Economic barriers to implementation of innovations in health care: Is the long run–short run efficiency discrepancy a paradox?

Presenter: Eddy Adang, Radboud University Nijmegen Medical Centre

Abstract

Rationale: Proven cost-effectiveness of innovative technologies is more and more a necessary condition for implementation in clinical practice. But proven cost-effectiveness itself does not guarantee successful implementation of an innovation. A reason for this could be the potential discrepancy between efficiency on the long run, on which cost-effectiveness is based, and efficiency on the short run. In economics long run and short run efficiency are discussed in the context of economies of scale.

Objectives: This abstract addresses the usefulness of cost-effectiveness for decision making considering the potential discrepancy between long run and short run efficiency of innovative technologies in healthcare, the potential consequences for implementation in daily clinical practice, explores diseconomies of scale in Dutch hospitals and makes suggestions what strategies might help to overcome hurdles to implement innovations due to that short run-long run efficiency discrepancy.

Methodology: In an argumentative approach using economic theories the long run short run efficiency discrepancy will be illustrated. The prevalence of this short run long run discrepancy, ie., returns to scale, will be explored in a sample of Dutch hospitals.To investigate the prevalence of returns to scale a sample of 33 Dutch hospitals is researched. The data came from annual reports of Dutch hospitals over the year 2003. To create insight in whether these hospitals are working in the area of constant returns to scale, increasing returns to scale or decreasing returns to scale, data envelopment analysis (DEA) is applied.

Results:Solving the Variable Returns to Scale (VRS) model shows that variable returns to scale are prevalent in Dutch hospitals. Results show that 55% of the hospitals were operating under decreasing returns to scale, 33% under constant returns to scale and 12% under increasing returns to scale. Based on these results it seems appropriate to assume that (dis)economies of scale are prevalent in the Dutch hospital environment and consequently a potential concern for implementation of innovations.

Conclusions:Economic evaluation in health care has focused on long-term efficiency at societal level, ignoring to a significant extend short term inefficiencies for a specific hospital or other health care provider. Cost-effectiveness analysis would be more informative if it extended the long run perspective with an additional short run perspective. Such an extended cost-effectiveness analysis provides not only insight in the cost-effectiveness of an innovation but also in the hurdles that need to be taken to implement the innovation. Key to solving this long run – short run efficiency discrepancies are implementation strategies directed towards making fixed factors of production more or entirely flexible. If all factors of production are entirely flexible the contrast between long run and short run efficiency will no longer exist and is then paradoxical.