Health Economics and Health Policy Victor R. Fuchs Henry J. Kaiser Jr. Professor Emeritus Stanford University Department of Health London 9 May 2003

“…the age of chivalry is gone. That of sophisters, economists, and calculators has succeeded; and the glory of Europe is extinguished forever” Edmund Burke

“When the sentimentalist and the moralist fails, he will have as a last resource to call in the aid of the economist.” Edwin Chadwick

What Are Policy-Makers Trying To Do?  Assure access to medical care  Control the rate of growth of expenditures for medical care Protect and improve the health of the population Achieve efficient use of health care resources This above all: Avoid bad headlines

How Is Britain Doing?

Fewer physicians per 1,000 population than most other “western” countries. Approximately 35 percent below the mean of 12 countries Fewer hospital beds per capita than most other countries. ( Exact comparisons are suspect because beds serve different purposes in different countries)

Lower health expenditures per GDP than other countries. Approximately 22 percent below mean of 11 countries (U.S. not included) Higher (8 percent) age-adjusted death rate than 12 country mean. Slightly slower rate of decline in age-adjusted mortality since 1961, vs. 12 country mean of –1.42. Excluding Japan, the mean is

Health Care Expenditure As Percent of GDP 149 Countries in Late 1990’s Averages by Decile of Real GDP per Capita Percent U.K ,000 2,0005,000 10,000 30, GDP per capita, 1999 U.S. dollars (logarithmic scale) Percent

Life Expectancy at Birth, 149 Countries in late 1990s, Averages by Decile of Real GDP per Capita GDP per Capita, 1999 U.S. dollars (logarithmic scale) U.S ,0005,00010,00030,0002,000 Years 0 0 U.K.

Efficiency Who knows? Extremely difficult to measure output

Two principal aspects of efficiency A.Efficiency in utilization of services Demand side constraints Supply side constraints B.Efficiency in production of services Scale of production Mix of inputs Getting the right scale and mix requires…

Knowledge: data, analyses Incentives: physicians, administrators, planners

What Do Economists Have To Contribute to Health Policy?

Realistic approach to life’s problems: neither romantic nor monotechnic Aptitude and training for quantitative analysis Some understanding of decision- making in the face of uncertainty Experience in comparing benefits and costs (risks)

Ability to think in systemic terms: “you can’t change only one thing” Appreciation of the difference between average and marginal measures Appreciation of the difference between a movement along a function and a shift in the function Appreciation of the difference between endogenous and exogenous variables

Some Specific Areas For Collaboration Among Economists, Physicians, and Policy-Makers

Evaluation of benefits and costs of new technologies Measurement of how incentives affect the behavior of patients, physicians, and hospital administrators Analysis of time trends and cross- sectional differences in utilization of medical care

Analysis of time trends and cross- sectional differences in health Monitoring results of demonstration projects Keeping policy-makers from making really big mistakes

Current and Future Challenges to Health Policy How egalitarian a system does society want? How to find the right balance between administrative control and the market? How to determine an appropriate number and mix of health care personnel? How to finance health care expenditures? How to reimburse hospitals and physicians? How to deal with advances in medical technology?

“The organization of medicine is not a thing apart which can be subjected to study in isolation. It is an aspect of culture whose arrangements are inseparable from the general organization of society.” Walton H. Hamilton