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Why operations in Great Britain are being cancelled

December 1, 2011 in Current Events | 2 comments

On Wednesday, many of the NHS workers went on strike.  Seven thousand of the day’s 30,000 operations were cancelled.

Why are workers striking?  One reason is pensions.  According to a new government plan, workers would be required to increase their pension contributions 3.2 percentage points without seeing an increase in the value of their pensions.  Additionally, the retirement age is being shifted to age 68.

Worker unions are now coming back to the bargaining table.  It will be interesting to see if there is s speedy resolution to this labor strife.

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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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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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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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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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Scottish NHS pay £23 million in compensation, but U.S isn’t doing any better.

September 15, 2009 in International Health Care Systems, Malpractice | No comments

The Scotland Sun reports that the Scottish NHS paid £23 million ($40 million) to patients for subpar care. Is this due to the inherently substandard quality of care in a single-payer system?

The answer is likely no. This figure only amounts to about £4.50 ($7.34) for every person in Scotland however. Drug-related errors in the U.S. cost patients $3.5 billion per year or $11.50 per patient. Thus, it matters not whether a health care system is single payer or not; single-payer and private health care systems both have significant room for improvement.

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NHS Privatization

April 25, 2009 in International Health Care Systems | No comments

The Guardian reports that the UK considering privatizing sections of the National Health Service (NHS):

A Treasury-commissioned report yesterday recommended measures to chop £6bn from public services budgets over the next two years, with further measures intended to save £15bn a year by 2013.

It calls for a shake-up of “back office” administrative and support services across government departments, the NHS and local government, a move likely to see thousands of jobs lost or outsourced.

The authors say the government should push ahead with full or part privatisation of state-owned assets such as the Royal Mint, Met Office and Land Registry, and identifies other bodies ripe for commercialisation, including the health service’s in-house staffing agency, NHS Professionals, the Central Office of Information, and Forestry Commission.

The British Medical Association thinks the privatization plan is just “barmy economics.”

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The birth of the N.H.S.

January 23, 2009 in International Health Care Systems, Public Policy | 3 comments

Why did the British decide to have the government pay for health care?  Are they socialists by nature?  Were they just ahead of their time?  Did some lobbyist win the favor of government?

Actually, it was done out of practicality.  World War II shifted the provision of health care from the private to the public sector.  As Atul Gawande explains in the New Yorker:

“ …in the days before war was declared, the British government oversaw an immense evacuation; three and a half million people moved out of the cities and into the countryside. The government had to arrange transport and lodging for those in need, along with supervision, food, and schooling for hundreds of thousands of children whose parents had stayed behind to join in the war effort. It also had to insure that medical services were in place—both in the receiving regions, whose populations had exploded, and in the cities, where up to two million war-injured civilians and returning servicemen were anticipated.

As a matter of wartime necessity, the government began a national Emergency Medical Service to supplement the local services. Within a period of months, sometimes weeks, it built or expanded hundreds of hospitals. It conducted a survey of the existing hospitals and discovered that essential services were either missing or severely inadequate—laboratories, X-ray facilities, ambulances, care for fractures and burns and head injuries. The Ministry of Health was forced to upgrade and, ultimately, to operate these services itself.”

Like many “temporary” government programs, this one had sticking power.  

“By 1945, when the National Health Service was proposed, it had become evident that a national system of health coverage was not only necessary but also largely already in place—with nationally run hospitals, salaried doctors, and free care for everyone. So, while the ideal of universal coverage was spurred by those horror stories, the particular system that emerged in Britain was not the product of socialist ideology or a deliberate policy process in which all the theoretical options were weighed. It was, instead, an almost conservative creation: a program that built on a tested, practical means of providing adequate health care for everyone, while protecting the existing services that people depended upon every day. No other major country has adopted the British system—not because it didn’t work but because other countries came to universalize health care under entirely different circumstances.”

Based on this evidence, Dr. Gawande gives a profound insight.  Any health care reform necessarily will be built out of the existing health infrastructure.  This is true both for individuals who want more or less government involvement.  The U.S. has significant experience with private health insurance and expanding private health insurance would not be difficult.  Expanding public insurance would also be feasible through expansions of the V.A., Medicare, or Medicaid systems.  

Whatever reform path we choose, we must take into account the capabilities and infrastructure already in place when we propose these reforms.  

No country designs their health care system from scratch.

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Optimal Contracts in the British NHS

January 20, 2009 in Asymmetric Information, Hospitals, International Health Care Systems, Supply of Medical Services | No comments

One of the perennial questions of interest for health services researchers how to pay for health care.  A paper by Chalkley and McVicar (2008) examines this question in the contest of a reform in Britain’s National Health Service (NHS).

“After 1990 hospitals, which had previously been under the direct control of Health Authorities, could apply for NHS Trust status whereby they would be given discretion over employment, remuneration scales and the disposal of assets. This discretion was subject to limits and reservations and could ultimately be revoked if the appropriate authority, in this case the Secretary of State for Health, deemed their actions to be against the ‘public interest’.”

There are three types of payment contracts between the NHS and health authorities.  The first is a block contract where hospitals receive a flat contract to care for a patient population regardless of the actual care given.  The second contract is a cost-per-case contract where the hospital is paid based on the cost of the medical services supplied.  Volume contracts similarly base payment on the quantity of care provided.  The final contract is a sophisticated block contract.   This is similar to the simple block contract but requires the NHS to monitor the hosptials to ensure that they are providing the required care.

The authors offer 4 conjectures of when different contracts will be adopted.  When contracts will be adopted depends on 3 characteristics: variability in cost, variability in volume and easy of observing patient treatment.

  1. When variability in cost and volume is small or variability of cost is small and volume is easily observable]then block contracts will be favored.
  2. When monitoring costs are low, variability of volume is large, variability of cost is small then sophisticated block contracts will be favored.
  3. When variability in cost is large and variability of demand is large then cost-per-case payments will be favored.
  4. Characteristics of purchasers and/or providers that mitigate monitoring costs will give rise to a greater use of volume-dependent and sophisticated block contracts relative to simple block contracts. 

The results from a multinomial logit regression support these conjectures.  

Thus, although policymakers would prefer a one-size-fits all contractual arrangement, the authors show that contractual arrangements between the health purchaser and the provider must take into account the variability inherent the good being supplied.  For instance, simpler contracts should be favored when monitoring costs are high, but more complex contracts may be feasible with lower contractual cost.  Low variation in cost and volume makes block payments very attractive.  However, when there is significant variation in cost or volume, cost-per-case or volume-dependent contracts can help mitigate the providers financial risk.

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NHS Constitution

June 29, 2008 in Current Events, International Health Care Systems | Permalink

The Telegraph reports that Britain’s National Health Service (NHS) has enacted a constitution.  “[The constitution] will set out the rights and responsibilities for patients and what they can expect from the NHS in the 21st century.  It is being seen by ministers as a chance to reiterate the founding principles of the health service, emphasising that care should be universal, free at the point of access and based on clinical need, not ability to pay.”

The document includes a list of patient responsibilities which includes keeping appointments and treating minor ailments at home.  The question is, what will happen if a person does not keep an appointment?  Will there be a charge?  Sometimes missing an appointment may mean the patient is irresponsible, while other times there may be a family emergency or a child who needs to be picked up from school.  There is no sense of responsibility unless there is some reprocussion to missing an appointment.

Will the constitution significantly change how health care is provided in the UK?  I doubt it.  The constitution does not explicitly determine what services, drugs, operations and treatments the NHS will provide.  Thus, if the NHS does not provide a given service to a patient, the patient will still not have legal remedy. If the NHS Constitution is simply a wish list of how health care within the NHS should look, it may serve as a motivating mission statement for employees and politicains.

The document will only be powerful if a patient can receive a remedy when their rights are violated.  For instance, if there is a long wait for services, will the NHS pay for treatment overseas?  The consitution allows patients the right to register with a GP, but will this be a true choice or will there be a long wait to register with all the best GPs?

In 1991, John Major instituted the Patient’s Charter which also set out a number of rights entitled to NHS patients, however the Patient’s Charter was ineffective since it had no power.

NHS Blog Doctor write about how the NHS Constitution creates an illusion of choice.

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