Lauren Silver

HPM 570 Final Exam

April 28, 2010
Question 1
!ntro"u#tion
European health systems, and recent health system reforms that some European countries have
implemented, can provide useful lessons for achieving cost containment and financial
sustainability within the U.S. health system. It is well-known that, on the whole, European
countries spend far less of their G! on health care and that the growth in the percentage of G!
attributable to health care spending is substantially less in Europe than in the U.S. "#ongressional
$esearch Service%. &nd yet, the U.S. and European countries face essentially the same challenge
when it comes to reforming their health systems' to balance the e(uitable and sustainable funding
of health services with scarce resources) "*igueras et al.%. In order to address this challenge,
reforms attempt to improve the macro- and+or micro-efficiency of a health system along three
dimensions,financing, allocation, and production "Saltman -../%. 0he U.S. and European
countries share similarities in reform efforts in that both have attempted to induce greater
competition,or create new competitive mechanisms,in order to achieve greater efficiency and
financial sustainability. 1owever, while the U.S. generally has opted for reforms that focus on
inducing competition along the financing side, European countries have focused more on
inducing competition on the production and allocation side, that is, directly regulating the
activities of the providers of health care or incentivi2ing greater provider responsiveness and
productivity "Saltman -../%.
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Examples $rom Europe
1ealth systems in Europe generally belong to one of two ma3or categories,ta4-funded systems
or social health insurance systems "S1I%, which are distinguished from each other according to
each system5s primary financing mechanism. 6y and large, ta4-funded systems are financed via
general ta4es paid by all citi2ens based on not only income, but on all other assets as well. Social
health insurance systems, in contrast, are financed mostly through wage-related contributions
which are shared between employers and employees "Saltman et al. 788/%. #onse(uently, ta4-
funded systems often are described as having a centrali2ed governance structure,i.e.,
9command and control5,in which the state e4ercises decision-making authority, including
e4penditure planning "European :bservatory on 1ealth -...%. Social health insurance systems,
however, are decentrali2ed in that they are managed by the participants themselves "e.g., sickness
funds, physicians and patients%. 0hus, S1I systems are described as ;seemingly private) and
;self-regulatory<) the state serves merely as a ;steward) or ;guardian) of the system "Saltman et
al. 788/%. 6oth types of systems, unlike in the U.S., are sub3ect to close regulation by the
government "*igueras et al.%. In particular, the United =ingdom and Sweden,both ta4-funded
systems,have used governmental regulation to improve both the macro- and micro-efficiency
of the allocation and production components of their health systems.
$einhardt asserts that ;the only predictable constant in U.S. health policy has been a
tendency by both political parties to grant the supply side of the health system rather more
market power relative to the demand side than is customary in other industriali2ed nations.)
E4amples of reforms to the allocation and production components of European health systems
provide evidence that these types of reforms offer the most useful lessons for U.S. reform aimed
at financial sustainability. In particular, recent reforms to the United =ingdom and Swedish
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health systems demonstrate that ;governments that focus reform efforts primarily on the
behavior of health care providers,in particular on hospitals and physicians,typically seek to
attain increased efficiency, effectiveness and responsiveness to patients through the imposition of
regulatory as well as market-derived incentive mechanisms) "Saltman -../%.
In the U.=., reforms in the early -..85s implemented changes that permitted general
practitioners to become G! fundholders who volunteered to hold a budget to provide primary
health care and purchase secondary health care for populations of about -8,888 people ":liver
788>%. Evidence e4ists that this particular reform effort led to reduced prices and better service
for those patients G! fundholders referred to hospitals for inpatient care "Saltman -../%.
?ikewise, the introduction of a planned market in Stockholm #ounty in Sweden between
-..- and -..@ and the -.AA Stockholm #ounty pilot in a single-price market for uncomplicated
deliveries resulted in cost savings "Saltman -../%. In terms of the former, higher provider
productivity and elimination of most patient (ueues ;made it possible to shrink overall capacity)
"Saltman -../%. In terms of the latter, providing women with the choice to select their maternity
unit from different hospitals triggered changes in physician practice patterns and cataly2ed the
closure of unnecessary maternity capacity "Saltman -../%.
%on#lusion& Appli#a'ilit( to t)e *nite" States
0he U.S. has tended to favor finance-side reforms to its health system,as opposed to allocation
or production side reforms. 1owever, administrative and other transaction costs in a finance-side
market tend to be higher at the same time that a government5s ability to contain provider-
generated costs is less "Saltman -../%. 0hus, how applicable are the lessons of reforms in the
U.=. and Sweden,and more generally of European reforms focused on the allocation and
production component of health systems,to the United StatesB Given the obvious cultural
@
differences between the U.S. and European countries,i.e., ;ta4ophobia) vs. social solidarity,it
is politically unlikely that the U.S. will ever adopt a primarily ta4-funded system that cedes
control of the health system to the national government. 0hus, culture, first and foremost, limits
not whether the U.S. can learn from the European e4perience, but the e4tent to which the
principles upon which the strategies that have been implemented abroad are based could be
applied within the conte4t of the U.S. health system and, more broadly, within the &merican
culture that emphasi2es individuality and limited government intrusion. Core specifically,
&mericans are less willing to make some of the tradeoffs that Europeans have made in the name
of cost containment, such as choice of provider, (ueues, and restrictions on publicly-financed
treatments and services. 6y way of e4ample, :berlander and Dhite "788.% assert that the public
backlash against managed care,which was successful in restraining medical spending through
price reductions,resulted from perceived service restrictions and limits on providers. 1owever,
the take-away point remains that a focus on reforming the allocation and production side of the
U.S. health system is necessary if financial sustainability is to be achieved.
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