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health economics

health economics

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Ann Reg Sci (2010) 44:299–314DOI 10.1007/s00168-008-0259-2ORIGINAL PAPER
A spatiotemporal analysis of public pharmaceuticalexpenditure
Jorgen Lauridsen
Mickael Bech
Fernando López
Mariluz Maté Sánchez
Received: 26 January 2007 / Accepted: 14 June 2008 / Published online: 19 July 2008© Springer-Verlag 2008
A regression model for per capita public pharmaceutical expenditure,based on aggregate data from fifty Spanish provinces, observed annually for the per-iod 1996–2002 is analyzed. The necessity of simultaneously controlling for dynamicpatterns and spatial autocorrelation is demonstrated. As the aim of the present andrelated studies of small-area variation is to control for spatial association rather thanto formulate it as an explicit part of a model, the traditional application of parametricspatial autocorrelation or spatial autoregression specifications seems unnecessarilyrestrictive and superfluous. The present study analyzes the effects of spatial associa-tion using a non-parametric spatial filtering approach. The importance of adjustingfor spatial association is confirmed, but it is further shown that the parametric andthe non-parametric approaches may lead to substantially different conclusions regar-ding explanation of pharmaceutical expenditure variations. Thus, the need for furtherevidence on the implications of spatial association—and the recognition that this ismore than just spatial autocorrelation and/or spatial autoregression—when analyzingcomplex large area behavior using small area data is demonstrated.
JEL Classification
J. Lauridsen (
M. BechInstitute of Public Health – Health Economics, University of Southern Denmark,Campusvej 55, 5230 Odense M, Denmark e-mail: jtl@sam.sdu.dk M. BechOdense University Hospital, Odense, Denmark F. López
M. M. SánchezDepartment of Quantitative and Computering Methods,Polytechnical University of Cartagena, Cartagena, Spain
300 J. Lauridsen et al.
1 Introduction
During the last decade, the public pharmaceutical expenditure in Spain has grown ata rate superior to the total public health care expenditure(Darbá 2003a,b). Thus, the public pharmaceutical expenditure makes up an increasing proportion of thetotal public health care expenditure. Pharmaceutical expenditure made up 16.8% in1991 and had in 2002 increased to 23% of the total health care expenditure (Lopez-Casasnovas et al.2005). This growth is not specific to Spain, but is a general featureof the European Union countries (Ess et al. 2003); however, the Spanish pharmaceuti-cal expenditure as a share of public health care expenditure exceeds European Union(EU) averages(Lopez-Casasnovas 2005). It is thus crucial to analyze the causes of  this growth differential in order to focus on a rational use of medicine.The regulation of the pharmaceutical market in Spain is shared between nationalregulatory bodies and the regional authorities. There are notable differences in healthresources supply and health care expenditure across regions (Lopez-Casasnovas et al.2005) and there is evidence of regional variation in prescription rates and expenditureper prescription resulting in regional heterogeneity in pharmaceutical expenditureand in the pharmaceutical expenditure as a share of the total regional health careexpenditure (Costa-Font and Puig-Junoy 2004).There are very few studies on pharmaceutical expenditure from the regional pers-pective, although it is possible to find a few works dealing with the analysis of regional health care expenditure (see e.g.Kitchener et al. 2003;Levaggi and Zanola 2003;Lopez-Casasnovas and Saez 2001;Moscone and Knapp 2005;Costa-Font and Moscone2008). Despite the ample body of evidence of variations in the use of proce-dures in the literature on small-area variation(Folland et al. 2003;Ham 1988;Joines et al.2003;Wennberg and Gittelsohn 1973;Westert et al. 2004), few studies have examined the geographical variability in the use of pharmaceuticals (see e.g.Duboiset al.2002;Metge et al. 1999;Morgan 2005). The causes of variation discussed in the literature are the prevalence of diseases, mixed opinions of the effectiveness of surgery, practice style, health supply resource and differing patient preferences.Only a few studies of small-area variation have considered spatial variation inmedicalpractice.Westertetal.(2004)studiedspatialdisparitiesinhospitaldischarges (measuredbycoefficientsofvariations)andfoundthesedisparitiestobeapproximatelyunchanged during the 1980s and 1990s.Joines et al.(2003) found that hospitalization ratesforlowback problems varied significantly acrossthecounties ofNorthCarolina.Furthermore they found that counties with similar rates clustered geographically andthey concluded that spatial effects are important and should be considered in smallareastudies.MosconeandKnapp(2005)exploredthespatialpatternsofmentalhealth expenditure and established—similar to Joines et al.—the importance of controllingfor spatial autocorrelation. Moscone and Knapp’s study found a positive significantspatial autocorrelation suggesting that adjacent local authorities mimic the behaviorof their neighbors and tend to have similar mental health expenditure.Thepresentstudyfocusesontheprovincialvariationsinthedeterminationofpublicpharmaceutical expenditure in Spain and contributes to the literature on small-areavariationanddeterminantsofhealthcareexpenditure.Theaimofthestudyistoanalyzethe determinants of the province-level pharmaceutical expenditure in Spain while
A spatiotemporal analysis of public pharmaceutical expenditure 301
controlling for spatial effects. However, in contrast to the above mentioned studies,which apply parametric specifications, we apply an exploratory technique denotedspatial filtering (SAF) developed byGriffith(1996,2000,2003). The advantage of the SAF methodology is that spatial association is controlled for by screening it out of thevariables prior to the analysis, rather than relying on a restrictive parametric modelof the spatial association as a part of the analysis. Specifically, spatial associationmay potentially be more than just spatial autocorrelation. Spatial association may bepresent when the spatial units are small and the boundaries cut through clusters of provinces, whereby a certain degree of heterogeneity within the provinces may beexpected. In that case association between provinces is probably not due to spatialautocorrelation but to some sort of trend or regional phenomenon (cultural, historical,etc.). Furthermore, in order to obtain efficient results, the SAF approach is combinedwith a seemingly unrelated regression (SUR) framework in order to capture inter-temporal residual correlation and time-varying residual variances. Though it cannotbeconcluded thatthefilteringapproach isdefinitelysuperiortoaparametricapproachfor the case studied, it is clearly superior to the unadjusted SUR approach and thusmerits further attention.Finally, it should be noticed that economic theories from the public expenditureliterature on welfare competition, yardstick competition and benefit spill over mayexplain the existence of spatial spillover. In the present paper, we are not aimingon testing these theories but rather to present a non-parametric filtering approach toseparate the spatial and from the non-spatial components.
2 The Spanish pharmaceutical market
In Spain, the prices of publicly financed pharmaceuticals are fully or partially control-led,andthepriceindexofthemedicineshasbeenlargelyunchangedinthelastdecade.However,olderdrugsarereplacedbynewer,moreexpensive,drugs(Duboisetal.2000;Gerdtham and Lundin 2004;Morgan 2005) and a larger quantity is consumed because of increases in the intensity of medication in terms of defined daily doses per patient(Darbá 2003b;Rovira et al. 2001). The Spanish national health system is a decentralized system in which the regula-tion of the pharmaceutical market is shared between national regulatory bodies andthe regional authorities—called autonomous communities (AC). In this context, toensure better administration of pharmaceutical administration several legal modifica-tions have been introduced. These laws have increased the control of regional govern-ments on heath expenditures and the organization of the clinical care provision fordifferent ACs (Antoñanzas et al. 2007). See Fig.1for a map of provinces by AC. Even though cost containment has been a major priority for publicly financedpharmaceuticals this has not resulted in significant savings in public expenditure(Costa-Font and Puig-Junoy 2004;Darbá 2003a,b). The average price for pharma- ceuticals is below EU averages, with older drugs priced significantly below the EUaverage(Puig-Junoy 2004). There seems to be significant regional heterogeneity in theuseofgenerics(Costa-FontandPuig-Junoy2004).Newdrugsarenotpricedsigni-ficantly below the EU average and these drugs account for the largest market share

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