Presented by : Group 6

Jonica
Zorba
Shivani
Ankita
Harpreet
Neelima

Efficiency : Evidence ,Policy Strategies, Criteria and

an Application
 Policy strategies relating to efficiency are :

 General Efficiency Strategies

 Specific Efficiency Strategies

 Market maximized models
Given by Paul feldstein(1988)
• Evaluate the allocative efficiency
• Various sectors such as insurance ,hospital care and
physicians care.
• Found distortions in insurance and healthcare markets
• Cost based reimbursement of hospitals resulted in
• High cost
• Excess capacity
• Non price competition
• These problems have been addressed through govt
policies changes and market reform.
• Enthoven(1990)
• Proposed managed competition
• Depends on market incentives
• Private and public sponsors monitor and manage
the competition
• Employers serve as suppliers of health benefits
• Public agency serve as a broker for self employed
• Fixed contribution from sponsors would provide
incentives for cost conscious choice by consumers
 Market–minimized models

 Williams in 1990 proposed market maximized

approach with a public sector political framework
concerned with production efficiency.

 National Health Services in Britain and New Zealand

are a very good example of such models which use a
needs based approach to establish the allocation or
resources to the health sector and the type of
services to be provided.
 Internal markets :
• Developed to achieve efficiency of production.
• Main goal is
i. to provide incentives for efficient production
ii. Allocation of resources while retaining overall
control of spending
iii. Tax based financing of healthcare
iv. Maintaining or improving equity in access to
care.
• Under this system a health authority-
– Uses its budget to purchase services from other
health authorities , general practitioners
pvt.hospitals, nursing homes etc.
– Identifies healthcare needs and priorities for
their area and determine the best way to
spend funds allocated by central govt.to meet
health needs and priorities.
 Specific Efficiency Strategies
Payment methods
• alternative method of paying physicians and
hospitals to provide different incentives regarding
efficiency.
• Market minimized models tend to rely on global and
strict fee controls while market maximized models
rely on a range of alternatives like fee for service ,
salary, capitation and prospective payment.
• United states has many different payment methods
and sources operating simultaneously as compared to
other nations.

• Physicians in the US are paid by local , state and

federal agencies, by over 1500 insurers and also by
direct out of pocket from patients.

• Methods include fee for service , capitation and salary.

• Other countries following this method are
Germany and Canada.
• Both relied on fee for services payment for
physicians but fees were strictly controlled .
• Germany also developed fixed negotiated
budgets for ambulatory services , physician
and pharmaceutical expenses.
• Canada has global hospital budgets and
regional health planning for cost control and
diffusion of medical technology.
• Other important issue for which raises the quality
question is the efficient size of a given service or
deptt. within the hospital and showed a positive
relationship b/w volume of heart surgeries and
outcome.

• Thus in cases where higher service volume results

in improved outcomes , efficiency can be improved
by producing services at a lower cost per unit and
by achieving more positive outcomes.
 Utilization management
• Market maximized model
• Micromanagement: controlling cost and resource allocation
followed in U.S.
• Relies on incentives such as co payments for consumers &
capitation payment for providers
• Macro management: relies on controls such as fee
schedules, global budget
• Limits on diffusion of technology to achieve health system
objectives
• In managed care there is mix of incentives and controls
• Elaborate methods for reviewing utilization, selective
contracting, capitated payment of providers & practice
guidelines.
 Evidence related to Efficiency
Allocative efficiency:
• concerned with maximizing health, given constrained resources.
• Three general health policies that reflect a concern with
allocative efficiency were reviewed:
 Medical vs non medical policy alternatives
 Preventive services
 Mix or types of treatment
• Microlevel evidence provided based on related microlevel
methods eg; healtcare production functions & cost effective
analysis
• Macrolevel evidence provided on comparitive experiences of the
U.S & other countries
• Provide whether market maximized or market minimized models
might me more successful in optimizing allocative efficiency
 Micro level
• MEDICAL VS NONMEDICAL ALTERNATIVES:
• Allocation of resources to the delivery of personal health
services and too few to broader public health & social
interventions at the population level
• Production function for health tends to exhibit diminishing
marginal returns to healthcare
• Marginal product of healthcare in reducing mortality rate in
U.S doesn’t differ significantly from zero
• Lifestyle and education significantly related to the population
health status
• Based on estimating the production function for health a
broader focus on public health & non medical interventions
should be there to serve the allocative efficiency
 PREVENTIVE SERVICES
• Economic evaluations of the cost effectiveness of specific
prevention oriented interventions provide another
important type of evidence
• The Harvard studied 500 life saving programs categorized by
sectors healthcare, residential, transportation, occupational
and environmental
• Using three levels of prevention: primary, secondary and
tertiary
• The median intervention cost effectiveness varied by sectors
• Overall primary prevention programs were less cost
effective compared to secondary and tertiary
• In medicine primary prevention were more cost effective
than secondary and tertiary programs
 MIX OR TYPES OF TREATMENT
• Study done by RAND Health Insurance examined:
 The effect of copayments on utilization & expenditures for
healthcare services
 The extent to which increases in utilization associated with
‘free’ care affected health status
• It was found that free care as compared to higher copayments
levels, resulted in a 50% increase in expenditure with no
significant effect on the health status of the typical person
• The Health Insurance Experiment established a baseline of
the magnitude of inefficiencies in the U.S system and
identified some areas for potential savings
• Compared to 1984, the current U.S system is more
competitive and utilization and cost are more constrained by
managed care.
 Macro level
• 24 members countries of OECD include democratic
countries that range from economic powers like US,
Germany and Japan to smaller countries with more
modest eco. achievement such as Greece and
Portugal
• UK represented extreme of market minimization.
• Private insurance covering majority of population ,
out of pocket payment represents 20% of
expenditure.
• Canadian system has high utilization of
inpatient days.
• Constraints on high cost surgical and
diagnostic procedures.
• Consultations and visits per capita high in
Germany and Canada than US.
• Canada is more successful in controlling
healthcare costs.
 Production Efficiency
• Achieved when production units are of optimum size
• Economists have conducted numerous studies in
production efficiency concentrating on
1) General admin costs
2) Size and the mix of personnel and method of paying
physicians
3) Optimal bed size for hospital care
4) Utilization and cost impact of managed care
 Physician services
• Personnel mix
Reinhardt,smith,miller all came on general conclusion
• Physicians could raise the productivity of their
practices and lower the cost per office visit by
employing more aids.
• Generally the number of physicians required would
decline in future.
 Hospital Services
• Economies of scale
– Hansen and Zwanziger (1996) estimated cost
functions to assess marginal costs of hospital outputs
and to compare marginal costs b/w US and Canada
based on 1981 and 1985 data.
– They analysed that the economies of scale were not
present in American hospitals as the acute care
marginal costs increases as output increased in
California and NY hospitals in 1981 and 1985 while in
Canada the situation was opposite except for very
large hospitals -realized modest economies of scale.
 CRITERIA FOR ASSESSING HEALTH
POLICIES IN TERMS OF EFFICIENCY

1. Macro-cost control: Spend an appropriate fraction of

GDP on the health sector.

2. Allocative efficiency: Assure a mix of health services

that maximizes a combination of positive health
outcomes and consumer satisfaction for the available
share of resources expended on health services.

3. Production efficiency: Produce health services at

minimum costs.
 Contd…
4. Dynamic efficiency: Search for technological and
organizational advances which raises the
productivity of given resources.
 AN APPLICATION OF EFFICIENCY
CRITERIA
1. Medicaid Managed Care
2. Macro-Cost Control
3. Allocative Efficiency
4. Production Efficiency
5. Dynamic Efficiency
 MEDICAID MANAGED CARE
• Emerged as dominant policy intervention at
the state level.

• Improve both the efficiency and access of

healthcare services to the poor.
 MACRO-COST CONTROL
• Macro-cost control at state level is mixed.
• Analysis of 12 medicaid managed care programs
when they are compared with traditional medicaid
plans:
 7 reported decrease of 5 to 15% in costs.
 2 reported increase in costs.
 Rest reported unchanged or unknown cost
effect.
 ALLOCATIVE EFFICIENCY
• Research based on evaluations of Arizona’s
Medicaid Program, the Health Care Financing
Administrations (HCFA) Medicaid Competition
Demonstration Projects of 1980’s.
• 25 Medicaid managed care programs in 16
states by Robert Hurley and his colleagues.
• In mostly HCFA Medicaid Competition
Demonstration it was seen that specialists
once during the year decline by more than
30% for both adults and children.
 Contd..
• In 9 to 12 evaluations emergency room visits
decreased.
• Three evaluations results were unknown.
 PRODUCTION EFFICIENCY
• Studies shows that the hospitals, physicians
and insurance services are not produced in
efficient manner.
• Prices and associated incomes are set higher
than necessary.
 DYNAMIC EFFICIENCY
• Managed care tends to be innovative.
• Managed care programs have led the way in
the development and use of surgery,
telephone counseling, extended care beds and
preventive care.
• With capitation payment and defined
population, managed care plans have the
incentive to consider population-level
intervention to improve health.