Spending on health care: When is enough, and how do we know?Prof John Appleby

Chief economist

King’s Fund

Wanless UK spending recommendations

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Ever increasing spending?

• Sir Derek Wanless suggested that after a period of ‘catch up’ just need to ‘keep up’ with our EU neighbours

• This implied some flattening off of spending as a proportion of GDP at around 11%-14%

• The implication is that by 2023 we will be spending ‘enough’• But if history (and the experience of other high spend countries) is

anything to go by, we know that pressures to spend even more will be unabating.

• Arguing for more money will no longer be a case of saying we have to keep up with the Jones’s – or the Chirac’s, or the Merkel’s…

• So what’s the future for health care spending? And how might we make decisions about the share of national wealth we devote to health?

Total UK health care spending as a percentage of GDP

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30% of GDP on healthcare…and more on everything else?

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“[The Technical Review] Panel does not view a 1% excess health care spend growth as

implausible”

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Spend more – a lot more – but why worry?

• Apart from the need for higher taxes, living with a reduced consumption of non-health care goods and services and a doubling of health employment (and a consequent overall fall in productivity in the economy)…no need to worry….

• …but only if health care were like any other private good bought and sold in private markets.

• We don’t fret, for example, about the total UK spend on shoes, or cars, or even food. Total spend is the sum of many individual private spending/rationing decisions.

• But tax funded health care spending has to be determined top down, not bottom up.

• Therefore judgements have to be made about total spend, and the private rationing decision becomes a public rationing decision.

Three spending questions

• Why does spending grow?

• Why limit spending?

• Can a limit be set?

1: Why does spending grow?

• Income growth (national and personal)?

• Ageing populations?

• SID?

• Technology?

Two estimates of causal factors accounting for growth in real per capita US health care spending:

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inflation

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expenses

More wealth, more health care spend…

R2 = 0.66

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2: Why limit spending?

• Obvious limits given scarce resources

• Some spending unethical

• Some spending not medical

• Value of benefits of additional spending not worth it

3: Can a limit be set?

• Standard economic evaluation approach…

• Simple rule: Stop spending on health care when more benefits could be obtained from other forms of spending…but begs some questions…

• What does the relationship between spending (or costs) and returns (or benefits) look like?

• Where are we on the cost-benefit curve?

• How might the relationship between costs and benefits change?

Health benefits

Health spend

Increasing returns

Decreasing returns

Negative returns

Marginal returns

Total returns

Cost-benefit relationship almost certainly looks like..

Benefits of spending

• Where are we on the curve?

• What is the potential for shifts in the curve?

• What are the ‘benefits’ we want from health care investment?

• What value do we place on different types of benefit?

Where on the curve?

• Some evidence that we are near the ‘flat’ of the curve (eg returns of pharmaceutical spending; cross-country relationship between health and spend; Nolte and McKee work on ‘amenable’ conditions)

Health benefits

Health spend

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More spending….better health?

Contribution of ‘amenable’ conditions to increases in life expectancy has declined

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MEN WOMEN

More (and different) things for our money?

• Higher productivity? Bigger bangs per buck?

• More emphasis on other benefits: eg speedy access, responsiveness, quality of life, pain reduction, a ‘good death’?

• Higher values placed on these benefits (cf: DH/York/Gravelle: 1.5% addition pa)?

Health benefits

Health spend

What has recent extra spending produced?

• Higher wages, cost pressures

• Quicker access

• Modest increases in activity

• Better ‘quality’?

• But, little or no information on the value of gains (such as reduced waiting times: DH/York productivity study => very little value from reduced waits)

• And little or no information on the costs of achieving these gains

Of the £3.6 billion cash increase in 2005/6 for the hospital and community health services in England, 87% was absorbed by

higher pay and other cost pressures

Available for other developments

£475m

Pay £1860m

Non-pay£209m

Clinical negligence£135m

Drugs and NICE recommendations

£602m

Capital costs£248m

Other£115m

Can a limit be set?

• UK moving into big league spending

• EU trend is upward

• Controlling spending becoming more of an issue for the UK (as it is in France, Germany and many other high spend countries)

EU weighted average spending projections

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Wanless 2022/3 scenarios

Can a limit be set?

• More spending not inherently ‘bad’

• But, increasingly pressing need for evidence on both sides of the cost/benefit equation to justify higher spending

• Public attitudes suggest NHS spending still a priority (cf BSA surveys)

Health: First or second priority for government spending

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Can a limit be set?

• Attitudes are important, but if the public could vote on the size of the health care budget, what information should they consider in arriving at a view?

• …costs and benefits…

• This takes us back to the relationship between spend and benefits,

where we think we are on the curve, and how the relationship might change in the future….

• But we have only a tenuous grip on the answers to these questions..

Conclusions

• Central theme: need to develop a rational, evidence-informed process for arriving at sensible limits to health care spending.

• Some conclusions:– Strengthen the knowledge base

(eg estimate costs and benefits of programmes of care (and policies such as choice cf: impact of statins (0.81% pa on

NHS output), quantify valuation of benefits, measure health as it is produced by the NHS, extend NICE’s role)– Change the policy framework

(eg DH: give up sponsorship role for pharma industry, ensure publicly funded research programme supports NICE role,

ensure incentives do not inappropriately add to spending pressures where benefits not justified)

Conclusions

• Recognise that health care is not the only (or perhaps main) route to better health

• Face up to the fact that more spending is only worth it if we are prepared to make the sacrifice involved:

– More public spend means higher taxes/less spending in other areas

– More private spend means less equitable access/health

Benjamin Franklin: 1706-1790

There are two certainties in life: death and taxes

Who said economics was a dismal science!