The Health Expenditure Conundrum: Is There Ever Enough Money?


The Health Expenditure Conundrum: Is There Ever Enough Money?

I have a friend who reads the posts I write as part of this series. Recently, she sent me a news video about GPs who are providers to the Australian Medicare scheme no longer being able to cover their costs. My friend’s Whatsapp words were: “Seems typical sensational news and I don’t know if doctors here have much margin or keep their costs down, but it did make me wonder, is there a country in the world that gets it roughly right?”.

As an economist interested in health, one of the first concepts I teach my students is the marginal returns to health expenditure. How, at a certain level of health expenditure, countries suddenly need to spend more and more to achieve just a little bit of improved health for their population.

And then there is health inflation which further complicates matters. The specter of health inflation is always in the background. It has a reputation for always being higher than general inflation levels. The difference between general inflation and health inflation is typically driven by technological improvements in health treatments. While people want to be able to spend another year with their loved ones, there will be a demand for these treatments. Countries therefore face health expenditure demands that could quite quickly grow their health expenditure bill if it not carefully managed.

Is there a country on earth that gets it right? This is a big debate and question. Whether there is some country, or countries, in the world that get its right in generating good health outcomes with the optimal level of expenditure.

While there have been many comparative health system studies over the years, the rankings of countries often change depending on the metrics used to assess countries’ relative performance. If we use efficiency as our main metric, there are two types of efficiency to consider: allocative efficiency and product efficiency. Allocative efficiency is about the WHAT of spending: what type of health services do countries choose to spend their money on. Production efficiency is concerned with HOW efficient services are in translating expenditure into outcomes.

Of course, how good a system is at generating bang for buck is not the only way in which health system performance is measured. We also need to think about effectiveness and equity.

Over time, the World Health Organization and World Economic Forum have done some studies to identify the countries with the best performing healthcare systems. While these findings are now dated, they point us in the right direction.

I was very tempted to point out some countries who are currently doing well. But the lists shift over time and with different metrics used. In 2000, France had the best performing health system according to the WHO. Switzerland is up there for the highest expenditure; Japan tends to always fall in the top ten of different lists. Israel and Singapore too.

What are the factors that separate the good performers from the not so good ones? Countries that choose to prioritise spending money on primary or preventative healthcare, often do better. This is a critical aspect of allocative efficiency in health services. It goes against basic insurance principles of only insuring hard-to-predict events. But as non-communicable diseases become more and more prevalent, health insurance systems globally are learning it is better to spend on prevention to minimise costs associated with later hospitalisation.

In terms of the HOW of health services, one input that could generate lots of efficiency is the use of technology and sophisticated data systems. Are patients tracked through the health system? Is unnecessary expenditure detected? Does the system provide healthcare early enough so down-the-line, costly hospitalization can be avoided? Countries with better technological approaches, including better data systems, often perform better in terms of health outcomes. Singapore is a positive outlier in this regard

What do the countries that don’t perform well overall have in common? According to the WEF, countries that perform well have shared the problem of misallocation of resources, either misallocation in an inequitable way (one group getting more or less than another, as in South Africa) or to a specific type of service (highly specialised hospital services).

While South Africa has made significant shifts in moving money away from hospitals to primary healthcare services in the post-apartheid period, our attempts at preventative healthcare are still inadequate at preventing unnecessary hospitalisations. We have a health system known for its reliance on “fixing” health conditions in hospitals, rather than preventing these conditions through good primary care. We also don’t yet have the technological systems needed to track patients throughout their full journeys in the health system. And, of course, we fit squarely into the box of misallocation of health resources: one group gets far more than the rest.

We have a lot going for ability to respond to these challenges to create a better health system. In comparison to other African countries, we have a good hospital system. And we’ve built an expansive network of primary healthcare facilities in the public sector in the post-apartheid period.

The good news is that we mostly know where we need to improve, and what needs to be fixed. Now we just need to do it. This means moving towards action, and holding those who manage our health accountable for action.

Views expressed are the writer’s. 

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