Healthcare decentralisation improves satisfaction and equity at no additional cost

Joan Costa-i-Font, 22 August 2012

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Healthcare is one of the most costly welfare services governments deliver, and very often economies of scale are not large enough to justify centralised control. Hence regions are provided with healthcare governance autonomy as a mechanism to introduce some competition into monolithic systems in need of modernisation.

An increasing number of European countries, where healthcare is a publicly financed package, are exhibiting processes of political and fiscal decentralisation (e.g. Belgium, France, Italy, Spain, and the UK). The latter is not incompatible with some recentralisation in smaller states (e.g. Norway), and where healthcare has been ill designed (e.g. Poland). Outside Europe, devolution of healthcare responsibilities (e.g., in the US) has implied a complex operationalisation and design of federal grants to encourage state actions towards efficiency and innovation (Baicker et al. 2010).

However, whether a health system should be centralised or decentralised largely depends on its design, and more specifically whether it incentivises efficiency, equity and quality (Costa-Font and Greer 2012). More specifically, it all boils down to aligning the political credit and fiscal blame for each policy within the health system, especially when patient mobility is limited (as is the case of Europe). The latter implies that budget constraints are perceived to be hard enough on the one hand, but at the same it requires expenditure mandates and restrictions to subnational government (e.g. as it is the case in Italy and Spain with framework laws) to be kept at a minimum. In Italy and Spain, national parliaments frequently invade decentralised responsibilities, and central government frequently veto regional laws, which lead to conflicts of competence (see Piperno 2000 and Costa-Font and Rico 2006). Finally, equity can be ensured through equalisation grants that can take different forms and shapes.

Decentralisation is set to fail if the central government does not decentralise the 'blame' of public policy action (taxation) and only decentralises mechanisms of credit claiming (expenditure). Similarly, it is bound to fail if regional governments are insufficiently funded, as it only gives rise to mounting subnational deficits (Lopez-Casasnovas, et al. 2005). Hence, although not all decentralisation processes will result in better health system outcomes, it is possible to evaluate some of the existing evidence on expenditure trends, equity and quality to provide an informed judgment.

Effects on health expenditure

Figure 1 plots patterns of relative public health expenditure of health systems in unitary states that have or have not decentralised the provision of healthcare to subcentral governments. Importantly, evidence on unadjusted relative health expenditure suggests that decentralised health systems do not exhibit significantly different levels of relative expenditure.

Figure 1. Relative public health expenditure by healthcare constitutional form

Source: OECD, 2011.

Effects on equity

A second question is that of health system equity. Figure 2 below compares regional inequalities in Spain, the UK and England. Importantly, regional inequalities in Spain where devolution is managed regionally have decreased by 50% since 2001, whilst in the UK we see a more modest decline but in England, a highly centralised health service exhibits huge regional inequalities, more than doubling those of Spain, which in turn appear stable over time.

Figure 2. Regional Inequalities (coefficient of variation of unadjusted healthcare output)

Effects on health system satisfaction

Finally, for decentralisation mechanisms to work, the mechanisms of the political agency need to be put in place. That is, decision makers are to be made responsive to the demands of their constituents. One way to judge the political agency is to evaluate the direction of a country's change in the overall health system satisfaction. Figure 3 displays data on the best performing health system based on such a criteria, and strikingly the three countries topping the rank, namely Belgium, Spain, and the UK, are decentralised health systems, and countries at the bottom are either centralised health systems or federal systems that have shifted to more central control of their health systems. Of course, these data are insufficient to perform an evaluation, but it is suggestive of some on going changes. Recent research (Costa-Font 2012), provides some a micro-econometric evaluation of health systems satisfaction after decentralisation.

Figure 3. Health system improvement perceptions

Question: “Compared with five years ago, would you say things have improved, got worse or stayed about the same when it comes to … healthcare provision in (our country)?”

Source: Eurobarometer, 2010.

Policy implications

In designing a health system, it is important to keep in mind that decentralisation can bring competition by making use of the mechanisms of the political agency, which align individuals' preferences, and needs with that of their incumbents' priorities. Evidence shows that it is possible to improve regional healthcare equity and health systems satisfaction without a significant additional cost to the public purse.

References

Baicker, K and J Skinner (2010), “Health Care Spending Growth And The Future Of US Tax Rates”, Prepared for the Tax Policy and the Economy Conference, 23 September.

Costa-Font, J (2012), “Evaluating the Effect of Devolution on the Health System Satisfaction: A Treatment Effects Specification”, Mimeo.

Costa-Font, J and S Greer (2012), Federalism and Decentralisation in Health and Social Care, Palgrave.

Costa-Font, J and A Rico (2006), “Vertical competition in the Spanish National Health System (NHS)”, Public Choice, 128(3-4):477-498.

Lopez-Casasnovas, Guillem, Joan Costa-Font, and Ivan Planas (2005), “Diversity and regional inequalities in the Spanish system of health care services”, Health Economics, 14(S1):221-235.

Piperno, S., 2000, "Fiscal Decentralization in Italy: Some Lessons", draft presentation at IMF Conference on Fiscal Decentralization.

Topics: Health economics
Tags: decentralisation, healthcare, public service reform

Joan Costa-i-Font

Reader in Political Economy at the London School of Economics and Political Science