Changing healthcare capital-to-labor ratios: evidence and implications for bending the cost curve in Canada and beyond
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Changing healthcare capital-to-labor ratios: evidence and implications for bending the cost curve in Canada and beyond Eric Nauenberg
Received: 5 June 2013 / Accepted: 28 July 2014 / Published online: 17 August 2014 © Springer Science+Business Media New York 2014
Abstract Healthcare capital-to-labor ratios are examined for the 10 provincial single-payer health care plans across Canada. The data show an increasing trend–particularly during the period 1997–2009 during which the ratio as much as doubled from 3 to 6 %. Multivariate analyses indicate that every percentage point uptick in the rate of increase in this ratio is associated with an uptick in the rate of increase of real per capita provincial government healthcare expenditures by approximately $31 ( p < 0.01). While the magnitude of this relationship is not large, it is still substantial enough to warrant notice: every percentage point decrease in the upward trend of the capital-to-labor ratio might be associated with a one percentage point decrease in the upward trend of per capita government healthcare expenditures. An uptick since 1997 in the rate of increase in per capita prescription drug expenditures is also associated with a decline in the trend of increasing per capita healthcare costs. While there has been some recent evidence of a slowing in the rate of health care expenditure increase, it is still unclear whether this reflects just a pause, after which the rate of increase will return to its baseline level, or a long-term shift; therefore, it is important to continue to explore various policy avenues to affect the rate of change going forward. Keywords
Expenditures · Trends · Labor · Capital · Drugs
JEL Classification
I11 - Analysis of Health Care Markets
E. Nauenberg (B) University of Toronto, 155 College Street Suite 425, Toronto, ON M5T 3M6, Canada e-mail: [email protected] E. Nauenberg Institute of Health Policy, Management and Evaluation, Toronto, ON, Canada E. Nauenberg Canadian Centre for Health Economics (CCHE), Toronto, ON, Canada E. Nauenberg Toronto Health Economics and Technology Assessment Collaborative (THETA), Toronto, ON, Canada
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Introduction Given recent indications of a slowdown in the growth rate of health expenditures in the West, there is a question as to whether this change is permanent or transitory (CIHI 2013; NCHS 2013; OECD 2013). Beyond some cost savings from increased substitution of lower-priced generic drugs for name-brand drugs as patents expire, there is still little evidence of a sustained slowing of the technology pipeline—the primary determinant of long-run cost growth; thus, some substantial growth is forecast over the next two decades (Chandra et al. 2013; MedMarket Diligence 2013; OECD 2013). Moreover, service industries, like healthcare, often have intrinsically low capabilities of substituting capital for labor and hence have a relatively low capital-to-labor ratio. In such industries, the performance of a service traditionally requires supplier and consumer to be face-to
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