Income and Technology as Drivers of Australian Healthcare Expenditures.

The roles of income and technology as the major determinants of aggregate healthcare expenditure (HEXP) continue to interest economists and health policy researchers. Concepts and measures of medical technologies remain complex; however, income (on the demand side) and technology (on the supply side) are important drivers of HEXP. This paper presents analysis of Australia's HEXP, using time-series econometrics modeling techniques applied to 1971-2011 annual aggregate data. Our work fills two important gaps in the literature. First, we model the determinants of Australia's HEXP using the latest and longest available data series. Second, this novel study investigates several alternative technology proxies (input and output measures), including economy-wide research and development expenditures, hospital research expenditures, mortality rate, and two technology indexes based on medical devices. We then apply the residual component method and the technology proxy approach to quantify the technology effects on HEXP. Our empirical results suggest that Australian aggregate healthcare is a normal good and a technical necessity with the income elasticity estimates ranging from 0.51 to 0.97, depending on the model. The estimated technology effects on HEXP falling in the 0.30-0.35 range and mimicking those in the literature using the US data, reinforce the global spread of healthcare technology. Copyright © 2016 John Wiley & Sons, Ltd.

Symposium Introduction: Papers on 'Modeling National Health Expenditures'.

Significant contributions have been made since the World Health Organization published Brian Abel-Smith's pioneering comparative study of national health expenditures more than 50 years ago. There have been major advances in theories, model specifications, methodological approaches, and data structures. This introductory essay provides a historical context for this line of work, highlights four newly published studies that move health economics research forward, and indicates several important areas of challenging but potentially fruitful research to strengthen future contributions to the literature and make empirical findings more useful for evaluating health policy decisions. Copyright © 2016 John Wiley & Sons, Ltd.

Determinants of U.S. Prescription Drug Utilization using County Level Data.

Prescription drugs are the third largest component of U.S. healthcare expenditures. The 2006 Medicare Part D and the 2010 Affordable Care Act are catalysts for further growths in utilization becuase of insurance expansion effects. This research investigating the determinants of prescription drug utilization is timely, methodologically novel, and policy relevant. Differences in population health status, access to care, socioeconomics, demographics, and variations in per capita number of scripts filled at retail pharmacies across the U.S.A. justify fitting separate econometric models to county data of the states partitioned into low, medium, and high prescription drug users. Given the skewed distribution of per capita number of filled prescriptions (response variable), we fit the variance stabilizing Box-Cox power transformation regression models to 2011 county level data for investigating the correlates of prescription drug utilization separately for low, medium, and high utilization states. Maximum likelihood regression parameter estimates, including the optimal Box-Cox λ power transformations, differ across high (λ = 0.214), medium (λ = 0.942), and low (λ = 0.302) prescription drug utilization models. The estimated income elasticities of -0.634, 0.031, and -0.532 in high, medium, and low utilization models suggest that the economic behavior of prescriptions is not invariant across different utilization levels.

Quality-quantity decomposition of income elasticity of U.S. hospital care expenditure using state-level panel data.

Economic theory suggests that income growth could lead to changes in consumption quantity and quality as the spending on a commodity changes. Similarly, the volume and quality of healthcare consumption could rise with incomes because of demographic changes, usage of innovative medical technologies, and other factors. Hospital healthcare spending is the largest component of aggregate US healthcare expenditures. The novel contribution of our paper is estimating and decomposing the income elasticity of hospital care expenditures (HOCEXP) into its quantity and quality components. By using a 1999-2008 panel dataset of the 50 US states, results from the seemingly unrelated regressions model estimation reveal the income elasticity of HOCEXP to be 0.427 (std. error=0.044), with about 0.391 (calculated std. error=0.044) arising from care quality improvements and 0.035 (std. error=0.050) emanating from the rise in usage volume. Our novel research findings suggest the following: (i) the quantity part of hospital expenditure is inelastic to income change; (ii) almost the entire income-induced rise in hospital expenditure comes from care quality changes; and (iii) the 0.427 income elasticity of HOCEXP, the largest component of total US healthcare expenditure, makes hospital care a normal commodity and a much stronger technical necessity than aggregate healthcare. Policy implications are discussed.

Production cost structure in US outpatient physical therapy health care.

This paper investigates the technology cost structure in US physical therapy care. We exploit formal economic theories and a rich national data of providers to tease out implications for operational cost efficiencies. The 2008-2009 dataset comprising over 19 000 bi-weekly, site-specific physical therapy center observations across 28 US states and Occupational Employment Statistics data (Bureau of Labor Statistics) includes measures of output, three labor types (clinical, support, and administrative), and facilities (capital). We discuss findings from the iterative seemingly unrelated regression estimation system model. The generalized translog cost estimates indicate a well-behaved underlying technology structure. We also find the following: (i) factor demands are downwardly sloped; (ii) pair-wise factor relationships largely reflect substitutions; (iii) factor demand for physical therapists is more inelastic compared with that for administrative staff; and (iv) diminishing scale economies exist at the 25%, 50%, and 75% output (patient visits) levels. Our findings advance the timely economic understanding of operations in an increasingly important segment of the medical care sector that has, up-to-now (because of data paucity), been missing from healthcare efficiency analysis. Our work further provides baseline estimates for comparing operational efficiencies in physical therapy care after implementations of the 2010 US healthcare reforms.

Determinants of Thailand household healthcare expenditure: the relevance of permanent resources and other correlates.

Several papers in the leading health economics journals modeled the determinants of healthcare expenditure using household survey or family budgets data of developed countries. Past work largely used self-reported current income as the core determinant, whereas the theoretically correct concept of household resource constraint is permanent or long-run income (á lá Milton Friedman). This paper strives to rectify the theoretical oversight of using current income by augmenting the model with household asset. Using longitudinal data, we constructed 'wealth index' as a distinct covariate to capture the households' tendency to liquidate assets when defraying necessary healthcare liabilities after exhausting cash incomes. (Current income and assets together capture the household expanded resource base). Using 98 632 household observations from Thailand Socio-Economic Surveys (1994-2000 biennial data cycles) we found, using a double-hurdle model with dependent errors, that out-of-pocket healthcare spending behaves as a technical necessity across income quintiles and household sizes. Pre-1997 economic shock income elasticities are smaller than the post-shock estimates across income quintiles for large and small households. Proximity to death, median age, and assets are also among other significant determinants. Our novel findings extend the theoretical consistency of a multi-level decision model in household healthcare expenditure in the developing Asian country context.

The core determinants of health expenditure in the African context: some econometric evidence for policy.

This paper, using cross-sectional data from 44 (83% of all) African countries for year 2001, presents econometric model estimates linking real per-capita health expenditure (HEXP) to a host of economic and non-economic factors. The empirical results of OLS and robust LAE estimators indicate that real per-capita GDP (PRGDP) and real per-capita foreign aid (FAID) resources are both core and statistically significant correlates of HEXP. Our empirical results suggest that health care in the African context is technically, a necessity rather than a luxury good (for the OECD countries). This suggests that the goal of health system in Africa is primarily 'physiological' or 'curative' rather than 'caring' or 'pampering'. The positive association of HEXP with FAID hints that external resource inflows targeting health could be instrumental for spurring economic progress in good policy environments. Most African countries until the late 1990s experienced economic and political instability, and faced stringent structural adjustment mandates of the major international financial institution lenders for economic development. Therefore, our finding a positive effect of FAID on HEXP could suggest that external resource inflows softened some of the macroeconomic fiscal deficit impacts on HEXP in the 2000s. Policy implications of country-specific elasticity estimates are given.

Comparative financing analysis and political economy of noncommunicable diseases.

The pandemic of chronic non-communicable diseases (NCDs) poses substantial challenges to the health financing sustainability in high-income and low/middle income countries (LMICs). The aim of this review is to identify the bottle neck inefficiencies in NCDs attributable spending and propose sustainable health financing solutions. The World Health Organization (WHO) introduced the "best buy" concept to scale up the core intervention package against NCDs targeted for LMICs. Population- and individual-based NCD best buy interventions are projected at US$170 billion over 2011-2025. Appropriately designed health financing arrangements can be powerful enablers to scale up the NCD best buys. Rapidly developing emerging nations dominate the landscape of LMICs. Their capability and willingness to invest resources for eradicating NCDs could strengthen WHO outreach efforts in Asia, Africa, and Latin America, much beyond current capacities. There has been a declining trend in international donor aid intended to cope with NCDs over the past decade. There is also a serious misalignment of these resources with the actual needs of recipient countries. Globally, the momentum towards the financing of intersectoral actions is growing, and this presents a cost-effective solution. A budget discrepancy of 10:1 in WHO and multilateral agencies remains in donor aid in favour of communicable diseases compared to NCDs. LMICs are likely to remain a bottleneck of NCDs imposed financing sustainability challenge in the long-run. Catastrophic household health expenditure from out of pocket spending on NCDs could plunge almost 150 million people into poverty worldwide. This epidemiological burden coupled with population ageing presents an exceptionally serious sustainability challenge, even among the richest countries which are members of the Organization for Economic Co-operation and Development (OECD). Strategic and political leadership of WHO and multilateral agencies would likely play essential roles in the struggle that has just begun.

Characteristics of Hospital Emergency Room Visits for Mental and Substance Use Disorders.

OBJECTIVE: This study compared characteristics of visits to emergency rooms (ERs) for mental and substance use disorders and for physical health conditions to establish a baseline against which to measure changes after full implementation of the Affordable Care Act (ACA) and parity legislation. METHODS: The retrospective, cross-sectional analysis fit a logistic regression model to pooled data comprising 193,526 observations from National Hospital Ambulatory Medical Care Survey (NHAMCS) data from 2005 to 2011. RESULTS: ER visits for mental or substance use disorders increased from 27.9 per 1,000 ER visits in 2005 to 35.1 in 2011. Homeless persons and nursing home residents had the highest rates of such visits-173.7 and 95.2 per 1,000 ER visits, respectively, in 2011. CONCLUSIONS: Understanding differences in profiles of ER visits on the basis of the reason for the visit can inform the design of more cost-effective policies to guide ER intake, after further implementation of the ACA and parity legislation.

The pervasiveness of pharmaceutical expenditure inertia in the OECD countries.

This paper constructs and estimates an economic model for testing statistically the strength of possible 'expenditure inertia' as a plausible reason for rising drug expenditures of the Organization for Economic Cooperation and Development (OECD) countries. The ethical drugs sector in the OECD health care systems is increasingly targeted as the major culprit in the rising cost. Using multiple regression analysis, and the maximum likelihood estimation method, the data of each country (taken from OECD Health Data, 1997) were first tested for functional form optimality with the Box-Cox power family transformations model. Drug expenditure elasticities, at data means, were computed using each country's optimal regression model estimates. The results indicate that the traditionally fitted a priori limited functional form models (e.g., linear, log-log) are not globally consistent with data across countries. The effect of a one-period lagged real per-capita drug expenditure (capturing inertia or habit persistence) on current period real per-capita prescription expenditure is statistically significant in most countries. Pharmaceutical demands are inelastic, and tend to behave like a necessity, as expected. Since the significant effects of economic, demographic, and other drivers of high drug spending differ across countries, country-specific implications and policy suggestions for cost controls ought to differ.

Measuring operational efficiency in a health care system: a case study from Thailand.

This paper investigates the economic relationship among medical resources and efficiency of the health care system in a developing Asian country. The rapid growth in the use of limited resources and the escalating national health expenditure, raise the critical economic question of whether the use of health care resources are efficient. We estimated a four-factor production system, based on 1982-1997 annual operational data comprising five cross-sectional regions per year. The translog production function and three derived demand for factor input equations were jointly estimated using systems regression method. Results show that different types of medical care workers (doctors, nurses, pharmacists) influenced efficiency differently. The marginal products (MPs) of nurses and capital are the highest and they varied across the regions. Third, the estimates of factor substitution possibilities indicate difficult factor adjustments; these estimates differ in magnitudes and significance across regions but they similarly classify all but one (different) input pair as economic substitutes. Fourth, the regional variations in returns to scale estimates in live births tend to converge to that of the Bangkok metropolis. Finally, technical change is physician and pharmacist labor using, but capital and nursing labor saving. Policy implications of these findings touch on Article 78 of the Thailand Constitution.

Delayed Effects of Obese and Overweight Population Conditions on All-Cause Adult Mortality Rate in the USA.

Currently, there are few studies separating the linkage of pathological obese and overweight body mass indices (BMIs) to the all-cause mortality rate in adults. Consequently, this paper, using annual Behavioral Risk Factor Surveillance System data of the 50 US states and the District of Columbia, estimates empirical regression models linking the US adult overweight (25 ≤ BMI < 30) and obesity (BMI ≥ 30) rates to the all-cause deaths rate. The biochemistry of multi-period cumulative adiposity (saturated fatty acid) from unexpended caloric intakes (net energy storage) provides the natural theoretical foundation for tracing unhealthy BMI to all-cause mortality. Cross-sectional and panel data regression models are separately estimated for the delayed effects of obese and overweight BMIs on the all-cause mortality rate. Controlling for the independent effects of economic, socio-demographic, and other factors on the all-cause mortality rate, our findings confirm that the estimated panel data models are more appropriate. The panel data regression results reveal that the obesity-mortality link strengthens significantly after multiple years in the condition. The faster mortality response to obesity detected here is conjectured to arise from the significantly more obese. Compared with past studies postulating a static (rather than delayed) effects, the statistically significant lagged effects of adult population BMI pathology in this study are novel and insightful. And, as expected, these lagged effects are more severe in the obese than overweight population segment. Public health policy implications of this social science study findings agree with those of the clinical sciences literature advocating timely lifestyle modification interventions (e.g., smoking cessation) to slow premature mortality linked with unhealthy BMIs.

Are physician and non-physician providers of outpatient mental healthcare substitutes or complements? a conceptual clarification.

Solving the health care consumers' (producers') utility maximization (cost minimization) problem could entail the substitution of alternative care providers (factor inputs) when the relative out-of-pocket costs (factor prices) change, ceteris paribus. The conceptual advancement in this contribution is illustrated with an earlier paper (P. Deb and A. Holmes, Health Economics 7(4):347-362, 1998) on the economic relationship of physicians (M.D.s) and 'other providers' (Ph.D.s, other) in the US outpatient demand for mental health care services. Many aspects of our conceptual progress are insightful. Foremost, our conclusion on whether M.D. and non-M.D. providers of outpatient mental health care are economic complements or substitutes depends on the alternative measure of the substitution elasticity used. Second, when correctly measured the expenditure-minimizing substitutions among mental health providers can be useful policy decision guides for consumers covered under traditional indemnity insurance with deductibles or managed care plans with user co-payments. Finally, our conceptual clarification should motivate future investigators of health services demand (or use) and cost models to consider a wider conceptual foundation for assessing the structure and implications of provider relationships.

Analysis and implications of the determinants of healthcare expenditure in African countries.

The income elasticity of health care spending in the OECD countries tends toward luxury good values. Similar studies, based on more recent data, and capable of informing macroeconomic health policies of the African countries, do not currently exist. How the health care expenditure in Africa responds to changes in the Gross Domestic Products (GDP), Official Development Assistance (ODA), and other determinants, is also relevant for health policy because health care is a necessity in the 'basic needs' theory of economic development. This paper presents econometric model findings of the determinants of per-capita health expenditure (in PPPs) for 26 African countries, using the flexible Box-Cox model regression methods and 1995 cross-sectional data (sources: WRI, UNEP, UNDP, The World Bank). The economic and other determinants, capturing 74 percent of the variations in health expenditures, include per-capita GDP (in PPPs), ODA (US dollar), Gini income inequality index, population dependency ratio, internal conflicts, and the percentage of births attended by trained medical workers. Income inequality dampens, while the ODA and population per health personnel raise health care expenditure. The GDP elasticity of about 0.6 signals the tendency for health care to behave like a technical 'necessity'. Implications for sustainable basic health development policies are discussed.

Mortality from breast carcinoma among US women: the role and implications of socio-economics, heterogeneous insurance, screening mammography, and geography.

Despite rapid advances in medicine and beneficial lifestyle changes, the incidence and mortality rate of gynecologic carcinoma remains high worldwide. This paper presents the econometric model findings of the major drivers of breast cancer mortality among US women. The results have implications for public health policy formulation on disease incidence and the drivers of mortality risks. The research methodology is a fixed-effects GLS regression model of breast cancer mortality in US females age 25 and above, using 1990-1997 time-series data pooled across 50 US states and DC. The covariates are age, years schooled, family income, 'screening' mammography, insurance coverage types, race, and US census region. The regressions have strong explanatory powers. Finding education and income to be significantly and positively correlated with mortality supports the 'life in the fast lanes' hypothesis of Phelps. The policy of raising a woman's education at a given income appears more beneficial than raising her income at a given education level. The relatively higher mortality rate for Blacks suggests implementing culturally appropriate set of disease prevention and health promotion programs and policies. Mortality differs across insurance types with Medicaid the worst suggesting need for program reform. Mortality is greater for women ages 25-44 years, females 40-49 years who have had screening mammography, smokers, and residents of some US states. These findings suggest imposing more effective tobacco use control policies (e.g., imposing a special tobacco tax on adult smokers), creating a more tractable screening mammography surveillance system, and designing region-specific programs to cut breast cancer mortality risks.

Determinants of health expenditure growth of the OECD countries: jackknife resampling plan estimates.

Due to the lack of internal consistency across unit root and cointegration test methods for short time-series data, past research findings conflict on whether the OECD health expenditure data are stationary. Stationarity reasonably guarantees that the estimated OLS relationship is nonspurious. This paper departs from past investigations that applied asymptotic statistical tests of unit root to insufficient time-series lengths. Instead, data were calibrated in annual growth rates, in 5-year (1968-72, ..., 1993-97) partitions, for maximum likelihood estimation using flexible Box-Cox transformations model and bias-reducing jackknife resampling plan for data expansion. The drivers of OECD health care spending growth are economic and institutional. Findings from the growth convergence theory affirm that health care expenditure growth accords with conditional beta convergence. Statistical significance and optimal functional form models are not unique across the growth period models. Our findings exemplify the benefits of jackknife resampling plan for short data series, and caution researchers against imposing faulty functional forms and applying asymptotic statistical methods to short time-series regressions. Policy implications are discussed.