Georgia State University ScholarWorks @ Georgia State University ICEPP Working Papers International Center for Public Policy 2014 Investing in Health Infrastructure: How Decentralization Matters Richard M. Bird University of Toronto, [email protected] Francois Vaillancourt University of Montreal, [email protected] Follow this and additional works at: https://scholarworks.gsu.edu/icepp Part of the Economics Commons Recommended Citation Bird, Richard M. and Vaillancourt, Francois, "Investing in Health Infrastructure: How Decentralization Matters" (2014). ICEPP Working Papers. 26. https://scholarworks.gsu.edu/icepp/26 This Working Paper is brought to you for free and open access by the International Center for Public Policy at ScholarWorks @ Georgia State University. It has been accepted for inclusion in ICEPP Working Papers by an authorized administrator of ScholarWorks @ Georgia State University. For more information, please contact [email protected]. International Center for Public Policy INTERNATIONAL In Working Paper 14-11 CENTER FOR January 2014 PUBLIC POLICY Investing in Health Infrastructure: How Decentralization Matters Bernard Dafflon François Vaillancourt International Center for Public Policy Working Paper 14-11 Investing in Health Infrastructure: How Decentralization Matters Bernard Dafflon François Vaillancourt January 2014 International Center for Public Policy Andrew Young School of Policy Studies Georgia State University Atlanta, Georgia 30303 United States of America Phone: (404) 651-1144 Fax: (404) 651-4449 Email: [email protected] Internet: http://aysps.gsu.edu/isp/index.html Copyright 2006, the Andrew Young School of Policy Studies, Georgia State University. No part of the material protected by this copyright notice may be reproduced or utilized in any form or by any means without prior written permission from the copyright owner. International Center for Public Policy Andrew Young School of Policy Studies The Andrew Young School of Policy Studies was established at Georgia State University with the objective of promoting excellence in the design, implementation, and evaluation of public policy. In addition to two academic departments (economics and public administration), the Andrew Young School houses seven leading research centers and policy programs, including the International Center for Public Policy. The mission of the International Center for Public Policy is to provide academic and professional training, applied research, and technical assistance in support of sound public policy and sustainable economic growth in developing and transitional economies. The International Center for Public Policy at the Andrew Young School of Policy Studies is recognized worldwide for its efforts in support of economic and public policy reforms through technical assistance and training around the world. This reputation has been built serving a diverse client base, including the World Bank, the U.S. Agency for International Development (USAID), the United Nations Development Programme (UNDP), finance ministries, government organizations, legislative bodies and private sector institutions. The success of the International Center for Public Policy reflects the breadth and depth of the in-house technical expertise that the International Center for Public Policy can draw upon. The Andrew Young School's faculty are leading experts in economics and public policy and have authored books, published in major academic and technical journals, and have extensive experience in designing and implementing technical assistance and training programs. Andrew Young School faculty have been active in policy reform in over 40 countries around the world. Our technical assistance strategy is not to merely provide technical prescriptions for policy reform, but to engage in a collaborative effort with the host government and donor agency to identify and analyze the issues at hand, arrive at policy solutions and implement reforms. The International Center for Public Policy specializes in four broad policy areas: . Fiscal policy, including tax reforms, public expenditure reviews, tax administration reform . Fiscal decentralization, including fiscal decentralization reforms, design of intergovernmental transfer systems, urban government finance . Budgeting and fiscal management, including local government budgeting, performance- based budgeting, capital budgeting, multi-year budgeting . Economic analysis and revenue forecasting, including micro-simulation, time series forecasting, For more information about our technical assistance activities and training programs, please visit our website at http://aysps.gsu.edu/isp/index.html or contact us by email at [email protected]. Investing in Health Infrastructure: How Decentralization Matters* Bernard Dafflon University of Fribourg François Vaillancourt CIRANO and Université de Montréal Abstract This paper examines the infrastructure–decentralization nexus in the production of health services with a particular emphasis on the issue of health infrastructure. The first part of the paper presents evidence on health services and infrastructure spending in health for various countries or groups of countries showing the importance of infrastructure spending in the provision of health services. The second part of the paper examines why and how health services are joint production with collective and private characteristics. These characteristics affect the decentralization of such services and thus the decentralization of health infrastructure; it also raises the issue of who should finance what in health care. The third part examines case studies and policy choices in USA, Canada and Switzerland related to various aspects of health care and health infrastructure financing. *We thank Matthieu Strub and Ryan Leenhouts for their excellent research assistance. 1 2 International Center for Public Policy Working Paper Series Introduction 1. This paper examines the infrastructure–decentralization nexus in the production of health services with a particular emphasis on the issue of health infrastructure. 2. The first part of the paper presents evidence on spending on health services and infrastructure spending both in general and in health for various countries or groups of countries showing the importance of infrastructure spending in the provision of health services The second part of the paper examines how some of the characteristics of health services affect the decentralization of such services and thus the decentralization of health infrastructure. The third examines case studies and policy choices. 1. Health spending and health infrastructure spending; what is the evidence 3. This first part of the paper pulls together what evidence we were able to gather on health spending, infrastructure spending and health infrastructure spending, total and decentralized. Unfortunately, as the reader will see, the more relevant to us the data, the lesser its availability. We begin with a table (1) on health spending for groups of countries covering the world, followed by a set of tables (2a and 2b) examining some evidence on health spending for subsets of countries (Low income in Africa; low and middle income in South /Central America) of potential interest to the reader before turning to a last set of tables (3 and 4) on health infrastructure spending for both the OECD countries and other countries for which data could be found. 4. Before proceeding to the tables, one should be aware of possible measurement issues that make international and inter-temporal comparisons difficult. We illustrate this with an example. Eurostat1 classifies hospitals that obtain more than 50 percent of their revenues from billing their patients as market enterprises and not as part of the public sector even if they are publicly owned, see their deficits paid for by the government while their patients’ bills are covered by insurance schemes mandated by the government. Hence in 2009 and 2010, public hospitals of five Swiss cantons (Basel-Stadt, Basel-Land, Fribourg, Glarus and Zürich) were classified as belonging to the private sector;2 but in 2012, since a new financing scheme will impose a maximum of 45 percent of revenues from billing patients they will again be classified as public. 5. We present in Table 1 data on health expenditures (share of GDP and in US$ per capita) and public health spending for 2010 using 32 World Bank groupings of countries. It shows extremely large variations in per capita health spending with North American 1. SCN 2008, p.640, paragraphs 22.28 et 22.29 ; also IMF 2001, p.12 ; eurostat 2010, p.14; Manual of Government Deficit and Debt, Implementation of ESA95, Eurostat Methodologies and Working Papers, European Commission, Luxembourg, 2012, 4th edition, pages 14-16.) 2. Source: Statistique financières 2010 de la Suisse, Rapport Annuel, Administration fédérale des Finances, OFS, Neuchâtel 2012, Série 18, pages 17-19. www.bfs.admin.ch>office fédéral de la statistique>thèmes>18>finances publiques>publications. Despite the fact that the all cantons have hospital networks, some publicly-owned hospitals are taken out of the public sector statistical data, in compliance with the SEC95 statistical system. Investing in Health Infrastructure: How Decentralization Matters 3 spending 200 times higher than the lowest spending region while the share of GDP spent on health varies from 4 percent to 17 percent and that of public health spending from 30 percent to almost 80 percent of total spending on