Policy Tools for Allocative Efficiency of Health Services

166 Pages·2003·1.07 MB·English

by  X. Liu

POLICY TOOLS
for
ALLOCATIVE EFFICIENCY
of
HEALTH SERVICES
Xingzhu Liu
WORLD HEALTH ORGANIZATION
WHO Library Cataloguing-in-Publication Data
Liu, Xingzhu.
Policy tools for allocative efficiency of health services / Xingzhu Liu
1.Health economics. 2.Health planning - methods. 3.Financial management
-methods 4.Policy making 5.Cost-benefit analysis - methods
6.Evidence-based medicine 6.Health care rationing - methods I.Title.
ISBN 92 4 156252 8 (NLM classification: WA 525)
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Printed in Switzerland.
iii
Contents
Foreword..........................................................................................................................................vii
Acknowledgements..........................................................................................................................xi
1. HEALTH SERVICE POLICY AND EFFICIENCY ............................................................................1
Policy and the need for evidence............................................................................................1
Ideal resources allocation ........................................................................................................2
Allocative efficiency of health interventions..........................................................................4
Evidence of allocative inefficiency..........................................................................................5
Policy tools for improving allocative efficiency......................................................................6
Organization of this study ......................................................................................................7
2. HEALTH RESOURCES PLANNING..............................................................................................9
Budgeting input for public provision......................................................................................9
Funding inputs for private provision....................................................................................11
Strengthening medical education ....................................................................................11
Strengthening health facilities..........................................................................................12
Grant incentives for medical professionals to work in underserved areas....................13
Funding the production of cost-effective products ........................................................13
Managing capital and technology........................................................................................14
Certificate-of-Need ................................................................................................................15
Capital cap ..............................................................................................................................16
Capital moratorium................................................................................................................17
Technology regulation............................................................................................................17
3. ECONOMIC INCENTIVES FOR PROVIDERS..............................................................................21
Fee-for-service ........................................................................................................................21
Capitation................................................................................................................................24
Salary ......................................................................................................................................27
Daily payment ........................................................................................................................28
Case payment..........................................................................................................................29
Line budget ............................................................................................................................33
Global budget ........................................................................................................................34
Performance-related pay........................................................................................................37
Rate setting ............................................................................................................................40
Fee structuring........................................................................................................................42
Separating dispensing from prescribing ..............................................................................44
Payer integration....................................................................................................................46
4. ECONOMIC INCENTIVES FOR USERS ..........................................................................................53
User fees..................................................................................................................................53
Cost sharing ............................................................................................................................55
Total utilization ......................................................................................................................56
Mix of interventions ..............................................................................................................58
Cost containment....................................................................................................................58
Equity ......................................................................................................................................60
Policy Tools for Allocative Efficiency of Health Services
iv
Health outcomes ....................................................................................................................60
Summary..................................................................................................................................60
5. DEFINING BENEFIT PACKAGES....................................................................................................63
Rationing ................................................................................................................................63
Defining essential interventions............................................................................................67
Essential packages of services................................................................................................68
Essential drug lists..................................................................................................................70
6. INFORMING PROVIDERS..............................................................................................................73
Medical practice guidelines....................................................................................................73
Prescription formulary............................................................................................................75
Utilization review....................................................................................................................77
7. MANAGED CARE..........................................................................................................................85
Definition and practice..........................................................................................................85
Evidence..................................................................................................................................86
Utilization and cost................................................................................................................86
Quality and health outcome..................................................................................................89
Summary..................................................................................................................................90
8. SUMMARY OF POLICY TOOLS....................................................................................................93
Tool summary..........................................................................................................................93
Observations............................................................................................................................98
Combinations of policy tools ................................................................................................99
Participating in medical decisions........................................................................................107
9. TOWARDS A POLICY TOOLKIT..................................................................................................109
Controlling intervention inputs ..........................................................................................110
Managing intervention provision........................................................................................111
Purchasing interventions......................................................................................................113
Toolkit construction..............................................................................................................115
10. RECOMMENDATIONS FOR POLICY AND RESEARCH ............................................................117
Capacity strengthening........................................................................................................117
Policy-oriented actions ........................................................................................................118
Annex: Principles for tool development …………………………………………………………......121
Reference List ................................................................................................................................125
Index ..............................................................................................................................................145
Contents
v
Tables
Table 1. Summary of the effectiveness of policy tools on allocative efficiency of
health interventions ..............................................................................................................94
Table 2. Disease – interventions matrix: linking prioritization of health conditions
with prioritization of health interventions in resource allocation decisions ..................102
Table 3. Policy tools used by collective purchasers for participating in medical decisions:
evidence on improving allocative efficiency ......................................................................108
Table A1. Actors and their actions in the process of health production..........................123
Figures
Figure 1. Simplified structure of the health care system in the United States..................49
Figure 2. Simplified structure of the health care system in the United Kingdom ............50
Figure 3. Simplified structure of the health care system in Canada ..................................50
Figure 4 Simplified structure of the health care system in Germany ................................51
Figure 5 Simplified structure of the health care system in Japan ......................................51
Figure 6. The requirements for promoting the allocative efficiency of government
health budgets......................................................................................................................103
Figure 7. A flowchart for the selection of policy tools in a toolkit for improving
allocative efficiency..............................................................................................................116
Figure A1. The hypothetical effect of policy tools on the provision of health
interventions and health outcomes....................................................................................122
Boxes
Box 1. Payment by performance: England in the 18th century..........................................38
Policy Tools for Allocative Efficiency of Health Services
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vii
Foreword
This study by Xingzhu Liu is the result of trying to answer for the World Health Organization
the question, “Are there any policy tools that have been shown to improve the allocative
efficiency of health care provision?” Two terms in that question, policy tools and allocative
efficiency, require some explanation.
A policy tool, as the term is used here, means more than just a policy: it includes some means
of implementing or enforcing the policy. Legislation, regulation, accreditation and various kinds
of standard-setting, and methods of paying health care providers and of sharing costs with
consumers, all fall under this heading. Any policy tool either requires someone to do or not to
do something, or provides incentives to do or not to do it. In part, this study is a taxonomy of
such tools, which can be classified in various ways: according to who wields them — for
example, governments, insurers or professional associations; whom they are used to influence
— providers or consumers of health care, or both; what incentives they create; or what effects
they can be expected to have. All the policy tools analysed are meant to affect which health care
services are actually provided, by whom and for whom.
As economists use the term, allocative efficiency is sometimes translated as “doing the right
things”; that is, producing the correct or ideal mixture of goods and services. It is distinguished
from technical efficiency, or “doing things right”, which means that whatever is produced
should be produced with the least possible use of resources or inputs. No more of any input
should be used than is necessary; moreover, when several different inputs are combined, and
can be substituted for one another at least to some extent, technical efficiency means choosing
that combination which produces the desired output at the lowest total cost. What that cost is,
depends on the prices of the inputs: when doctors are paid only a little more than nurses,
technical efficiency may mean using relatively many physicians and few nurses, whereas when
doctors’ pay is much higher, it becomes efficient to have nurses do as much as possible of the
work that physicians might do. In both cases, neither more doctors nor more nurses should be
employed than is necessary.
Technical efficiency by itself is of little value, since it is possible to produce “the wrong things”
and still waste no resources in the production of each one considered separately. Allocative effi-
ciency means that, in addition, the output that is actually produced could not be changed —
more of some good or service and less of another — without making some consumer of the
goods and services worse off. Gains for some could come only at the cost of losses to others, so
there would be no room for changes that everyone could agree to. Under the conditions of a
perfectly competitive market, efficiency in “the right things” to be produced can be identified
with “those things consumers want, and are willing to pay for”. That is, allocative efficiency
means satisfying consumer demand, given the distribution of tastes or relative valuation of
different outputs and the distribution of income (which also depends on who produces what).
It is presumed that what consumers demand will reflect, among other things, any needs that
they may have, so the latter are not taken explicitly into account. The equity of the resulting
distribution of goods and services among different people is similarly not considered.
These suppositions are widely regarded as particularly inappropriate in the market for health
care services, which is characterized by more “market failure” than are most other sectors of the
economy. So far as efficiency is concerned, people often have needs which they do not
recognize and so do not translate into demand; they may also demand, or be led by providers
Policy Tools for Allocative Efficiency of Health Services
viii
to demand, services for which there is little or no need. Besides the difficulty of judging needs,
consumers have an especially hard time judging the quality of health care. Many wants and
needs are not translated into demand because people cannot afford to buy the corresponding
services out of pocket; or cannot afford, or do not have access to, adequate insurance against
the financial risks posed by accident or illness. And private, competitive voluntary insurance is
also a source of market failure, even apart from differences in income, because of differences
in health risks and in people’s knowledge about them. For these reasons, “the right things” to
produce in health care cannot simply be identified with those things that people want and can
pay for by themselves. Allocative efficiency, it appears, must be given some other meaning.
One alternative meaning, which is used in this study, relates the costs of different health care
services to the health outcomes — the improvements in health — they yield. It does not matter,
for this purpose, whether the improved health results from preventing a loss of health from
disease or accident, restoring health or curing the health problem, or palliating its
consequences. First one must define a metric for health status, such as years of life saved, which
may be adjusted for quality of life or for disability. Then any health care service or intervention
is in principle characterized by both a health outcome and a cost of provision, both of which
may vary with the scale of production and with the characteristics of the providers and the
consumers. The ratio of cost to outcome is then the cost-effectiveness ratio of the service or
intervention, estimated as an overall average or for larger or smaller changes at the margin.
Allocative efficiency results, on this definition, from that combination of health care
interventions which, besides minimizing the cost of producing each service, maximizes cost-
effectiveness. That is the combination which delivers the largest gain in health status for a given
total expenditure; or requires the smallest expenditure for a given improvement in health. This
is what is usually meant by “getting value for money” in health care.
This notion of allocative efficiency requires three assumptions. First, it is only the health out-
come of care that matters: comfort or amenities while undergoing treatment, relief of doubt or
anxiety, the personal relations with one’s care provider, the degree of financial risk or of
protection from it, and any other consequences of consuming health care are not considered
part of the output. (The consequences or benefits for the providers are also not taken into
account.) Second, a unit of health improvement is equally valuable, no matter who benefits
from it. Depending on how health status is measured, there may of course be differences
among individuals; for example, an extra year of life may be thought to be worth more at
younger than at older ages. However, once the metric is determined, the object is to
maximize the total health gain without considering how that is distributed among the users of
health care. Third, the resources needed to provide care can be transferred from one user to
another, in pursuit of that maximum health gain, without any cost other than the cost of the
care. That is, if one patient has received care to the point where an additional dollar’s worth of
resources would yield less gain than if it were spent on a different patient, then the resources
can be shifted to that second patient without any frictional or transaction costs.
These assumptions come closest to being satisfied when essentially all health care is controlled
by a single agency such as a national government, which pays for the care even if it is not the
direct provider, and which is equally responsible, and responsive, to all citizens. Under those
conditions, maximizing cost-effectiveness may be a reasonable policy objective, so it is also
reasonable to search for tools which may promote that outcome. As there are more and more-
agencies paying for health care and making decisions about its distribution, these assumptions
become less realistic. There are two strong reasons for this. First, an individual paying for his or
her own health care will not necessarily want or demand the most cost-effective intervention
for his or her particular health problem. The additional improvement in health to be had from
Foreword
ix
a somewhat less cost-effective service may seem well worth the extra cost, given the person’s
capacity to pay and his or her appreciation of the value of the other uses for the same money.
Both costs and effects matter, but decisions may not be based on the ratio of the two. Second,
to choose the most cost-effective interventions for the whole society means, necessarily, to
make choices also among individuals, because some people’s health problems admit of more
cost-effective remedies than do those faced by other people. Thus allocative efficiency in the
sense used here means that the last or marginal dollar of resources has the same chance of
contributing to improved health, no matter whom it benefits. It does not mean that every
individual has the same chance of having his or her health problem resolved.
Given these limitations, which arise from how health systems are organized and not from
deficiencies in the analysis, it is not surprising that there is rather little evidence that particular
policy tools actually improve allocative efficiency. When the agency employing a tool is not a
government but an insurer or other private organization, maximizing health gain may not even
be an objective. Controlling total costs, in contrast, is nearly always an objective. Much of the
evidence that Dr Liu has assembled concerns ways to control either the costs of individual
interventions, or the total expenditure on services for a defined population. This is of course
consistent with technical efficiency, which is always desirable. It is also consistent with allocative
efficiency, to the extent that it means promoting more cost-effective means of dealing with any
particular health problem, whether or not explicit choices are made about the relative priority
of different health problems.
Rather than look, in his analysis, at only those policy tools with a clear impact on overall cost-
effectiveness, Dr Liu has chosen to examine all the available tools for which there is some
evidence of an effect on which services are provided, how, by whom and to whom. Many of these
tools, even if designed or used primarily for other purposes, may also affect allocative efficiency,
and such secondary effects are potentially important. Moreover, tools may be employed in
combination, to reinforce desirable effects or to offset or compensate for undesirable effects.
From this it follows that health policy-makers need to think not only of which individual tools to
develop and use, but of how to combine them in a “toolkit” for best results. This study does not
simply tell policy-makers which tools to take up, but rather how to determine which ones are
most likely to be feasible and effective, given particular circumstances of political and
administrative capacity, knowledge on the part of both providers and consumers, and other
factors which affect whether a policy tool can be used, and with what outcome.
This study draws on a very large number of published sources, both theoretical and empirical.
It is not surprising that most of these refer to high-income countries, and a very large share of
them deal only with experience in the United States. That country has an extremely complex
health sector, characterized by a number of both natural and deliberate experiments in the
regulation, financing and delivery of health care. The United States not only has the highest
health care expenditures in the world, but — partly because of that fact — also dominates
health care research to an even greater degree. The variety of research on a number of
problems and many different policy tools provides much potentially valuable information. What
is less clear is how far the evidence from the United States and a few other high-income
countries, notably the United Kingdom, can be used to improve health policy and outcomes in
middle- and low-income countries struggling with some of the same problems but with
differently organized health systems and with far less capacity, financial or otherwise, to deal
with those problems. Dr Liu therefore concludes his study not only with advice on how to judge
the value of different tools and put them into a serviceable toolkit in such countries, but also
with suggestions for the kinds of research that would be most valuable for pursuing allocative