Health Care Spending Growth

How to Predict Drug Expenditure: A Markov Model Approach with Risk Classes

BACKGROUND

Although pharmaceutical expenditures have been rising for decades, the question of their drivers remains unclear, and long-term projections of pharmaceutical spending are still scarce. We use a Markov approach considering different cost-risk groups to show the possible range of future drug spending in Germany and illustrate the influence of various determinants on pharmaceutical expenditure.

METHODS

We compute different medium and long-term projections of pharmaceutical expenditure in Germany up to 2060 and compare extrapolations with constant shares, time-to-death scenarios, and Markov modeling based on transition probabilities. Our modeling is based on data from a large statutory sickness fund covering around four million insureds. We divide the population into six risk groups according to their share of total pharmaceutical expenditures, determine their cost growth rates, survival and transition probabilities, and compute different scenarios related to changes in life expectancy or spending trends in different cost-risk groups.

RESULTS

If the spending trends in the high-cost groups continue, per-capita expenditure will increase by over 40% until 2040. By 2060, pharmaceutical expenditures could more than double, even if these groups would not benefit from rising life expectancy. By contrast, the isolated effect of demographic change would "only" lead to a long-term increase of around 15%.

CONCLUSION

The long-term development of pharmaceutical spending in Germany will depend mainly on future expenditure and life expectancy trends of particularly high-cost patients. Thus, appropriate pricing of new expensive pharmaceuticals is essential for the sustainability of the German healthcare system.

Health insurance, endogenous medical progress, health expenditure growth, and welfare

We study the impact of health insurance expansion on medical spending, longevity and welfare in an OLG economy in which individuals purchase health care to lower mortality and medical progress is profit-driven. Three sectors are considered: final goods production; a health care sector, selling medical services to individuals; and an R&D sector, selling increasingly effective medical technology to the health care sector. We calibrate the model to the development of the US economy/health care system from 1965 to 2005 and study numerically the impact of the insurance expansion. We find that more extensive health insurance accounts for a large share of the rise in US health spending but also boosts the rate of medical progress. A welfare analysis shows that while the subsidization of health care through health insurance creates excessive health care spending, the gains in life expectancy brought about by induced medical progress more than compensate for this.

A systematic examination of quality-adjusted price index alternatives for medical care using claims data

We investigate alternative methods for constructing quality-adjusted medical price indexes both theoretically and empirically using medical claims data. The methodology and assumptions applied in the formation of the index have substantive effects on the magnitude of the quality-adjusted price changes. A method based on utility theory produces the most robust and accurate results, while alternative methods used in recent work overstate inflation. Based on Medicare claims data for three medical conditions, we find declining prices across each condition when properly adjusted for quality.

Price Indices and the Value of Innovation with Heterogenous Patients

Many countries use uniform cost-effectiveness criteria to determine whether to adopt a new medical technology for the entire population. This approach assumes homogeneous preferences for expected health benefits and side effects. We examine whether new prescription drugs generate welfare gains when accounting for heterogeneous preferences by constructing quality-adjusted price indices in the market for colorectal cancer drug treatments. We find that while the efficacy gains from newer drugs do not justify high prices for the population as a whole, innovation improves the welfare of sicker, late-stage cancer patients. A uniform evaluation criterion would not permit these innovations despite welfare gains to a subpopulation.

Age, morbidity, or something else? A residual approach using microdata to measure the impact of technological progress on health care expenditure

This study measures the increment of health care expenditure (HCE) that can be attributed to technological progress and change in medical practice by using a residual approach and microdata. We examine repeated cross-sections of individuals experiencing an initial health shock at different point in time over a 10-year window and capture the impact of unobservable technology and medical practice to which they are exposed after allowing for differences in health and socioeconomic characteristics. We decompose the residual increment in the part that is due to the effect of delaying time to death, that is, individuals surviving longer after a health shock and thus contributing longer to the demand of care, and the part that is due to increasing intensity of resource use, that is, the basket of services becoming more expensive to allow for the cost of innovation. We use data from the Danish National Health System that offers universal coverage and is free of charge at the point of access. We find that technological progress and change in medical practice can explain about 60% of the increment of HCE, in line with macroeconomic studies that traditionally investigate this subject.

Determinants of China's health expenditure growth: based on Baumol's cost disease theory

Background

During the past four decades, China’s total health expenditure and health expenditure per capita have both experienced a dramatic increase in growth rate. This study aims to explore the determinants of health expenditure growth and the influencing mechanism of these determinants, with considering the productivity efficiency represented by Baumol’s cost disease.

Methods

Based on the longitudinal data of 30 provincial-level administrative regions in China, from 2010 to 2017, multi-variates regression models were constructed to assess the determinants, including demography, income, Baumol’s cost disease, technology, their effects on per capital total health expenditure growth and the three financing sources: government, society and out-of-pocket health expenditure. Moreover, the Spatial Durbin Model was used to analyze the influence mechanism of determinants on the increase of health expenditure across provinces.

Results

Among 210 province-year growth rate observations, all of the average growth rate of total health expenditure (12.78%) was much higher than the growth rate of per capita GDP (8.06%). According to the statistical analysis, we found that:(1) Income and Baumol’s cost disease have a significant positive impact on health expenditure growth(P < 0.01). The impact of technical factors on government health expenditure is significantly positive. (2) The determinants affected the growth of health costs in different regions variably; the eastern region is mainly driven by Baumol’s cost disease and technical factors, while the central and western regions are mainly affected by income factors and Baumol’s cost disease. (3) There is a significant spatial spillover effect on the health expenditure growth between regions. The income factor and Baumol’s cost disease have a positive impact on the health expenditure growth in its own region as well as in other regions.

Conclusions

Income and Baumol’s cost disease significantly contributed to China health expenditure growth. The health expenditure determinants showed spatial varies effect and space spillover effect on the neighborhood areas. Which indicates that a reasonable salary system should be contrasted to meet the changeling from the Baumol’s cost disease, and the necessity of equity in health resource allocation among provinces in China.

Financial Protection in Health among the Elderly - A Global Stocktake

Universal Health Coverage is one of the key targets of the Sustainable Development Goals and it implies that everyone can access the healthcare they need without suffering financial hardship. In this paper, we use a large set of household surveys to examine if older populations are facing different degrees of financial hardship compared to younger populations. We find that while differences in average age structures between countries are not systematically associated with higher financial risk related to out-of-pocket health expenditures, there are large differences in financial hardship between younger and older households within countries. Households with more elderly members are more likely to face catastrophic and impoverishing out-of-pocket health payments compared to younger households, and this age gradient is stronger for the poorest segments of the population. Making progress toward Universal Health Coverage will require extension and improved targeting of benefit packages and financial protection to meet the health needs of older adults, and especially the poorest and most vulnerable segments of elderly populations.

Regional Differences and Influencing Factors of Allocation Efficiency of Rural Public Health Resources in China

In the face of increasingly growing health demands and the impact of various public health emergencies, it is of great significance to study the regional differences in the allocation efficiency of the rural public health resources and its improvement mechanism. In this paper, the game competition relationship is included in the evaluation model, and the game cross-efficiency model is used to measure the allocation efficiency of the rural public health resources in 31 provinces of China from 2008 to 2017. Then, the Theil index model and the Gini index model are applied in exploring the regional differences in the allocation efficiency of rural public health resources and its sources. Finally, the bootstrap truncated regression model is used to analyze the influencing factors of the allocation efficiency of the rural public health resources in China. The results show that, first, the total allocation efficiency level of the rural public health resources in China from 2008 to 2017 is relatively low, and it presents a U-shaped trend, first falling and then rising. Second, the changing trend of the allocation efficiency of the rural public health resources in the eastern, central, and western regions of China is similar to that in the nationwide region, and it shows a gradient trend that “the allocation efficiency in the eastern region is high, the allocation efficiency in the western region is low, and the allocation efficiency in the Central region is at the medium level”. However, the gap among the three regions is continually narrowing. Third, the calculation results of the Theil index and the Gini index show that intra-regional differences are the major source of the regional differences in the allocation efficiency of the rural public health resources in China, and the inter-regional differences demonstrate an expansion trend. Finally, the improvement of the education level and the social support level will generally improve the allocation efficiency of the rural public health resources in China and its three regions. The increased governmental financial support and urbanization level will reduce the allocation efficiency of the rural public health resources in China and its three regions. The economic development level, the living conditions and the population density are the important influencing factors of the allocation efficiency differences of the rural public health resources in the three regions. Therefore, on the basis of ensuring the increase of the total supply of the rural public health resources, more attention should be paid to the improvement of the allocation efficiency. Moreover, on the basis of continually narrowing the inter-regional differences among the eastern, central, and western regions, more attention should be paid to the intra-regional differences of the allocation efficiency of the rural public health resources among the different provinces. The various economic and social policies should be constantly optimized to jointly improve the allocation efficiency of the rural public health resources.

Decomposing changes in the growth of U.S. prescription drug use and expenditures, 1999-2016

OBJECTIVE

To analyze factors associated with changes in prescription drug use and expenditures in the United States from 1999 to 2016, a period of rapid growth, deceleration, and resumed above-average growth.

DATA SOURCES/STUDY SETTING

The Medical Expenditure Panel Survey (MEPS), containing household and pharmacy information on over five million prescription drug fills.

STUDY DESIGN

We use nonparametric decomposition to analyze drug use, average payment per fill, and per capita expenditure, tracking the contributions over time of socioeconomic characteristics, health status and treated conditions, insurance coverage, and market factors surrounding the patent cycle.

DATA COLLECTION/EXTRACTION METHODS

Medical Expenditure Panel Survey data were combined with information on drug approval dates and patent status.

PRINCIPAL FINDINGS

Per capita utilization increased by nearly half during 1999-2016, with changes in health status and treated conditions accounting for four-fifths of the increase. In contrast, per capita expenditures more than doubled, with individual characteristics only explaining one-third of the change. Other drivers of spending during this period include the changing pipeline of new drugs, drugs losing exclusivity, and changes in generic competition.

CONCLUSIONS

Long-term trends in treated conditions were the fundamental drivers of medication use, whereas factors involving the patent cycle accelerated and decelerated spending growth relative to trends in use.

Managing health expenditure inflation under a single-payer system: Taiwan's National Health Insurance

As nations strive to achieve and sustain universal health coverage (UHC), they seek answers as to what health system structures are more effective in managing health expenditure inflation. A fundamental macro-level choice a nation has to make is whether to adopt a single- or a multiple-payer health system. Using Taiwan's National Health Insurance (NHI) as a case, this paper examines how a single-payer system manages its health expenditure growth and draws lessons for other countries whose socioeconomic development is similar to Taiwan's. Our analyses show that as a single payer, Taiwan's NHI is able to exercise its monopsony power to manage its health expenditure growth. This is achieved primarily through the adoption of a system-wide global budget. The global budget sets a hard aggregate budget cap to limit NHI's total spending to its expected revenue, with the annual budget growth rate established by a process of negotiation among key stakeholders. The global budget system is complemented by comprehensive and continuous monitoring and review of encounter records of all providers and patients, enabled by the NHI's advanced information technology. However, by paying its providers using a point-based fee schedule, Taiwan's NHI suffers from inefficient service provision. In particular, providers have incentives to increase use of services and drugs with positive profit margins. Furthermore, Taiwan demonstrates that its control of NHI expenditure growth might be leading it to inadequately meet the changing needs of the population, resulting in the rapid growth of private insurance to cover services excluded or not fully covered by the NHI. If this trend persists and results in a two-tier system, Taiwan's NHI may risk compromising the equity it has achieved in the past two decades.

Main drivers of health expenditure growth in China: a decomposition analysis

Background

In past two decades, health expenditure in China grew at a rate of 11.6% per year, which is much faster than the growth of the country’s economy (9.9% per year). As cost containment is a key aspect of China’s new health system reform agenda, this study aims to identify the main drivers of past growth so that cost containment policies are focussed in the right areas.

Method

The analysis covered the period 1993–2012. To understand the drivers of past growth during this period, Das Gupta’s decomposition method was used to decompose the changes in health expenditure by disease into five main components that include population growth, population ageing, disease prevalence rate, expenditure per case of disease, and excess health price inflation. Demographic data on population size and age-composition were obtained from the Department of Economic and Social Affairs of the United Nations. Age- and disease- specific expenditure and prevalence rates by age and disease were extracted from China’s National Health Accounts studies and Global Burden of Disease 2013 studies of the Institute for Health Metrics and Evaluation, respectively.

Results

Growth in health expenditure in China was mainly driven by a rapid increase in real expenditure per prevalent case, which contributed 8.4 percentage points of the 11.6% annual average growth. Excess health price inflation and population growth contributed 1.3 and 1.3% respectively. The effect of population ageing was relatively small, contributing 0.8% per year. However, reductions in disease prevalence rates reduced the growth rate by 0.3 percentage points.

Conclusion

Future policy in optimising growth in health expenditure in China should address growth in expenditure per prevalent case. This is especially so for neoplasms, and for circulatory and respiratory disease. And a focus on effective interventions to reduce the prevalence of disease in the country will ensure that changing disease rates do not lead to a higher growth in future health expenditure; Measures should be taken to strengthen the capacity of health personnel in grass-roots facilities and to establish an effective referral system, so as to reduce the growth in expenditure per case of disease and to ensure that excess health price inflation does not grow out of control.

Electronic supplementary material

The online version of this article (doi:10.1186/s12913-017-2119-1) contains supplementary material, which is available to authorized users.

Estimating Marginal Healthcare Costs Using Genetic Variants as Instrumental Variables: Mendelian Randomization in Economic Evaluation

Accurate measurement of the marginal healthcare costs associated with different diseases and health conditions is important, especially for increasingly prevalent conditions such as obesity. However, existing observational study designs cannot identify the causal impact of disease on healthcare costs. This paper explores the possibilities for causal inference offered by Mendelian randomization, a form of instrumental variable analysis that uses genetic variation as a proxy for modifiable risk exposures, to estimate the effect of health conditions on cost. Well-conducted genome-wide association studies provide robust evidence of the associations of genetic variants with health conditions or disease risk factors. The subsequent causal effects of these health conditions on cost can be estimated using genetic variants as instruments for the health conditions. This is because the approximately random allocation of genotypes at conception means that many genetic variants are orthogonal to observable and unobservable confounders. Datasets with linked genotypic and resource use information obtained from electronic medical records or from routinely collected administrative data are now becoming available and will facilitate this form of analysis. We describe some of the methodological issues that arise in this type of analysis, which we illustrate by considering how Mendelian randomization could be used to estimate the causal impact of obesity, a complex trait, on healthcare costs. We describe some of the data sources that could be used for this type of analysis. We conclude by considering the challenges and opportunities offered by Mendelian randomization for economic evaluation.

Premium copayments and the trade-off between wages and employer-provided health insurance

This paper estimates the trade-off between salary and health insurance costs using data on Illinois school teachers between 1991 and 2008 that allow us to address several common empirical challenges in this literature. Teachers paid about 17 percent of the cost of individual health insurance and about 46 percent of the cost of their family members' plans through premium contributions, but we find no evidence that teachers' salaries respond to changes in insurance costs. Consistent with a higher willingness to pay for insurance, we find that premium contributions are higher in districts that employ a higher-tenured workforce. We find no evidence that school districts respond to higher health insurance costs by reducing the number of teachers.

Determinants of out-of-pocket health expenditure on children: an analysis of the 2004 Pelotas Birth Cohort

Background

The present study aimed to examine the impact of socioeconomic, demographic, and health status-related factors on out-of-pocket expenditure on health care for children.

Methods

Data were obtained from a birth cohort study conducted in the city of Pelotas, state of Rio Grande do Sul (RS), southern Brazil, in 2004. The final sample is a result of adjusts made in order to keep in the analysis only those that attended to 3 follow-ups (at 12, 24 and 48 months of age). Estimates were carried out using the Panel Data Tobit Model with random effects.

Results

The study showed that expenditure on medicines was 20 % less likely in those considered healthy children by their mothers and, if there was any expenditure with healthy children, the expected expenditure was reduced by 58 %. A 1 % increase in household income increased the expected expenditure on medicines by 16 %, and by 23 % in children with private health insurance coverage.

Conclusions

All types of health care expenditures examined were higher for children covered by private health insurance. Although total health care expenditure was higher for children of better-off families, it represented a lower share of these families’ income evidencing income inequality in health care expenditures.

Electronic supplementary material

The online version of this article (doi:10.1186/s12939-015-0180-0) contains supplementary material, which is available to authorized users.

Employer contribution and premium growth in health insurance

We study whether employer premium contribution schemes could impact the pricing behavior of health plans and contribute to rising premiums. Using 1991-2011 data before and after a 1999 premium subsidy policy change in the Federal Employees Health Benefits Program (FEHBP), we find that the employer premium contribution scheme has a differential impact on health plan pricing based on two market incentives: 1) consumers are less price sensitive when they only need to pay part of the premium increase, and 2) each health plan has an incentive to increase the employer's premium contribution to that plan. Both incentives are found to contribute to premium growth. Counterfactual simulation shows that average premium would have been 10% less than observed and the federal government would have saved 15% per year on its premium contribution had the subsidy policy change not occurred in the FEHBP. We discuss the potential of similar incentives in other government-subsidized insurance systems such as the Medicare Part D and the Health Insurance Marketplace under the Affordable Care Act.

The health financing transition: a conceptual framework and empirical evidence

Almost every country exhibits two important health financing trends: health spending per person rises and the share of out-of-pocket spending on health services declines. We describe these trends as a "health financing transition" to provide a conceptual framework for understanding health markets and public policy. Using data over 1995-2009 from 126 countries, we examine the various explanations for changes in health spending and its composition with regressions in levels and first differences. We estimate that the income elasticity of health spending is about 0.7, consistent with recent comparable studies. Our analysis also shows a significant trend in health spending - rising about 1 per cent annually - which is associated with a combination of changing technology and medical practices, cost pressures and institutions that finance and manage healthcare. The out-of-pocket share of total health spending is not related to income, but is influenced by a country's capacity to raise general revenues. These results support the existence of a health financing transition and characterize how public policy influences these trends.