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«Edited by ANNE MASON Research Fellow, Centre for Health Economics University of York and ADRIAN TOWSE Director, Office of Health Economics Radcliffe ...»

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An important body of literature in health economics deals with this issue – more specifically the trade-off between the gains from insurance and the efficiency losses due to moral hazard. The debate has long been simplified, addressing two polarised situations (total insurance versus no insurance at all), neither of which is the common reality we face in our systems, with mixed systems of co-payments, co-insurance, exemptions etc. Thus the sensible

question is what happens at the margin, as Blomqvist notes:

–  –  –

The question of moral hazard cannot be avoided. The fact that the patient (with the physician as agent) bears none of the financial cost may lead to over-consumption, and empirical research supports this. For example, a recent analysis of Swiss insurance plans showed that evidence of higher expenditures by enrolees with low deductibles is explained by selection effects (they are sicker), but also by incentive effects (over-consumption). The selection effect is, however, dominant, explaining 75% of the difference (Gardiol et al., 2006).

Research developments in this field are welcome, if we want to challenge the widespread idea that individual responsibility is the panacea.

Even if there are efficiency losses due to moral hazard and non-beneficial consumption, one can argue that the best way to remove inefficiencies is to promote evidence-based medicine. Also, a degree of inefficiency may be an acceptable price to pay to preserve equity: thus a totally egalitarian, totally publicly financed system would arguably still be preferable. But an evolution towards such an ideal seems unlikely, given the difficulties faced by all systems and the tensions between the pressures on expenditures and the scarcity of resources. So we are faced with the practical question: are there mixes which are better than others? How should the balance be struck between public insurance and private financing? High coverage for some services, which are free to all at the point of consumption, and no coverage for other services, as in Canada? Co-payments spread on all healthcare consumption as in France?* Partial coverage or no coverage of minor risks (such as deductibles, over-the-counter drugs)? What mechanisms best preserve equity? Ceilings (Scandinavia)? Exemption for people on low income or with serious illness (France)?

Even if we struggle to keep the principle of a publicly financed universal health insurance, we cannot avoid these issues which are currently faced by * In these two countries, the proportion of public financing in total healthcare expenditure is similar (76% in France, 70% in Canada, according to the Organisation for Economic Co-operation and development (OECD)), but the distribution is very different: in Canada, public coverage accounts for 98% of spend on physicians’ services, but only 38% of drugs; in France, the figures are 74% and 67% respectively.


decision makers. And the input that economists can give, through scientific evidence and empirical research, is valuable in a public debate which is again often dominated by ideology.

Inefficiencies on the supply side: how should these be tackled in practice?

The core idea developed by Alan Maynard is that instead of focusing on demand and funding, the priority should be to tackle supply-side inefficiencies.

Variations in clinical practice are well documented. Since the seminal paper by John Wennberg and Alan Gittelson more than 30 years ago, demonstrations have accumulated of wide variations in utilisation of services, not explained by illness, patient preference or evidence-based medicine (Wennberg and Gittelson, 1973). Despite the fact that healthcare professionals share the same body of knowledge, similar patients are treated differently.

The refinement of information systems in the healthcare field has allowed ever more detailed analysis of these variations in professional practices, in numerous fields and various countries. They have also shown that there is often a gap between actual care and practice guidelines, which can result in both over- and under-consumption. The Rand study concluding that 55% of chronically ill American adults had appropriate care has been highly publicised (McGlynn et al., 2003) but there are similar studies in other countries. In France, in 2000, one diabetic patient out of four had an annual eye examination and six out of ten had the recommended laboratory test every six months (Caisse Nationale d’Assurance Maladie, 2002). The appropriateness of care can be also assessed through outcomes: in Canada, a study performed on a range of elective surgical procedures found that in 2% to 26% of the procedures, there was either no change or a deterioration of the outcomes reported by patients, with the highest percentage for cataract surgery (Wright et al., 2002).

This growing body of evidence unambiguously shows that there is an important potential for quality and efficiency gains in all our healthcare systems. But the major issue is to mobilise these efficiency gains.

Progress has been made. There has been an important effort to gather and synthesise evidence, through the Cochrane collaboration and other initiatives.

Agencies in charge of technology assessment, elaboration and dissemination of clinical guidelines, quality programmes and hospital accreditation have been implemented everywhere. Experiments and research have been conducted to test the impact of various interventions to influence professional behaviour.

Strategies have been initiated in different countries on a large scale to promote evidence-based medicine.

However, this is obviously a very difficult task. The processes are slow, the improvements very gradual. The literature shows that there is no simple way to overcome the barriers to change; the strategies which prove to be the most effective – educational outreach approaches, ongoing feedback, multiple inter ventions – are also likely to be the most expensive ones (NHS Centre


for Reviews and Dissemination, 1999). Although they can play a role, it is not clear whether organisational reforms or economic incentives would solve the problem. In that respect, it is interesting to note that health maintenance organisations (HMOs) in the US made important efficiency gains at the beginning, but typically then transferred the responsibility onto medical groups. It is also clear that the interests of governments and public agencies in that matter conflict with those of the healthcare industry – for example over the issue of reducing inappropriate drug prescribing. Thus there is clearly a gap between the growing scientific knowledge on inefficiencies or unwarranted variations in health care and the capacity to act on them.

CONCLUSION All healthcare systems are faced with the same tensions: pressures to increase healthcare resources (with a conjunction of interests between providers and consumers who do not bear the cost of care), public finance constraints, and the necessity to maintain collective financing to ensure equitable access to

care. Each system strives to achieve a specific balance among conflicting goals:

high health outcomes, public expenditures control, quality and accessibility of care, equity (this balance may differ between countries, for example France’s system favours freedom of choice, easy access and responsiveness over cost control).

Healthcare systems are built upon the principle of solidarity to prevent their regulation by market mechanisms, but this means that contradictions and tensions are inherent to the systems’ functioning.

There is no simple solution to resolve these tensions. Choices have to be made, which should not be driven by individual consumer decisions taken under a budget constraint, but that must not ignore preferences expressed by the individuals, whether patients or citizens. Making these choices requires a quality of democratic debate, relying on evidence and scientific knowledge, but also on the expression of social values.

Being oversimplistic does not help this debate, and it is fallacious to mislead people into believing that there is one simple solution that will resolve these contradictions. Unfortunately, policy makers are often tempted by the rhetoric of the reform which will bring the necessary structural change and achieve a new balance for the system. Experts and commentators wanting to have a voice in the public debate tend to do the same; each has a ‘magic bullet’ to cure the healthcare system. Arguments are widespread internationally, but taking France as an example, three contrasting debating positions are currently


1 the growth of health expenditures is a direct result of waste and inefficient use of resources, and does not serve the well-being of the population. We could do better with the same or even fewer resources 2 the growth of health expenditures is a good thing, it is normal that the


richer a society is, the bigger the share of its income devoted to health. But public financing is necessarily limited and has to focus on an explicit range of services: beyond that private financing will have to increase 3 the growth of health expenditures is a good thing, and it is necessary to finance it publicly to maintain equity. All effective care has to be publicly funded.

Each of these convictions implies a different policy that decision makers supposedly avoid because they do not have the courage to confront professional lobbies (no. 1), or because they stay on archaic-minded and rigid egalitarian models (no. 2), or because they want to get rid of solidarity (no. 3). The common feature of these proposals, otherwise inspired by different ideologies in Alan Williams’ classification, is that they present themselves as straightforward solutions: in that sense they do not favour the maturity of the democratic debate and the recognition that these tensions are inherent in our systems and that we will have to live with them.

REFERENCES Barer M and Evans R (1995) Avalanche or glacier: health care and the demographic rhetoric. Canadian Journal of Aging 14: 193–224.

Blomqvist A (2001) Does the economics of moral hazard need to be revisited? A comment on the paper by John Nyman. Journal of Health Economics 20: 283–8.

Caisse Nationale d’Assurance Maladie (2002) Evolution de la prise en charge des diabétiques non insulino-dépendants traités entre 1998 et 2000. Paris: CNAMTS.

www.ameli.fr/fileadmin/user_upload/documents/Prise_en_charge_des_diabetiques_ 1998_et_2000.pdf Dormont B, Grignon M and Huber H (2006) Health expenditure growth: reassessing the threat of ageing. Health Economics 15: 947–63.

Gardiol L, Geoffard PY and Grandchamp C (2006) Selection and incentive effects:

an econometric study of Swiss health insurance claims data. In: Chiappori PA and Gollier C (eds) Competitive Failures in Insurance Markets: theory and policy implications.

Cambridge, MA: MIT Press, pp. 81–96.

Gerdtham UG and Jönsson B (2000) International comparison of health expenditure.

In: Culyer AJ and Newhouse JP (eds) Handbook of Health Economics. Amsterdam:

Elsevier, pp. 11–53.

Le Cercle des Economistes (2004) Economie de la santé: une réforme? Non, une révolution. Les Cahiers 6: 1–170.

Maarse H and Paulus A (2003) Has solidarity survived? A comparative analysis of the effect of social health insurance reform in four European countries. Journal of Health Politics, Policy and Law 28: 585–614.

McGlynn EA, Asch SM, Adams J et al. (2003) The quality of health care delivered to adults in the United States. New England Journal of Medicine 348(26): 2635–45.

NHS Centre for Reviews and Dissemination (1999) Getting evidence into practice.

Effective Health Care 5: 1–16.


Polton D (2004) La concurrence par le financement fonctionne-t-elle? L’expérience des HMO aux USA. Revue d’Économie Financière 76: 69–85.

Polton D and Rochaix L (2004) Partage optimal entre assurance maladie privée et publique: la situation Française au regard d’expériences étrangères. Economie Publique 14: 7–23.

Rice T (1998) The Economics of Health Reconsidered. Chicago: Health Administration Press.

Wennberg J and Gittelson A (1973) Small area variations in health care delivery: a population-based health information system can guide planning and regulatory decision-making. Science 182: 1102–7.

Williams A (1988) Priority setting in public and private health care: a guide through the ideological jungle. Journal of Health Economics 7: 173–83.

Williams A (1974) ‘Need’ as a demand concept (with special reference to health). In:

Culyer AJ (ed.) Economic Policies and Social Goals. Aspects of public choice. London:

Martin Robertson, pp. 60–76.

Wright C, Chambers G K and Robens-Paradise Y (2002) Evaluation of indications

for and outcomes of elective surgery. Canadian Medical Association Journal, 167:


CHAPTER 6 Resource allocation in health care: Alan Williams’ decision maker, the authority and Pareto... Anthony J Culyer


Although this chapter is inspired overwhelmingly by the thoughts of Alan

Williams, I shall begin with an aphorism of his and my long-time York colleague, Jack Wiseman:

What is the question?’ – THAT is the answer!

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