20
The Economics of Health and Medical Care
The Economics of Health and Medical Care
OTHER INTERNATIONAL ECONOMIC ASSOCIATION PUBLICATIONS
MONOPOLY AND CoMPETITION AND THEIR REGULATION
THE BuSINESS CYCLE IN THE POST-WAR WORLD
THE THEORY OF WAGE DETERMINATION
THE ECONOMICS OF INTERNATIONAL MIGRATION
STABILITY AND PROGRESS IN THE WORLD ECONOMY
THE ECONOMIC CoNSEQUENCES OF THE SIZE OF NATIONS
ECONOMIC DEVELOPMENT OF LATIN AMERICA
THE THEORY OF CAPITAL
INFLATION
THE ECONOMICS OF TAKE-OFF INTO SUSTAINED GROWTH
INTERNATIONAL TRADE THEORY IN A DEVELOPING WORLD
ECONOMIC DEVELOPMENT WITH SPECIAL REFERENCE TO EAST AsiA
ECONOMIC DEVELOPMENT FOR AFRICA SOUTH OF THE SAHARA
THE THEORY OF INTEREST RATES
PROBLEMS IN ECONOMIC DEVELOPMENT
THE ECONOMICS OF EDUCATION
ACTIVITY ANALYSIS IN THE THEORY OF GROWTH AND PLANNING
THE ECONOMIC PROBLEMS OF HOUSING
CAPITAL MOVEMENTS AND ECONOMIC DEVELOPMENT
PRICE FORMATION IN VARIOUS ECONOMIES
THE DISTRIBUTION OF NATIONAL INCOME
ECONOMIC DEVELOPMENT FOR EASTERN EUROPE
RISK AND UNCERTAINTY
ECONOMIC PROBLEMS OF AGRICULTURE IN INDUSTRIAL SOCIETIES
INTERNA1IONAL ECONOMIC RELATIONS
BACKWARD AREAS IN ADVANCED CoUNTRIES
PUBLIC ECONOMICS
ECONOMIC DEVELOPMENT IN SOUTH ASIA
NORTH AMERICAN AND WESTERN EUROPEAN EcoNOMIC PoLICIES
PLANNING AND MARKET RELATIONS
THE GAP BETWEEN RICH AND PooR NATIONS
LATIN AMERICA IN THE INTERNATIONAL ECONOMY
MODELS OF ECONOMIC GROWTH
SCIENCE AND TECHNOLOGY IN ECONOMIC GROWTH
ALLOCATION UNDER UNCERTAINTY
TRANSPORT AND THE URBAN ENVIRONMENT
THE MANAGEMENT OF WATER QUALITY AND THE ENVIRONMENT
AGRICULTURAL POLICY IN DEVELOPING CoUNTRIES
THE ECONOMIC DEVELOPMENT OF BANGLADESH
CLASSICS IN THE THEORY OF PUBLIC FINANCE
The Economics of Health and Medical Care
Proceedings of a Conference held by the International Economic Association at Tokyo
EDITED BY MARK PERLMAN
© The International Economic Association 1974 Softcover reprint of the hardcover 1st edition 1974 978-0-333-15783-1
All rights reserved. No part of this publication may be reproduced or transmitted, in any form or
by any means, without permission.
First published 1974 by THE MACMILLAN PRESS LTD
London and Basingstoke Associated companies in New York, Dublin,
Melbourne, Johannesburg and Madras
02/790
ISBN 978-1-349-63662-4 ISBN 978-1-349-63660-0 (eBook)DOI 10.1007/978-1-349-63660-0
Contents
Acknowledgments
List of Participants
Introduction Mark Perlman
PART ONE: ECONOMIC HISTORY
AND THE ECONOMICS OF HEALTH
AND MEDICAL CARE
ix XI
xiii
The Economic History of Medical Care R. M. Hartwell 3 2 Economic History and Health Care in
Industrialized Nations Mark Perlman 21 Summary Record of Discussion 34
PART TWO: PROBLEMS OF THE DEMAND FOR
AND SUPPLY OF HEALTH SERVICES,
AND THE RELATJON OF MORTALITY TO
ECONOMIC ACTIVITY
3 The System of Medical Care in Japan and its Problems Takeshi Kawakami 41
4 Proprietary Hospitals in the United States 57 Richard N .. Rosell
5 The Determinants of National Outlay on Health 66 Ephraim Kleiman
Summary Record of Discussion 82
6 Economics of Need: The Experience of the British 89 Health Service Michael H. Cooper
7 Private Patients in N.H.S. Hospitals: Waiting Lists 108 and Subsidies Anthony J. Culyer and J. G. Cullis
8 Consumer Protection, Incentives and Externalities 117 in the Drug Market Elisabeth Liefmann-Keil
Summary Record of Discussion 130 9 Price and Income Elasticities for Medical Care 139
Services Joseph P. Newhouse and Charle~ E. Phelps
10 Supplier-Induced Demand: Some Empirical Evidence 162 and Implications Robert G. Evans
vi Contents
11 Some Economic Aspects of Mortality in Developed 174 Countries Victor R. Fuchs
Summary Record of Discussion 194
PART THREE: THE IMPACT OF DEMAND
FOR HEALTH SERVICES
12 Health, Hours and Wages Michael Grossman and 205 Lee Benham
13 A Test of Alternative Demand-Shift Responses to the 234 Medicare Program Bernard Friedman
14 Demand for Emergency Health Care and Regional 248 Systems for Provision of Supply Ulf Christiansen
Summary Record of Discussion 272
PART FOUR: THE QUANTITATIVE AND THE
QUALITATIVE PROVISION OF HOSPITAL,
PHYSICIAN AND PARAPROFESSIONAL
SERVICES AND SOCIAL CONTROL
15 The Role of Technology, Demand and Labor Markets 283 in the Determination of Hospital Cost Karen Davis
16 A Microanalysis of Physicians' Hours of Work 302 Decisions Frank A. Sloan
17 Modeling the Delivery of Medical Services 326 Judith Lave, Lester Lave and Samuel Leinhardt
Summary Record of Discussion 352 18 Measuring the Effectiveness of Health Care Systems 361
Alan Williams
19 Health Indicators and Health Systems Analysis 377 Emile Levy
20 The Quality of Hospital Services: An Analysis of 402 Geographic Variation and Intertemporal Change Martin S. Feldstein
Summary Record of Discussion 420
21 Smoking and the Economics of Government Intervention 428 Anthony B. Atkinson
22 Allied Health Personnel in Physicians' Offices: An 442 Econometric Approach Michael D. Intriligator and Barbara H. Kehrer
Contents vii
23 Econometric Forecasts of Health Services and Health 459 Manpower Donald E. Yett, Leonard Drabek, Michael D. Intriligator and Larry J. Kimbell
Summary of Discussion 470
PART FIVE: METHOD AND METHODOLOGY IN UNDERSTANDING THE CHOICE OF
HEALTH CARE SYSTEMS
24 On the Social Rationality of Health Policies Jean-Pierre Dupuy
25 Choice of Technique Michael Kaser
Summary Record of Discussion
Index
481
510
528
539
This page intentionally left blank
Acknowledgments
There are many to be thanked. The Program Committee, which in the I.E.A. tradition is the
intellectually critical one, had five active members: Professor Martin Feldstein (Harvard University, U.S.A.), Mr Michael Kaser (Oxford University, U.K.), Professor Shigeto Tsuru (Hitotsubashi University, Japan), Professor Hirofumi Uzawa (Tokyo University, Japan), and the undersigned (University of Pittsburgh, U.S.A.), who with Professor Tsuru served as co-chairman.
Professor Tsuru had a superb Conference Secretariat. It was headed by Mr Denzo Izumi, who was assisted by Mrs Teruko Morikawa, Mr Kenji Miyamoto and others.
There was generous financial support from several Tokyo businessmen and newspapers, thus enabling the International Economic Association to cover most of the travel expenses of non-Japanese participants.
The copy-editing was done by Dr Ruth Bilgrey Waxman. The checking of all mathematical equations was the work of Professor Asatoshi Maeshiro of the University of Pittsburgh.
Professors Fritz Machlup, Luc Fauvel and Austin Robinson (respectively President, Secretary and Series Editor) and Miss Mary Crook, all of the International Economic Association, were present at the Conference and played key roles in expediting the publication of the book.
Pittsburgh, Pennsylvania, U.S.A. July 1973
MARK PERLMAN
This page intentionally left blank
List of Participants
Professor A. B. Atkinson, University of Essex, Colchester, U.K. Dr D. Bell, Brooking Institution, Washington, D.C., U.S.A. Professor M. Bronfenbrenner, Duke University, Durham, North Carolina, U.S.A. Dr U. Christiansen, Danish Building Research Institute, Copenhagen, Denmark Mr M. H. Cooper, University of Exeter, Exeter, U.K. Mr A. J. Culyer, Institute of Social and Economic Research, University of York,
York, U.K. Dr K. Davis, Brookings Institution, Washington, D.C., U.S.A. M. J.-P. Dupuy, Centre de Recherche sm le Bien-etre (CEREBE), Paris, France Mr T. Ema, Social Security Agency, Tokyo, Japan Professor K. Emi, Hitotsubashi University, Tokyo, Japan Professor R. G. Evans, University of British Columbia, Vancouver, Canada Professor L. Fauvel, International Economic Association, Paris, France Professor M. S. Feldstein, Harvard University, Cambridge, Massachusetts,
U.S.A.* M. A. Foulon, Centre de Recherches et de Documentation sur Ia Consommation
(CREDOC), Paris, France Dr B. Friedman, Brown University, Providence, Rhode Island, U.S.A. Professor V. R. Fuchs, Center for Advanced Study in the Behavioral Sciences,
Palo Alto, California, and New York University, New York City, U.S.A. Dr M. Grossman, National Bureau of Economic Research (N.B.E.R.), New York
City, U.S.A. Dr R. M. Hartwell, Nuffield College, Oxford, U.K. Professor K. Imai, Hitotsubashi University, Tokyo, Japan Professor M. lntriligator, University of Southern California, Los Angeles,
California, U.S.A. Mr S. Jinushi, Social Development Research Institute, Tokyo, Japan Mr M. Kaser, St Antony's College, Oxford, U.K. Dr T. Kawakami, Suginami Kumiai Hospital, Tokyo, Japan Dr B. H. Kehrer, American Medical Association, Chicago, Illinois, U.S.A. Dr E. Kleiman, Hebrew University of Jerusalem, Jerusalem, Israel Professor J. Lave, Carnegie-Mellon University, Pittsburgh, Pennsylvania, U.S.A. Professor L. Lave, Carnegie-Mellon University, Pittsburgh, Pennyslvania, U.S.A. Professor S. Leinhardt, Carnegie-Mellon University, Pittsburgh, Pennsylvania,
U.S.A. Professor E. Uvy, Universite de Paris-IX Dauphine, Paris, France Professor E. Liefmann-Keil, University of Saarland, Saarbrucken, West Germany Professor F. Machlup, Princeton University, Princeton, New Jersey, U.S.A. Professor C. Moriguchi, Kyoto University, Kyoto, Japan Professor M. Perlman, University of Pittsburgh, Pittsburgh, Pennsylvania,
U.S.A. Dr C. E. Phelps, RAND Corporation, Santa Monica, California, U.S.A. Mr J. D. Pole, Department of Health and Social Security, London, U.K. Professor E. A. G. Robinson, Marshall Library, Cambridge, U.K.
* Professor Feldstein, who served on the Program Committee and prepared a paper, was actually absent from the Comference
xii Participants
Professor R.N. Rosett, University of Rochester, Rochester, New York, U.S.A. Mme S. Sandier, Centre de Recherches et de Documentation sur Ia Consomma-
tion (CREDOC), Paris, France Professor M. Shinohara, Seikei University, Tokyo, Japan Professor F. A. Sloan, University of Florida, Gainesville, Florida, U.S.A. Professor S. Tsuru, Hitotsubashi University, Tokyo, Japan Professor H. Uzawa, University of Tokyo, Tokyo, Japan Professor A. Williams, University of York, York, U.K.
Introduction
Mark Perlman
A conference? To hold it or not to hold it? Several factors seem to make a conference on health and medical care timely. First, few economic topics are more pressing; the rate at which the share of medical expenditures in the national product accounts of most industrialized nations is rising suggests, even shouts for, the need for great priority in analyzing causes and consequences. Second, there has been almost a century's experience since Bismarck first introduced the thought that industrialized society was responsible for medical care for the self-supporting citizen; moreover, within the past three decades country after country has moved to experiment in its own way with creating the institutions necessary to satisfy the health expectations of its own people. Thus, a variety of national experiences exists, and comparisons of these experiences are generally useful. Third, economists have been intermittently considering the cost of health care and the value of health care ever since the time of the Political Arithmeticians - specifically since Sir William Petty (onetime Professor of Surgery at Oxford and all-time economic genius) introduced the topic of the economic value of a preserved life to scholars working in the economics tradition.
Yet in spite of these reasons for holding a conference, the operative question remained whether those working in the field of economics of health had enough solid achievement as well as common inter-nation bases to justify an expensive international conference. One way around this hurdle was to insist that health care, not just medical care, be considered.
A second preliminary decision was to confine the papers to work done in industrialized nations; this step made investigation of the feasibility of a conference easier, because in industrialized nations there is a convergence of demographic considerations. (It is not that there are necessarily more data or better analysts working on industrialized countries than elsewhere.) Most preliminary work has revealed the critical importance of the age, educational and distribution-of-wealth composition of countries in the social handling of what might be termed the health industry.
The next query was whether there were sufficient institutional similarities between the various industrialized countries' medical care
xiv Introduction
systems to make worthwhile comparisons of results, methods or even objectives. Preliminary examination suggested that the answer to this question was complex. Most industrialized nations have markedly increased inputs into their respective health sectors; indeed, they have done so almost willy-nilly. Yet in these countries there are few, if any, reliable (even relevant) measures of health output. Without output measures, comparisons lose most meaning. Here divergence of view among the program planners emerged. The one which ultimately dominated was that lack of good systematic output data was even more a reason for having an international meeting than for not having it. Getting analysts to work together for as little as a week could focus pressure for solution of the provision of output data. Such a thrust might well prove to be one of the more important long-run empirical contributions that the International Economic Association could make to the subject. At the same time, comparisons of analytical method and input considerations would be intellectually beneficial.
Table 1 shows the organization of the Conference, held in Tokyo at the Tokyo Prince Hotel from 2 April through midday of 7 April 1973.
The Principal Findings Part I. The two initial papers were selected to put the health and
medical care problems into an appropriate perspective. Both authors noted that historically it has not been the contributions of technologically sophisticated medical care which account for improved health in the urban areas of industrialized nations; rather it has been the rise of average nutritional levels and the application of sanitary reform with respect to both pure water distribution and centralized sewage-pumping systems.
Another point raised in these historical overviews was the need to get some stable measurements of health, and that improvements in life expectancy were very crude proxies for studying the output of various kinds of health and medical care programs.
The tone of both papers was essentially optimistic, with both authors concluding that the economists' usual analytical techniques, when applied to sophisticated data, would yield a satisfactory social return on the necessary intellectual investment.
Part II. The nine papers in this part were initially conceived as dealing with problems of the national supply and demand for health and medical services. As they turned out, however, there were several denominators - which were by no means common.
Two papers dealt with international comparisons. Dr Kleiman studied the public/private split in responsibility for the provision of medical care. His model has a beguiling neatness; his conclusion is a
Introduction XV
disturbing realization that privately financed care and socially financed care are not, in practice, easy substitutes. Professor Fuchs's paper had an even more disturbing tone. He found that the conventional wisdom (rising national per capita income was positively associated with increasing average longevity) was no longer 'true'; instead, lifestyle (with affluence in many instances destroying longevity) plays an important role. Fuchs did grant, however, that the form national medical delivery systems took did still affect, albeit in limited degree, life expectancy.
Professor Evans (Canada) sounded clearly what became a terribly loud theme. The economist's favorite constructs, supply and demand schedules, were largely confusing in the health area because the supplier (generally a physician) told the demander (generally a medically unsophisticated patient) what the latter needed and wanted.
Mr Cooper's paper on the British National Health Service (N.H.S.) expanded this same theme, even if Cooper's paper actually precedes Evans's.
Professor Liefmann-Keil's paper on the West German pharmaceutical supply code (prescriptions by physician) spelled out in no small detail how the market system has been bent to serve the physicians' and the pharmaceutical manufacturers' interests. Again, it is the supplier who tells the demander what the latter needs, wants and will pay for.
The Culyer and Cullis paper, also on the British N.H.S., studied the alleged inefficiencies grafted on the N.H.S. by allowing private patients in N.H.S. hospitals. Their conclusion was that the present mixture was not going to be made significantly more efficient if private patients were driven to completely private hospitals.
Professor Rosett's paper (actually given before the Culyer and Cullis one) added a most interesting analytical point, but this time in the context of the American institutional scene. In comparing nonprofit to proprietary hospitals, he concluded that the former offered greater net efficiencies to the decision-making physician. Thus, the income-maximizing decision-maker preferred to maximize his interests by forgoing money profits (as found in proprietary hospitals) in favor of the service facilities for him associated with non-profit institutions.
The Kawakami paper offers further thought on this theme of the contradictions between facile market models and the hospital and similar medical care institutions, as they have developed. Kawakami's paper deals with the current Japanese medical care delivery system.
The Newhouse and Phelps paper dealt with 1963 American data on the demand for medical care. Price elasticities were found to be small, which seems logical if one realizes the importance most buyers
Sess
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I II
m
IV
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CO
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U.S
.A.,
Uni
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Hea
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F.
Mac
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R.
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XVlll Introduction
attach to medical care purchases. Wage income elasticities similarly confirmed expectations and were found to be positive. Other nonwage income and third-party insurance considerations confirmed expectations.
Part III. Here are three papers on the handling of the impact certain specific demands on the provision of medical care. The Grossman and Benham paper analyzes the impact of health in American labor market performance. Not only does it ask whether improved health adds measurably to production, but it also asks whether improved income adds to improved health and the allied aspects of household management. Dr Friedman's paper considers the impact that the American Medicare system (designed for the elderly) has had on the general allocation of resources for one type of medical care service (breast cancer management) not usually associated with the Medicare receivers; he finds that in absolute terms the treatment breast cancer patients receive has increased (reflecting technological advance) since Medicare was instituted. In sum, the whole medical system has expanded to absorb both the augumented Medicare demand and the technologically induced demand of breast cancer victims. Finally, Dr Christiansen's paper reports in detail on a method for analyzing the impact of demand for accident services in Copenhagen.
Part IV. The nine papers in this part reflect research on rather specific health care problems. Dr Davis analyzes the reasons for the expansion of American hospital costs, estimating ad seriatim the various causes. Professor Sloan's paper estimates how responsive American physicians are in terms of hours worked to changes in weekly and hourly earnings. The Lave-Lave-Leinhardt paper proposes and examines by simulation a model considering the impact of counseling, clinic and hospital options on patient choice of service; not unexpectedly, the nature of the illness (not the patient care options) is the principal determinant, but the options do play roles of some significance - particularly critical in a system used to over-capacity.
The Williams paper, written within the context of the British National Health Service, directs attention to what he (Williams) thinks a planning error: possible supply is estimated and then allocated (probably imperfectly) among competing claims. He thinks more work should now be done on estimating the aggregate demand for service, rather than starting from the supply side alone.
The Atkinson paper, also conceived from within the British institutional context, focused on the wisdom of the government affecting the demand side by prophylaxis (in this case anti-smoking) regulation.
Introduction xix
The Intriligator-Kehrer paper deals with the trade-offs between physicians and other professional and paraprofessional medical care personnel. It estimates these trade-offs in terms of hours, comparative (direct and interactive) wage effects and the role of worker-supplied investment or capital.
The Yett-Drabek-Intriligator-Kimbell paper is an attempt to develop a macro-model of the American medical system. It relies upon no fewer than 37 behavioral and identity equations and attempts to predict utilization rates and prices.
Two of the papers deal with the rather profound measurement of output problems. Professor Feldstein's paper introduced and tested some ideas pertaining to linear measurement of the quality of hospital care. Professor Levy, by way of contrast, rejected linear scales for measuring general health quality and suggested something in the way of a profile system for estimating the individual's health status; presumably these profiles could in some way be aggregated to yield estimates of the 'health of nations'.
Part V. The two concluding papers, like the opening two, were intended to provide perspective. M. Dupuy's paper considered the problem of whose rationalty was being used as the logical basis for medical care systems. He was particularly concerned that economists not force their Weltanschauung on the examination of the physicianpatient relationship; the medical efficiency topic is too critical to be left either to the experts on efficiency (the economists) or the experts on medicine (the physicians). In truth, the topic requires a much broader base, if useful insights are to be produced and implemented. Mr Kaser's paper, which closed the Conference, again stressed the load or responsibility which society tends to force on the physician: he must act as seller and adviser to the buyer; he must cooperate with, yet fight off, public administrators' interventions on the costs and administration sides.
One of the great values of the Conference is its indication, to scholars working in the field, of the unevenness of the 'line of intellectual settlement,' some particularly neglected subject lacunae, and the need for improved data and semantic discipline to sharpen the focus of questions being asked. In sum, this Conference volume reflects the wide variety of research activities, each geared to the problem as perceived within a particular nation's institutional setting.
Some Concluding Observations The price of any ex ante program estimate is only too clearly seen in the ex post product. I, as editor, have maintained (with one very minor adjustment) the sequential order of the program by inter-
XX Introduction
posing the summary records of the discussion and the debate in the sequence in which they occurred. Yet it is apparent from the way I have divided the volume into parts (it is not even necessary to admit this point by bald statement) that the contracted-for papers in many instances did not fit the original matrix. Parts I and IV would have fitted together nicely; the fact is, however, that the philosophic emphasis found in Part IV - possibly one of the more useful parts -had not been foreseen. Moreover, Parts II and III overlapped and were intentionally non-homogeneous.
In a few instances the authors revised the papers as originally given. In each such instance, notice has been taken in this volume to indicate that what we are printing is a revised version; one limitation on the revision of papers was to preclude any author (or authors) choosing to use the opportunity to revise the paper to make redundant (or even silly) specific criticisms, comments or discussion as summarized by Professor Martin Bronfenbrenner, our very active rapporteur.
Great effort has been made to process this volume quickly. Inevitably there is a trade-off of quality for speed. I hope that our trade-off provides interested scholars a comfortable saddle on which to sally forth.
