5.15. The current programme of work of the OECD includes the development of output-based PPPs for health goods and services. The objective is to provide a tool for the comparison of the volume of health expenditure in OECD and EU countries. It also contributes to the broader purpose of deriving economy- wide PPPs for international comparisons of volume GDP.
5.16. There are numerous problems in collecting information that can be used for the development of output-based health-specific PPPs. One such problem arises because the production of many health goods and services are non-market activities. That is, the price of the good or service is not economically significant and cannot be used to represent either the marginal costs of production or the marginal social
34 The procedure is the EKS method, named after the three individuals who independently advocated its use:
Èltetö, Köves and Szulc. EKS refers to a procedure whereby any set of intransitive binary index numbers are made transitive.
The procedure is independent of the method used to calculate the intransitive binary indices. But, as used in this chapter and in most literature on the subject, EKS covers both the way the intransitive binary PPPs are calculated and the procedure to make them transitive and multilateral.
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value35. This may also be true of health goods and services which are provided by market producers
because many health expenditures are subsidised by social insurance. Thus, reliable information on prices of health goods and services is often very difficult to obtain and often not available.
5.17. Aside from the lack of significant price information, the complexity and variety of health goods and services means that it is often difficult to ensure that the same goods and services are being compared across countries. This problem was evident in the EU HealthBASKET project where there is a problem with comparison of DRGs because the mix of interventions which makes up a DRG can vary. Mechanisms for remuneration of general practitioners (or family physicians) across countries can vary and may be based on salary, capitation or fee-for-service. The different remuneration patterns create different incentives so that the service received from a salaried doctor may be quite different to that received from a doctor who raises a fee for each service rendered. Thus, institutional differences in the organisation of health services potentially lead to different prices (where they exist) but also differences in both the quantity and quality of the service received.
5.18. This chapter focuses on hospital services because of the large share of total health costs that are consumed by hospitals and the measurement difficulties outlined above. In particular, market prices are in general more available for health products other than hospital services.
5.19. As a starting point, the proposed approach relies on comparing hospitals in terms of the volumes and type of activities they produce without explicit quality adjustments. This means that the same well- specified health service is assumed to be delivered with the same level of quality. That is, “one is (also) implicitly assuming that there is no difference between organisations in the effectiveness with which they implement the procedures” (Jacobs, 2006: 27).
5.20. One of the major consequences of the absence of markets for hospital services is that there are no prices to reveal patients’ marginal valuations of health care outputs. Thus, in line with the literature (e;g., Castelli, 2007; Triplett, 2003) it is proposed to use costs to value output.
5.21. An important decision in the study design relates to how specific the description of output (i.e. cost object) should be for the hospital products to be comparable across countries. In order to identify, measure, and value products, three options could be used, each involving different strengths and weaknesses:
− Per patient. A case of hospitalisation is the cost object. A profile of care and a profile of costs is estimated “bottom-up” at patient level. A similar approach was proposed and used in the HealthBasket project funded by the European Union (Schreyogg, 2005), and proved to be feasible for 10 common care episodes (including five in the outpatient and five in the inpatient setting) from 9 countries. However, the approach presents a high variability of unit costs per case among countries; it is based on standard cost, which often needs an ad hoc detailed data collection; and it is difficult to ensure that the data are representative within and across countries. More important, “micro-costing requires substantial resources, the amount of which may exceed the benefit of this approach” (Schreyogg, 2008).
− Per diagnosis or procedure category. The output is defined as simple aggregations of cases that have been coded: each inpatient case is assigned to a category on the basis of a list of codes that correspond to the disease or intervention. An example is provided in the Hospital Data Project funded by the European Union (Magee, 2003). The project aims to maximise the
35. A price which is not economically significant is deliberately fixed well below the equilibrium price that would clear the market.
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statistical comparability of hospital activities, using data routinely collected by countries and mapping tables from local procedure coding schemata to ICD-9-CM codes. A major limitation is that the project focuses only on the product identification and measurement phases, and the match of the product categories with the costs incurred to provide those services is not within its scope.
− Per group (e.g. Diagnosis Related Groups). The DRG system represents a classification of hospital activity (i.e. case-mix) based on relatively homogeneous cases. Each inpatient case is assigned to a DRG on the basis of the diagnoses, procedures, age, and discharge disposition information available in the minimum basic data set for acute inpatient care. For inpatient hospital services (Berndt, 2000:143-144) “DRGs represent the beginning of a structure which could facilitate defining, measuring, and pricing the output of medical care providers…in particular (they) involve the treatment for an episode of hospitalization for a particular condition/diagnosis. Instead of pricing each of the components of a hospitalization, with DRGs the complete bundle of hospital services is given a single price”. They are currently used as the pricing unit for inpatient hospital services in the estimation of the Producer Price Index and the CPI by the Bureau of Labor Statistics (Cardenas, 1996). DRG unit costs and cost weights (i.e. relativities in terms of resource consumption) are also determined from a series of specific cost finding studies and used as a basis to set prices at national level. These studies are undertaken mostly by a sample of hospitals every two years using specific costing guidelines (Department of Health of the U.K., 2008; Australian Government, 2006).
5.22. In time series comparisons, within country consistency of measurement is necessary. Thus country specific taxonomies, such as DRG systems, may be used. In cross country comparisons, however the product descriptions must be as consistent as possible. As most DRG systems tend to have country specific modifications, using DRGs for comparison purposes is problematic.
5.23. In light of testing the feasibility of applying the methodology at country level, the OECD has designed a qualitative questionnaire to verify data availability at hospital level to feed into the proposed methodology and to identify differences which may be controlled for in the PPPs estimation process. Annex B describes the results of the questionnaire that was filled out by OECD member states, and non OECD-EU countries in 2008.
5.24. Despite the widespread use and availability of case-mix measurement (European Hospital and Healthcare Federation, 2006; Roger France, 2003), there are a number of problems with using DRGs.
• There is no international DRG system although there is a connection between many of the classifications which make partial harmonisation possible36. There has been some work done on comparability of DRG systems (see for example Schreyogg et al., 2006);
36 A necessary first step for in the development of an international DRG system is the development of an International Classification of Health Interventions (which could then be used to group different type of treatments in some more concise international DRG system). The development of an International Classification of Health Interventions (ICHI) was discussed at the 2006 meeting of the WHO Family of International Classifications (WHOFIC). Given the feedback received on the beta field tests of an early version of the ICHI (which was based on a simplified version of the Australian Classification of Health Interventions), it was recognised that the overall construction of an ICHI needs to be revisited and there is a need to start to develop a new ICHI. This developmental work is expected to be carried out by a Work Group reporting to WHOFIC, and it can be expected to take several years (at least 5 years) to come up with such a new international classification system. To illustrate the magnitude and complexity of the task, the Canadian Classification of Health Interventions contains no less than 18,000 different codes and the numbers are similar in other classifications such as the French Classification Commune des Actes Médicaux (CCAM).
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• Some OECD and EU countries have not implemented a DRG system;
• Some countries have applied the DRG system to a limited number of hospitals;
• Not all inpatient services are included. For example, they have not been designed for psychiatric hospitals and institutions and other types of chronic or long-term care.
5.25. This chapter adopts an approach that uses the strengths of options two and three described above. It uses diagnosis and procedure categories to identify products, secondary data sets containing patient level coded information to measure products, and official unit costs data bases to attach a value to products. That is, it identifies products in terms of case types (i.e. categories) for which unit costs are available through national cost studies carried out to calculating payment rates for DRGs37.