Aggregation and the Measurement of Health Care Costs

Abstract

Units of observation used for analysis of health care costs must be matched to the units at which decision making occurs. The observed pattern of empirical results is consistent with a multilevel allocative model incorporating aggregate capacity constraints. To the extent that macro constraints determine total budgets at the national level, policy interventions at the micro level (substitution of generic pharmaceuticals, use of CEA for allocation of treatments, controls on construction and technology, etc.) can act to improve efficiency, equity and average health status, but will not usually reduce aggregate average per capita costs of medical care.