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Does health care spending improve health outcomes? Evidence from English programme budgeting data

  • Martin, Stephen
  • Rice, Nigel
  • Smith, Peter C.

Empirical evidence has hitherto been inconclusive about the strength of the link between health care spending and health outcomes. This paper uses programme budgeting data prepared by 295 English Primary Care Trusts to model the link for two specific programmes of care: cancer and circulatory diseases. A theoretical model is developed in which decision-makers must allocate a fixed budget across programmes of care so as to maximize social welfare, in the light of a health production function for each programme. This yields an expenditure equation and a health outcomes equation for each programme. These are estimated for the two programmes of care using instrumental variables methods. All the equations prove to be well specified. They suggest that the cost of a life year saved in cancer is about £13,100, and in circulation about £8000. These results challenge the widely held view that health care has little marginal impact on health. From a policy perspective, they can help set priorities by informing resource allocation across programmes of care. They can also help health technology agencies decide whether their cost-effectiveness thresholds for accepting new technologies are set at the right level.

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Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 27 (2008)
Issue (Month): 4 (July)
Pages: 826-842

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Handle: RePEc:eee:jhecon:v:27:y:2008:i:4:p:826-842
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505560

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  1. Gravelle, H.S.E. & Backhouse, M.E., 1987. "International cross-section analysis of the determination of mortality," Social Science & Medicine, Elsevier, vol. 25(5), pages 427-441, January.
  2. Frank R. Lichtenberg, 2004. "The Expanding Pharmaceutical Arsenal in the War on Cancer," NBER Working Papers 10328, National Bureau of Economic Research, Inc.
  3. John Nixon & Philippe Ulmann, 2006. "The relationship between health care expenditure and health outcomes," The European Journal of Health Economics, Springer, vol. 7(1), pages 7-18, March.
  4. Pesaran, M Hashem & Taylor, Larry W, 1999. " Diagnostics for IV Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(2), pages 255-81, May.
  5. Pierre-Yves Crémieux & Pierre Ouellette & Caroline Pilon, 1999. "Health care spending as determinants of health outcomes," Health Economics, John Wiley & Sons, Ltd., vol. 8(7), pages 627-639.
  6. Cragg, John G. & Donald, Stephen G., 1993. "Testing Identifiability and Specification in Instrumental Variable Models," Econometric Theory, Cambridge University Press, vol. 9(02), pages 222-240, April.
  7. Peter C. Smith & Nigel Rice & Roy Carr-Hill, 2001. "Capitation funding in the public sector," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 164(2), pages 217-257.
  8. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  9. Zeynep Or, 2001. "Exploring the Effects of Health Care on Mortality Across OECD Countries," OECD Labour Market and Social Policy Occasional Papers 46, OECD Publishing.
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