The Economics of eHealth (I)

December 25, 2010

Lately, I have been reading and checking the research literature¬† about Health economics and ICT . This is the first post of a collection about this topic. Soon I’ll be sharing with you all my notes.

The Economics of eHealth (I)

Health economics, an applied field of economics, draws its theoretical inspiration principally from four traditional areas of economics: finance and insurance, industrial organisation, labour and public finance (Fuchs, 1997). Culyer and Newhouse, editors of the Handbook of Health Economics (2000), developed a schematic of Health Economics based on a first approach developed by Williams (1987).

Health Economics Scheme

Culyer and Newhouse (2000) stated that Box A contains the conceptual foundation; Box B is concerned with the determinants of health; Box C concerns the demand for health care while Box D contains the supply-side economics. These four boxes are the disciplinary “engine room”. On the other hand, the four peripheral boxes E, F, G and H are the main empirical fields of application. Box E deals with the ways markets or quasi-markets operate. Box F is more specifically evaluative and normative. Box G focuses on the great variety of health care delivery institutions, insurance and reimbursement mechanisms and the various roles played by different agencies. Box H is concerned with the highest level of evaluation and appraisal across systems and countries.

Within this broad scheme health economists have started to tackle the landscape of ICT in health systems. Investments in ICT in health care are greater than they have ever been, and in most countries, not less than 2.6%-6% of health budgets are dedicated to ICT. These investments are being presented as a means to improve productivity, quality of health and/or system efficiency (Lapointe, 2010). Case studies reported by OECD (2010) stated that ICT implementation benefits could be grouped according to four inter-related categories of objectives: (1) Increasing quality of care and efficiency; (2) Reducing operating costs of clinical services; (3) Reducing administrative costs and (4) Enabling entirely new modes of care. Therefore, ICT in health systems affects the disciplinary “engine room” of health economics, due to its impact on health care demand and supply, as well as the main empirical fields of application.

Lessons learned from these case studies pointed out that successful implementation and widespread adoption are linked to the ability to address three main issues: (1) Alignment of incentives and fair allocation of benefits and costs; (2) Lack of commonly defined and consistently implemented standards; and (3) Concerns about privacy and confidentiality.

Within this context OECD (2010) claimed that Governments could provide motivation for high-performing projects through targeted incentives and also occupied a central position as initiator, funding provider, project facilitator, and neutral convener, playing a special role to encourage the utilization of standards to reach a common goal. Furthermore, the main findings of this study could be summarised as follow: (1) Establish robust and coherent privacy protection; (2) Align incentives with health system priorities; (3) Accelerate and steer interoperability efforts; and (4) Strengthen monitoring and evaluation.

However, it is worth pointing out that this study mentioned an absence, in general, of independent, robust monitoring and evaluation of programmes and projects to determine the actual payoff from the adoption and use of ICT. Due to the special characteristics of ICT market, Christensen and Remler (2007) mentioned that the main barriers to ICT adoption in health sector (low product differentiation, high switching costs in replacing technologies, and lack of technical compatibility of all the different components of ICT) explained why it lags behind other sectors in ICT adoption, even though the centrality of information exchange in the care process and its usefulness in management, accountability, research and financial transaction (Street, 2007).

A particular problem in health sector is that there is no measure of performance analogous to profits from private sector firms, and health care organisations tend to pursue multiple objectives. Furthermore, ICT implementation may have effects that are multidimensional and often uncertain in their reach and scope, and difficult to control. In addition, the realisation of benefits from ICT implementation strongly depends on contextual conditions (Street, 2007). On the one hand, these difficulties are further exacerbated by data limitations, definitional problems and lack of appropriate sets of indicators on adoption and use of ICT comparison. On the other hand, dimensions related with measurement errors, time lag, redistribution and mismanagement of ICT are being pointed out within the application of “productivity paradox” (Brynjolfsson, 1993; Brynjolfsson & Hitt, 1998) into health care. These dimensions are essential to understand the competitiveness and profitability of health care organizations investment in ICT (Lapointe et al., 2010).

There has been a significant and growing debate internationally about whether or not these much touted benefits and savings are gained or, indeed, even measured (OECD, 2010). This debate has been supported decision makers to belief that clear profitability has not been demonstrated (Meyer, 2010). The need to accurately quantify the added value of ICT in health care sector has reached a critical requirement level (Meyer, 2008).

To understand the real impact of ICT within health care adopting a single analytical approach is inadvisable and that insight into the overall effects of ICT is best gained from consideration of a mix of study types (Street, 2007). Empirical studies into the impact of ICT could be grouped into four broad categories: (1) Aggregate analyses that take a macro perspective by looking at the economy as a whole; (2) Industry or sectoral level analyses that focus on specific industries or sectors within the economy; (3) Firm or organisational-level analyses and (5) Case studies that focus on specific examples of ICT (Street, 2007).

Due to the characteristics of health sector below mentioned applying an aggregate analysis or a sectoral level analysis remains difficult. Street (2007) has summarised the key advantages and challenges associated with each analytical approach:

Summary of the key advantages and challenges associated with each  analytical approach

All the references cited could be found at my online personal reference manager.