Health Economics and Health Policy

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Health Economics and Health Policy

• Victor R. Fuchs
• Henry J. Kaiser Jr. Professor Emeritus
• Stanford University
• Department of Health
• London
• 9 May 2003

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• the age of chivalry is gone. That of
  sophisters, economists, and calculators has
  succeeded and the glory of Europe is
  extinguished forever
• Edmund Burke

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• When the sentimentalist and the moralist
  fails, he will have as a last resource to call in
  the aid of the economist.
• Edwin Chadwick

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What Are Policy-Makers Trying To Do?

• Assure access to medical care
• Control the rate of growth of expenditures for
  medical care
• Protect and improve the health of the population
• Achieve efficient use of health care resources
• This above all Avoid bad headlines

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How Is Britain Doing?
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• Fewer physicians per 1,000 population than most
  other western countries. Approximately 35
  percent below the mean of 12 countries
• Fewer hospital beds per capita than most other
  countries. ( Exact comparisons are suspect
  because beds serve different purposes in
  different countries)

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• Lower health expenditures per GDP than other
  countries. Approximately 22 percent below mean
  of 11 countries (U.S. not included)
• Higher (8 percent) age-adjusted death rate than
  12 country mean. Slightly slower rate of decline
  in age-adjusted mortality since 1961, -1.28 vs.
  12 country mean of 1.42. Excluding Japan, the
  mean is -1.33.

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Health Care Expenditure As Percent of GDP 149
Countries in Late 1990s Averages by Decile of
Real GDP per Capita
Percent
Percent
10.0
10.0
9.0
9.0
8.0
8.0
U.K.
7.0
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
0.0
0.0
2.0
2.0
500
2,000
5,000
30,000
1,000
10,000
GDP per capita, 1999 U.S. dollars (logarithmic
scale)
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Life Expectancy at Birth, 149 Countries in late
1990s, Averages by Decile of Real GDP per Capita
Years
90
90
80
80
U.K.
70
70
60
60
50
50
U.S. 1900
40
40
0
0
30
30
500
1,000
5,000
10,000
30,000
2,000
GDP per Capita, 1999 U.S. dollars (logarithmic
scale)
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Efficiency

• Who knows?
• Extremely difficult to measure output

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Two principal aspects of efficiency

• Efficiency in utilization of services
• Demand side constraints
• Supply side constraints
• Efficiency in production of services
• Scale of production
• Mix of inputs
• Getting the right scale and mix requires

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• Knowledge
• data, analyses
• Incentives
• physicians, administrators,
• planners

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What Do Economists Have To Contribute to Health
Policy?
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• Realistic approach to lifes problems neither
  romantic nor monotechnic
• Aptitude and training for quantitative analysis
• Some understanding of decision-making in the face
  of uncertainty
• Experience in comparing benefits and costs (risks)

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• Ability to think in systemic terms you cant
  change only one thing
• Appreciation of the difference between average
  and marginal measures
• Appreciation of the difference between a movement
  along a function and a shift in the function
• Appreciation of the difference between endogenous
  and exogenous variables

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Some Specific Areas For Collaboration Among
Economists, Physicians, and Policy-Makers
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• Evaluation of benefits and costs of new
  technologies
• Measurement of how incentives affect the behavior
  of patients, physicians, and hospital
  administrators
• Analysis of time trends and cross-sectional
  differences in utilization of medical care

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• Analysis of time trends and cross-sectional
  differences in health
• Monitoring results of demonstration projects
• Keeping policy-makers from making really big
  mistakes

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Current and Future Challenges to Health Policy

• How egalitarian a system does society want?
• How to find the right balance between
  administrative control and the market?
• How to determine an appropriate number and mix of
  health care personnel?
• How to finance health care expenditures?
• How to reimburse hospitals and physicians?
• How to deal with advances in medical technology?

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• The organization of medicine is not a thing
  apart which can be subjected to study in
  isolation. It is an aspect of culture whose
  arrangements are inseparable from the general
  organization of society.
• Walton H. Hamilton