
improved with investment in health

• Health services
• Especially primary care and pharmaceuticals
• Health infrastructure
• Primary care centers
• Access to appropriate drugs
• Systems to bring vaccines and other services to
  rural populations, including
• Health knowledge
• Cold Chain distribution
• Nutritional products
• Simple devices such as mosquito nets

7
Needed investments are greater than poor
countries can afford

• The cost of these improvements will be 30-40
  per person per year
• Much more than poor countries currently spend on
  health
• Development stagnates until advances in health
  improves
• Requires improved infrastructure within a country
• Facilities and training of practitioners
• But investments by poor countries will never be
  sufficient
• Major investment program by wealthy countries is
  needed

8
The returns to health investments in poor
countries has been underestimated

• The improvements in social structure and
  productivity are very large
• Investments can actually bring about economic
  development
• And lack of investment will inhibit development
  and lead to stagnation

9
We turn now to the effects of health investments
in industrialized countries

• The University of Ferrara Health Industry Project
• Started in 1999 at the Faculty of Economics at
  the University of Ferrara, in Italy
• Merges perspectives of Health Economics and
  Industrial Policy
• Studies government policies to promote
  high-technology industries and national and
  regional development

10
Health systems in wealthy countries differ widely

• Structure
• Share of nations wealth
• Level of RD Spending
• Adoption of new technology
• How can these differences be explained?

11
How large is the health sector?

• Look at share of GDP
• Per capita health expenditures
• Share of Employment

12
Share of GDP Allocated to Health in the G-7
Countries, 1997
13
Per Capita Health Expenditures in the G-7
Countries, 1997
14
Health Services Employment and Share of Total
Employment in the G-7 Countries, Selected Years
15
The health sector is large for all industrialized
countries

• Major consumer of national wealth
• Major employer of a countrys labor force
• Often high-wage
• Cyclically stable
• Prestigious sector

16
Pressures for growth in health expenditures
continue to grow

• New technologies
• Demographic trends
• Greater consumer expectations
• How will governments respond?

17
To better understand the health sectors role, we
present two models

• The Health Model
• The Health Industry Model

18
The Health Model

• This is the traditional way of viewing the health
  sector
• Its goals are two
• To produce an acceptable level of health
• Within a constrained budget

19
The Health Industry Model (HIM)

• The HIM views the health sector as a group of
  industries that produces
• Health
• and also produces
• Scientific research
• Spillovers to other industries
• Services and products sought worldwide

20
The Health Industry Model

• This new perspective identifies
• Three industry groups
• Service providers
• Financing organizations
• Manufacturers

21
The Structure of the Health Industry
22
Providers

• Inpatient
• Hospitals
• Nursing homes
• Rehabilitation centers
• Ambulatory
• Clinics
• Diagnostic centers
• Home care
• Pharmacies

23
Financing organizations

• Government
• Government health systems
• Quasi-government sickness funds
• Private insurance
• Many countries have a blend of government and
  private payers

24
Manufacturers

• Pharmaceuticals
• Medical equipment
• Highly RD intensive
• Innovation also requires flow of information to
  physicians and patients
• Marketing and public-good knowledge

25
RD is the Engine of the Manufacturing
Industries

• Countries differ in their RD activity

26
The example of pharmaceutical RDexpenditures in
selected countries, 1998(millions of Euros)
27
Implications of the models

• Both models require an acceptable level of health
• The Health Industry Model adds new objectives

28
New objectives of the Health Industry Model

• 1. Growth in innovative sectors such as
  biotechnology, bioengineering, and software
• 2. Exploitation of spillovers between scientific
  areas
• 2. Export growth
• 3. A competitive RD sector
• 4. Growth in high value-added and
  knowledge-intensive sectors

29
Effect on health expenditures

• By redefining output to include additional
  objectives, optimal health expenditures will rise
  such that
• Marginal value of resources Value of marginal
  output

30
Conclusion

• A new view of the health sector suggests new
  goals for health systems
• Justifies greater involvement of public sector
• Direct and indirect roles to stimulate industries
• Adherence to the HIM explains differences in RD
  investment and innovation in high-technology
  industries across health systems