Measurement of non-market output in education and health The Portuguese experience: estimation of the output of hospitals according to different methodologies HEALTH ACCOUNTS London, October 3-5, 2006Health Accounts Working Group Portugal

- The Health Accounts are compiled according to the same rules and methodology of the National Accounts. - This means that when a unit is market the output is measured through its health sales and when the unit is non-market is measured by its sum of costs of production. - This study covers only the Hospitals that are part of the National Health Service. Introduction - Present situation:

-In the end of 2002 the Government restructured the NHS: as a starting point 31 hospitals changed its legal status to corporations with limited liabilities. In 2005 the legal status was changed again to a new legal figure (EPE) and 5 new units joined this group. Nonetheless both hospitals EPE and the remaning public ones are part of the NHS. -In 2003 onwards the recording of the output is a mixed one: the output of public ones, still non-market, is valued as the sum of costs and the ouptu of the hospitals EPE, nowm market, is measured as the sum of health sales. - In 2003 the new Public Accounting Plan for Health comes into force. This means that until 2002 data for all hospitals are on a cash basis and in 2003 onwards data are on accrual basis. Introduction - Present situation:

- Until 2002, the payments by IGIF (unit responsible for the financial mangement of the financing of the NHS) were made to finance the cost and therefore recorded as transfers. Therefore the amount recorded as payment for health services correspond to payments made by other health schemes and private insurance for services rendered to their beneficairies. - In 2003 onwards IGIF has contracts with the hospitals. IGIF buys a certain amount of health services and this amount is recorded under sales of these hospitals. Introduction - Present situation:

- To apply different methodologies for measuring output in order to understand how changes can not be directly related with political restructuring that do not affect the activity, except those resulting from merging, splitting, creation or disappearance of units. The sustainability of public expenditure in health is under evaluation for the recent years and therefore the output of the hospitals should be measured in a correct way. Purpose of the work:

* The volume indicators used are not quality- adjusted. There is the consensus on what quality is and which should be used. * The output of the hospitals was broken-down by the main functions of the services provided by the hospitals in Portugal: - In-patient; - Day hospital; - Out-patient; - Home care. Description of the work:

* The methods for measure the output that were used are 4: - Method A: it measures the units as non-market. The health output is measured as the sum of costs of production less non- health sales. Health output (=) Compensations of employees (D1) (+) Intermediate Consumption (P2) (+) Consumption of Fixed Capital (k1) (+) Other taxes on production (D29) (-) Other subsidies on production (D39) (-) Non-health sales Description of the work:

- Method B: it corresponds to the sales of health care services of the hospitals. - Method C: Corresponds to the present situation, that is, how output is recorded in the Health Accounts for the period It can be considered as a mixed recording at least for 2003 and For the period , all units are recorded as being non-market and therefore its output is measured by the sum of costs of production. In 2003 and 2004, as previously mentioned, the hospitals EPE became market and their output was measured by the sales of health services whereas the hospitals SPA (public institutions) remained non-market with its output measured by the sum of costs of production. Description of the work:

- Method D: Output is equal to the quantities multiplied by its price or average cost. The quantities can be Diagnosis Related Groups (DRGs) and the respective price or average cost. It can also be number of treatments or appointments multiplied by its price or average cost. In-patient: Prices fixed legally by type X DRG (Diagnosis Related Groups) by type; Hospital Day Cases: Total average cost by type X Patients treated by type of treatment; Out-patient: Specialised Medicine appointments: total average cost by specialised medicine X nº appointments by specialised medicine; Emergency: Total average cost by type X Patients treated by type of treatment; Ambulatory surgery: Prices fixed legally by type X DRG (Diagnosis Related Groups) by type. Home care: Total average cost by type X nº of visits by type Description of the work:

* Price and volume Indices were calculated to measure real growth also by using detailed data on quantities and prices/costs. To calculate output figures valued at prices of previous year, Paasche Price Indices were calculated in order to consider weighters of the current year and to measure volume Laspeyeres Quantity Indices were calculated. * The health output was deflated for all Methods according to the output deflator used in method D. The volume indices obtained from the data in Methods A, B and C were implicitly derived. * For the period detailed financial statements for the hospitals in the NHS were used to estimate output according to Methods A, B and C, both for production costs and health and non-health sales. Data for these years are on a cash basis. In 2003 the new Public Accounting Plan came into force including the availability of cost accounting. Therefore the calculation of output according to Methods A, B and C for 2003 and 2004 considered the detailed cost accounting for the hospitals on an accrual basis. Description of the work:

Results

Health Output

Health Output-Breakdown by functions

Conclusions: The volume indicators that were used are not quality adjusted due to its complexity. We think that presently no consolidated methodology is established to allow the calculation of quality indicators. As a conclusion from the available data we think that Method D seems to be the best measurement of health output because it is more stable and it is not influenced by externalities such as those mentioned in the first paragraph of this section. This Method describes in a better way the volume growth of the health output making it easier to study the factors that are responsible for changes in productivity. Should Method D be applied the only limitation rely on the estimation of the non-health output which is part of both questionnaire on Health Accounts and National Accounts. There is a need to consistent with the National Accounts.