Health services as a key sector for income and employment change

• Author: C. Socci - M. Ciaschini - R. Pretaroli - F. Severini
• Position: Department of Communication Sciences, University of Macerata, Italy.
• Pages: 163-172

Page 163

1. Introduction

The increase in health care expenditure emphasizes the relevance of health sector in world production and confirms the importance of health commodity within national economy (Works, 2003). The health commodity and its relative production process is characterised by the absorption and creation of a complex set of goods and services (Harris et al., 2004). The territorial distribution of health commodity production and the social-economic weight connected with its financial system, require a detailed analysis of connections among health and the other commodities. This analysis should be done in terms of backward and forward linkages (McNamara and Hancock, 2003) and in terms of linkages with institutional sectors (Households, Firms, Government) which partially express the health demand (McNamara e Hancock, 2003).

Economic literature on this subject typically focuses on theoretical reasons allowing public involvement in production and supply of health commodity. Even if the main criticism related to health commodity is represented by the efficiency in its production and the equity in its distribution among people, this type of analysis normally does not take into account the production aspect and its impact on income and employment (Hughes e Walker, 2003). Since health commodity interacts with the other commodities and institutional sectors, it is crucial to verify whether the health good is able to affect the most importantPage 164macroeconomic aggregates (Clair et al., 2005).

This type of analysis should be performed through the extended multisectoral model based on the Social Accounting Matrix (SAM) that is able to represent the health flows within the phases of value added generation and primary and secondary distribution of income (Bodeen e Shaffer, 1998). Such type of data base can put into evidence the linkages among all production processes and agents in the economy. This is possible by means of the Input-Output table (I-O table) where the flows of health commodity are included in a unique commodity named "Health and social work services", according to the NACE.REV.1 classification (EUROSTAT, 1996).

We decided to put into evidence each part of the "Health and social work services" commodity within the economy. For this purpose, according to the structure of the Italian health system, we split all flows related to this commodity into three different categories: i) Hospital Firm Services (HFS); ii) Local Health Unit Services (LHUS); iii) Other Health and Social Services (OHSS). The final result is represented by an I-O table for the year 2000, with symmetric structure (Commodity by Commodity), in which a set of rows and columns are headed to three different categories of health commodity. After that it is crucial to integrate the data in the I-O table with information deriving from the income accounts in order to obtain a Social Accounting Matrix (SAM) able to describe the Income Circular Flow.

The extended multisector model allows obtaining the structural matrix of the economy which describes the intersector linkages of the health commodity (when it is considered both as a seller to other activities and a purchaser of intermediate goods). Moreover, the model allows identifying the economic relations between institutional sectors and health care expenditure and the linkages analysis is able to determine the relative incidence of the health commodity within the economy (Rasmussen, 1956). Then the inverse matrix of the model can also be considered as a suitable tool to evaluate the impacts of a general or specific policy since it takes into account the direct and indirect effects on output and on employment.

The second section of the paper describes the health care expenditure (in order to put into evidence its main components), the structure of the I-O table and the SAM. The third section describes the extended multisector model and the dispersion analysis approach in order to determine the relevance and the role of health care commodity in the economy. Section fourth shows the main results of both dispersion analysis and policies scenarios.

2. Health Services and Income Circular Flow

The health product consists of a plurality of heterogeneous goods and services and its production process is characterized by a complex organization structure.

This feature forces the attempt to define within the health system the expenditure in each macro area that identifies a hypothetical center of cost associated with production and supply of different types of health good. In this respect we identify a sub articulation of health production: HFS, LHUS, OHSS. This classification, even if not in accordance with NACE.REV.1, is suitable for any level of analysis of health production, both national and regional level, since it identifies two centers of cost with their own budget. [¹]^.

In order to identify the three different centers of cost for the health expenditurePage 165we manage the official accounting flows of Hospital Firm Services and Local Health Unit Services. The data are collected annually by each Italian Region according to the official schemes adopted by the Health Information System (SIS) (Ministry of Health, 2000). This procedure aims to establish the production cost able to link the total health product to both the flow of primary factors (labor and capital) and the flow of intermediate goods absorbed by the health production process.

The classification of costs and revenues provided by the Health Information System needs to be consistent with the classification of commodities included in the I-O table. We begin unbundling the intermediate costs from that one for primary factors in order to emphasize both the value added and the expenses for intermediate goods. In particular, we impute the intermediate expenditure to each typology of commodities absorbed by the production process of health. The major part of the intermediate costs of Hospital Firm Services is represented by chemical/pharmaceutical commodities and medical equipment, 16%. Otherwise the major part of the intermediate costs of Local Health Unit Services is represented by the costs of intermediate services purchased from other public and private sanitary structures, 28.7%. In general we can observe that third of the total expenses of Local Health Unit Services and Hospital Firm Services is generated by intermediate expenditure and the rest is represented by value added.

The health commodity can be represented through the integration of the production and the income national accounts (Round, 2003) in order to...