Leopard or chameleon? The changing character of international health economics

Leopard or chameleon? The changing character of international health economics

Anne Mills

Health Economics und Financing Programme, London School of Hygwne and Tropicul Medrcine, London, U K

Summary Over the last zs years the discipline of health economics has developed substantially. As an applied discipline, it has adapted and changed over time in response to the changing concerns of policy-makers, planners and managers. This paper questions whether it is like a chamelcon, changing its appearance in response to the external environment, o r like the leopard that never changes its spots. In answering the question, the paper presents an overview of the development of health economics as it has been applied in low and middle income countries distinguishing three eras, the I ~ ~ O S , rg8os, and I ~ ~ O S , and argues that in each of these eras the prcoccupations of Iienlth economists have been somewhat different. In each era tlie key contributions o f henlth cconomics are identified. The paper ends by considering future research priorities, and the obligations o f developed country institutions in terms of research topics and mode of work.

keywords health economics, developing countries

correspondence Professor A. Mills, London School of Hygiene and Tropical Mcdiciiic, Kcppcl Street, London U C r E 7HT, UK e-mail a .mil ls~lshtm.ac.uk

Introduction

My first encounter with health economics was in 1973, when 1 was posted to the Ministry of Health in Malawi to work as the health economist in the Planning Unit. At that time 1 was barely aware that health economics was developing as a distinct sub-discipline within economics, my degree having been notably weak in the area of micro-economics as applied in the public sector. I little realised that I would continue to work in the field of health economics for more than zo years. 1 a m now working o n subjects, and using theories and concepts, that are rather different from those 1 used when I first started work as a health economist. Health economics as it has developed in relation to the health sector in low and middle income countries is largely an applied discipline - it seeks to support decision-making in the health sector. It has thus tended to adapt and develop over time in response to the changing concerns of policy-makers, planners and managers. What then is the

nature of the discipline? Is it like a chameleon, changing its appearance in response to the external cnvirorimcnt? Or is it like the leopard that never changes its spots? (Figures I and 2). In other words: i s there an innate core of beliefs within the discipline that havc remaincd unchanged although the subjects of study may Iiavc changed?

1 present here an overview of the dcvelopmcnt of health economics as it has been applied in low ;ind middle-income countries. I will distinguish thrcc eras, the 197os, 1y8os and 1990s, and argue that in each o f these eras the preoccupations of health ccoiioniists havc been somewhat different. As a prosclytiser - which any economist who works within a school o f public hcnlth must be - I will also seek to distinguish what I coiisidcr to be the key contributions of health economics in these three eras. Finally I wish to look into the future - what are the key future areas of work that wc must aciclrcss, and what are the obligations we havc, located i n a developed country institution, in terms of tlie topics we

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A. Mills The changing character of international health economics

Figure I Leopard.

research and how we go about our research? In covering such a broad canvas, I will inevitably present a partial and idiosyncratic view; one influenced by my own interests and experience which lie largely a t the interface of research and policy.

What is health economics?

Health economics can be broadly defined as the application of the theories, concepts and techniques of economics to the institutions, actors and activities that affect health. It is concerned with such matters as the allocation of resources between various health- promoting activities; the quantity of resources used in health service delivery; the organisation, funding and behaviour of health service institutions and providers; the efficiency with which resources are used for health purposes; and the effects of disease and health interventions on individuals, households and society (Lee & Mills 1979).

professions which are equally interested in such topics, and have a useful and often essential part to play in research and policy analysis. The particular contribution of the economist to the examination of these issues rests on the distinctive method of approach, concepts and theories, and patterns of thought of economics. The kind of approach characteristically adopted by the economist has been described as:

There are a number of other disciplines and

‘the desire to specify an unamhiguous objective or set of objectives against which to judge and monitor policy; the desire to identify the production function; the recognition o f the importance o f human behaviour, as well a s

technology and natural environment, in rhe causes, prevention, cure and care of disease’ (Culyer 1981).

Before casting our minds back to the 1970s, I want to go even further back, to note the origins o f health economics in analysis of an issue which still rcmains highly pertinent today in poor countries.

‘The interest of economists in issues o f health and welfare dates from the first economist’ (Rosenthal

1979).

The roots o f health economics can he traced back to

the 17th century, to Sir William Petty who was a n economist and statistician and who h a s been called the ‘founder of political economy’ (Seldon 8( I’ennance 1973). His input is of particular note since his contribution identifies strands o f health economics which still are important today - the questions o f how to value life, and of the appropriate role o f government. His measure of an individual’s value was expressed in terms of that person’s contribution to national production. This led him to calculate that expenditures which saved lives, for instance by improving medicine or evacuating people from London during a plague epidemic, could be considered :I good investment as

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their benefits exceeded their costs. From these calculations he drew the conclusion that:

‘it is not in the Interest of the State to leave Phisitians and Patients (as now) to their own shifts’ (Petty 1676).

Even now, only the most reactionary of right wing economists would disagree with this statement!

Historical accounts also highlight one of the continuing controversies within the discipline, namely how much weight should be put on valuing life in narrowly productive terms. In the 19th century Chadwick, a key influence on the development of public health legislation, argued that

‘as the artist for his purpose views the human being as a subject for the cultivation of the beautiful - as the physiologist for the cultivation of his art views him solely as a material organism, so the economist for the advancement of his science may well treat the human being simply as an investment of capital, in productive force’ (Chadwick 1862).

He argued that better sanitation was a good investment, and that prevention of disease could offer greater benefit than the building of hospitals to treat those diseases.

I t is fascinating to note that some of the earliest contributions to the health economics literature in developing countries also concerned the economic impact of disease, and the benefit in terms of production of preventing disease. I am indebted to David Bradley for a long time ago drawing my attention to a classical epidemiological study of malaria in the Punjab which commented o n its economic effects:

Figure 2 Chamelcrm.

entirely of studies that either sought to nie;isure the so- called ‘economic’ impact of tropical diseases, o r to go further and compare the costs saved with the costs o f con trol.

The 1970s

This then sets the scene f o r the first er;i o f hcalth economics on which I want to dwell, namely that of the 1970s. I would characterise this as a pioiieering age, when economists for the first time in sonic numbers began to address questions of resource allocation in the health sector. In the UK and US at this time, there werc two main strands to the development of the hcalth economics discipline. O n the one hand, there was considerable debate, started by the classic article by Arrow ( ~ 9 6 3 ) , on the justification for state intervention in the health care market, and whether on theoretical grounds state o r market provision should be preferred. O n the other hand, there was an increasing involvement of economists in government, working not only on issues of macro-economic management o f the economy but also on resource allocation to and within sectors such as health.

‘The autumn of 1908 in the Punjab was characterised by an epidemic of extraordinary severity. The effects of this epidemic were first prominently brought before the public by a sudden disorganisation o f the train services due to ‘fever’ among the employees at the large railway station, Lahore. . . . At Amritsar. . . almost the entire population was prostrated and the ordinary business of the city disrupted. For many weeks labour. . . was unprocurable and even food vendors ceased to carry on their trade’ (Christophers 1911).

I will be referring later to some of thc more recent trends in thinking on the role of the state; it is therefore worth dwelling a bit on the main features of the arguments put forward i n the late 1960s and 1970s. The

Indeed, the health economics literature relating to developing countries prior to the 1970s consisted almost

debate concerned whether the inherent nature of health care is such as to make one mode o f orginising its


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The changing character of international health economics

producrion and distribution (cg a national health service) inherently superior, in terms of social welfare, to another (eg the market). The debate centred on comparison of UK and US systems, but can be generalized to comparison of a predominantly publicly-funded and provided system versus a predominantly privately funded and provided one. The conclusion according to one review was that the question could not be answered by theoretical arguments, but only by analysis of how well different systems performed in practice (Cullis &

West r979). One of the main protagonists of the argument in retrospect put it rather differently:

epidemiologists as well - find malaria a frustrating disease because of its unpredictability, making sampling decisions difficult. Conly was very fortunate in that it was possible to distinguish 3 groups o f families, one strongly affected, one moderately affected, and one little

affected (which served as a basis f o r comparison). Families moderately affected by malaria, relative to

those with least malaria, planted less, gave priority to cash crops, and postponed more tasks, especially clearing of new land. Families strongly affected by malaria reacted similarly, bu t also brought In children 3 s

additional labour to a greater extent than other groups, and had overall yields

derailed exploration and ut~derstmdJiig of ;igricuJt~iral production processes including both management o f land and investment in clearing new land; secondly for its close monitoring o f the way in which families coped with illness, for example by using child labour and prioritising tasks; and thirdly for its careful analysis which resists the temptation to seek to convert all disease consequences into a coninion numerairc, such 3s

bclow normal. ‘True, the issues m e empirical at root but . . . considering what we d o know and on any

reasonabk guess about what we do not, the chief conclusion to be drawn . . . is not that government allocation is either appropriate o r inappropriate, but that allocation by market forces must always be and everywhere be severely flawed . . . because only a parody of the market could ever, in ‘reality’, exist’ (Culyer 198~).

I find this study particularly noteworthy firstly for its

This was in essence the consensus that those of us who studied health economics in the UK in the early r97os grew up with, and are still influenced by.

led, and was a consequence of, the development of techniques such as cost-benefit analysis which gave economists an ability to pronounce on issues of resource allocation and efficiency in the public sector. This analytical technique first began to be applied to public sector investment decisions in the r95os and 1960s. I n health, it built on the literature on the impact of disease on productivity: in other words, benefits were defined largely as the value of gains in production. The 1970s thus saw a continuation of the emphasis of previous decades on the value of improved health in contributing to economc growth and indeed a growth in the Iitcrature, as analysts sought to justify public investment in the health sector. While many of the studies were extremely crude and showed only a passing acquaintance with empirical evidence, I want to hightlight one study as worthy of particular note: that on malaria by C o d y (1975).

Conly (r975) studied the impact of malaria on families in an area of Paraguay, collecting detailed information on agricultural inputs and outputs over two farming seasons. Economists - and perhaps

The invoivernent of economists in government both

money. It stands as a model study in comparison to the crude estimates of the impact of disease on production which unfortunately continue tu be published.

Despite the strong arguments being put forward for health expenditure as an investment i n human cupltal - in other words, as a means of making peoplc morc productive - it provcd very difficult to demonstrate either that disease lowered productivity o r decr total production, or that improving health would improve productivity, except for sonic very specific conditions and diseases. Cost-benefit analysis in the way it was applied in the rg7os thus did not prove a very powerful technique to guide investments in the health sector. Moreover, many economists were extremely uncomfortable with the implications of such studies-namely, that health investment would only be worthwhile if gains in production resulted. It left unanswered issues of resource allocation to interventions that benefited children and the eldcrly. It also implied, incorrectly, that good health had value on ly so far as it enabled people to be productive.

The main extension o f economic evaluation techniques to health had to await the development of cost-effectiveness analysis, a technique suited to sectors where benefit valuation is difficult. Cost-effectiveness analysis takes the objective as given - for example


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reducing infant mortality by a certain amount - and seeks to identify the least-cost means of achieving a given reduction o r the greatest reduction achievable within a given budget. Unlike cost-benefit analysis therefore, there is no attempt to value all benefits, including deaths averted, in monetary terms.

Cost-effectiveness analysis came to be seen as a key tool for improving the efficiency of health services (Abel-Smith 1972). The late 1970s saw a rapid expansion in the number of studies published, particularly in the area o f immunisation, which continued into the early 19x0s. I want to highlight two studies, which represent well the tailoring of cost-effectiveness studies to specific policy and management issues.

evaluated the use of aircraft in providing health services to remote communities in Botswana (Walker & Gish 1977). At he time, the use of aircraft was being enthusiastically promoted in a number of African countries. Walker and Gish used admittedly imperfect output indicators of number of patient contacts and number of patients likely to be effectively treated (as judged by doctors and other health workers). As Table I shows, they found that costs per patient contact were similar between fixed and land-delivered mobile clinics, but around double for air-delivered mobile clinics. In terms of cost per likely effective patient contact, land- delivered mobile services were 8 times as expensive, and air-delivered 14 times as expensive. The disparity in cost-effectivcnrss was largely due to the fact that mobile services could not effectively treat the many patients whose conditions required continuing care. The authors concluded that motorised land and air transport might have a role in support and supervision, but not in service delivery.

My second illustration of cost-effectiveness analysis draws on studies sponsored by the WHO EPI programme, using the standard costing guidelines that they developed in the late 1970s. In the planning and management literature there has been a tendency to

The first, by Godfrey Walker and Oscar Gish,

quote average costs and to ignore variation i n nveragc costs, whether between facilities o r at different levels of output. The study by Creese et ul. ( rgXr) , o f immunisation costs in Thailand, Indonesia and tlie Philippines, highlighted the relevance of economists’ approach to studying costs, and in particular their concern to explore the variation in average cost by level of output. There is a clear tendency i n all three country samples of health centres for average costs to fall ;IS the level of output rises (Figure 3 ) , because a large proportion of total cost is fixed and thus insensitive to changes in output levels. Sonic policy implications follow from this; for example that there mny he :i minimum efficient size for an imniuiiisation futility, and that staffing patterns, which are often standardised, need to match the size of the catchment population.

the contribution of health economics at this time: studies were designed to answer questions o f relcvancc to decision makers, and to provide practical policy advice. In the words of Andrew Creese,

These two studies illustrate well the characteristics o f

‘While this type of audit lacks the prccision o f a carefully evaluated research project, it nevertheless constitutes an important practical improvemcnt’ (Creese et a/. 1982).

The studies 1 have quoted were done at thc instigation of outside agencies, albeit with local support. However, economists began to be found working within Ministries of Health in the 1970s (Drumniond & Mills 1989). I was the second economist to have been appointed to tlie Ministry of Health in Malawi, the first hnving been appointed in 1972. In the early 1970s Oscar G i s h was working in the Ministry of Health in Tanzania (Gish 1975). The issues that concerned us were those relatcd to

improving the planning and management o f public sector health services. In retrospect, three a r e x of work stand out as being of particular importance. Thc first was improving resource allocation patterns from the national level to districts. In all countries, rcgrirdlcss o f

Table I The cost-effectiveness of mobile health services cost (Q Fixed clinic Land mobile clinic Air mobile clinic

Per patient contact 0.68 0.63

Per likely effective patient contact 0.75 5.87 1.19

10.64

Source: Walker and Gish (1977).


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Figure 3 The relationship bcrween unit costs and output levels 111

inininnisation (redrawn from Creese et id. 1982).

15

O L 0

1

Philippines

A

their level of income, resource allocation patterns tend to be historically determined and difficult to change. A key contribution of health economists in the 1970s - working with others - was to analyse patterns o f resource allocation, and to suggest ways of improving them. The work of the Resource Allocation Working Party in England is well known (DHSS 1976). Similar analyses - though invevitably more simplistic because of poorer quality information - were done in several developing countries.

second main area of work, namely feeding in to planning activities and attempting to ensure that cost considerations were taken into account early on in planning decisions. Prior to the 197os, planning approaches had tended to be needs-based o r driven by input norms. As economists became more involved in planning, they demanded that availability of funds, and the cost implications of new developments, be taken into account early on in the planning process. New planning approaches were also being developed which made economic principles of efficient resource allocation the basis on which plans should be dcvcloped. In addition, the 1970s saw an expansion of studies of the cost of health services. I t began to be appreciated that discussions o f policy changes - such as the primary health care and Health For All debates needed to be informed early on by information on what it would cost to implement the policy.

The third, again complcrnentary, area of work was on improving information on economic aspects of health

Related to these studies of resource allocation wns the

A ------ 0

1 1 I I I 500 1000 1500 2000 2500

Number of fully immunised children

services, particularly o n sources of finance and expenditure patterns. Little progress could be made in other areas of the work of economists in government without better financial information. From the late 1960s, starting with the pioneering work o f Brian Abel-Smith (Abel-Smith 1967), methods were developed for systematic surveys of health finance and expenditure patterns (Griffiths & Mills 1982). This laid the foundations f o r subsequent international comparisons of health service financing and expenditure.

I t will be apparent from what 1 have said so far that the emphasis of health economics as contluctcd in developing countries in the 1970s was primarily on improving the performance - in both efficiency and equity terms - of govcrnnient health services. A secondary concern was to improve information on economic aspects of the health sector. Economists bcgan to demonstrate that they had an important contribution to make from posts within government, where they could support routine decision-making. Very little

attention was paid to health service users - in so far ;is

users were addressed, it was to argue that economic concepts of demand were relevant even if services were not priced at the point of use. Economists were striving to get their ideas and techniques accepted :is :I legitimate component of health sector decision-making.

The 1980s

The 19x0s could be crudely categorised a s the era of health care financing. Studies in the J 970s on health

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financing and expenditure had laid the foundations for the dehate that began on the desirability of alternative ways o f financing the health sector. Argumcnts over user fees dominate the literature, especially in relation to health financing policy in Africa. Compulsory health insurance, previously condemned because of the well known efficiency and equity problems with social security systems in Latin America, began to be incrcasingly considered as one solution to shortage of tax funds for health care. While work on cost- effectiveness analysis continued, it was no longer in thc forefront of the development of health economics. I found it remarkable when 1 was involved in putting a book together a t the beginning of the r980s, and inviting contributions from economists working in

dcveloping countries, that six of the nine contributions concerned analysing the costs and/or cost-cffectivencss o f different aspects o f the health sector (Lee & Mills 1981). When we came to put together a not dissimilar book in the late 1980s, contributions relating to aiialysis of demand for health services and user fees pre- dominated (Mills 81 Lee 1992). I will therefore focus on these here.

In the 1980s economists moved from justifying the relevance of economic concepts of demand in the health sector, to estimating demand functions and using the results to help determine charging policy. The focus was still very much on the public sector, but there was growing confidence in adapting standard tools o f economic analysis for application to health and less concern about justifying the relevance of economics. The rise to prominence of user fees had its main roots in

pragmatic concerns about the inadequacies of public funds for health care and the need to identify supplementary sources of funds. But theoretical justifications were also made, in terms of the desirability o f using prices to influence consumer behaviour.

From the early 1980s, economists were increasingly involved in reviewing the scope for user fees, especially in Africa, aiid recommending suitable fee structiires aiid pricing levels. The World Bank, having only just become involved in lending to the hcalth sector (World Bank T ~ X O ) , became a key protagonist in the debatc. David de Fcrranti o f the World Bank argued that

‘the conventional and still growing faith that health care should bc totally paid for and administered by government needs to be vigorously chaknged’ and

that ‘few o f the conceivable argumcnts against f u l l efficiency pricing appear compelling’ (dc Fcrranti 1985).

He dcvelopcd a categorisatiori o f health services to

identify which services shotild be charged for. Hc argticd that first contact, curative care services should definitely he charged for, amounting to a substantial proportion o f all services. His starting poiiit was clearly the assumption o f conventional economics that serviccs should be priced at the point where margiiiril social cost equals marginal social benefit, in order to setid the signals t o both providers and coiisiimers that eiisiire efficicnt provision and LISC.

This led on to the key World Bank puhlication Financing Health Services in Developing Countries: an Agenda for Reform, which emphasised governmeiit failures in ensuring efficiency and equity, and suggested that even modest increases in charges could gencratc enough revenue to cover r~-zo’L of operating hucigets (World Bank 1987). In the long term, it was argticd that charging for curative services could free around 6 0 % ~ of current government expeiiditurc for reallocation to preventive programmes and health services fo r the poor.

The World Bank policy statements were iinderpinncd by the first statistical studies of demand, in Malaysia and the Philippines, that suggested that demand was price-iiielastic: i n other words, a I % increase i n pricc would be accompanied by a less-than-1% fa11 in demand. A key and highly influential study was that by Heller (~$32) in Malaysia. He found that total medical demand, as measured by the volume of outpatient and inpatient use, appeared highly inelastic to cash price, income or time cost. For example he estimated that a

IO’/O increase in the price of public outpatient clinics would be associated with only a 1.5% decrcasc i n demand. Akin et a/. ( ry86) , in the Philippines, similarly concluded that cash prices had little effect on demand. Both studies found that consumers were sensitive to the relative prices of alternative so~irces of c:~rc, and that a

rise in price of one source caused sonic switch i n demand in favour of alternatives.

A number o f economists, notably hut not exclusively in Europe, were uncomfortablc with the claims made fo r the virtues of user fees, and particularly with the arguments that fees made services more efficient by discouraging ‘unnecessary’ iisc o f services, and cotild bc applied in 3 way that would promote equity. A strand o f


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health economics developed to attack the World Bank's views on both theoretical and empirical grounds. A leading contribution to the debate was made by a colleague here at the School, Lucy Gilson. She challenged the Bank firstly for its support for a markct- based allocation of health care and neglect of equity concerns, and secondly for its failure to address thc difficulties of implementing a fee system that benefits the poor (Gilson 1988). She emphasised the difficulties that people faced in distinguishing between necessary and unnecessary use and in finding money to pay fees, and the problems that providers would face in trying to introduce effective exemption systems. She also emphasised that information about willingness to pay derived from demand studies did not address concerns about ability to pay - in other words people might find money to pay fees, but this might have detrimental effects on household welfare both in the short and long term because they entered into debt, sold assets, o r decreased consumption of crucial items such as food.

Empirical support for some of these concerns was provided by several studies, of which I will present two as my next key health economics contributions. Gertler et al. (1987), using a model for estimating demand that allowed price and income to interact and data from Peru, found that demand for health care was more elastic a t lower incomes and higher prices. This implies - not surprisingly - that user fees would reduce access to care proportionally more for the poor than for the rich. They also found that user fees can generate substantial revenues, but accompanied by substantial reductions in aggregate consumer welfare with the burden of loss on the poor. They used simulations to address the World Bank's position that the adverse consequences of fees would be more than offset by using the revenue to extend services to underserved areas. They showed that

if the Peruvian government imposed moderate user fees and used revenues to make services more accessible, there would be little overall welfare loss, but there would be a redistribution o f welfare from poor to rich. Table z shows, for just the poorest and richest income quintiles, that the great majority o f the fall in demand would be amongst the poor, and that their welfare loss, expressed as a percentage of quintilc income, would be much greater than that o f the rich.

Waddington & Enyiniayew (19901, using simpler methods of analysis, looked at what happcncd in Gharia following a substantial increase i n government health care charges in 1985 (indicated by the arrow in Figure 4). Utilization in rural areas was substantially affected by the increase in 19x5 and did not recover to pre fee-rise levels. The age composition of users shifted in favour of the 15-45 age group a t the expense o f use hy the elderly. The study identified issues which art' only now beginning to be addressed in the literature, notably the change in culture engendered by charging, which encourages those activities which bring in revenue and discourages those things which d o not, and the nianagemenr capacity required to collect and use revenue.

The 1990s

While the 1980s can be categorised as the era of health financing, it is more difficult to categorise the 1990s. The level of debate and the sophistication o f techniques used has clearly increased greatly. Econometric techniques are being more routinely eniploycd, where data availability permits. Empirical studies on developing countries now appear more frequently in the Journal of

Health Economics, the main specialist disciplinary journal. More attention i s being paid to health service

Table 2 The distributiond iinplic.mons of user feca 111 Peru Consiinier welfare loss:

Yo of quintilc income "/o of fail in total demand

LJser fee Quintile I Quilltile 5 Quintile I Quintile 5 increase (poorest) (richest) (poorest) (poorest)

x 10 17.4 5.8 2.7 x 20 36.8 6 . 2 5.5

0. I

0.2

Source: Gertler et al. (1987) .


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I Figure 4 Effect of fee increase on rural utilization, Volta region. 1 indicates 60 when the fee illcrease occurred. (redr‘iwn from Waddington 8(

Enyimayew, 1990). 50 t

20 c 10 t O C

1984

quality as an important determinant of willingness to pay fees. Health economics work is spanning a fuller range of potential topics, including public sector priorities and resource allocation, sources of finance, private sector behaviour, behaviour of users, and organisational issues. Health economists are increasingly confident in their claims to be heard, and multi-lateral, bilateral and national agencies appear to accept a legitimate place of economics in decision- making (Walt & Gilson 1995).

For a while, it appeared as if economic evaluation would return as a key theme in the 1990s. Whereas in the I 970s cost-effectiveness analysis was used primarily to analyse ways of delivering a specified service or programme - for example the immunisatioii example I gave earlier - in the 1990s the World Development Report 1993 sought to use it to set priorities for the whole health sector (World Bank 1993; Jamison et ul. 1993). This application of cost-effectiveness analysis was dependent on the development of an indicator of effectiveness which could be used to compare widely differing health programmes and interventions. The DALY could occupy several pagcs by itself but I will pass on rapidly, in keeping with the weight to be placed, in hindsight, on the analytical approach of estimating burden of disease and cost-effectiveness in order to set sector-wide priorities. I have many concerns with the detailed methodology, but my main reason for dismissing that analytical approach as the theme of the 1990s is that although its prime purpose is to influence policymakers, the naivity of its implicit view of the policy making process means that its influence is not likely to be long-lived. Priority-setting aids are badly

m r

1985 1986 1987 Years (quarters)

I 1988

needed, including ones based on cost-effectiveness principles, but they need to be more sensitive to policy- makers’ needs, local circumstances and people’s preferences.

To me, one clear theme does emerge for the rg?os, that of markers and competition. This is encouraging a focus on the institutions within the health system, how they behave, what influences them to behave in the way they do, and how incentive structiires can be changed. The debate on the role of the state and the role of market forces has returned, but at a much more sophisticated level. It is no longer a case of simply juxtaposing public and private, o r planned versus decentralised means of control. Instead it is recognised that there may be some value in employing some markct mechanisms in a public sector context (Mills 1995).

Much of the direction of policy and research is being driven by reforms to health systems in developed countries, particularly Europe. These emphasise the importance of making both a conceptual and an organisational division between purchasers and providers. They also emphasise the importancc of competition, on both purchaser and provider sides, in encouraging purchasers to be responsive to consumers, and providers to be efficient suppliers of services. In many ways, the international health economics research agenda is currently being set by this latest fashion in health sector reform. Though to call it a fashion is to down-play its importance: it does seek to address d e e p rooted inefficiencies and inequities in health systems that have not been successfully addressed to date.

The focus o n markets and competition is challenging health economists to address new issues, and to expand

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their skills beyond those previously considered necessary for them to work as professional health economists. In particular, the tools of micro-economic evaluation had pride o f place in the hcalth economists’ toolkit. Now they must make themselves familiar with other fields of economics, particularly those relating to how markets work, and how and why institutions behave.

In sonic ways however, certain basic trends remain unchanged, particularly the tendency for policy reforms t o be proposed on ideological grounds dressed up as proven fact. In 1982 Tony Culyer referred to a

‘robust tradition in economics that contrasts the impcrfcct reality of Britain’s NHS with a benchmark form of social organisation where d l transactions are conducted in a perfectly operating market’ (Culyer 1982).

The tradition continues in that the failures of traditional government modes of provision are contrasted with the advantages to be gained from the introduction o f market forms of relationships. For example, the World Bank in the 1993 World Development Report stated that:

‘In most circumstances the primary objective of public policy should be to promote competition among providers - including between the public and private sectors (when thcre arc public

consumer choice and satisfaction and drive down costs by increasing efficiency. Government supply in ;I competitive setting may improve quality o r control costs, but non-competitive public provision o f health scrvices is likely to be inefficient or of low quality’ (World Bank 1993).

Competition should increase

Empirical evidence to back thesc assertions is grossly lacking. Moreover, as in earlier Bank policy statements, little attention has been given to the feasibility of introducing such reforms in the specific contexts o f poor countries, which lack the institutions and structures that facilitate the operation of markets in more developed settings. I t i s easy to forget that when reforms are introduced in developed countries, they can take for granted the existence of traincd managers, sophisticated information systems, accepted standards of behaviour, and functioning civil and political institutions. Where all or some of these are absent, the effect of a similar reform may be very different.

Given my continuing concern that policy prescriptions remain driven by ideological concerns dressed up as empirical truths, I have identified two studies from the 1990s which I think exemplify the sort of research that needs to be done if policy prescriptions are to be improved and to relate more closely to reality. Both have been done under the auspices of the LSHTM Health Economics and Financing Prograinme, with DFZD support.

The first, in South Africa and led by Jonathan Broomberg, evaluated the operation of contracts between health departments and a private company, for the provision of district hospital care, and compared the cost and quality of care in these hospitals with that of similar, publicly run hospitals (Broomberg et d. ry97). To summarise a complex study:

the contractors produced care at significantly lower cost (see Figure 5 ) , largely because of lower staff costs;

while there were some differences in quality of care - for example contractor hospitals performed better than public hospitals on nursing quality arid standards of maintenance and cleanlincss, and less well on avoidable causes of perinatal deaths - there was no evidence of systematic o r sustained differences in quality between them;

1600

1400

I

0 5 1200 5 P 8 1000 z C .o 800

E v) .-

600 L al a

0 V

400

200

0 mean median

Figure 5 Contractor (W) and public (0) hospital prodtrction costs per admission in South Africa (source: Mills c’t d., 1997).


Tropical Medicine and International Health VOLlJMh 2 N O 10 1’1’ g6 3-977 O C I OlIi K I L)‘)’

~ ~. - __ ~ __ __ ~ - - ._ ~


2000

1600 C m [r

g 1200 3 c

C 0 v) In .- ._ E 800 m 0) Q

L

Y

s 400

0 mean median

Figure 6 Contract cost per admission (W) and public production cost per admission (0) in South Africa (source: Mills et al. 1997).

from the point of view of the public sector, providing hospital care itself was generally cheaper than purchasing i t froin a coiitractor because of the relatively high price of the contract (see Figure 6 ) ;

as a consequence, the governmeiir was not securing the efficiency gains it might have done;

the main reason for this was the poor design of the contracts, which stemmed from the lack of capacity in the government to design and monitor contracts, and to judge the market.

A secondary product of this study has been the light it has shed on the management practices and constraints facing public and contractor hospitals (Brooniberg 7997). For example, contractor company officials were motivated to maximise efficiency o f production by a clearly expressed and communicated corporate goal of maximising profit and return to shareholders. They were supported by an efficient and highly capable corporate structure, which gave them a fairly high degree of autonomy while demanding accountability. In contrast, the motivations, nianagemcnt structures and systems in the public sector head offices and hospitals hampered efficient production. There were diffuse and vague notions o f accountability and responsibility,

efficiency was not clearly seen as a key objective, the head offices were unable to provide adeqiiate support to

hospital managers and communication was poor, there was no link between staff performance and promc)tion o r remuneration, and hospital maiiagers had virtually no authority over most key nianagenient functioiis.

While pressures of competition did play some role in motivating private companies to he efficient, other factors were also important, particularly the capacity (or lack of capacity) of the government to act a s an informed purchaser. The study also argued that management structures and systems were a further important reason for the efficiency of contractor hospitals, and that at least some of these could be implenienred in public hospitals. In other words, public production should not be seen as inherently inefficient: considerable scope existed to improve public performance substantially.

The second study, done by Sara Bennett with support from a number of Thais, particularly Dr Viroj Tangcharoensathieii, explored the nature of competition within the Bangkok hospital market. As 1 earlier indicated, the term competition tends now to bc used a s

if benefits are always expected to be associated with it. However, literature from industrialised countres, particularly from the US, acknowledges that price competition may not be prevalent and that providers may instead respond to competition by increasing service intensity o r r:iisinp quality o f care. ‘I’hcse alternative forms o f competition may have adverse effects on the health sector as a whole, for example through cost inflation, as well as o n individual patients, for example through the provision o f uiinecessary services.

The study found n o evidence of price competition but considerable evidence of alternative and probably less desirable forms of competition (Bennett 1997). For example it found that hospitals facing more competition had higher prices, higher profits, higher admission rates and longer lengths of stay. Stock exchange-quoted hospitals were amongst the first to invest i n new high technology inventions and were able to ‘premium price’ - ie charge prices higher than their qtiality ndvnntagc warranted. Thus there was considerable cause fo r concern about the nature of competition. A particrilarly important aspect of this study is that it analyses :i market relatively iindistorted by governiiient o r insurance agency intervention: hence it cannot easily be


Trtipc6ii Medicine and International Health VOLUML Z N O 1 0 PP Bhi-r)77 O ( 7 O H k K lgy: ~~~ _ _ _ _ _ _ _ _ _ ~~~ - - - - - ~~


argued, as it has been in the US, that it is intervention that distorts competition and that if markets are liberated, they will function efficiently.

respect. 1 referred earlier to the tendency - still too

common - to einphasise the value o f health i n ternis of its contribution to production. Other nieasiires of value are needed. Abel-Smith argued in 1y72 that

The future

These two studies indicate some of the priorities for future research i n the field of health economics. We need a much clearer understanding of the internal organisation of powders , and how different financing, ownership and management arrangements affect hehaviour (Mills et ul. 1997). The effect of changing the external context - for example the way providers are regulated - will have quite different effects depending on

the internal organisation of the provider. Secondly, we need to understand the incentives

inherent in different ways of paying for health care. Market structures generate a set of incentives. Government may also set incentives or may intervene so as to manipulate the incentives operating in the market. The form of payment is one of the key incentives - for example, whether a hospital is paid a budget, fee for service, a capitation payment, o r per case. As countries move to more decentralised and diversified health systems, payment mechanisms become a crucial tool for influencing behaviour. Systems for monitoring performance are also crucial, since without these it is not possible to determine how incentive systems are working.

Given the historical emphasis on the public sector in many countries, the regulatory role of government has been neglected and inany countries have outdated laws despite the rapid growth of private health providers. A particularly important topic is what regulatory approaches are likely to work best where government capacities are relatively weak (Kumaranayake 1997).

health economics work are not important. Work on analysing cost-effectiveness, improving routine data systems, trying to improve budgeting and planning processes, improve performance monitoring, all need to

continue. I n particuar, work on establishing the output of the health sector, and specifically outcome measurement, will continue to be important. Economists are trained to think in terms o f inputs and outputs; what i s gained from the resources that are used up. ‘The health sector is particularly challenging in this

Thirdly, the issue of regulation needs to he addressed.

These three priorities d o not imply that other areas of

‘If we are to make a conscious choice o f health priorities, w e must have a measure of hcalth output’

‘unless there is agreement on the nieasurement of health output, until some iicceptable means is developed of nicasuring what w e cannot at prcscnt measure, until some acceptable mc,ins of adding together the multiple products of health services has been devised, we must proceed with caution and humility’ (Abel-Smith 1972).

In ~ 9 ~ 3 , more than LO years latcr, Alitn Williams wrote

‘1 have no doubt that the big issiie for the I!)~OS is going to be outcome measurement’ (Williams 1993).

Plus $3 change, plus $a reste la m h e chose! Another o f the areas that needs more attention is the

issue of research priorities. It IS now fairly well established that cost-effectiveness analysis i s useful i n helping decide which interventions should be implemented. Ic also has a role, which is only heginning to be exploited, in helping decide research priorities. For example, some initial work has been done by David Evans o f the WHO Tropical Disease liesearch Programme on defining ‘product profiles’ for selected vaccines under development (Evans 1996). The product profiles describe a set o f characteristics each vaccine should have if it is to compete with existing interventions targeting the same disease. Table 3 shows the estimated costs per healthy life year gained of

Table 3 IJsing cost-effectiveness analysis to help set rehciircli priorities

Disease atid intervention option Codhealrhy life year ($1

Malaria Impregnared tier5

Vaccine

Leprosy Passive case-finding plus MDT 18-49 Active case-funding plus MD‘T‘ Vaccine 2452

4L-L.66 I

~~ ~

Source: Evans ( I 996),


Tropical i\/iedicine and International Health VOIUML L NO I 0 PP 961-97- O( I O H b K I997 ~ - - _ _ - - -~

A M I I ~ The changing character of international health economics

existing interventions versus vaccines for malaria and leprosy with certain assumed characteristics. It shows that a malaria vaccine, on the basis of reasonable assumptions, would be extremely cost-effective. In contrast, where multi-drug treatment (MDT) for leprosy works, a vaccine is unlikely to be a cost-effective option for any realistic level of incidence. These are still very preliminary analyses, but they suggest new areas of application for cost-effectiveness techniques.

Conclusion

1 posed the question, at the start of this paper, of whether health economics as applied to low and niiddle- income countries had the characteristics of a leopard or chameleon. I had in mind that I had originally chosen to work in the public sector, as it turned out in a Ministry of Health, hut that the nature of my work now IS a far cry from the concerns o f health economics in the 1970s. In place of improving public sector resource allocation mechanisms 1 am as tiiuch o r more concerned with private sector activities; in place of a centrally controlled system I am now concerned with the design and evaluation o f decentralised systems. Moreover, looking back over the last 25 years, the preoccupations o f health economics i n the fields in which I work might appear to

have been reactive not proactive - the agenda appears to

have been set elsewhere, and we have been busily reacting to new policy initiatives, gathering evidence to refute new policy positions, and helping tackle issues of policy implementation and minimising adverse effects. In this sense maybe health economics has been chameleon-like, changing its topics and foci in response to changes in its environment.

However, there has been a constant core in health economics - for example the basic material in our teaching programmes has remained unchanged over the years even though emphases have varied. The chameleon-like impression is partly a result of a continuing tension within health economics between two different views of the role of the state in the health scctor (Williams 1988). In this sense it seems to me that there are two leopards, neither o f whom have fundamentally changed their spots over the last 25 years. I would describe these as the market leopard, and the solidarity leopard.

'The market leopard believes in the virtues of freely operating private markets. Goveriinient intervention is

the exception, to be justified on the limited grounds of public goods and externalities. Lack o f coIIsumcr information is not necessarily a reason for government intervention since obtaining full inforination is not costless, and consumers may rationally choose to be i i l - informed. Access to health care, ;is to other goods nnd services, is a reward to those who command the necessary resources. The decision of how much health care to purchase, and of what type, should be left n s f:lr as possible to individuals to determine since they Lire the best judge of their own welfare. While lack o f purchasing power to obtain health services is o f concern, this can be dealt with by specific targeted subsidies, not by redesigning the whole system. Government intervention is best kept t o a minimum, and fo r the bulk of the population should be confined to ensuring private markets work well.

The solidarity leopard helieves that access to hcalth care should be a right o f citizenship which should not depend on individual access to income o r we:ilth, and that service provision should as far as possible he

structured in such a way that services are not segregated by income. In addition, there is considerable scepticism that private markers do or c ; ~ n be made to

work well, particularly because users ;ire poorly informed and thus in a weak position to judge the advice they recive. Kaslii Fein, a former Heath Clarke Lecturer, exemplified this position mnny yc.ivs ago

when he criticised economists because they ':ire not interested in building a better society but in building better markets' (Fein 1972).

Although there are some differences in analytical approach between proponents of these two positions, the fundamental difference is at root ideologicill and concerns fundamental values and beliefs. I woulci pl:~cc myself in the fold - or maybe tree if that is not carrying the analogy too far - of the solidarity leopard. I would emphasise the importance of keeping reality in mind; o f not getting carried away by theoretical models, useful though they may be in many circuii1st:iiices; :ind o f ensuring that health care reforms are to the advantagc, rather than the disadvantage, o f the less well off. However, one must not forget that states have often not fulfilled well their role in the health sector - providing services not only inefficiently hut inequitably. Reforms are undoubtedly needed, hut it is difticulr t o see how greater emphasis on private healtli care milrkcts would improve matters.


Tropical Medicine and Intcrn~itioiial Health VOLLJMF 2 N O 1 0 PP 963-977 OCTOBIK 1997 ~~ ~ -- ~-

A Milla The changing character of international health economics

Working at the interface o f research and policy brings Broomberg J, Masobe P 81 Mills A (1997) To purchase or to provide? The relative efficiency of contracting out versus direct public provision of hospital services i n South Africa. In Private health providers in developing countries: serving the public interest? (eds S Bennett, B McPake & A Mills) Zed Press, London, pp. 214-236.

Chadwick E (1862) Opening address as president of section F of the British Association for the advancement of science. Journal of the Stirtistirid .yociefy of f20rzdon rg, S O L - T ~ ~ .

with it certain obligations - to keep the quality of work high despite the presstires of the real world; to ensure that short-term pressures d o not distract attention from the long-term research agenda; and to ensure that the latest health care reform fashions are addressed while not allowing them to dominate.

Working from a developed country iiistitution on

developing country health sector issues also brings with Christonhcrs SR I ) Malaria ill the punish, Scientific it other obligations. We work in a field where expertise is in extremely short supply, and we must remember that we are teachers as well as researchers. We seek to inform policy makers, but we must also ensure that we d o not impose our values and solutions on other countries. We need to work in partnership with local researchers and policy makers, in ways that enhance the effectiveness of research in informing policy and that develop the skills and capacity of researchers.

Acknowledgement

1 would like to acknowledge the contribution of colleagues past and present to the content of this paper and also helpful comments on an earlier version from Sara Bennett, Patrick Corran, Lucy Gilson, Jenny Roberts a n d Gill Walt.

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Leopard or chameleon? The changing character of international health economics