Efficiency and equity consequences of decentralization in health

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w w w . e l s e v i e r . p t / r p s p

Original

article

Efﬁciency

and

equity

consequences

of

decentralization

in

health:

an

economic

perspective

Joana

Alves

a,∗

_,

_Susana

_Peralta

b

_,

_Julian

_Perelman

a

a_Escola_Nacional_de_Saúde_Pública,_Universidade_Nova_de_Lisboa,_Lisboa,_Portugal b_Nova_School_of_Business_and_Economics,_Universidade_Nova_de_Lisboa,_Lisboa,_Portugal

a

r

t

i

c

l

e

i

n

f

o

Articlehistory:

Received17September2012 Accepted21January2013 Availableonline10July2013

Keywords: Decentralization Efﬁciency Equity Healtheconomics Incentives

a

b

s

t

r

a

c

t

Overtherecentyears,decentralizationhasbeenadoptedinmanyhealth systems.The questionhoweverremainsofwhetherlocalactorsdobetterthanthecentralgovernment. Wesummarizethemaininsightsfromeconomictheoryontheimpactof decentraliza-tionanditsempiricalvalidation.Theorysuggeststhatthedecisiontodecentralizeresults fromatrade-offbetweenitsadvantages(likeitscapacitytocatertolocaltastes)andcosts (likeinter-regionalspillovers).Empiricalcontributionspointthatdecentralizationresultsin betterhealthoutcomesandhigherexpenditures,resultinginambiguousconsequenceson efﬁciency;equityconsequencesarecontroversialandaddresstherelevanceofredistribution mechanisms.

Consequências

em

eﬁciência

e

equidade

da

descentralizac¸ão

na

saúde:

uma

perspetiva

económica

Palavras-chave: Descentralizac¸ão Eﬁciência Equidade Economiadasaúde Incentivos

r

e

s

u

m

o

Apesardemuitossistemasdesaúdeteremoptadorecentementepeladescentralização, ficapor esclarecer seos governoslocaistêm um melhordesempenho doqueos cen-trais.Esteartigosumarizaosprincipaisresultadosdateoriaeconómicasobreoimpactoda descentralizaçãoeasuavalidadeempírica.Adecisãodedescentralizarresultaduma arbi-tragementreasvantagens,comoaadaptaçãoàspreferências,eosinconvenientes,comoas externalidadesinter-regionais.Osestudosempíricossugeremqueadescentralização per-miteganhosemsaúdemastambémdespesasmaiores,comconsequênciasambíguasem termosdeeficiência,equeasconsequênciasparaaequidade,sendocontroversas,indicam arelevânciadosmecanismosderedistribuição.

∗ _{Corresponding}_author.

E-mailaddress:joana.alves@ensp.unl.pt(J.Alves).

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rev portsaúde pública.2013;31(1):74–83

75 Introduction

Overtherecentyears,decentralizationhasbeenoneofthe mainreformsadoptedinmanyhealthsystems.Strong deci-sion power of sub-central governments already existed in Scandinavian counties and in federal states like Canada, SwitzerlandandAustralia1_;_the_most_recent_devolution

pro-cesseshavebeenobservedinNHSsystems,namelyinSpain andItaly(towardregions),andtheUK (towardWales, Scot-land,NorthernIreland).Inafewwords,moredelegation to localauthoritieswasexpectedtoimprove servicesthrough a combination of better knowledge oflocal needs, prefer-encesandproviders’characteristics,higheraccountabilityof policy-makersandefﬁciency-enhancingcompetitionamong jurisdictions.

These expected beneﬁts are however far from obvious and the major question forpolicy-makers and researchers remains,that is,whether localactorsreallydobetterthan thecentralgovernment.Putdifferently,theissueiswhether decentralizationallowsfortheprovisionofbetterand equi-table health services to all citizens at an acceptable cost. Oates2_was_the_ﬁrst_one_to_suggest_that_the_decision_to

decen-tralizeresultsfrom atrade-offbetween itsadvantagesand costs.Whetherthebenefitsactuallyoutweighthecosts–the efficiency issue – is ultimately an empirical question. The literaturehas mainly focusedon overall efficiency by esti-matingtheimpactofdecentralizationoneconomicgrowth.3,4

Anotheralternativeistomeasuretheimpactof decentraliza-tiononsectoralpolicies.5_{Decentralization}_of_health_policies

isrelativelyrecent;theliteratureisstillscarceandoften pro-videscontradictoryresults.Wesummarizethemaininsights fromeconomictheory ontheimpactofdecentralizationof healthpolicies, and wereview empiricalstudies that have testedsomeofthesetheoreticalassumptions.

Institutional

context

Decentralization in health care can adopt many different forms.Followingthetypology proposedbyVrangbaek,6_our

maininteresthereisindevolutionorpoliticaldecentralization, throughwhichpoweris“decentralizedtolower-levelpolitical authoritiessuchas regionsor municipalities”.Other forms ofdecentralizationare also possiblewhich are beyondthe scopeofthepresentpaper.De-concentrationand bureaucra-tizationinvolvetransfersbetweenadministrativelevelsand frompoliticaltoadministrativelevel,respectively(thinkfor exampleinthePortuguesecontext,oftransferofcompetences toRegional HealthAuthorities).Decentralizationalsorefers todelegation,whichinvolvestransferringpowertomoreor lessautonomouspublicorganizationmanagement(like pub-licenterprises,forexample the “hospitalsS.A” inPortugal, FoundationTrustsintheUKorpublicinsurancecompanies inBismarckian-typehealthsystems).Privatizationitselfcan beconsideredasaformofdecentralization.

Ourfocushereisthusonthetransferofpoliticalauthority inthehealthareafromhighertolowerlevelsofgovernment orfromnationaltosub-nationallevels.7_Regional,_provincial

ormunicipalelectedgovernmentsmaythusberesponsiblefor

planning,organizing,deliveringandﬁnancinghealthservices. Multiplearrangementsarehoweverpossibleanddevolution hastakenmanydifferentformsacrossOECDcountries(fora completemappingofdecentralizationexperiencesinEurope, see Bankauskaiteet al.8_). _The_size_of_{decentralized}_entities

is highlyvariable,from small counties in Sweden(average population31,000)tolargeautonomousregionsinSpain (aver-age population 2,444,000). The extentof competencesalso varies.Thecentralstatemaykeepresponsibilitiesinseveral domains,forinstancetheCanadianFederalstatedefines poli-ciesregarding healthpreventionand promotion, the Swiss Confederationdefinesthebasichealthbenefitpackage,and generally allcentral statesimposea seriesofmoreor less stringent regulations on quality, supply, coverage, pricing rules orbudget allocation.Akey issuewhichdifferentiates decentralizationexperiencesrelatestothefundingofhealth expendituresandfinancialautonomy.Decentralized govern-mentsmayhavethepowertoraisetaxes,orreceivetransfers dependingontheircontributiontofiscalrevenues.Theymay then befree to set the budget allocated to health and its distribution amonghealth sectors.By contrast,sub-central government levels may be financed by transfers based on risk-equalization schemes and benefit from low autonomy in defining taxrates. In the lattercase, decentralized gov-ernmentsmaythushavethepoliticalpowertodecideabout allocation of resources but do not control the amount of availableresourcesforhealth.Hencetheexpendituresideis decentralized,butrevenueisnot.

Fig. 1, extracted from Joumard et al.9_, _nicely _describes

the degreeofdecentralizationin healthinOECD countries (wherea0scoreimpliesthatcentralgovernmenttakesmost ofkeydecisionswhilea6scoreimpliesresidualcompetences forthe centralgovernment). Countrieshaveheterogeneous sub-centralgovernments,withdifferentsize,autonomyand responsibilitiesallocated.Thecriteriatodeﬁnethisscorehave beenestablishedbyParisetal.10_,_using_a_survey._They_include

inparticularthesub-centralgovernments’authorityon set-ting tax bases and rates, the budget allocation for health anditsdistributionbetweenhealthsectors,theﬁnancingof different health services and practitioners and the setting ofpublichealthobjectives.Spain,Canada,Finland,Sweden andSwitzerlandhavehigherautonomyofsub-central govern-mentswhilePortugalisamongthecountrieswiththelowest healthdecentralization.

Notethatthedecentralizationquestion,thewaywepose it(devolutionorpoliticaldecentralization),ismorecommon inNHS-typehealthsystems.Thesesystemshavebeenusually characterizedbyhighlycentralizeddecision-making,withone singleinsurer/payerandprovider(thecentralstate),and lit-tleautonomygiventoproviders.Bycontrast,healthsystems basedonsocialinsuranceschemeshavebeen usually char-acterized,tovariousextents,bymultipleinsuranceschemes and some degree of publicly subsidized private provision. Hence,transferringpowertolocalinstitutionshascertainly respondedtoademandformoreautonomyinmorerigid NHS-typehealthsystems.

Spain,CanadaandItalyareparticularlyrelevantcasesto understandtheempiricalliteraturebecausetheconsequences of decentralization in health have been more extensively analyzed. The most decentralized country according to

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LUX NLD TUR ISL BEL SVK PR

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HUN CZE DEU POL MEX JPN IT

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DNK NZL AU

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GBR NOR AU

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SWE CHE FIN CAN ESP Fig.1–DecentralizationscoreforOECDcountries(extractedfromJoumardetal.9_).

Joumardetal.9_is_Spain._The_central_government_provides_the

generalframeworkandcoordinatesthehealthsystemwhile AutonomousCommunities(AC)providehealthcareservices and are responsible for health planning, organization and management.11 _Funds _are _centrally_collected _and _allocated

to regions bymeans ofa block central grant following an unadjustedcapitationformula.11_Only_Navarra_and_the_Basque

Countrybeneﬁtfromﬁscalauthority.

Bycontrast,theCanadianConfederation,composedof10 provincesand3territories,hasbeendecentralizedsincethe 19thcentury.12_Health_funding,_{administration}_and_delivering

are competencesofprovinces,which alsodefine physician financingrulesandhospitalglobalbudgets.Howeverhealth promotion, preventionand provisiontospecific groupsare Federal competencies. Provinces are responsible for fund-inghealthcareexpenditures,basedonprovincialtaxesand transfers from the central government. Transfers depend themselvesontaxescollected atprovincial level;an equal-izationprogramwas howeverimplemented toavoidstrong differencesintransfersrelatedtodiscrepanciesinprovinces’ revenue-generatingpotential.13

Finally, the 20 Italian regions also control health care provision,althoughgeneralobjectives(likethe detailedlist ofservicestobeprovided)andmainprinciplesofthehealth systemaredefinedatthecentrallevel.Regionscandevelop regionalhealthplans,allocateresourcesandcollectrevenues freely, like setting user charges for drugs prescriptions or reimburseratesfordrugsandservicesnotcoveredatnational level. Regional authorities also enjoy financial autonomy in taxation; in practice, regional health expenditures are financedat36.7%byregionaltaxes.14_{Additionally,} _regional

healthexpendituresareﬁnancedbytransfersfromthecentral state (57.3% of expenditures), essentially from a so-called Nationalequalizingfund.Thisfundisbasedontheideathat allregionsmustachieveaminimumlevelofexpenditures,so thattransferstopupregions’ownrevenueincaseitisunable tofundthisminimumlevel.

Theoretical

background

Thedebateontherelativemeritsofpolicydecentralization datesbacktoTiebout,15who putforward averyoptimistic

argument for the optimality of local public good provi-sion, based on an analogy between competitive markets and competing jurisdictions. Oates,2 _in _contrast, _suggests

that decentralization results from a trade-off between its advantagesandcosts.AccordingtoOates,theadvantageof decentralizationliesinitscapacitytocatertolocaltastes,be itbecauseofbetterinformationorsimplybecausethe cen-tral governmentcannotdifferentiatepublicgood provision. Thecostofdecentralizationstemsessentiallyfromthe pres-ence ofinter-regionalspillovers.For instance,betterhealth preventioninonemunicipalitybeneﬁtsitsneighbors. How-ever,ifhealthpreventionisdecentralized,eachmunicipality failstotakeintoaccountthebeneﬁtofitsinvestmentinother municipalities,andisthereforelikelytoinvestsub-optimally, leadingtounder-provisionand/orlowqualityofhealth ser-vices. WhileOates’argument that acentral governmentis unable to differentiate the provision of local public goods accordingtolocalpreferenceshasbeenchallengedsince,his mainintuitionthatthedecisiontodecentralizerestsona fun-damental trade-offbetweencostsand advantagesremains. One ofthe maincosts ofdecentralizationwhich has been analyzedintheliteratureisthefailuretoexploiteconomies of scale.16 _For _instance, _collective _purchasing _of _resources

(drugs,medicaldevices,equipments,etc.)orcollective admin-istrationofhealthservices maydisplay decreasingaverage costsandbethusmoreefﬁcientlyprovidedatacentralized level.

Theinter-regionalspilloversattheheartofOates’s argu-ment,referredhere-above,areofthehorizontaltype(thatis, betweensub-centralgovernmentsofthesamelevel).Another sortofspilloverswhichmaycreateinefﬁcienciesunder decen-tralization is the vertical ones between local and central governments. These occur if onegovernment level’spolicy decisionshaveanimpactinthepolicyoutcomesoftheother level.Thesephenomenaarehighlyplausibleinthehealthcare sector.If,forexample,sub-centralgovernmentsare respon-sible for some public health preventionprograms and the centralstatedelivershealthcare,localpolicieslikelyaffect servicesuseandcostsatthecentrallevel.Unlesssub-central governmentsarerewardedfortheiractions,theyhavelittle incentivestoprovideanoptimalvalueofprevention,whose beneﬁtsarefullyenjoyedbythecentralstate.

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77

Recently,theliteraturehasputforwardpoliticaleconomy argumentsinfavorofdecentralization.Forinstance,itmay bethatthevoters,whoareimperfectly informedaboutthe economy,use the policiesput inplace by the neighboring politicians to impose discipline on their own local repre-sentative. In such a worldof opportunistic policy makers, decentralizationmaybeastrongmechanismtoprevent cor-ruptionor promote provision ofpublic services.17 _Another

argumentisthatdecentralizationforceslocaljurisdictionsto competeformobileresources(forinstance,labororcapital) andputsadownwardpressureontaxation,thuspromptinga moreefﬁcientuseofscarceresources(seeWilson18_for_a

sur-veyofthetaxcompetitionliterature).BesleyandSmart19_show

thatthisneednotbethecase,sincehigherdisciplineoflocal politicianscomesatthecostofaworseselection.Indeed,it isonlywhenanopportunisticpoliticianmisbehavesthatthe votersaregiventhechancetooustherfrompowerandreplace herwithapotentiallybenevolentpolitician.Political account-abilityresultsfromatrade-offbetweenthesetwomechanisms (disciplineand selection),and further decentralization has oppositeeffectsinboth.

What can be said about the likelihood of local govern-ments being captured by special interests? Bardhan and Mookherjee20_show_that_there_is_no_theoretical_reason_to

sup-pose that local governments are more prone to this than centralones.Theyputforwardatheoreticalmodelof proba-bilisticvotingwherecapturebyspecialinterestsresultsfroma combinationofvoterawareness,interestgroupcohesiveness, electoraluncertaintyandcompetition,districtheterogeneity andtheelectoralsystem.Theirmainconclusionisthatthe extentof captureat the locallevel is most likely context-speciﬁcandneedstobeassessedempirically.

Afewauthorshavelookedattheapplicabilityofthese argu-mentstothespeciﬁccaseofhealthdecentralization.Levaggi andSmith21 _claim_that _sub-central_governments_are _better

informedabouttheconstraintsoflocalsupplyandabout vari-ationsindemand.Variationsindemandareobviouslyrelated firsttodifferencesinlocalneeds,forinstanceregions experi-encediscrepanciesintheprevalenceofdiseases,inbehavioral andnon-behavioralriskfactors(includinginparticular age-ingorsocialdeterminants),perhapsalsointheeffectiveness ofspecificinterventions.Henceprioritiesarelikelytodiffer accordingtoburdenofdiseaseorcost-effectivenesscriteria. Alsolocalpreferencesshapevariationsindemand,leading todifferentprioritiesandresourceallocationcriteria.Wemay thinkthatsomeregionshaveahigherconcernforinequalities inhealthandsocialdeterminants,whileothersputagreater emphasisonproviderchoiceandresponsivenesstopatients’ preferences.Thesedifferencesinneedsandpreferencesare veryclearifwecompareEuropeancountries.Discrepancies inlocalsupplyarerelatedtothe availabilityand densityof physicians, nurses, equipments, but also to differences in localpricesandpractices.Centralgovernmentshavetriedto accountforthesedifferencesinfinancingsub-central govern-ments,throughmoreor less sophisticatedrisk-adjustment schemes,butmaynotbeabletoaddresstheseissuestolocally adjustedplanningororganization.Sub-centralgovernments maybebetterequippedtorespondtolocalpreferencesand priorities,tocoordinateproviders’actionsandtoidentifythe sourcesofinefficiency.Hence,decentralizationisexpectedto

enhance qualityandresponsivenessofcarewhilereducing costs;thistheoreticalviewisattheoriginofmost decentral-izationprocesses.

As regards the potential incentivesthat favor efficiency and/orqualityinhealthcareprovision,boththetax compe-titionand theyardstickcompetition mechanismsarelikely toariseinhealthpolicies,thusleading sub-central govern-ments tocompete witheach other to provide high-quality servicesatlowuserchargesorfinancedthroughlowertaxes. First,betterandmoreefficientservicescontributetoattract mobile citizens, hence increase sub-central governments’ economic activityand fiscal revenues.Second, competition occursthroughcitizensbenchmarkingtheirdemandsonthe basisofneighborsub-centralgovernments’performance.22_If

sub-centralgovernmentsare politicallyaccountable,alocal politicianprovidingpoorerservicesthanhisneighbors’ coun-terpartswouldlikelyfailre-election.Inafewwords,efﬁcient provisioncontributestoattractivenessandcitizens’ satisfac-tion.

It isa well-known fact that decentralizationmay ham-per redistribution(see, Cremer et al.23 _for _a_survey _of _the

literature), when taxes are locally collected. Areas with high health needsare in generalthe poorer ones(thereis largeevidenceoftherelationshipbetweenpovertyandpoor healthstatus,seeMarmotReview24_);_under_ﬁscal

decentral-ization,underprivilegedareascapturelower resourcesfrom taxationandbeneﬁtfromalowercapacitytoinvestin high-qualityservicesandefﬁcientprovision.Decentralizationthen produces differences in the quality and availability of ser-vices,chargesandoutcomes.Increasinginequityisoneofthe majorthreatsofdecentralization,evenifgood risk-sharing agreementspotentially mitigatethis effect.Inother words, the viability of decentralization depends on the existence of solidarity mechanisms between decentralized authori-ties.

Thereverseisalsopossible,i.e.,sub-centralgovernments only competing on high-quality services, leading to over-provision ofservices and high health expenditures(race to the top). This situation is more likelyto occur when ﬁscal decentralizationislowandsub-centralgovernmentsfacesoft budget constraints. Thismay the case, forexample, if the centralgovernmentsystematicallybailsoutsub-central gov-ernments which are excessivelyindebtedor if transfers to sub-centralgovernmentsarebasedonpastexpenditures.

Thisbringsustothefundamentalquestionofthe fund-ing oflocalpublicgoods.Indeed,variousarrangementsare possible regarding the degree of decentralization of both theexpenditureandtherevenuefunctions.25_A_considerable

shareoflocalgovernmentfundingcomesfromcentral gov-ernmenttransfers.Thesetransferschemesmustbecarefully designedandrestonclearrules(dependonvariableswhich are noteasyforlocalgovernmentstomanipulate) soasto avoidmoralhazardleadingtoexcessexpenditures.Indeed,as thecentralgovernmentisunabletodistinguishthesourcesof highspendingbetweenhigherneedsandinefﬁciencies, sub-centralgovernmentshaveanincentivetohidetheirtrueneeds toobtainhigherﬁnancingfromthecentralauthority.

Tosumup, the theoreticalliteraturedoes notprovidea deﬁnitive answer about the impact of decentralization on healthpolicies.Thehighconcerninmanycountriesforequity

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r e v p o r t s a ú d e p ú b l i c a . 2 0 1 3; 3 1(1) :74–83

Table1–Literaturereview:impactofdecentralization.

1stauthor Country Objective Periodofthe

data

Decentralizationindicator Mainresults

Zhong(2010) _Canada _Impact_of_the_introduction_of_a

higherdegreeofdecentralization onequityinhealthcareutilization

1994/95 1998/99 2000/01

IntroductionofHealthandSocial Transferin1996/97,i.e.,larger blockfundingtoprovinces

Mostinequityinhealthcareuseisexplainedby variationswithinprovinces.Anincreasein decentralizationleadtoloweroveralland

within-provinceinequityinGPandhospitalservices andlowerbetween-provincevariationinGP, hospitalandspecialistservices

Schefﬂer(2006S.) _{USA/California} _Impact_of_higher_{decentralization}

ofmentalhealthcareserviceson uninsuredhealthspending

1989–2000 Decentralizationofhealth,mental health,andsocialservices(greater ﬁnancialﬂexibilityand

responsibility)fromtheCalifornia statetocounties(program realignmentintroducedtheability totransferfundsbetween programs–mentalhealth,social servicesandgeneralhealth)

Countyspendingonmentalhealthservices decreasedafterprogramrealignment.Countieswith abovemedianhealthrevenuesarelesslikelyto makeatransfertoanotherprogram.With realignment,countiesshowedthesamelevelof commitmentandsupportwithmentalhealth services,sincedivertedfundswentmainlyto mentalhealthserviceswithintherealignment programspackage

Jiménez-Rubio(2011A) ₂₀_OECD_countries _Impact_of_{decentralization}_on

healthstatus(infantmortality)

1970–2001 Decentralizationmeasuredas:(i) Shareofautonomoustaxrevenue ofSCGovertheCGtaxrevenue.(ii) Shareoftotal(autonomousornot) SCGtaxoverthetotalrevenue

Negativeandsigniﬁcantrelationshipbetweenﬁscal decentralizationandinfantmortality,ifa

substantialdegreeofautonomyinthesourcesof revenueisdevolvedtosub-centralgovernments

Prieto(2012) _Spain _Estimate_determinants_of_regional

healthcareexpenditure,in particularthedegreeofregional autonomy

1992–2005 Regionsclusteredaccordingtothe degreeofautonomy:(i)

Expenditureandhighﬁscal autonomy.(ii)Expenditureandlow ﬁscalautonomy.(iii)Noautonomy

GDP/capitahasmoreinﬂuenceonHCEinregions withhighertaxautonomy,maybedueto equalizationeffortsofSpanishNHS.

Decentralizationwithoutinequalityispossiblewith ﬁscalequalization.Ifhighdifferencesinwealthand weakequalizationamongregions,decentralization leadstoinequality

Bordignon(2009B.) _Italy _Impact_of_regions’_bailout

expectationsonfundingbyCG; impactofregions’bailout expectationsonHCE(mid-90s), determinantsofregions’bailout expectations

1990–1999 Regions’bailoutexpectations basedonexternalconstraintsin themid-90s:countries’evaluation forenteringtheEURO(1997),index ofpublicbudgettightness, Maastrichtrules(1994)

HCEisinfluencedbyregionalfinancing,whichisin turninfluencedbybailoutexpectationsfromtheCG. Lowerexpectationsofbailingoutgeneratea strongerlinkbetweenex-antefinancingand regionalHCE.Richerandmoreautonomousregions havelowerexpectationsofCGintervention,hence theyaremorefinanciallyresponsible.TheCGisalso morepronetocutfinancingtoregionsunderlower bailoutexpectationsbecausethecommitmentto cutHCEwillbetakenseriously

Fredriksson(2008F.) _Sweden _Estimate_{cross-counties}

differencesinsupportingthe “PatientChoice

Recommendation”,i.e.,counties’ willingnesstofavorornotthe patient’schoiceofspecialist

2001–2005 RecommendationbytheCGcanbe

moreorlesssupportedby counties,whichhavelarge competencesinthehealthsector

HighvariationonsupportforthePatientChoice Recommendationamongcountycouncils. Abilitytochoosehealthcareprovidervaries accordingtocounty,creatinginequalitiesinaccess tocare

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r e v p o r t s a ú d e p ú b l i c a . 2 0 1 3; 3 1(1) :74–83

79

Table1(Continued)

1stauthor Country Objective Periodofthe

data

Decentralizationindicator Mainresults

López-Casasnovas(2007L.-C.) ₁₁₀_regions_in₈

OECDcountries

MeasurethedeterminantsofHCE accountingforregionaleffects

1997 Noindicatorofdecentralization

butaccountforpossibleregional differencesinHCE

Anincreaseonthepercentageofpeoplewithmore than65yearsandinthepercentageofpublichealth expendituresincreasesHCE.Betweencountries variabilityofexpendituresissmallerthanwithin countryvariations.IncomeelasticityofHCEislow andincreaseswithvariationinHCE

Costa-Font(2007C.-F.) _Spain _Measure_spatial_spillovers_in_HCE

(inter-jurisdictioninteractionsin deﬁningHCE)

2003 Compareregionswith(i)ﬁscaland

politicalautonomy(Navarraand Basquecountry);(ii)political autonomy(Catalonia,Galicia, Andalucía,CanariasandValencia); (iii)noautonomy

Evidenceofspatialcorrelation.HigherHCEwhen regionshavehigherpoliticaldecentralizationand evenhigheriftheyhavealsoﬁscaldecentralization. HigherHCEifregionandCGareruledbythesame party

Costa-i-Font(2005C.-i.-F.) _Spain _Measure_{income-related}

intra-regionalinequalitiesin self-reportedhealth,andits relationwiththedegreeof decentralization

1997 Compareregionswith(i)ﬁscaland

politicalautonomy(Navarraand Basquecountry);(ii)political autonomy(Catalonia,Galicia, Andalucía,CanariasandValencia); (iii)noautonomy

Overallinequalityislow.Devolutiondoesnotfavor inter-regioninequality.Bycontrastdevolution seemstofavorpro-equitypolicies:inequalityisthe highestinregionswithoutautonomy(INSALUD)

Crivelli(2006C.) _Switzerland _Measure_determinants_of_public

HCEaccountingforregional (cantons)effects

1996–2001 Noindicatorofdecentralization butaccountforpossibleregional differencesinHCE

DifferencesinHCErelatedtousualfactorsbutin particulartophysiciandensity.Strongdifferencesin HCEacrosscantonsexplainedinpartbydifferences insupply

Costa-Font(2009C.-F.) _Spain _Impact_of_{decentralization}_on_HCE,

interdependencybetween neighbormunicipalitiesand measureincomeeffectatregional level

1995–2002 Indicatorsofdecentralization degreeanditsevolutionacross time,towardcurrentsituation:(i) ﬁscalandpoliticalautonomy (NavarraandBasquecountry);(ii) politicalautonomy(Catalonia, Galicia,Andalucía,Canarias, Valencia);(iii)noautonomy

PoliticaldecentralizationincreasesHCEintheshort termbutproducescostsavingsinthelongrun(sunk costofdecentralizationandexperienceeffects). Higherexpendituresarerelatedtohigherﬁscal autonomy.Existenceofspatialcorrelation.Low impactofincomeonHCE,hencedecentralizationis notassociatedtostrongregionalinequalities

Cantarero(2005C.) _Spain _Measure_determinants_of_public

HCEaccountingforregionaleffects

1993–1999 Compareregionswith(i)ﬁscaland politicalautonomy(Navarraand Basquecountry);(ii)political autonomy(Catalonia,Galicia, Andalucía,Canarias,Valencia);(iii)

noautonomy

Regionalincomeandsupplyhavelowimpacton HCE,whileageingismorerelevant.Hencelower income-relatedinequalityisexpected

Jiménez-Rubio(2011) _Canada _Impact_of_ﬁscal_{decentralization}

onhealthoutcomes(infant mortality)

1979–1995 Fiscaldecentralizationis measuredastheproportionof sub-nationalhealthspendingover totalhealthexpenditure

Significantandsubstantiallylowerinfantmortality relatedtohigherfiscaldecentralization(1%increase infiscaldecentralizationdecreasesinfantmortality by10%)

Giannoni(2002) _Italy _Measure_determinants_of_HCE

accountingforregionaleffects, andimpactof1992

cost-containmentreforms

1980–1995 Noindicatorofdecentralization butaccountforpossibleregional differencesinHCE

StrongimpactofregionalincomeonHCEand relevantareaclusterdifferences.Cost-containment reformsdidnotaltermostregionaldifferencesin HCEandworsenedthesituationofsomeregions belowtheaverage

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T able 1 (Continued ) 1st author Countr y Objecti v e P eriod of the data Decentr alization indicator Main results Cantar er o (2008 C.) Spain Impact of fiscal decentr alization on health outcomes (infant mortality and life e xpectanc y) 1992–2003 F iscal decentr alization is measur ed as the pr oportion of sub-national health spending ov e r total health e xpenditur e Decentr alization significantl y reduces infant mortality and incr eases life e xpectanc y Di Matteo (1998) Canada Measur e determinants of HCE accounting for re g ional (pr o vinces) effects 1965–1991 No indicator of decentr alization but account for possib le re g ional differ ences in HCE HCE highl y related to per capita income (but elasticity belo w 1), a g eing and feder al tr ansfers. Reflects pr o vincial HCE reflects tr ansfers fr om CG whic h ho w e v e r do not corr ect re g ional income discr e pancies Jiménez-Rubio (2008 J.-R.) Canada Measur e income-r elated inequalities in health and health car e use acr oss re g ions (pr o vinces) 2001 No indicator of decentr alization but measur e re g ional differ ences in inequalities Health car e use inequalities ar e d rive n by betw een-pr o vinces v ariation. Inequalities in health ar e mostl y d rive n by within-pr o vinces v ariation. Differ ent results for health and health car e inequalities seem to sugg est other health determinants rather than health car e access ar e essential to e xplain inequalities HCE, health car e e xpenditur es; CG , centr al go v ernment; SCG , sub-centr al go v ernment; GP , g ener al pr actice; AC , autonomous comm unities.

inhealthisamajorargumentagainstdecentralization,unless strong solidaritymechanisms areputinplace. The contra-dictoryexpectationsaboutefﬁciencyrequirecarefulempirical validation.Inthesetimesofadverseeconomiccircumstances, efﬁciencyismorethaneveramajorissueindecision-making, andstrongevidenceisnecessarybeforeadvocatingfor decen-tralizationinhealth.

Empirical

evidence

Inordertogetanexhaustiveoverviewonempiricalevidence, weperformedasystematicliteraturereview.Weconducteda computerizedliteraturesearchinPubMed(NationalCenterfor BiotechnologyInformation,Bethesda,Maryland)andGoogle Scholar,supplementedbyasearchofquotedreferences.Text keywordsusedinthesearchincludeddecentralization, feder-alism,health,healthcare,equity,andefﬁciency.Werestricted ouranalysistothoseperformedinOECDcountriestoallow forrelevantcomparisons,thatis,inacomparablecontext.We onlyincludedempiricalstudiesabout theimpactof decen-tralization,henceexcludingtheoreticalstudies,studiesabout legislation or about political or organizational aspects of decentralization,editorialsandliteraturereviews.Thesearch waslimitedtoEnglish-languagearticlespublishedfrom1995 toJuly2012,whendecentralizationinhealthhasbecomea rel-evantandappliedpolicyoptioninOECDcountries.Oursearch allowedcollecting17papers,whosemaincharacteristicsand resultsaredisplayedinTable1.Studiesweredividedaccording todistinctanalyzes,basedonthemostrelevant decentraliza-tionoutcomes,namelyinequalitiesinhealthandhealthcare, healthexpendituresandhealthoutcomes.

Inequalityinhealthandhealthcareuse

Theconsequencesofdecentralizationoninequalitywerethe mainissueanalyzedbyZhong13_,_{Jiménez-Rubio}_et_al.1_,

Costa-i-Font26_and_Frederiksson_and_Winblad27_._Zhong13_found_that

in Canada inequalities in health care use (overall, within provincesandbetweenprovinces)decreasedafter decentral-ization. Mostinequalitywasexplainedbywithin-provinces variation,whilebetween-provincesvariationsdidnotmuch contributetoinequality.13_By_contrast,_{Jiménez-Rubio}_et_al.1

also using data from Canadian provinces observed that income-relatedinequalitiesinhealthcareuseresultedfrom between-provincesvariationswhileincome-related inequali-tiesinhealthwererelatedtowithin-regionvariations.While Zhong13 _used _an _overall _inequity _measure, _{Jiménez-Rubio}

etal.1 _used_an_{income-related}_one,_which_possibly_explains

the discrepantresults.TheresultsbyJiménez-Rubio etal.1

certainlyquestiontheequalizationschemeacrossprovinces; the redistributionoffundsfrom richertopoorer provinces does notseemtoavoidinequityinhealthcareuse related tobetween-provincevariations(forexample,healthcareuse islowerinQuebecthathasalower-than-averageincomeper capita). Asthe author emphasizes, advocates of decentral-izationwouldhoweverconsiderthesedifferencesasrelated to different preferences, hence legitimate. Income-related inequityinhealthwasmostlyrelatedtodifferencesbetween rich and poor people within provinces, here questioning

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the efforts by provinces to reduce inequalities (would a centralgovernmentbemorecommittedtoreduceinequityin health?).

For Spain, Costa-i-Font26 _found _a _small _overall, _within

and between regions income-related inequality in health, althoughsomewhathigherinregionswithlowerautonomy. The author explains this difference by the greater role of theprivatesectorinthoseregions.Healsoemphasizesthat decentralization may have favored equity due to a high commitment of regions to achieve this objective, which corresponds to a high citizens’ concern. Finally, Fredriks-son and Winblad27 _studied_a _speciﬁc _reform _toward _more

providerchoiceinSweden, wherehealthcareuseishighly decentralizedatthe county level. Theauthor showed that whilesomecountiessupportedthereformthroughfavoring choice,othersimplementedadministrativebarriersagainstit. Therefore,autonomyondecisionmaking(regardingprovider choice) resulted on inequalities between people living in differentSwedishcounties.

Healthexpenditures

Inequalityrelatedtodecentralizationwasalsoobserved indi-rectly, through examiningthe impact of regional GDP per capitaonhealthcareexpenditures.Indeed,agreaterimpactof regionalincomeonhealthcareexpenditurewouldmeanthat richerregionsspendsignificantlymoreonhealththanpoor ones,hencecreatinginequalitiesinhealthcareuse.Although all studies using regional data conclude that health care expendituresdonotvarymuchwithincome(theelasticitywith respecttoincomeisbelowone),resultsare contrastedand varybetweencountries. For Spain,Prietoand Lago-Pe ñas28 foundapositiverelationbetweenincomeandpublichealth expenditures only in regions with higher fiscal autonomy. Regions without fiscal autonomy benefitted from national equalizationeffortsandthereforemanagedtoachievehigh levelsofhealthcareexpendituresdespiteoflowerincome.The lowimpactofincomeonhealthcareexpendituresinSpain wasconfirmedbyCantarero,Costa-i-FontandMoscone.29,11

ThesameconclusioncouldbedrawnforCanada,21_although

theimpactofincomeonhealthexpenditureswasgreaterthan inSpain.Usingaspeciﬁcindicator,DiMatteoandDiMatteo30

showedthepositiveimpactoffederaltransfersonhealthcare expenditure. That is, federaltransfers certainly reducethe impactofregionalincomeonexpendituresbutdonotfully correctregionalincomediscrepancies.Thepictureis some-whatdifferentinItaly,whereregionalincomehadastrong impactonhealthcareexpenditures.31 _The_authors_showed

alsothatcost-containmentmeasureshavenotaltered cross-regional differences in health care expenditures and have evenworsenedtheminsomecases.ForSwitzerland,Crivelli etal.32_observed_a_large_impact_of_physician_supply,_which_is

highlyvariable acrossregions,onhealthcareexpenditures. Hencecross-regionaldifferencesinhealthcaresupplymay alsobeasourceofinequalityacrossregions.Finally,usingdata from110regionsof8OECDcountries,Lopez-Casasnovasand Saez33_showed_a_low_elasticity_of_health_care_expenditure_with

respecttoincome.However,theimpactofincomewashigher acrossregionsincountrieswithhigherinter-regionalincome

inequalities,leadinginturntohigherdiscrepanciesinhealth careexpenditures.

SchefﬂerandSmith34_,_Costa-i-Font_and_Moscone11_,

Costa-i-FontandPons-Novell22_addressed_the_impact_of

decentral-izationonhealthexpenditures,whileBordignonandTurati35

examinedtheimpactoftheinteractionbetweencentraland sub-centralgovernments.SchefﬂerandSmith34_showed_for

California that spending on uninsured patients decreased withthehighercounties’autonomyinallocatingfundsacross health and social programs. Costa-Font and Pons-Novell22

observed that Spanish regions with both political and ﬁs-calautonomyhadhigherhealthexpendituresascompared to regions without autonomy or with political autonomy only. Costa-i-Font and Moscone11 _observed _however _that

decentralization increased expenditures only in the short run, producing savings in the long run. They argued that ﬁrstly decentralization increased health care costs due to sunkcosts;then thiseffectwasminimizedinthe longrun by an experience curve, that is, learning-by-doing allowed reducing costs.Regarding assumptionsfrom economic the-ory, Costa-i-Fontand Moscone11 _also_showed_the_existence

of spatial correlation ofhealth care expenditures between neighborjurisdictions,sustainingtheassumptionof horizon-tal spillovers.Thisresultmay hencebeduetocompetition betweenneighborjurisdictionstoincreaseattractivenessor duetopoliticiansbeingjudgedbasedontheneighbor coun-terparts’actions.

Finally,BordignonandTurati35 _used_1990s_Italian

adjust-ment processimposed byanexternalentity(theEuropean Union)tounderstandtheroleofexpectationsandthe strate-gicinteractionsbetweenthecentralstateandregions,using dataonhealthcareexpenditures.Regionsexpectingthatthe central governmentwillintervene incaseofdebtsoftened their budget constraints and the relationship between the fundingtheyreceivefromthecentralgovernmentandhealth expenditureswaslower.Bycontrast,duringexternal adjust-ment,thecentralgovernmentwasperceivedasmorestringent and the link between funding and expenditures became stronger.Andthe centralgovernmentwas alsomoreprone tocut fundingtoregions becauseit knewits commitment nottobailoutwouldbetaken moreseriously.Interestingly, authors showed that more autonomy lead to more ﬁnan-cially responsible policies because expectations of bailout werelow.Thispaperthusemphasizedthattransfer mecha-nisms,whicharealwayspresentindecentralizedcountries, createdincentivesthatmaybemoreorlessdetrimentalfor efﬁciency dependingon how theyare designedand putin practice.

Healthresults

Results about the impact of decentralization on health outcomesarescarcebutconsistentacrossstudies. Jiménez-Rubio12,36 _and_Cantarero_and_Pascual37 _agree_on_identifying

a positive relationship between ﬁscal decentralization and healthresults,measuredthroughinfantmortality.Cantarero and Pascual37_used_an_alternative_measure_of_health_status

(lifeexpectancy)whichconﬁrmedthepositivecontributionof decentralizationtohealthstatus.

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Conclusion

Althoughtheeconomicsliteraturehaslargelydiscussedthe impactofdecentralization,empiricalresultsremain scarce, inparticularregardingdecentralizationinhealth. Neverthe-less,decentralizationofhealthpoliciesandfundinghasbeen largelyimplementedinvariouscountriesandisgenerally con-sideredasarelevantoptiontoimproveefﬁciencyinhealth care.7

Our review of the literature allows draw preliminary conclusions,basedonrelativelyrecentdecentralization expe-riences,inparticularinCanada,Italy,SpainandSwitzerland. Firstandforemost,devolutionofpolitical(andﬁscal) author-itytosub-governmentlevelsseems toincreasehealthcare expendituresbutalsoimprovehealthoutcomes,mainly mea-suredthroughinfantmortalityrate.Accordingtoeconomic theory, decentralization may foster competition between jurisdictionstoincreaseattractiveness,andincreasepressure onlocalgovernmentsbecausecitizensevaluatetheir perfor-mancebasedonneighborcounterparts’actions.Theempirical literaturesuggeststhatenhancedcompetitionpromptslocal decision-makerstoincreasehealthcareexpenditures(raceto thetop)andnotthereverse inorder todecrease taxes(race

tothe bottom),with afavorableimpact onhealth. Thecase ofSpainisparticularlyenlightening,whichshows thatthe increase inhealth careexpenditures has been the highest inregionswithfiscalautonomy.Thisresultmayreflectthe highpeople’sdemandforhigh-qualityhealthservices,andthe higherresponsivenessoflocalauthoritiestothispreference. Thehigherhealthcareexpendituresunderdecentralization mayhoweverreflectalsohighercosts,relatedforinstanceto duplicationofinputs(twoneighborregionsofferingsimilar serviceswhichcouldbeshared),diseconomiesofscale,orthe sunkcostsassociatedtoimplementationofalocalhealth pro-visionscheme.Tosomeextent,adverseincentivesmayplay someroleifsub-centralgovernmentsarenotfullyfinancially responsiblefortheirexpenditures.Inparticular,moral haz-ardmayexistifsub-centralgovernmentsexpecttheirdebts beingcoveredbythecentralstate(bailout)oriftheirbudget dependsmorelargelyfromtransfersfromthecentralstate. Inafewwords,decentralizationdoesnotappearatfirstsight asameanstocontrolorreducehealthcareexpenditures,but asanincentivetoprovidebetterandpossiblymoreexpensive services.Theefficiencyconsequencesarethusambiguous,as itisunclearwhetheradditionalbenefits–measuredthrough averyreduced numberofindicators–areworthadditional costs.

Regarding equity, empirical results are ambiguous and certainlyrelatedtothespeciﬁccountries’ context.Inequity in health and health care is low in Spain, where health expendituresarealsopoorlyrelatedtotheregionGDP/capita. Additionally, inequity in health careseems tobe lower in moreautonomousregions,sothatdecentralizationmayhave favoredequity.InCanada,income-relatedinequityinhealth careisrelatedtobetween-provincesinequalities.InItalyand Switzerland,thereisastrongrelationshipbetweenregions (resp.cantons)incomeandhealthcareexpenditures, result-ing in a large heterogeneity in health care expenditures. These resultsmay certainlybe relatedto lower equalizing

mechanisms inthese twocountries coupledwitha higher fiscal autonomy. Note also that different decisions across regions,namelyaboutphysiciansorequipmentsupply,also potentiallycreatedifferences/inequityinhealthcaredelivery. To conclude, solidarity mechanisms across sub-central authorities are relevant to avoid the emergence of large inequalitiesacrossregionsinhealthcaredeliveryand expend-itures. However, redistribution offunds alsoreduces juris-dictions’ financial responsibility, with possibledetrimental consequencesonexpendituresandambiguousconsequences on efficiency.Thislastaspectisofparticularimportanceif jurisdictions compete with each other for providing high-qualityservicesandnotthroughloweringtaxrates.

Funding

This investigation was funded by the Fundac¸ão para a Ciência e a Tecnologia through the project PTDC/EGE-ECO/104094/2008.

Conﬂicts

of

interest

Theauthorsdeclarethattherearenoconﬂictsofinterests.

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