nep-hea New Economics Papers
on Health Economics
Issue of 2012‒04‒10
eighteen papers chosen by
Yong Yin
SUNY at Buffalo, USA

  1. Discrete time Non-homogeneous Semi-Markov Processes applied to Models for Disability Insurance By Guglielmo D’Amico; Montserrat Guillen; Raimondo Manca
  2. Prevention and Cure Efforts Both Substitute and Complement By Hennessy, David A.
  3. The effect of hospital medical services on child mortality in Japan By Hanaoka, Chie; Ogura, Seiritsu
  4. The Willingness to Pay for a QALY - Results based on value of statistical life estimates in Sweden By Svensson, Mikael
  5. A Comparison of Benefit Cost and Cost Utility Analysis in Practice: Divergent Policies in Sweden By Hultkrantz, Lars; Svensson, Mikael
  6. Hospital competition with soft budgets. By Brekke, Kurt R.; Siciliani, Luigi; Straume, Odd Rune
  7. Spillover Effects of Drug Safety Warnings on Health Behavior By Daysal, N. Meltem; Orsini, C.
  8. The Miracle Drug: Hormone Replacement Therapy and Labor Market Behavior of Middle-Aged Women By Daysal, N. Meltem; Orsini, C.
  9. Obesity and Employment in Ireland: Moving Beyond BMI By Mosca, Irene
  10. The Long Term Health Effects of Education By O'Sullivan, Vincent
  11. Productivity of the English National Health Service 2003-4 to 2009-10 By Chris Bojke; Adriana Castelli; Rosalind Goudie; Andrew Street; Padraic Ward
  12. The Effect of Physician Fees and Density Differences on Regional Variation in Hospital Treatments By Rudy Douven; Remco Mocking
  13. Geographic and Racial Variation in Premature Mortality in the US: Analyzing the Disparities By Mark R. Cullen; Clint Cummins; Victor R. Fuchs
  14. Price Subsidies, Diagnostic Tests, and Targeting of Malaria Treatment: Evidence from a Randomized Controlled Trial By Jessica Cohen; Pascaline Dupas; Simone G. Schaner
  15. Unveiling the Mystery of Online Pharmacies: an Audit Study By Roger Bate; Ginger Zhe Jin; Aparna Mathur
  16. Do High-Cost Hospitals Deliver Better Care? Evidence from Ambulance Referral Patterns By Joseph J. Doyle, Jr.; John A. Graves; Jonathan Gruber; Samuel Kleiner
  17. Is There “Too Much” Inequality in Health Spending Across Income Groups? By Laurence Ales; Roozbeh Hosseini; Larry E. Jones
  18. Remedies for Sick Insurance By Daniel L. McFadden; Carlos E. Noton; Pau Olivella

  1. By: Guglielmo D’Amico (Dipartimento di Scienze del Farmaco, Università G. D’Annunzio of Chieti-Pescara, Chieti, Italy); Montserrat Guillen (Departament d’Econometria, Estadistica I Economia Espanyola, RFA-IREA, Universitat de Barcelona, Spain); Raimondo Manca (Dipartimento di Metodi e Modelli per l’Economia, il Territorio e la Finanza, Università La Sapienza di Roma, Roma, Italy)
    Abstract: In this paper, we present a stochastic model for disability insurance contracts. The model is based on a discrete time non-homogeneous semi-Markov process (DTNHSMP) to which the backward recurrence time process is introduced. This permits a more exhaustive study of disability evolution and a more efficient approach to the duration problem. The use of semi-Markov reward processes facilitates the possibility of deriving equations of the prospective and retrospective mathematical reserves. The model is applied to a sample of contracts drawn at random from a mutual insurance company.
    Date: 2012–03
  2. By: Hennessy, David A.
    Abstract: Suppose one could expend effort to prevent probabilistic transition to an adverse state, and also effort to expedite probabilistic transition to a beneficial state. Bearing in mind that the efforts occur in different states, should these efforts substitute or complement? Two appealing arguments are in conflict. If cure effort is costly, then the incentive to prevent should be high in order to avoid future cure effort costs, i.e. efforts are gross substitutes in demand. If prevention effort is costly, then the incentive to cure should be low since recidivism is likely, i.e. efforts complement. In a lifetime present value model, we show that both arguments have merit. We also show that the prevalence of the adverse state can rise with a subsidy on cure effort costs.
    Keywords: health care policy; lifetime present value; medical expenditures; poisson processes
    Date: 2012–03–29
  3. By: Hanaoka, Chie; Ogura, Seiritsu
    Abstract: The purpose of this paper is to conduct a fact-finding study on how differences in the supply of medical care affect the cause-specific mortality among children aged 1 to 4 years in Japan. We find that the supply of emergency medical care in hospitals has a significant negative effect on the mortality. Furthermore, the availability of primary emergency care at hospitals on weekend nights has a significant negative effect on the mortality owing to either external or internal causes. Finally, the availability of physicians has a more pronounced effect on mortality from external causes than from internal causes.
    Keywords: supply of medical care
    JEL: I12
    Date: 2012–03
  4. By: Svensson, Mikael (Dept. of Economics)
    Abstract: As the use of cost-effectiveness analysis with quality adjusted life years (QALY) as the outcome measure grows in policy use, a major unresolved issue is that of the monetary value to place on a QALY. This paper addresses this issue by estimating and discussing willingness to pay (WTP) estimates for a QALY in Sweden This paper uses all published estimates of the value of a statistical life since the year 2000, based on a Swedish population, to implicitly derive the WTP for a QALY. Based on 16 recently published estimates of the value of a statistical life (year 2000 or later) in Sweden, 11 papers explicitly stating that they estimate policy values of VSL are used to estimate the WTP for a QALY. Estimates range from 750,000 to 3,200,000 Swedish kronor (approx. €80,000 to €350,000) assuming a discount rate of 3%. Using the current government-recommended estimate of value of a statistical life produces a value of approx. 1.2 million Swedish kronor (€130,000) per QALY. There is significant variance in the WTP for a QALY based on conversions from value of statistical life estimates in Sweden. Still, using a discount rate of 3%, the range of estimates in this paper is higher compared to the current informal “thresholds” as discussed by Swedish government authorities.
    Keywords: QALY; Willingness to pay; Value of a statistical life; Contingent Valuation
    JEL: D61 H51 I18
    Date: 2012–04–02
  5. By: Hultkrantz, Lars (Department of Business, Economics, Statistics and Informatics); Svensson, Mikael (Department of Economics)
    Abstract: We compare state-of-the-art implementation of Benefit Cost Analysis (BCA) and Cost Utility Analysis (CUA) as tools for making priorities in allocation of national public funds in the transport sector and health sector, respectively, in Sweden. While the principal distinctions between these methods are well known, less notice has been given to a number of other differences that have emerged as national and international practices have evolved over time along separate lines. We compare cost and benefit components and economic parameter values and find some surprising disparities. There are inconsistencies, both across methods and within each method. Both can be improved by learning from the other. We also find that some current practices conflict with the underlying welfare theory and/or insights from recent empirical analysis.
    Keywords: Benefit Cost Analysis; Cost Utility Analysis
    JEL: D61 H51 I18
    Date: 2012–04–03
  6. By: Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Siciliani, Luigi (University of York); Straume, Odd Rune (University of Minho)
    Abstract: We study the incentives for hospitals to provide quality and expend cost-reducing effort when their budgets are soft, i.e., the payer may cover deficits or confiscate surpluses. The basic set up is a Hotelling model with two hospitals that differ in location and face demand uncertainty, where the hospitals run deficits (surpluses) in the high (low) demand state. Softer budgets reduce cost efficiency, while the effect on quality is ambiguous. For given cost efficiency, softer budgets increase quality since parts of the expenditures may be covered by the payer. However, softer budgets reduce cost-reducing effort and the profit margin, which in turn weakens quality incentives. We also find that profit confiscation reduces quality and cost-reducing effort. First best is achieved by a strict no-bailout and no-profit-confiscation policy when the regulated price is optimally set. However, for suboptimal prices a more lenient bailout policy can be welfare improving.
    Keywords: Hospital competition; Soft budgets; Quality; Cost efficiency.
    JEL: I11 I18 L13 L32
    Date: 2012–03–15
  7. By: Daysal, N. Meltem; Orsini, C. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: We examine the impact of new medical information on drug safety on preventive health behavior. We exploit the release of the findings of the Women's Health Initiative Study (WHIS) -the largest randomized controlled trial of women's health- which demonstrated in 2002 that long-term Hormone Replacement Therapy increases the risk of heart attacks, stroke, blood clots and breast cancer among healthy postmenopausal women. Because hormone replacement is a therapy exclusive to women, we estimate the spillover effects of the WHIS findings on health behavior by means of a difference-in-differences methodology using men of similar ages as the control group. Using data from the Behavioral Risk Factor Surveillance System for 1998-2007, we find statistically significant small negative spillovers on post-menopausal women's likelihood of having an annual checkup and choice of a healthy diet, as proxied by daily fruit consumption. Our results also indicate that the observed spillover effects of drug safety on health behavior were entirely driven by the less educated. These findings suggest that policies aimed at raising awareness on the safety of medications may have unintended spillover effects on health behavior and that these spillovers may contribute to the existing health disparities by education.
    Keywords: Spillovers;Preventive Behavior;Health Disparities;Health Production.
    JEL: I10 I12 I14 I18
    Date: 2012
  8. By: Daysal, N. Meltem; Orsini, C. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: In an aging society, determining which factors contribute to the employment of older individuals is increasingly important. This paper sheds light on the impact of medical innovation in the form of Hormone Replacement Therapy (HRT) on employment of middle-aged women. HRT are drugs taken by middle-aged women to soften symptoms related to menopause. Before 2002, HRT products were among the most popular prescription drugs in America. We use the timing of the release of information of the potential hazardous effects of HRT—uncovered in 2002 by the largest randomized trials on women ever undertaken—as an instrument for the purchase of the affected drugs within a Fixed Effect Instrumental Variable framework. We find that HRT use impacts employment: namely, that HRT use increases employment by 25 percentage points among middle-aged women who would have taken HRT but who do not take HRT after the release of information of its potential hazardous effects.
    Keywords: Employment of middle-aged women;Drug safety.
    JEL: H8 I1 J2
    Date: 2012
  9. By: Mosca, Irene
    Abstract: I use data from the first wave of the Irish Longitudinal Study on Ageing (TILDA) to investigate the impact of obesity on the labour market status of older Irish individuals. I employ an anthropometric indicator of body composition (waist circumference) along with body mass index. I include a wide array of subjective and objective health indicators in the empirical model. I find that obese women are less likely to be at work. However, both the magnitude and statistical significance of this correlation are sensitive to the definition of obesity. Factors other than socioeconomic characteristics and health are also found to play a role in explaining why obese older women are less likely to be employed. Much weaker evidence is found for men.
    Keywords: BMI/data/employment/Individuals/Ireland/labour market/older/Waist Circumference
    Date: 2012–03
  10. By: O'Sullivan, Vincent
    Abstract: Using data from The Irish Longitudinal Study on Ageing, I find that exogenous changes in the schooling of men born into lower social class families in Ireland during the late 1940s and 1950s had a statistically significant positive effect on their self-reported health in later life. I also find that the increased level of schooling had a statistically significant positive effect on physical exercise in later life as well as reducing the probability of an individual experiencing certain non-cardiovascular chronic conditions. However no statistically significant effect was found in relation to cardiovascular disease, self-rated mental health, smoking behaviour or self-reported and objectively measured memory although there is a high degree of imprecision in these estimates.
    Keywords: education/data/Social class/Ireland
    Date: 2012–03
  11. By: Chris Bojke (Centre for Health Economics, University of York, UK); Adriana Castelli (Centre for Health Economics, University of York, UK); Rosalind Goudie (Centre for Health Economics, University of York, UK); Andrew Street (Centre for Health Economics, University of York, UK); Padraic Ward (Centre for Health Economics, University of York, UK)
    Abstract: A new research study reveals that the productivity of the NHS in England has been broadly constant over the last seven years, increasing by an average of 0.1 per cent per year. The most detailed and comprehensive information available was used to compare growth in the total amount of resources (input) used to produce health care provided to NHS patients (output). The research shows that between 2003/4 to 2009/10 the number of staff has increased by 18 per cent, buildings and equipment by 24 per cent and all other inputs, such as clinical supplies and energy costs, by 76 per cent. There has also been a corresponding increase in both the quantity and quality of output. The number of patients treated in hospital increased from 12.1m to 15.6m; outpatient attendances from 50m to 77m; community care contacts from 76m to 92m; and primary care consultations from 262m to 300m. Over the same period, hospital survival rates improved from 99.4 per cent to 99.8 per cent for elective patients and from 95 per cent to 96 per cent for non-electives. Average inpatient waiting times fell from 78 to 57 days, reaching a low of 51 days in 2008/9. Outpatient waiting times fell from 58 days to 24 days. All in all, growth in activity and changes in quality have tracked the growth in inputs, implying that productivity has been flat over the seven year period.
    Date: 2012–03
  12. By: Rudy Douven; Remco Mocking
    Abstract: <p>We use a panel data set of about 1.7 million hospital records in 4,000 Dutch zip code regions for the years 2006-2009. We estimate the effect of physician fees and physician density on regional variation in hospital care for nine different treatments.</p><p>Our results show that a 1 percent increase in the total number of physicians, if these extra physicians are all paid according to an output-based reimbursement scheme, would increase the number of treatments on average by 0.40 percent. For salaried physicians we find a significantly lower average effect of 0.15 percent. We find no or weak effects for hip fractures, which is included in the analysis as a control treatment. Our data allows us to deal with reverse causality, excess demand, border crossing, and availability effects. Our findings lend support to the existence of supplier induced demand for the majority of the analyzed treatments.</p>
    Date: 2012–03
  13. By: Mark R. Cullen; Clint Cummins; Victor R. Fuchs
    Abstract: Life expectancy at birth, estimated from United States period life tables, has been shown to vary systematically and widely by region and race. We use the same tables to estimate the probability of survival from birth to age 70 (S70), a measure of mortality more sensitive to disparities and more reliably calculated for small populations, to describe the variation and identify its sources in greater detail to assess the patterns of this variation. Examination of the unadjusted probability of S70 for each US county with a sufficient population of whites and blacks reveals large geographic differences for each race-sex group. For example, white males born in the ten percent healthiest counties have a 77 percent probability of survival to age 70, but only a 61 percent chance if born in the ten percent least healthy counties. Similar geographical disparities face white women and blacks of each sex. Moreover, within each county, large differences in S70 prevail between blacks and whites, on average 17 percentage points for men and 12 percentage points for women. In linear regressions for each race-sex group, nearly all of the geographic variation is accounted for by a common set of 22 socio-economic and environmental variables, selected for previously suspected impact on mortality; R2 ranges from 0.86 for white males to 0.72 for black females. Analysis of black-white survival chances within each county reveals that the same variables account for most of the race gap in S70 as well. When actual white male values for each explanatory variable are substituted for black in the black male prediction equation to assess the role explanatory variables play in the black-white survival difference, residual black-white differences at the county level shrink markedly to a mean of -2.4% (+/-2.4); for women the mean difference is -3.7 % (+/-2.3).
    JEL: I0 I00 I10 I14 I3 I31
    Date: 2012–03
  14. By: Jessica Cohen; Pascaline Dupas; Simone G. Schaner
    Abstract: In response to parasite resistance to older malaria medicines, the global health community is considering making new, more effective malaria treatments called Artemisinin Combination Therapies (ACTs) available over-the-counter at heavily subsidized rates throughout Africa. While this may go a long way toward reducing under-treatment (thereby saving lives in the short-run), it is also likely to increase over-treatment, wasting subsidy dollars and contributing to drug resistance (thereby making lives harder to save in the long-run). We use data from a randomized controlled trial conducted with over 2,700 households in rural Kenya to study behavioral responses to changes in ACT prices and quantify this tradeoff. We find that ACT use increases by 59 percent in the presence of an ACT subsidy over 90 percent. However, only 56 percent of those buying such a highly subsidized ACT at retail sector drug shops test positive for malaria. We show that this share increases (without substantially compromising access) to 81 percent when the over-the-counter ACT subsidy is somewhat reduced and resources are redirected towards a subsidy for rapid malaria tests. While most of the targeting benefits come from reducing the ACT subsidy, making diagnostic tests available over-the-counter more than doubles the rate at which illnesses are tested for malaria. This high take up rate suggests that subsidizing rapid tests may have great scope to improve targeting and treatment outcomes in the longer run.
    JEL: D61 H23 I18 O1
    Date: 2012–03
  15. By: Roger Bate; Ginger Zhe Jin; Aparna Mathur
    Abstract: This study assesses the trade-off between drug safety and price savings in online drug purchases. Focusing on five brand-name prescription drugs, we acquire 370 drug samples from 41 online pharmacies and test their authenticity. Of the 41 websites, 8 are clearly US-based and verified by the National Association of Boards of Pharmacy (NABP) or We refer to them as tier 1. Another 23 websites – referred to as tier 2 – are not verified by NABP or LegitScript but verified by or the Canadian International Pharmacy Association (CIPA). The remaining 10 websites are not verified by any of the four verification agencies and therefore classified as tier 3. Most tier 2 and tier 3 websites are foreign. We have two main findings. First, according to our Raman spectrometry test, no failure of authenticity is found in drugs that came from verified websites, the only failures are Viagra from non-verified websites in tier 3. Second, within verified websites, tier 1 websites on average charge 52.5% more than tier 2 websites in final price (including shipping and handling) for the same drug and dosage except for Viagra. On Viagra, tier 1 and tier 2 websites show no difference in drug safety and price, but if one aims to get authentic Viagra, verified websites are both safer and cheaper than non-verified websites in tier 3. These findings confirm the FDA warning against rogue websites but suggest that a blanket warning against any foreign website may deny consumers substantial price savings from verified tier 2 websites.
    JEL: D18 D8 I18
    Date: 2012–03
  16. By: Joseph J. Doyle, Jr.; John A. Graves; Jonathan Gruber; Samuel Kleiner
    Abstract: Endogenous patient sorting across hospitals can confound performance comparisons. This paper provides a new lens to compare hospital performance for emergency patients: plausibly exogenous variation in ambulance-company assignment. Ambulances are effectively randomly assigned to patients in the same area based on rotational dispatch mechanisms. Using Medicare data from 2002-2008, we show that ambulance company assignment importantly affects hospital choice for patients in the same zip code. Using data for New York state from 2000-2006 that matches exact patient addresses to hospital discharge records, we show that patients who live very near each other but on either side of ambulance-dispatch boundaries go to different types of hospitals. Both strategies show that higher-cost hospitals have significantly lower one-year mortality rates compared to lower-cost hospitals. We find that common indicators of hospital quality, such as indicators for "appropriate care" for heart attacks, are generally not associated with better patient outcomes. On the other hand, we find that measures of "leading edge" hospitals, such as teaching hospitals and hospitals that quickly adopt the latest technologies, are associated with better outcomes, but have little impact on the estimated mortality-hospital cost relationship. We also find that hospital procedure intensity is a key determinant of the mortality-cost relationship, suggesting that treatment intensity, and not differences in quality reflected in prices, drives much of our findings. The evidence also suggests that there are diminishing returns to hospital spending and treatment intensity.
    JEL: I12
    Date: 2012–03
  17. By: Laurence Ales; Roozbeh Hosseini; Larry E. Jones
    Abstract: In this paper we study the efficient allocation of health resources across individuals. We focus on the relation between health resources and income (taken as a proxy for productivity). In particular we determine the efficient level of the health care social safety net for the indigent. We assume that individuals have different life cycle profiles of productivity. Health care increases survival probability. We adopt the classical approach of welfare economics by considering how a central planner with an egalitarian (ex-ante) perspective would allocate resources. We show that, under the efficient allocation, health care spending increases with labor productivity, but only during the working years. Post retirement, everyone would get the same health care. Quantitatively, we find that the amount of inequality across the income distribution in the data is larger that what would be justified solely on the basis of production efficiency, but not drastically so. As a rough summary, in U.S. data top to bottom spending ratios are about 1.5 for most of the life cycle. Efficiency implies a decline from about 2 (at age 25) to 1 at retirement. We find larger inefficiencies in the lower part of the income distribution and in post retirement ages.
    JEL: H4 H51 I18 I38
    Date: 2012–03
  18. By: Daniel L. McFadden; Carlos E. Noton; Pau Olivella
    Abstract: This expository paper describes the factors that contribute to failure of health insurance markets, and the regulatory mechanisms that have been and can be used to combat these failures. Standardized contracts and creditable coverage mandates are discussed, along with premium support, enrollment mandates, guaranteed issue, and risk adjustment, as remedies for selection-related market damage. An overall conclusion of the paper is that the design and management of creditable coverage mandates are likely to be key determinants of the performance of the health insurance exchanges that are a core provision of the PPACA of 2010. Enrollment mandates, premium subsidies, and risk adjustment can improve the stability and relative efficiency of the exchanges, but with carefully designed creditable coverage mandates are not necessarily critical for their operation.
    JEL: D4 D62 I18
    Date: 2012–03

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