Dissertation title: “Essays on resource allocation in public health care”

Governments play a massive role in financing health care, accounting for 60% of spending worldwide. Squeezed between rising costs of medical technology and aging populations, the costs of administering public health insurance has grown rapidly. This dissertation investigates two ways in which governments attempt to control costs and increase value-for-money: rationing access to health care through waits and bureaucratic hurdles, and contracting out services to the private sector.

In the first chapter, I study private entry into public health care markets, in the context of a reform in the English National Health Service that enabled patients to receive care at private hospitals paid for by the government. In the second chapter, I study key mechanisms by which health care is rationed in England, exploiting year-to-year changes in funding to local areas. In the final chapter, I study rationing of drug spending by private insurance firms administering public prescription drug coverage in Medicare part D, using randomization of people to insurance plans.

Chapter 1. Private entry and supply constraints in public services: Evidence from the English National Health Service. To increase competition and ease supply constraints in public health care systems, it is common for governments to contract with private providers alongside public incumbents. This paper studies a policy reform in England that enabled elective orthopedic patients to receive treatment at private hospitals paid for by the government. Using variation in exposure to the reform due to locations of existing private hospitals, I find that the policy increased number of admissions per 1,000 people, reduced emergency readmission rates by 13% and wait times by 16%. Private hospitals treat less severe patients, increasing average complexity of patients in the public sector. Despite this, the observed quality improvement is driven largely by spillovers to public hospitals. Effects are concentrated in markets with low preexisting public sector capacity, providing evidence that relaxing capacity constraints is a key channel.

Chapter 2. Universal coverage with financial constraints: How public health systems ration care. In this chapter I study how government budget constraints in publicly funded health systems restrict access to health care. Using data from England, I show that cuts to government funding negatively impact access to hospital care for fully insured individuals. I exploit a ‘pace-of-change’ policy used to determine financial allocations for administrative regions. This policy translates aggregate funding shocks into regional funding allocations using a non-linear formula that generates variation in funding that is plausibly exogenous to demand for health care. Government funding cuts reduce elective hospital admissions and increase hospital wait times. These effects are most pronounced for orthopedic patients. Using survey data on patient-reported benefits from orthopedic surgery, I show that the patients who are rationed out by funding cuts have lower propensity to benefit from treatment and higher income.

Chapter 3. Rationing medicine through bureaucracy: Authorization restrictions in Medicare (with Zarek Brot-Goldberg, Timothy J. Layton and Boris Vabson). High administrative costs in U.S. health care have provoked worry among policymakers, but much of these costs are generated by managed care policies that trade off bureaucratic sludge against reductions in health care spending. We study this trade-off for prior authorization restrictions on prescription drugs in Medicare Part D, where low-income beneficiaries are randomly assigned to default plans. Beneficiaries who face restrictions on a drug reduce their use by 23%. Roughly half of patients are diverted to another related drug, while the other half are diverted to no drug. We estimate that these policies generate net fiscal savings, reducing drug spending by $61 per patient-year, while creating $7.30 in paperwork costs.