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Efficiency in Healthcare

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Efficiency in Healthcare (OECD and IMF)

Summary Advice (OECD - Choosing Fiscal Consolidation): The OECD suggests that structural reforms that improve efficiency in the delivery of public services can reduce the adverse growth impact of spending cuts in productive areas of government spending. Similarly, the negative equity impact of spending cuts can be headed off by structural reforms that ensure a better targeting of public services and transfers and stimulate labour supply.

Summary Advice (OECD - Fiscal Consolidation): Work by the OECD has examined the opportunities to improve the efficiency of service delivery for health and education (similar savings are likely to be available in other spending programmes, see Hagemann, 2012). These are important spending programmes accounting for about a quarter of government spending or on average across OECD countries around 10% of GDP between education and healthcare.

Summary Advice (IMF)The IMF recommends that reforms are needed to ensure the long-term sustainability of health care systems, or to increase their coverage where appropriate. For public health care systems, most countries have room to improve efficiency through greater competition and better regulation, and to contain the growth of health spending or to generate savings to expand its coverage. The government has a critical role in setting the overall policy framework for public and private health care provision and balancing service quality, coverage, efficiency, and cost-effectiveness considerations.

Main Points (OECD - Choosing Fiscal Consolidation):

In health care, efficiency gains could also permit to improve or maintain service provision while containing cost to the public purse, therefore mitigating adverse growth and equity impacts (Hagemann, 2012). Although they are subject to considerable uncertainty, quantitative estimates suggest that the scope for efficiency gains in the health sector can potentially be very large (Figure 9). Previous OECD work emphasised that, while structural reforms to realise potential efficiency gains vary depending on the structure of health systems, some apply to most countries. In particular, better priority setting, improved consistency in responsibility assignment across levels of government, and better user information on the quality and price of services would be reform options to consider in many OECD countries (Joumard et al, 2010).

Cuts in health care can also reduce output per capita by reducing labour supply and productivity. When controlling for taxes, public health spending appears to have a positive, albeit moderate, effect on output per capita (Barbiero and Cournède, 2013). Through its contribution to well-being, health spending is most likely to have additional positive welfare effects that are not measured in GDP.

Main Points (OECD - Fiscal Consolidation):

No “one-size-fits-all” exists for health care, in the sense that no “model” of health care delivery seems to be universally more cost efficient than other “models”. However, within each “model” countries achieve widely divergent degrees of cost efficiency, suggesting that optimisation at the margin rather than a switch of model is the best way to achieve savings. Indeed, adopting best practice policies could see potential efficiency gains of close to 2% of GDP on average by 2017 (Joumard et al., 2010), thereby allowing savings to be made without compromising service delivery.

Main Points (IMF): 

Despite the recent slowdown in its growth rate, public health expenditure will likely continue to put pressure on government budgets in many economies in the coming decades. Advanced and developing economies face different challenges, largely mirroring those encountered with pension reform. In advanced economies, public health expenditure averages about 6¾ percentage points of GDP, and the main objective is to stabilize the ratio of public health spending to GDP without adversely affecting health outcomes. Progress so far has been limited, compared with pension reform. In emerging market and developing economies, public health expenditure is much lower, and the goal is to improve health outcomes through fiscally sustainable coverage expansion. Some countries, including China, India, Indonesia, Ghana, Kenya, Mexico, and Tunisia, have taken important steps toward universal coverage in recent years. In both advanced and developing economies, tackling health system inefficiencies holds great potential for addressing these challenges and for increasing life expectancy (WHO, 2010; Joumard, Andre, and Nicq, 2010; Grigoli and Kapsoli, 2013). However, the potential gains from efficiency-enhancing reforms are clouded by large uncertainties about the magnitude of those potential gains, and realizing them has often been difficult in practice. Nonetheless, country experience and the literature point to a few key areas for reform:

  • Foster competition and choice. This includes allowing competition among insurers and service providers and disclosing information on the price and quality of health services. The reform introduced in the United Kingdom in 2006 to promote competition and choice in the hospital sector has been shown to improve health outcomes without raising costs (Gaynor, Propper, and Seiler, 2012; Gaynor, Moreno-Serra, and Propper, 2013). The extent to which competition and choice are used in health systems varies considerably across economies, leaving scope for significant benefits from implementation of such reforms (Joumard, Andre, and Nicq, 2010; Gaynor, Moreno-Serra, and Propper, 2013; Clements, Coady, and Gupta, 2012). However, imperfections in the functioning of health care markets, such as asymmetric information, adverse selection, and moral hazard, do impose limits on potential gains from competition, putting an onus on the government to continue to play an important role in the provision of health care and in service regulation.
  • Emphasize primary and preventive care: Primary and preventive care is usually most cost-effective, but it is often underprovided and underutilized. Governments, therefore, could play an important role by supporting research and development, public provision, regulation, or tax measures. For example, public health programs providing vaccinations have made remarkable strides in promoting health in many countries. Smoking bans in public places have been effective in reducing smoking. Tobacco excise taxation has also contributed to the decline of smoking in many countries and can help raise additional revenues. There is also room in many countries to raise taxes on alcohol and unhealthy foods such as sugar-sweetened beverages (U.S. CBO, 2012; Jamison and others, 2013).
  • Improve provider payment systems: Shifting from fee-for-service payments to case-based payments can help reduce the incentives to provide unnecessary treatment. However, to prevent undertreatment by providers, strong clinical guidelines and monitoring are needed. For example, while many health systems in both advanced and developing economies have adopted or are considering case-based methods such as diagnosis-related groups, the extent of their use still varies significantly across economies (Clements, Coady, and Gupta, 2012; Busse and others, 2011; Mathauer and Wittenbecher, 2013).
  • Adopt health information technology: Health information technology (encompassing new software and hardware systems to collect, store, and exchange patient data) has the potential to help improve health outcomes and reduce costs although the evidence on its benefits is still unfolding. Case studies of Australia, Canada, the Netherlands, Spain, Sweden, and the United States illustrate the potential benefits of its adoption (OECD, 2010).

Improving access to health care for the poor can help improve equity, although again, the additional cost would have to be absorbed through higher taxation or spending reallocation. Although public health spending in advanced economies tends to be progressive, health outcomes of the poor still lag well behind those of the rich (Paulus, Sutherland, and Tsakloglou, 2010). In many developing economies, public health spending benefits the rich more than the poor, reflecting lack of access to key health care services (Davoodi and others, 2010; IMF, forthcoming-a). Reductions in or elimination of user charges for low-income households would help enhance their access to a basket of essential health care services. In addition, steps need to be taken to address the supply-side barriers in less developed areas, such as the shortage of health care facilities and professionals in remote rural areas.

Source: OECD (2013). OECD, "Choosing fiscal consolidation instruments compatible with growth and equity" OECD Economic Policy Papers No. 07, at (accessed 26 April 2014) and OECD (2012). OECD, "Fiscal Consolidation: How Much, How Fast and by What Means?" OECD Economic Policy Papers No. 01, at (accessed 28 April 2014) and IMF (2014). IMF, “Public Expenditure Reform: Making Difficult Choices” IMF Fiscal Monitor, at (accessed 25 April 2014).

Page Created By: Matthew Seddon on 28 April 2014. The content presented on this page is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases. This material does not necessarily reflect the official view of the publishing organization.

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