ECON4615 Health Economics Spring 2005

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ECON4615 Health EconomicsSpring 2005

• Teachers
• Tor Iversen (TI) tor.iversen_at_medisin.uio.no - 7
  lectures/2 seminars
• Kari Eika (KE) kari.eika_at_econ.uio.no - 7
  lectures/4 seminars
• Information about health economics research at
  UiO
• http//www.hero.uio.no

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Course outline

• Lectures
• Introduction TI 18.01
• Health systems TI25.01
• Demand for health and health services TI 1.02,
  KE 8.02, 15.02
• Demand for health insurance KE 1.03, 8.03
• Distributional considerations KE 15.03
• Health service provision
• Characteristics of demand and supply of health
  care KE 5.04, 12.04
• Private physician practice TI 19.04, 26.04
• Hospitals TI 3.05, 10.05
• Seminars
• Health systems, prevention and cure KE 17.02
• Demand for health and health services KE 3.03,
  17.03
• Demand for health insurance KE 17.03
• Equity/Health service provision KE 21.04
• Health service provision TI 28.04, 12.05
• Compulsory term paper Questions available
  18.03. Deadline for submission 8.04

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Some reasons for economists interest in the
health sector

• Substantial and growing sector of the economy

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• Source NOU 20031

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Source OECD 2001
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Source NOU 20031 2001 59400 full-time
equivalents per year 1990-2000 growth12 000
full-time equivalents
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Development in technical efficiency and cost
efficiency in Norwegian hospitals 1992-2003 (1992
100). Source Samdata Somatikk 2003. SINTEF
Helse Rapport 1/04.
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• 2. We need information of whether resources are
  properly used
• Do all health services have a positive impact on
  health?
• Are there services where the costs exceed the
  willingness to pay?
• Insurance implies low co-payment and few
  incentives for patients to balance expected
  effect against social costs
• In public systems with global budgets Are there
  services not being provided even if willingness
  to pay exceeds costs.
• Do organization, financing and payment systems
  influence to what extent health policy goals are
  expected to be fulfilled?

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Markets imperfections may prevent social
efficiency from being achieved

• External effects
• Positive external effects of vaccination against
  infectious disease
• Patients have inferior information about the
  quality of health services experience goods
• Irreversibility
• Asymmetric information related to health
  insurance
• The insurer has imperfect information of health
  risks
• Adverse selection
• The insurer has imperfect information on
  preventive efforts Ex ante moral hazard
• The insurer has imperfect information of
  necessary treatment Ex post moral hazard

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4. Public sector allocation has its own challenges

• The government as a single provider of compulsory
  insurance
• What kind of health services should be provided
  by the public sector?
• What kind of patients should have priority?
• The most severly ill?
• Those for whom treatment has the greatest health
  effect?
• Those with greatest health effect per krone used?

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Prioritizing services and groups of patients
according to explicit goals

• The importance of the content of the criteria for
  priority-setting
• Consider an example

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• Alternative rules (criteria) for making
  priorities
• A Priority according to the seriousness
  (prospects without the treatment)
• of the disease
• Prioritize according to increasing survival
  without treatment
• B Priority according to treatment effect
• Prioritize according to difference in survival
  with treatment and
• without treatment, such that the group with the
  greatest difference is
• given first priority.
• C Maximize total health within the resource
  constraint
• Prioritize according to increasing cost per
  saved life, such that the group with lowest cost
  per saved life is given first priority.
• D Priority according to the seriousness of the
  disease constrained by an upper limit on cost per
  saved life.
• E Maximize total health constrained by a lower
  limit on the seriousness of disease

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The importance of criteria for prioritizing the
three treatments
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• Some implications
• Optimal priority-setting depends on the aims that
  the health sector is expected
• to pursue
• It is possible to obtain a considerable total
  health gain by prioritizing treatments with
  modest
• effect given that they are sufficiently
  inexpensive
• Criteria C and E is at a disadvantage for
  patients who, because of some reason, do not
• manage to get much health out of the health
  services
• The cost of treatment relative to other
  treatments should not influence priority
  according to
• criteria A and B.
• The introduction of cost saving technologies
  should influence priorities according to
  criterion
• C (and possibly D and E), but not according to
  criteria A and B
• Cost- benefit analysis are relevant for priority
  decisions only according to criteria C, D and E
• Hence, if you are in favor of criteria A or B, it
  is inconsistent simultaneously to argue that

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• In recent legislation in many countries it is
  stated that there should be a reasonable relation
  between the potential health effect of a
  treatment and its cost.
• But what is a reasonable relation?
• How should the effect of a treatment be
  documented?
• How should health effects be valuated allowing
  for comparison between groups of patients? Some
  treatments save life while others mainly improves
  quality of life
• Calculation of costs in missing or non existent
  markets and prices

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• Further questions
• What is the optimal level of patient copayment
  for health services?
• Should copayments be differentiated across
  services?
• Does type of payment system have any effect on
  decisions made by health service providers?
• How do health service providers respond to the
  characteristics of the health care market?
• What is the optimal payment system for health
  service providers?
• How should provision of health services be
  organized?
• How should insurance be organized? Public or
  private? Compulsory or voluntary?

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Important tasks for economists in planning and
managing the health care sector

• Hospitals, regional health enterprises,
  municipality and county level of government,
  ministry of health, ministry of finance, medicine
  agency, pharmaceutical industry, national and
  international organizations
• Analysis of costs and benefits of specific
  diagnostics and treatments
• To give advice concerning institutional setups
  organization and payment system
• Economics still controversial in the health
  sector professional self governance has been
  the tradition. Physicians know best.
• A strong tendency in the direction of economic
  thinking having a more influential role in the
  managing of the health sector

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About the reading list

• Introduction
• OECD, 2003. Health at a glance OECD indicators
  2003 (OECD, Paris).
• OECD, 2004. Towards high-performing health
  systems (OECD, Paris).
• Health systems
• Cutler, D.,2002. Equality, efficiency and market
  fundamentals The dynamics of international
  medical-care reform. Journal of Economic
  Literature 40, 881-906.
• Kornai, J. and Eggleston, K., 2001. Welfare,
  choice and solidarity in transition (Cambridge
  University Press, Cambridge) 47-99.
• Demand for health and health services
• Grossmann, M., 2000, The Human Capital Model. In
  A. J. Culyer and J.P. Newhouse, eds., Handbook
  of Health Economics (Elsevier Science B.V.,
  Amsterdam) 348-408.
• Hey, J. D. and M. S. Patel, 1983, Prevention and
  cure? Or Is an ounce of prevention better than
  a pound of cure? Journal of Health Economics 2,
  119-138.
• Health insurance
• Rees R, 1989, Uncertainty, information and
  insurance, in J. D. Hey, ed., Current Issues in
  Microeconomics (Palgrave Macmillan, London).
• Arrow, K. E., 1963, Uncertainty and the welfare
  economics of medical care, American Economic
  Review 53, 941-973.

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• Distributional considerations
• Williams, A., Cookson, R., 2000. Equity in
  Health. In A.J.Culyer and J.P. Newhouse (ed.)
  Handbook of Health Economics, Volume 1B
  (Elsevier Science, Amsterdam) 1863-1910.
• Health service provision
• Biørn, E., Hagen, T. P., Iversen, T., Magnussen,
  J., 2003. The Effect of Activity- Based Financing
  on Hospital Efficiency A Panel Data Analysis of
  DEA Efficiency Scores 19922000. Health Care
  Management Science 6, 271283.
• Chalkley, M., Malcomson, J. M., 2000. Government
  purchasing of health services. In
• A.J.Culyer and J.P. Newhouse (ed.) Handbook of
  Health Economics Volume 1A, (Elsevier Science,
  Amsterdam) 847-889.
• Eika, K. 2003. Low Quality-effective Demand,
  Memorandum 36/2003. Department of Economics,
  University of Oslo.
• Iversen, T., 2004. The effects of a patient
  shortage on general practitioners future income
  and list of patients. Journal of Health Economics
  23, 673-694.
• McGuire, T. G., 2000. Physician agency. In A. J.
  Culyer and J. P. Newhouse Handbook of Health
  Economics, Volume 1A (Elsevier Science,
  Amsterdam) 461-536.
• Norwegian speaking students will find useful
  information about the Norwegian health care
  system in
• NOU20031. Behovsbasert finansiering av
  spesialisthelsetjenesten (Statens
  forvaltningstjeneste, Oslo).