Media Briefings

Dampening Demand For Medical Care: Evidence On The Impact Of Asking Patients

  • Published Date: June 2010

Introducing or increasing ‘co-payments’ in medical care – where patients contribute directly to the costs of their treatment – can be an effective tool to dampen demand for convalescent care and hence to reduce public spending on health. But demand for medical rehabilitation therapies to recover from severe illnesses or accidents is much less responsive to price changes than demand for preventive therapies.

These are the central findings of new research by Nicolas Ziebarth, published in the June 2010 issue of the Economic Journal. The research is the first to show how price increases causally affect demand for convalescent care therapies.

Evaluating a health reform in Germany that doubled the daily co-payments for convalescent care treatments at health spas, the study shows that this policy measure reduced demand for these treatments by 20%.

Looking at specific types of convalescent care therapies, the research yields clear evidence that due to the drastic increase in prices, patients abstained overproportionally from plans to go to a health resort to receive preventive care.

The German government doubled co-payments for convalescent care therapies from €6 to €13 per day in 1997. The reform’s main objective was to dampen demand for these treatments and to tackle rising healthcare expenditures.

At the same time, experts estimated that a quarter of all prescribed therapies were unnecessary. Thus, another main objective of the reform was the reduction of unnecessarily prescribed convalescent care treatments.

The German public health insurance is one of the few health insurance systems in the world that, apart from small co-payments, fully covers medical rehabilitation therapies and preventive therapies at health spas.

At that time, the German market for convalescent care was said to be the largest in the world. In 1995, a total of €7.646 billion was spent on convalescent care, accounting for more than 4% of all health expenditures in Germany. Around 1,400 medical facilities with 100,000 full-time (equivalent) staff members treated 1.9 million patients, who stayed 31 days each on average.

The research design takes advantage of the fact that two independent healthcare systems co-exist in Germany. Since people insured under the private healthcare system were not affected by the increase in co-payments, the study compares the behaviour of the publicly insured with the behaviour of the privately insured over time. This makes it possible to draw conclusions about the effectiveness of the reform.

Analysing the behaviour of individuals over time is made possible by using the German Socio-Economic Panel Study (SOEP), a representative longitudinal study of German residents, which has interviewed the same 20,000 people every year since 1984. The SOEP includes a wide range of information on household composition, occupational biographies, earnings, health, insurance status and the use of medical services.

Economists call such a setting a ‘natural experiment’. The natural experiment of this study makes it possible to answer a question that has been central in the field of health economics since the early days of the profession: the price elasticity of demand for healthcare – or how much demand changes when prices for healthcare change.

The findings of this research show that the demand for medical rehabilitation therapies decreases by between 0.3% and 0.5% when prices increase by 1% and is thus ‘inelastic’. In contrast to that, the demand for preventive therapies at health spas decreases overproportionally by more than 1% when prices increase by 1% and is hence ‘elastic’.

Author Nicolas Ziebarth summarises:

‘My study shows that increasing co-payments for medical services is an effective tool to dampen the demand for healthcare and to reduce health expenditures.

‘In this specific setting, it is very likely that the increase in cost-sharing primarily reduced unnecessary treatments that were formerly prescribed at the expense of the whole public insurance pool while few well informed patients took advantage of it.

‘But my study cannot exclude the possibility that avoidance of medically necessary care may have led to adverse health outcomes in single cases.

‘Especially in the case of preventive treatments in spa towns, it is intrinsically difficult to balance potential long-term health improvements against the notion that patients simply take advantage of ‘subsidised holidays’.’

ENDS

Notes for editors: ‘Estimating Price Elasticities of Convalescent Care Programmes’ by Nicolas Ziebarth is published in the June 2010 issue of the Economic Journal.

Nicolas Ziebarth is a junior researcher at the German Institute for Economic Research (DIW Berlin).

For further information: contact Nicolas Ziebarth on +49 30 89789-587 (email: nziebarth@diw.de); or Romesh Vaitilingam on 07768 661095 (email: romesh@vaitilingam.com).