Hsiao, W. C. (2003)What Is a Health System Why Should We Care

What is a Health System? Why Should We Care? By William C. Hsiao K.T. Li Professor of Economics and Health Policy Harvard School of Public Health August, 2003 What Is A Health System? Why Should We Care? Abstract Health system reforms and health system comparisons have been popular topics of discussion for the policy and research communities. Yet, there is no clear concept and definition for a health system. As a result, comparisons are often made between apples and oranges, resulting in confused discourses and misleading conclusions. This paper argues that for policy and economic research purposes, it is most useful to conceptualize a health system as a set of relationships in which the structural components (means) and their interactions are associated and connected to the goals the system desires to achieve (ends). The model identifies three common goals and five means that nations use to achieve their goals. The differences in the structural components may explain the variety of observed system outcomes. Keywords: health systems comparisons, health system performance, reforms, policy model Acknowledgement The paper benefited greatly from discussions with my colleagues Peter Berman, Michael Reich, Marc Roberts, and Winnie Yip, and from the comments of the participants of the annual World Bank’s Flagship Courses since 1997. Carrie Thiessen improved the paper immensely by her insightful comments and her able research assistance. Any error remains the sole responsibility of the author. Introduction Globally, the policy and research communities have heatedly debated health system reforms. Health systems have been dissected, analyzed, evaluated and compared. However, there is no common and consistent answer to the question what is a health system? The term ‘health system’ has been defined differently for different purposes. The ambiguous concepts and meanings of a health system have caused confusion in public debate and misled policy deliberations. Policy makers have a specific interest in the development of an adequate and consistent definition that will enable them to understand what instruments (interventions) are likely to improve the performance of a health system. At the same time, they want to learn from the “better” systems to reform their own. Researchers want to investigate what structural components cause the varied outcomes. Health systems have been conceptualized and defined in various ways. Traditionally, health systems were described in terms of capacity indicators and activities (e.g. number of hospital beds, physicians and nurses, government programs.) [1], [2]. Roemer also argued that a health system should be described by five characteristics: productive resources, organization of programs, economic support mechanisms, management methods and service delivery. However, his conceptualization of health system does not adequately explain why these categories of activity matter or what difference it makes when the configuration of these characteristics varies. Hurst took a different approach, describing health systems as a series of fund flows and payment methods between population groups and institutions [3]. Both approaches are informative, but neither explains why and how a particular system produces a set of outcomes. Another body of literature presents a health system as a set of functional components. Londono and Frenk [4] argued a system consists of four functions: financing, delivery, modulation and articulation. Applying this concept to health systems 1 financed through social insurance, they proposed a new organizational model to carry out these functions. Anne Mills [5] also conceptualized health systems as loose framework of actors and functions. The functions she identified are financing, regulation, resource allocation, and service provision. While these approaches help classify and analyze a health system by its internal functions, they do not make explicit what goals the functions aim to achieve, how the functions effectuate them, how the functions interrelate, or how variations in organizing the functions affect outcomes. The World Health Organization’s World Health Report 2000 [6] defined health systems by the boundary of activities they encompass. Unlike the approaches discussed above, the majority of the Report focused on the performance (ultimate outcomes) of health systems and performance measurement. The Report described health system functions (stewardship, resource creation, service provision, and financing), emphasizing the stewardship role of the government. However, the Report did not adequately address the relationships between the key functions and health system performance. More importantly for policymakers, it does not explain why a particular system yields a given outcome, what features of that system contributed the most to producing the outcome, or how one could restructure the system to achieve a preferable outcome. To investigate this why and how, health economists have largely applied economic theories of supply and demand to model and analyze actions in the various markets that comprise the health system [7], [8]. A health system can be conceptualized on at least two levels: macro and micro. The macro-level focus is on overall dimensions of health sector, the total size, shape, and functioning of the “elephant,” that is the health sector, while the micro-level explores behavior and dynamics of individual firms and households [9], [10]. Ideally, the aggregated behavior of individual households and firms predicted by microeconomic theory would explain macro-level phenomena. However, at least a dozen markets compose the health sector, and the interactions among them are not well understood or adequately studied. Consequently, microeconomic theory has offered little insight into or explanation for macro-level outcomes such as overall health status 2 [11]. Moreover, microeconomic theory has not been able to offer adequate explanations for major structural features that are common to most health systems and that influence macro-outcomes. This paper’s objective is to develop an analytical framework that models the systemic aspects of a health system, i.e. the major components of a health system that are related and can explain aggregate outcomes. Stated another way, it is a causal model whose major components (i.e. explanatory variables) can largely account for observed outcomes (i.e. dependent variables). Such a model can assist us in understanding the major factors that may explain varied system outcomes, provide a framework to compare health systems and test hypotheses, and offer instruments for policymakers to manage their health systems’ performance. The paper represents the culmination of several years of research, initiated a decade ago [12], [13], [14], [15] and builds upon the work of other researchers. The paper is organized in four sections. The first section examines the fundamental principles used for modeling health systems. Applying these principles, we clarify and answer the question, “what is a health system?” Section II presents the final goals of a health system. The next section discusses the five fundamental structural components of a health system in some detail. The last section summarizes how this model can assist policymakers, researchers and the public engaged in the search to structure better health systems. I. What is a Health System? Health systems, like other socioeconomic systems, evolve in unique historic, cultural and political contexts. Nonetheless, every system is structured by state actions or non-actions to serve certain social purposes. The system exists and evolves to serve societal needs. Simply put, a health system is a means to an end. Applying a long- standing paradigm in industrial organization economics, we hypothesize that the structural components of the system affect the behavior of individuals and firms in that 3 system, and that their behavior and interactions determine the observed outcomes. Under this paradigm, a health system is a set of relationships in which the means (i.e. structural components) are causally connected to the ends (i.e. goals.) In this context, then, we have to analyze the goals and structural components of a health system. What goals do nations want their health systems to achieve? A myriad of programmatic goals has been discussed in the literature. Every evaluation study of health programs specifies the goals by which the program will be assessed. However, goals are heterogeneous, depending on the purpose of a program. Some programs seek to increase average health status, some to maximize efficiency, some to prevent impoverishment, some to improve quality of service. They are not all ultimate goals. Some are intermediate outcomes or some pertain only to a selected disease or population. At the systemic level, we must clarify what ultimate outcomes matter to a nation and distinguish them from intermediate outcomes. While the latter are important and can affect the final outcomes, they are only intermediary and partial results. We examined multiple countries’ health-related legislation, policy papers, and reports to identify the explicit and implicit goals of their health systems. The goals thus identified are: improving health, financial risk protection, and public satisfaction. As for the means, there are many possible structural variables that have some power to explain observed outcomes. How can we sort out which ones are essential and which ones are peripheral? We use three criteria. First, since our aim is to develop a model that is useful for policy analysis, we will examine and select only those structural variables that can be altered by policy. Because we are developing an ends-oriented model, we focus on the elements that can be used as policy instruments to achieve societal goals for the health sector. We exclude those variables that cannot be changed except in the long term, such as culture. Finally, taking advantage of many nation’s policy “experiments” to improve their health system’s outcomes, we identify plausible explanatory variables based on empirical observations. The key means, which we call 4 control knobs, include financing, payment, macro-organization of health care delivery, regulations and persuasion. In sum, a health system, defined for policy purposes and economic research, is a set of relationships in which the primary variables are causally associated and linked with the outcomes. We limit the variables to those that can serve as policy levers. Using this set of criteria, we propose a new health system definition. “A health system is defined by those principal casual components that can explain the system’s outcomes. These components can be utilized as policy instruments to alter the outcomes.” We adopt the WHO’s description of the boundary of the health system as “all the activities whose primary purpose is to promote, restore, or maintain health.” [6]. II. GOALS Health Status What socioeconomic ends are served by health systems? Despite the fact that nations structure their health care systems very differently, most nations do share certain basic beliefs: one, good health is of intrinsic value to people; and two, certain health services are necessary to sustain life and to relieve intense suffering. Although some researchers have argued that health maximization should be considered the sole goal of a health system [16], there is now consensus that health systems have multiple purposes. We have identified two additional health systems goals common to most countries. Financial Risk Protection The first of these is financial risk protection. National health insurance systems explicitly places risk protection as a final goal. The earliest health insurance systems 5 such as the German krankenkassen began as a facet of national program to minimize the risk of absolute impoverishment among the working class due to disease, disability, and unemployment [17]. National Health Service systems implicitly offer risk protection by providing free (or nearly free) expensive ambulatory and hospital services. The British National Health Services can trace its roots to the Poor Law of 1911 [18]. The Beveridge Report, which provided the framework for the NHS, recommended the development of a social insurance scheme to provide a “minimum income needed for subsistence in all normal cases” [19]. Many countries include “affordability” as a policy objective of the health system. The affordability of a good is defined by the consumer’s ability to purchase it without excessive financial burden. Health care is characterized by uncertainty of high medical costs, hence affordability is determined by the extent of the insurance function of the health system. Therefore, countries’ “affordability” objective is more properly defined as the goal of attaining adequate financial risk protection for citizens. Instead of risk protection, the WHR identified “fairness of financial contribution” as a health system goal [6]. Fairness of financial contribution measures the share of households’ non-food expenditure spent on health. It does not assess whether services are affordable to the poor or how well all citizens are protected against financial catastrophe. On the other hand, financial risk protection is precisely what concerns most countries. As a result, recent international research focuses on financial risk protection as a basic health system goal [20]. Public Satisfaction It’s self evident that public satisfaction is a goal for political leaders and policymakers of democratic societies. Even leaders of authoritarian states have to satisfy the public in the long run. Economists often call this goal individual utility improvement [21]. Governments are increasingly cognizant of the fact that the stability of the health system is not assured without adequate public satisfaction. Blendon et al [22] concluded that public dissatisfaction with health system performance contributes to political 6 pressure for health system reform: dissatisfaction with the status quo is highly correlated with public opinion that the health care system requires fundamental change or complete overhaul. Governments have also relied on opinion polls to guide its policy decisions. When the British National Health Services was debated in 1942, Beveridge stated: “This desire is shown both by the established popularity of compulsory insurance, and by the phenomenal growth of voluntary insurance against sickness, against death and for endowment, and most recently for hospital treatment. It is shown in another way by the strength of popular objection to any kind of means test.” (emphasis added, [19]) More recently, UK explicitly undertook reforms to make services patient-centered and implemented plans to monitor patient attitudes with surveys and focus groups. (NHS, 2000). At the same time, private insurance providers have adopted patient satisfaction (and patient experience) as performance measures [23]. The WHR rejected satisfaction as a health system objective, arguing that satisfaction confounds expectations with accurate assessment of the present circumstances [24]. However, this component of expectation in public satisfaction is precisely what helps defines the goals toward which reform is oriented. The role of equity Equity is widely defined as a health system objective, often expressed in terms of “universal equal access to health care.” We consider it a principle be applied to the achievement of the three goals of health status, financial risk protection, and consumer satisfaction. In sum, there are two dimensions to each of the three goals: level and distribution. We can illustrate these declared goals in Fig. 1, noting that these objectives go beyond the usual concerns of economic analyses that tend to focus exclusively on efficiency and remain silent on equity [25]. 7 Fig. 1 around here The goals are not entirely independent of each other. Greater achievement in one goal may further another; likewise, poor performance in respect to a goal may limit ability to attain another. For example, Blendon et al. conclude that inadequate financial protection is one of the primary causes for public dissatisfaction with the American health care system [22]. All nations’ common objective is to achieve multiple goals with a given resource constraint. Every nation must make difficult trade-offs when it wants to achieve multiple objectives with limited resources. A nation wrestles with two types of trade-offs: inter- sectoral and intra-sectoral. First, a nation has to make trade-offs between health-system goals (e.g. improving the health status of the population) and other economic, political and social goals (e.g. providing education for all children). Consequently, the level and distribution of health status, financial risk protection, and consumer satisfaction depend, in part, on a nation’s economic resources. In common parlance, it depends on what is affordable. The second type of trade-off takes place when a nation tries to achieve different goals within a health system. For example, on the margin a nation has to make trade-offs between health status and public satisfaction (e.g. no waiting lines.) But rarely do nations make these inherent trade-offs explicit. Historical processes and fundamental social values create implicit boundaries to trading off different objectives, limiting the range of available reform options. Health care systems in European nations, for example, are deeply rooted in egalitarian traditions. Policy proposals violating this basic foundation of solidarity have little overall appeal regardless of how much they would enhance efficiency [26]. On the other hand, the health care system of the USA is rooted in libertarian traditions. Compulsory health insurance to cover all Americans remains elusive after more than sixty years of public debate [27]. We often confuse intermediate outcomes with the ultimate goals we care about. Targeting health polices and programs to improve access, quality and/or efficiency are 8 important, but they are of derivative importance to the ultimate goals of a health system. We are interested in pursuing higher technical quality of health services because it has a positive effect on health status. Improving service quality of health services is desirable insofar as it affects patient satisfaction and health outcomes. Maximizing allocative efficiency enables improvements in health status and risk protection under budgetary constraints. Ultimately, a nation’s success in attaining these intermediate outcomes should be assessed in terms the extent to which they contribute to the final outputs. Fig. 2 illustrates the relationship between means, some intermediate outcomes and final goals of a health system. Fig. 2 around here III Control Knobs (Means) Many nations have tried different policy “experiments” to improve their health systems’ performance. These ‘natural exper