Do increases in medical spending improve health outcomes? To answer this question, analysts need to quantify the net value of medical spending and measure the productivity of medical care with the output of improvement in survival and quality of life, thereby deducing for what medical conditions the “bang for the buck” is greatest and for what conditions spending outstrips gains in health improvement.

This condition-specific, quality-adjusted net value approach to health spending is known as a “satellite account for health” because it “orbits around” the national income and product accounts that include aggregate health spending to provide a clearer picture of productivity in the health sector. Thus far, researchers have applied this account to the U.S. health sector only, but it would be highly beneficial for many economies. One notable beneficiary would be South Korea, one of the most rapidly aging societies globally. Now new research by Karen Eggleston, the director of APARC’s Asia Health Policy Program, studies the link between medical spending and health outcomes in South Korea, providing evidence on the productivity of medical spending over recent decades.

The research, published by the East-West Center, develops an estimate of the net value of Korean medical spending, which has outpaced most other countries in recent decades. To generate this estimate, Eggleston compares the gains in life expectancy at birth to the increases in medical spending for 2000–2019. Data comes from Korean lifetables and medical expenditures per capita, available from the Korean Statistical Information Services.

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Eggleston shows that, even with the most conservative assumptions ($50,000 per life-year and only 10 percent of health gains due to medical care), the net value of Korean medical spending is positive and substantial. Korean life expectancy at birth increased from 76 in 2000 to 83.3 in 2019, while lifetime medical spending increased by over $19,000. The value of 7.3 additional years of life far outweighs even this rapid increase in spending, implying substantial productivity growth in Korea’s health sector.

Moreover, evidence on condition-specific spending changes and health improvements suggests that Korea’s rapid spending increases yield significant net value. Eggleston’s research indicates that improvements in survival for key conditions afflicting Koreans, such as stroke and cancer, point to productivity gains. “Korea could be a pioneer in developing a national health account that accurately measures net value by medical condition,” she writes.

Condition-specific metrics of health gain per won spent on treatment can help to guide the allocation of investments to promote longer, healthier lives. In the future, analysts could also link condition-specific improvements in survival and morbidity to earnings. Such linkage would particularly benefit South Korea, where focusing on the productivity of older adult employment is crucial given its high labor force participation and relatively low income of older Koreans.

Eggleston advocates for the Korean government to develop a national satellite account for health that can provide valuable evidence for prioritizing investments to address the country’s most pressing health challenges so that productivity improvement will contribute to longer, healthier lives. “By linking National Health Insurance and health outcome data, Korea could develop an accurate measure of medical productivity and a more accurate measure of overall economic productivity, while pioneering development of ‘health satellite accounts’ for overall populations,” Eggleston argues.

As healthcare costs for patients with non-communicable diseases such as diabetes have risen, governments and healthcare providers have sought creative measures to align financial incentives with better patient outcomes. One incentive payment system known as “pay-for-performance” (P4P), in which providers are beholden to metric-driven outcomes, represents a potential path forward for healthcare providers to improve healthcare processes, resulting in higher quality and better patient health outcomes. The evidence on the effectiveness of P4P programs, however, is mixed.

To address this uncertainty, a new study, published in The European Journal of Healthcare Economics, assesses the effectiveness, in monetary terms, of a P4P program for patients with diabetes at a hospital system in Taiwan. 

The study coauthors, including APARC’s Asia Health Policy Program Director and FSI Senior Fellow Karen Eggleston, employed new patient-level data on clinical indicators, utilization, and expenditures, combined with data from the national death registry, to better understand the costs and benefits of the P4P program. Their results show that Taiwan’s implementation of the P4P program for diabetic care yielded positive results in terms of net value, defined as the value of life years gained minus the cost of care.

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Assessing Net Value of Taiwan’s P4P

Taiwan’s Bureau of National Health Insurance (now National Health Insurance Administration) introduced P4P in 2001 and enhanced the program in 2006 with an incentive for pay-for-reporting of outcomes. Financial incentives were used to encourage continuity of care with metrics such as new patient enrollment, follow-up visits, and annual reports, each tied to a specific monetary value. The program’s features are common across P4P, so the study’s findings have implications in other settings that incorporate similar designs in their P4P programs.

The study compares two different groups of patients at a large regional hospital in Taiwan, one consisting of newly enrolled P4P patients and another using P4P patients who have been enrolled since the beginning of the program. The researchers leverage detailed clinical data not used in previous assessments of the P4P program to better identify both costs and longer-term clinical outcomes based on measured biomarkers and predicted mortality.

Using an economic cost-benefit analysis conducted from a budgetary perspective, the study is the first analysis of any P4P program that estimates changes in the quality-adjusted price index relative to usual care. The authors consider health benefits in terms of survival and predicted survival and convert them into monetary terms. This net value approach is especially useful for policymakers and healthcare administrators who implement value-based purchasing and monitor outcomes for any service delivery innovation over time.

The study finds that Taiwan’s P4P program provided a positive net value for payers and patients, ranging from $40,084 USD to $348,717 USD. These positive net value results are primarily derived from health outcomes as measured by lower mortality rates in the P4P versus non-P4P cohorts, across both newly enrolled and continuously enrolled groups of patients. According to the authors, “these encouraging findings of the positive value of quality improvement net of expenditures adds evidence to the literature that has found mixed results of P4P programs.” 

 This study develops a new model for assessing the net value of service delivery innovations like P4P programs that can be applied in other contexts globally, providing healthcare systems researchers with new tools to better understand an emergent option for incentivized care. With a more economically-translatable understanding of P4P programs, this research helps build the bridge between the oft-disparate worlds of healthcare and policy.

The Walter H. Shorenstein Asia-Pacific Research Center (APARC) is pleased to invite applications for a suite of fellowships in contemporary Asia studies to begin fall quarter 2023.

The Center offers postdoctoral fellowships that promote multidisciplinary research on contemporary Japan and contemporary Asia broadly defined, inaugural postdoctoral fellowships and visiting scholar positions as part of the newly launched Stanford Next Asia Policy Lab, and a fellowship for experts on Southeast Asia. Learn more about each opportunity and its eligibility and specific application requirements:

Postdoctoral Fellowship on Contemporary Japan

Hosted by the Japan Program at APARC, the fellowship supports research on contemporary Japan in a broad range of disciplines including political science, economics, sociology, law, policy studies, and international relations. Appointments are for one year beginning in fall quarter 2023. The application deadline is December 1, 2022.
 

This press release was originally published by the University of Tokyo. It discusses a new study, published by Lancet Public Health and co-authored by researchers from the University of Tokyo along with FSI Senior Fellow Karen Eggleston, director of the Asia Health Policy Program at APARC, and Jay Bhattacharya, Professor of Health Policy and director of the Center for Demography and Economics of Health and Aging at Stanford.

A new detailed microsimulation, using a database of 40 million people, has examined the future of Japan’s aging population up to 2043. It projects that more people will live longer, and that overall years spent living with dementia will decrease. However, the model highlighted the diversity of impacts on different segments of the population, as Japanese women with a less than high school education aged 75 and over may be disproportionately affected by both dementia and frailty. Better understanding where health gaps like this exist can help inform public health planning, to minimize future economic costs and support those most in need.

Taking care of the older members of society is a common concern around the world. Japan is famous for its long-lived residents, the number of which continues to rise. In 2020, almost 30% of the Japanese population was aged 65 years or older, and this age group is not projected to peak until 2034. Caring for people with age-related ailments, such as dementia and frailty, poses a challenge both to individuals and public health care systems.

Microsimulation models, which are computer models that can provide detailed analysis on an individual basis, are currently used to project future population health in some countries, such as the U.K. and the U.S. Professor Hideki Hashimoto and researchers at the University of Tokyo, along with researchers from Stanford University in the U.S., wanted to create a new microsimulation model for Japan, which would take into account more diverse conditions than had been considered before.

“We developed a new Japanese microsimulation model that accounts for 13 chronic conditions (including heart disease, stroke, diabetes, depression and dependency), as well as frailty and dementia,” explained Hashimoto. “Using an ultralarge data system, we were able to ‘follow’ a virtual cohort of more than 40 million people aged 60 and over from 2016 to 2043.”

According to Hashimoto, projections of aging in Japan usually rely on the “average” status of older people and so don’t consider the diversity of the population. “I believe that problems of aging are a matter of health gaps over the course of people’s lives,” he said. “Our projection brings attention to a widening health gap among older people. It highlighted that women with a less than high school education aged 75 or over are more likely to be affected.”

Identifying where health gaps like this exist could be used to better inform public policy, not only about health care but other influential aspects of life. “Japan’s case may suggest that improvement in educational attainment, as well as population health, could be a key to making a healthier and more manageable aging society,” said Hashimoto.

Positively, this study shows hope for a future where many people live longer and more healthy lives. “People might believe that an increase in cases of dementia is inescapable, given population aging. However, in this study we found that in Japan, despite an aging population, the number of people with dementia is expected to decrease over the next two decades,” said Hashimoto. “Population aging does not necessarily mean an increase of social burden for care, but it does bring a diversity of problems that requires careful study and science-based policy attention, to close the health gap.”