Economic Implications of Vouchers for Health Care: Improving Equity and Efficiency

1. Vouchers lie on a continuum of govt intervention in markets Vouchers Prescriptive for services Proscriptive => choice of provider Cash grant to consumer Govt provision of goods/services Vouchers for Health Care?Jennifer Watts & Leonie SegalCentre for Health Economics Objectives To explore the economic implications of publicly funded vouchers for health care. To determine the necessary features of a public funded voucher system to improve equity and efficiency in the delivery of health care. To structure vouchers as a public payment policy instrument to maximize social objectives of equity, efficiency and cost effectiveness whilst enabling individual choice of providers. • Market Assumptions Relevant to Feasibility of Vouchers for Health Care Services • Market attributes support the assumption of consumer sovereignty thus consumers are able to make an informed choice with respect to their healthcare provider. • Assumes consumer has enough information to choose preferred provider but not necessarily the types of services that they need to maximise health outcomes. • Where providers are close substitutes, the market structure supports competition both within and across professional groups. • Vouchers themselves provide a market signal with respect to increasing consumer knowledge of available services relevant to their condition. • Enables health care services to be targeted at selected groups of individuals, based on ‘capacity to benefit’ or specific disadvantage. • Implementation and Policy Issues • Setting voucher prices • relative value scales that are based on evidence of cost effectiveness • govt control over health care expenditure and health care inflation rate • Autonomy of professional groups • inducing competition between professional groups that may not have been competitive in the past • Registration of provider by professional group • infers an entitlement to claim voucher payment for service • provides protection for consumers • monopoly impact of registration is offset by competitive forces between professional groups for a given service, and the govt as a monopsony purchaser of services, ie the govt is able to act as a ‘price setter’ on behalf of the consumer • Resolving relative value of labour resources across professional groups • work of some professional groups not previously subject to cost effectiveness studies or strong evidential base • Labour shortages • undersupply of some health professionals • vouchers provide signal to increase labour supply in areas of shortages • lag effect arising from recruitment and training • Administration costs • performance and qualitymonitoring • enforcing quality standards • accumulation of and evaluating evidence of cost effectiveness • as evidence accumulates new diseases and methods of treatment can be added or changed => staggered implementation • Potential for moral hazard • consumers face a ‘zero price’ • recipients expected to consume more services than at present • consumption limited to the set of services prescribed by the voucher • vouchers supported by cost effectiveness • Minimise adverse selection • risk adjustment for disease stage, age, co-morbidities, and other identified risk factors to minimize adverse selection, also consistent with vertical equity, and maximising cost effectiveness at the disease level • Feasibility of Vouchers for Chronic Disease Management • Features of chronic disease markets support the assumption that consumers have accumulated information over time as to preferred providers of services. • Vouchers provide a means of informing the consumer as to available and needed services for a given chronic health condition. • Background • Market distortion arising from public subsidy for some services and not others • Acute care prioritized over management of pre-existing (chronic) conditions • FFS funding provides incentive for many short consultations • output-based hospital funding provides incentive for hospital care with predictable costs, for example therapeutic and diagnostic procedures • elective surgery and waiting lists represent future (predictable) income for providers • development of new technologies supports current incentives within the system • social time preference – current versus future need • dependency – ‘quick fix’ versus longer run commitment to prevention • Pharmaceutical management of chronic conditions favored by individuals over referral to allied health services and/or preventive health care • government subsidy for pharmaceuticals • consistent with FFS consultations, reduced effort and time • time preference – pharmaceuticals enable treatment of current symptoms vs lifestyle management and change • Evidence suggests that better health outcomes for people with chronic conditions are achieved by community-based integrated health care services, including allied health and other non-medical services. • ‘Structured Choice Model’ of Vouchers for Management of Chronic Health Conditions • Choice • government limits voucher to cover a restricted set of services • ‘prescribed set of services’ is determined by cost effectiveness studies • enables recipient choice of provider within the prescribed set of services specific to their chronic disease • Competition • the above are consistent with encouraging competition in the supply of chronic health care services • enabling substitution of providers within the criterion of cost effectiveness ensures competition across provider groups • underlying consumer choice is quality of service (through provider) not price => ensures competition based on quality not price • Non-transferability • consistent with recognizing the positive externality impact of chronic disease, therefore aims to maximize social health benefits • paternalistic approach to maximize individual’s health vs present utility or satiation • therefore non-transferable between consumers, to other ‘non-listed’ services and can’t be ‘cashed in’ • Eligibility Criteria – Consumers • Diagnosis of specific chronic condition enables access to a series of vouchers relevant to the disease • Eligibility Criteria – Services • Voucher is prescriptive in that it is restricted to a specific service • both the quantity of service and the type of service can be prescribed, for example four visits to a dietitian per annum for the dietary management of type 2 diabetes • service has demonstrated evidence of cost effectiveness relevant to a specific disease • Eligibility Criteria – Providers • Voucher can designate eligible providers for specific services, and consumers can then choose the provider of the service from amongst a restricted group • Provider groups have demonstrated evidence of cost effectiveness relevant to the specific disease • Not restricted to a single type of provider, for example diabetes nurse educator or general practitioner may be able to routinely screen for the complications of established diabetes • Government Intervention in Health Care Markets • Trade-off between maximizing social objectives of access, equity and health outcomes and individual objectives of utility maximisation through choice • Market failure in health care arising from • information asymmetry between consumers and providers • market power of health care providers resulting in ability to engage in price-setting behaviour • positive externality – increased social benefit if health care resources are allocated towards reducing morbidity and mortality over time and across diseases Conclusion When structured appropriately, vouchers may provide a means of funding health services. Whilst publicly funded vouchers may not be appropriate across the entire health care system, there are features of vouchers that make them a viable option for the public funding of certain types of health care, particularly the management of chronic health conditions. Designing a voucher payment system for chronic disease using the principles of a structured choice model enables choice of provider whilst maintaining principles of equity and cost effective disease management. • Continuum Based on Which Objectives are Maximised? • Social objectives are maximised where vouchers are prescriptive • distribution of health care resources meets objectives of equity and maximization of health outcomes • Individual objectives of utility maximisation when consumer has some choice • assumes individual consumers have enough information to enable consumption decisions that are consistent with maximizing their welfare References Bradford DF & Shaviro DN (2000) ‘The economics of vouchers’ in CE Steuerle et al (Eds) Vouchers and the provision of public services, Washington: Brookings Institution Press, pp.40-91. Donaldson, L. (2003). ‘Expert patients usher in a new era of opportunity for the NHS’, BMJ, 326(7402): 1279-80. Peacock S. & Segal L. (2000) Capitation funding in Australia: imperatives and impediments. Health Care Management Science. 3(2):77-88. Steuerle, CE (2000) ‘Common issues for voucher programs’ in CE Steuerle et al (Eds) Vouchers and the provision of public services, Washington: Brookings Institution Press, pp.3-39. Wilson, J. (1999) ‘Acknowledging the expertise of patients and their organisations’ BMJ Vol 319, pp 771- 774. jenny.watts@buseco.monash.edu.au