Comparing the performance of health care systems: an alternative approach.

• Author: Grubaugh, Stephen G.

1. Introduction

   The health care system in the United States has been diagnosed as a moribund institution by a large number of media commentators and health policy analysts. Continually rising health care costs and inadequate health insurance coverage for approximately thirty-seven million people are cited as two of the most visible symptoms supporting their diagnosis. Most of these individuals see little chance for the U.S. health care system to recover given its present design. Full recovery, they believe, requires the successful transplant of a health care system from another country. The health care systems in Europe and Canada, where government is assigned a much larger role than in the United States, are argued to offer universal health care coverage and simultaneously contain health care costs.

   Simple comparative statistics appear to support the view that the performance of the U.S. health care system could be improved through a new health care system design. Infant mortality in the United States ranked twentieth among twenty-four member countries of the Organization for Economic Cooperation and Development (OECD) in 1988. Yet, health care expenditures in the United States comprised 11.8 percent of gross domestic product in 1989, while the comparable average for all OECD countries was only 7.4 percent |28~. These statistics portray the U.S. health care system as being deficient and, therefore, unable to offer quality medical services at a reasonable price.

   Given the limited stock of information that exists on this issue, however, it is ill-advised to place full blame for the seemingly dismal performance on the U.S. health care system. The simple international comparisons fail to take into account that differences in performance are not solely due to variations in health care systems. While the design of a health care system, including the financing scheme, reimbursement method and organization of production, is indeed important because it influences how various economic, technological and demographic characteristics of a country are transformed into health outcomes, the performance of the health care system also depends on the magnitude of these national characteristics as well. A proper analysis would try to determine how the health care system itself specifically influences the performance of health care markets. An analysis of that kind could provide useful information concerning any change in performance that might result from redesigning the U.S. health care system.

   Despite the value of the information, only a very few studies |15; 13; 27~ have formally compared the performance of the U.S. health care system to the systems existing in a number of other OECD countries. For the most part, however, these studies naively, but understandably, assume that the multifaceted nature of a health care system can be reduced to a single variable; the health care expenditure share of government. But clearly, the diverse institutional and regulatory features of a health care system cannot be captured fully by a simple measure of that kind.

   Because of this major shortcoming in the literature, we adopt an entirely different approach to compare the underlying performance of the health care system in the United States with other OECD countries. An approach of this kind has been successfully used to examine gender discrimination in labor markets |19~, rent control laws in housing markets |17~ and structural gaps between market and nonmarket economies |10~. First, we use a large panel data set of twelve OECD countries (other than the United States) to estimate an infant mortality and a health care expenditure regression equation. The regression analysis establishes how various socio-demographic and environmental determinants influence the performance of the health care-sector in the OECD countries.

   Next, we use the estimated regression equations to generate predicted values for infant mortality and health expenditures in the United States. A comparison of the predicted and actual values allows us to identify any "residual" performance differences attributable to health care system and immeasurable "nonsystem" factors such as lifestyle and climate not already captured in the regression equations. Finally, we assess whether the residual performance difference arises because of health care system or immeasurable "nonsystem" factors.

2. Empirical Specification

   Sample, Data and Methodology.

   Following previous studies comparing the performance of health care systems, we assume that the infant mortality rate and per capita health care spending capture important differences in health outcomes across countries. Infant mortality data are more complete over time than any other potential measure of health status. Infant mortality is a reasonable health indicator "because it is generally accepted that, where infant mortality rates are high, health levels in all segments of the population are likely to be low |8, 63~."

   Of course, international comparisons are not exempt from data measurement problems |23; 16~. It should be kept in mind, however, that data measurement problems have not deterred health policy analysts or the popular press from drawing substantive policy conclusions about the performance of health care systems based solely and simply on the relative rankings of various countries in an infant mortality or health care spending table. This is despite the fact that a host of factors, in addition to the health care system, such as lifestyle patterns and environmental conditions, affect health outcomes. While we are unable to seriously overcome the data measurement problems, the methodology employed in this paper represents a substantial improvement upon the earlier work--data measurement problems or not. This study often a technique for making more systematic and controlled comparisons of health outcomes in the United States with other countries. Nevertheless, we caution the reader that the results of this study are conditioned on the reliability of the data just like the other discussions on this topic in the popular press and academic journals.

   A panel data set of OECD countries is used in the empirical analysis. To be included in the sample, each OECD country must have at least eight years of continuous data for all of the necessary variables over the period 1960 to 1987. We insist on a consistent time-series for each country in the panel to ensure that important time-series features of the model are properly captured. With this restriction, we obtain 183 observations for a sample of twelve (non-United States) OECD countries. The countries (and number of observations) included are Austria (20), Belgium (15), Canada (19), Denmark (10), Finland (26), France (22), Greece (9), Italy (11), Netherlands (12), Spain (8), Sweden (20) and United Kingdom (11).(1) Most data come from Health Care Systems in Transition which was published by the OECD in 1990, OECD National Accounts (various years) and OECD Labor Force Statistics (various years).(2)

   The infant mortality and health care expenditure equations are estimated with multiple regression analysis for the twelve non-U.S. OECD countries in the following general form:

   |Y.sub.it~ = |Beta~|X.sub.i,t~ + ||Mu~.sub.it~, (1)

   where X represents a vector of measurable economic, environmental, lifestyle and demographic variables, i = 1, 2, . . ., 12 non U.S. countries and t = 1, 2, . . ., n for the n years of observations for each country. The error terms ||Mu~.sub.it~, it are assumed to be independent and identically distributed across the i countries.

   The vector of parameters, |Beta~, reflects how values of X are transformed into a final value for Y. This transformation process depends, in part, on the health care system and also on any nonsystem factors influencing health outcome that we are unable to measure and include in the regression equation. The more important features of a health care system include the mode of production (private or public), financing method (taxes or insurance premiums) and reimbursement scheme (fixed payment or fee for service, single payer versus multipayer system) |29~. In addition, physician referral practices (indirect or direct access to specialists) and level of decision-making (centralized versus decentralized) help to shape the overall design of the health care system. Most European countries and Canada...