International Health Care Systems

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Health Reform in the UK

June 23, 2011 in Current Events, International Health Care Systems | No comments

Health Reform in the U.S. means more government involvement in health care.  More public insurance (expanding Medicaid), more government intervention in the insurance market (health exchanges), and government being a driving force for innovation (the Center for Medicare and Medicaid Innovation).

In the UK on the other hand, “Health Reform” means more privatization, not less.  As reported in the Economist,

“Last year the government produced a two-part blueprint for reforming the NHS. One part was a bid to introduce more choice and competition, by enabling private and voluntary providers to treat more NHS patients. That should not have been controversial: along with the cash it hurled at the service, Tony Blair’s government began to transform it from a publicly run monopoly to a state-funded market, in which both public and private hospitals treat NHS patients—the sort of system that exists in much of the rest of Europe. Until Gordon Brown took over and dampened reform, it was starting to have an impact: according to research by the London School of Economics into post-operative heart care, giving patients choice led to productivity increases that saved around 300 lives a year.”

These changes, however, may never come to pass.  For instance, an attempt to “…transfer more control over budgets and the commissioning of care to family doctors (GPs)” was stopped in its tracks.  The scheme is now voluntary.

Nevertheless, I can make three key observations.

  • The U.S. is moving more towards government-run health care and the U.K. is moving towards private provision of health care services.
  • Despite this trend, the NHS still wields significantly more control over the health care system than any American agency.
  • Finally, no country is completely happy with their health care system.

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Why are more than 35 percent of elderly Swedes on disability?

May 31, 2011 in Health Care Around the World, International Health Care Systems | 1 comment

“The proportion of men collecting disability benefits at older ages varies greatly across countries — for example, more than 35 percent of 64-year-old men in Sweden and more than 25 percent of those in the Netherlands are on DI, versus 10 percent or less in Belgium, Italy, and Spain. Does this reflect differences in the underlying health status of older individuals in these countries? Or do differences in the provisions of the DI systems explain this variation in DI take-up rates?”

This is the question the Milligan and Wise attempt to answer in their Introduction to Social Security and Retirement around the World.  The Healthcare Economist suspects the answer is the latter.  Most people consider a quadriplegic disabled and those who are fully healthy are not disabled.  Many individuals, however, have partial disability. Many workers, for instance, suffer from back pain.  Measure the severity of the back pain is typically very difficult; some workers can continue working in physically strenuous jobs, others could continue to work in less physically strenuous jobs (e.g., blogging?), and for a minority the back pain is so severe that working at all is not feasible.  Because partial disability is not only common but also difficult to verify, public programs leniency regarding disability program eligibility likely affects the number of beneficiaries more than the underlying health status of the country.

Sure enough, Milligan and Wise come to the same conclusion.  Using “natural experiments” in which a country’s disability insurance reforms were not prompted by changes in health status or by changes in the employment circumstances of older workers, the researchers find that reforms have a large effect on the labor force participation of older workers.

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Price Competition for UK Hospitals?

January 13, 2011 in Hospitals, International Health Care Systems, Regulation, Supply of Medical Services | 6 comments

Is health reform coming to the UK?  Since the middle of the decade, the NHS has used a tariff system which pays a fixed price per procedure. Now, however, the Financial Times, reports that the UK plans for “public and private hospitals to compete on price for the treatment of NHS patients.”  The reform calls for quality monitoring to ensure that quality does not slip.

What do British health economists think of the reforms?

  • Zack Cooper, a health economist at the London School of Economics, said introducing price competition “would be a hugely retro­grade step”. In ordinary markets, he said, people can see the trade-off between price and quality. “But in healthcare, it is difficult to measure quality, partly because the process is complex and partly because it may take days, weeks or even years for the outcome of treatment to become evident.” [In the U.S.], the use of fixed prices in the federally funded Medicare programme for the elderly has helped raise quality. “I’m very pro-competition in healthcare,” he said. “But price competition is not the right way to do it.”
  • Anita Charlesworth, chief economist at the Nuffield Trust health think-tank, said the evidence from the 1990s, when family doctors could negotiate on price, was that a huge amount of time and money went in to pricing rather than the appropriateness or quality of care
  • Nick Bosanquet, professor of health economics at Imperial College, London, argues in favour of price competition. “If you want a more flexible system it is illogical to have fixed prices, and after years of fixed prices in the NHS there is still a big variation in the quality of care.”

In my opinion, the value of price competition depends on your perception of how well patients and government can judge quality.  In a world without asymmetric information, it is clear that price competition is optimal.  The government could buy medical services by optimizing along a continuum of quality and price.  Even in the presence of asymmetric information, price competition can be a good thing especially if there are some observable–although imperfect–signals of quality.

If quality is completely unobservable, then providers would have an incentive to minimize quality and drive down price.   Unless of course, patients take price as a signal for quality.  In this case, higher priced providers could gain market share because of a false perception of quality.

In the case where the consumer would pay for medical services, one justification for fixed pricing would occur if the government is better able to measure quality than individuals.  For instance, individuals may be better at judging quality in terms of office amenities and the physician’s bedside manner, but policymakers can better judge whether providers follow best practices and have superior outcomes on average.  If society can agree that outcomes matter more than office amenities, than the government could regulate quality and counteract provider’s incentivize to drive down their costs to maximize profits.

It is not a foregone conclusion that the experts inside or outside the government can measure quality better than can patients. For instance, in the same FT article, Ms. Charlesworth, states that it “was  ’particularly worrying’ that GPs will set local prices for mental health services where quality is even harder to measure than in acute care.”  If quality is so difficult to measure, how can policymakers measure that quality has decreased after the implementation of price competition?

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How does the U.S. stack up?

November 18, 2010 in International Health Care Systems | 1 comment

According to the Commonwealth Fund:

“An 11-country survey focusing on health care access, cost, and insurance coverage found that adults in the United States are by far the most likely to go without care because of costs, have trouble paying medical bills, encounter high medical bills even when insured, and have disputes with insurers or payments denied.”

A summary of the findings can be found here.  Thirty five percent of Americans have out-of-pocket costs of more than $1000 and 20% have a serious problem paying health insurnace bill.  The full report is available here.

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Measuring Variation in Labor Costs for the NHS

July 6, 2010 in International Health Care Systems, Labor Economics, Medicaid/Medicare | 1 comment

The cost of running a hospital in New York City is much higher than running a hospital in Bozeman, Montana.  To take into account these cost differences, the Centers for Medicare and Medicaid Services (CMS) has created a wage index to adjust the inpatient prospective payment system (IPPS) for differences in labor costs.

However, the U.S. isn’t the only country where public health agencies adjust payments based on labor costs.  For the past 30 years, England’s Staff Market Forces Factor (MFF) adjusts National Health Service (NHS) payments for medical care.  The MFF’s origin began in a1976 report from the Resource Allocation Working Party (RAWP).  Although the goal of the MFF is to control for geographic variation in input costs, labor costs make up 65% of these input costs.  Although drug and equipment costs also make up 26% of input costs, the prices of these goods are fairly constant across all English regions.  A paper by Elliot et al. (2010) investigates the construction of the labor portion of MFF in more detail.

The MFF is calculated based on standardized spatial wage differentials (SSWDs).  These SSWDs in essence calculates the difference in labor input costs for each region compared to the national average.  The paper divides the country into regions through three different mechanisms:  a region in one of three ways: 303 primary-care trusts (PCTs), 354 local authority districts (LADs) and 207 travel-to-work areas (TTWAs). LADs and PCTs are administrative areas while TTWAs are intended to constitute largely self-contained labor markets based on commuting patterns.  Using these three definitions, the authors calculate the SSWD from the Annual Survey of Hours and Earnings (ASHE) as:

  • ln(wij)=xijβprivate + vjprivate + εij
  • ln(wij)=xijβNHS + vjNHS + εij

The first equation is used to measure wage differentials for a variety of workers whereas the last only examines NHS nurses.  The variable xij contains information on age, age-squared, gender, year dummies, industry dummies and occupational dummies.  The fixed effect variable vj measures the difference in log wages from in region j from the national mean.  In the case of the NHS regression, year and occupational dummies are removed because nurses constitute working in a single industry.

To calculate the MFF for area j, the authors impose a log-to-level wage transformation for the variable vj and normalize this differential based on the national mean.

  • MFFj=100*exp[vjprivate]/exp[J-1 (Σj vjprivate)]

The authors also conduct estimate regional variation in labor costs for doctors.  Because the ASHE sample of NHS doctors is too small to estimate robust SSWDs, the authors instead obtain data on the annual financial returns of NHS trusts through the Department of Health.

How well are these adjustments working?  To answer this question, the authors examine how the differential between private and NHS pay affect the vacancy rate for NHS positions for doctors and nurses.  When private pay is higher than NHS pay, the authors find that the nurse vacancy rate increases.  This makes sense since when the private sector pays more, nurses will be more likely to take jobs outside the NHS.  On the other hand, when private sector pay for doctors is higher, the NHS vacancy rate for physicians is lower.  This seems counterintuitive that physicians would be attracted to lower paying NHS areas.  One explanation is that areas with relatively less generous NHS pay have higher private sector pay.  Thus, these physicians can take the NHS job, but also spend part of his time working for higher private-sector pay.  Using this information, the authors conclude that “The case for additional funding in high-cost low-amenity areas to employ doctors is not supported by this analysis. The MFF adjustment in the NHS funding formula should be amended to reflect this.”

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Health Care Reform in Germany

May 4, 2010 in International Health Care Systems | 1 comment

Health care in Germany achieves universal health care by mandating that individuals enroll in a sickness fund.  The German government requires lower and middle class individuals to enroll in the sickness funds, but richer individuals can opt out and choose to purchase their own private health insurance.  Approximated 9% of Germans have supplemental insurance; these private, supplemental insurance covers items not paid for in the sickness fund benefit package.  Most Germans like this system.

Yet the Economist reports that all is not  well in the German health care system.  Like Medicare in the U.S., the German sickness funds are funded by payroll taxes.  However, with an aging population and stagnant wage growth from the economic slowdown, paying for the increasing cost of medical care is becoming a burden.   Health care spending has not risen as quickly as in the U.S., party due to reforms such as the implementation of “disease management” programs to standardise care for ailments like diabetes, as well as lump-sum payments to hospitals that discourage over-treatment.

Philipp Rösler, the federal health minister, plans to institute a number of reforms to the health care system.  These include: 1) creating an agency to determine drug effectiveness relative to existing ones, and 2) “vouchers.”

Read the rest of this entry »

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Are WHO rankings entirely worthless?

April 27, 2010 in International Health Care Systems | 5 comments

According to the World Health Organization’s (WHO) 2000 report, the U.S. ranked 37th in the world in terms of the quality of its health care system.  The placed the U.S. health system behind Saudi Arabia, Costa Rica and Morocco.  Do we need to fire all U.S. doctors?  Should everyone stop reading this blog post and immediately go for a run or eat a tofu salad?

Maybe not.

In a letter to the New England Journal of Medicine, Dr. Philip Musgrove, the former editor of the WHO report recounts the unreliable data used to rank country health systems.   In the case of the United States, the only data available were for life expectancy and child survival, which together only account for about half of the the attainment measure.  Thus, the rest of the figures in the U.S. figures had to be imputed.  In fact, the values of for many variables for many countries had to be imputed.  With such an indictment for the editor of this report, putting much value in these rankings seems dubious.  According to Dr. Musgrove:

“The number 37 is meaningless, but it continues to be cited, for four reasons. First, people would like to trust the WHO and presume that the organization must know what it is talking about. Second, very few people are aware of the reason why in this case that trust is misplaced, partly because the explanation was published 3 years after the report containing the ranking. Third, numbers confer a spurious precision, appealing even to people who have no idea where the numbers came from. Finally, those persons responsible for the number continue to peddle it anyway…Analyzing the failings of health systems can be valuable; making up rankings among them is not. It is long past time for this zombie number to disappear from circulation.”

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U.S. vs. Canada: Health outcomes and heart disease

April 12, 2010 in International Health Care Systems | No comments

This blog has posted frequently on comparisons between the U.S. and Canadian healthcare systems (see here, here, here and here).  Although there are many points of contention, it is clear that the Canadian system is less expensive than the American.  According to the OECD, in 2006 Canada spent $3,678 per person on health care and the U.S. spent $6,714.  From this additional expense, do Americans receive better health outcomes?

A paper by Pozen and Cutler (2010) examines this question for individuals with heart disease.  Using data from the Joint Canada-U.S. Survey of Health between 2002 and 2003, the authors compare health outcomes between Americans and Canadians who are aged aged 45 and older and who have heart disease.  “Past analyses using these data have found that wealthier Americans and Canadians report similar overall health status, while poorer Americans report worse health status than poorer Canadians.”

The results of the study are as follows:

“Being Canadian was positively associated with fair or poor health, but negatively associated with disability and functional impairment. None of these coefficients, however, was statistically significant from zero at the 5 percent level (though the coefficient on disability was significant at the 10 percent level). Results that were significant in some cases were income, education, and risk factors such as hypertension and smoking status.”

One problem with this simple analysis is that Canadians may simply be more or less optimistic about their health state than Americans.  If could be the case that Canadians report poor health even though–based on objective measures—they may have the same quality health.  A difference in difference estimate would be useful where one could compare the health self-reports of clinically healthy Canadians and clinically healthy Americans and see if the health self-report difference is higher or lower for cohorts in each country with heart disease.

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Did pay-for-performance work in the UK?

February 15, 2010 in International Health Care Systems, P4P, Quality | No comments

A paper by Sutton, Elder Guthrie and Watt (2010) describes the UK’s National Health Service’s (NHS) adoption of the Quality and Outcomes Framework (QOF) in April 2004. In general, P4P programs can have positive or negative spillovers.  An example of a positive spillover would be the adoption of EMR to comply with certain P4P initiatives, but which also improves productivity in other areas.  A negative spillover would occur if physicians focus on getting the P4P bonuses, but decrease effort in unmeasured areas which could be more important to the patient’s health.

The authors describe the QOF more fully as follows:

In the first 2 years of the QOF scheme, practices were rewarded according to the performance they reported on 146 indicators. Through their performance on these indicators, practices earned up to 1050 QOF points. Practices were rewarded for these points according to a complex, non-linear function of the prevalence of disease in, and size of, their registered populations…An average practice was paid £75 per point in the first year and £125 per point in the second year of the scheme.

Seventy-six of the indicators, and 57% of the financial rewards, were offered for the quality of clinical care. These 76 indicators were focused on the care of people with 10 targeted chronic diseases and involved the maintenance of disease registers, the verification of diagnoses, the recording and management of risk factors and the provision of selected treatments. Points were awarded based on reported coverage rates if they were above a lower threshold of 25%. Maximum points were awarded if the coverage rate equalled or exceeded an upper threshold, which varied across indicators.

The authors examine whether the QOF increased effort levels for physician treatment of five groups of patients who had diseases for which physicians could earn QOF bonuses.  The paper also examines changes in quality for “Untargeted” patients, who did not have any diseases for which physicians could earn additional income under QOF.  The analysis is based on a before and after structure.  It evaluates the change in both quality metrics that were reimbursed under QOF and the quality metrics which were not subject to QOF bonuses.  If there are negative spillovers, one would expect the rewarded metrics would increase after QOF, but the unrewarded quality would decrease as physicians shift their priorities.

The paper finds that the effect on incentivized factors was substantially larger on the targeted patient groups (+19.9 percentage points) than on the untargeted groups (+5.3 percentage points).  The authors claim that there was no obvious evidence of effort diversion but there was evidence of substantial positive spillovers (+10.9 percentage points) onto non-incentivized factors for the targeted groups.

One issue here is that paper only looks at observable quality metrics.  The physician may believe that observable quality that is not currently rewarded will be rewarded in the future.  Thus, these positive spillovers may extend over to quality factors observable by the NHS.  On the other hand, unobserved quality may have decreased, but this would not have shown up in the econometric analysis.

  • Sutton, Elder Guthrie and Watt (2010) “Record rewards: the effects of targeted quality incentives on the recording of risk factors by primary care providers,” Health Economics, v19(1):1-13.

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How is the financial crisis affecting the UK’s National Health Service

December 22, 2009 in International Health Care Systems, Wait Times | No comments

In the 1990s, the UK’s National Health Service may have imitated most American’s idea of what is wrong with a single payer system.  However, when Tony Blair became Prime Minister in 1997 government spending on the NHS increased.  Over the past decade spending on the health service has risen by over 6% a year in real terms.  In addition, the NHS set ambitious performance targets and introduced reforms to foster more local independence.  In 2000, the government also declared a “war on waiting” and wait times in the subsequent decade did drop dramatically.  Other improvement include:

  • Hospitals have been able to purchase expensive new equipment like scanners. By 2007 the NHS had 8.2 MRI units per million people, below the average of 11 for the OECD, but above the figure in Canada.
  • The number of hospital consultants has gone increased 56% between 1998 and 2008.  The rise in nurse employment is 26% over this period.
  • Life expectancy continues to rise, with particularly rapid gains for men. Mortality rates from cardiovascular diseases, the leading cause of death in rich countries, have tumbled.
  • Extra cash, together with targets and performance management, have had a large impact on health care quality.

However, not all the reforms have had positive effects:

  • When Labor came to power, it abolished “the internal market in the health service introduced by the Conservatives in the 1990s, in which around half of GPs had become fund-holders with their own budgets for drugs and elective care, giving them an incentive to curb demand and a tool to bargain with powerful hospitals. With this lever gone, the government at first had to rely on instructions from the centre backed by performance ranking.”
  • “Since Mr Brown became prime minister in 2007…[t]he drive to ginger up the NHS by putting more hospital work out to the private sector has faltered.”
  • Even single payer systems can be disjointed. The Economist argues that electronic records need to be adopted so that GPs can better coordinate the care of their chronically ill patients when they enter into a hospital.
  • Productivity has declined 0.4% over the last decade.

With the government coffers more bare after the financial crisis, what does the UK plan to do with its National Health Service?  The Economist reports that–because of the financial crisis–the recent increases in NHS spending will likely stop, but the NHS will experience few cuts (unlike most other government services).

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