Project proposal from HERO:

More for less: Why is Norway special?

Issues in comparing health costs and outcomes

1. Relevance
According to data from the OECD, Finland spent only about half as much as Norway on health
care per capita in 2005. At the same time Finland did not do dramatically worse than Norway on
many measures of health, and on some they did better (lower infant mortality, higher breast
cancer survival rate, but lower acute myocardial infarction survival rate). Finland may be the
most extreme example, but the same is true more generally: The data from OECD seems to
indicate that the relationship between health expenditure and outcome is not simply that “higher
expenditure equals better outcome.” The current proposal starts from this simple observations
and the puzzle it creates: Why is there such a gap between expenditures and outcomes?
Research on this question is important because it allows us to distinguish between
differences between countries that are caused by true inefficiencies and differences that are
caused by other factors. By correctly diagnosing the situation one may avoid policy reforms
based on misleading perceptions of why one country seems to better than another.
Although useful, one should also be aware of the limitations when it comes to comparing
health care systems. Countries often differ on so many variables that it becomes very difficult to
assign credit for success to one factor alone. For this reason, and instead of trying to give a
complete answer to the question of “what is the best system”, we propose a more modest
approach: trying to identify some important mechanisms and evaluating some proposed
explanations. In order to select the issues that are most fruitful, it is necessary to consider the
existing literature and the available data.

2. Background, status of knowledge, objectives

There is a large body of research on why some countries seem to provide better and often
cheaper health service than other countries (Häkkinen & Joumard 2007; Murray & Evans 2003).
An organizing frame for this literature is provided in Figure 1.

Figure 1: The health outcome chain

Population and Expenditure Treatment Health

Environment

Issues Wage/Price level Isolating effect of

Organization
Age distribution Finance system Economic efficiency treatment
Climate Administrative Technical efficiency Different health
Nutrition costs indicators
Alcohol/Tobacco Cost of litigation
Exercise Priorities
Genes

Differences between countries could arise, first, because the populations and the environments
differ. Second, not only the level of expenditure could differ, but also the way these expenditures
are used among different groups and interventions (priorities). Third, countries could differ in
terms of how much treatment they get for the same level of expenditure as well as how effective

1
the treatment is in affecting health. Finally, the comparison will depend on which indicators of
health that is used and how one isolates the effects of health expenditure from other factors that
affect health outcomes.
Figure 1 allows identification of existing gaps in the literature that will be given priority
in this project. First of all, there is a sizeable literature on why the US has high spending but less
than average results (e.g. Anderson et al, 2003). Some of the variables and mechanisms
mentioned in this literature are relevant to Norway and Europe in general. For instance, countries
with the same level of expenditure can get different outcomes if there are significant differences
in the price and wage levels. In other areas, the literature on US is less relevant. There is, for
instance, little reason to believe that Norwegian exceptionalism can be explained by high
administrative costs associated with a private system or the high costs of malpractice litigation
and insurance – both of which have been used, controversially, to explain why the US is different
(Woolhandler, Campbell and Himmelstein, 2003). Two such potentially important causes which
have received little or no attention in explaining cost/outcome differences, are genes and
priorities. No previous research has isolated the effect of genetic variation on incidence and
health cost in various countries. Different priorities have sometimes been suggested as an
explanatory variable, but little research has been done to quantify the importance of these factors
and the current project will make the knowledge in this area more precise.
Quantifying the importance of some macro-level explanations is a step forward.
However, as Häkkinen and Joumard (2007) point out, macro-level explanations of differences
between countries should be complemented by more micro-level studies which provide more
details on the reasons for differences in costs and outcomes. The final part of this project will do
so by conducting a detailed comparison of costs and outcomes in the treatment acute myocardial
infarction in Finland and Norway.

3. Detailed approach and method

3.1 Explanation 1: High costs (wages, prices, exchange rates)

Differences in wage and price levels make the same level of care more costly in one country
compared to another. In order to answer the question of how much of the difference between
Norway and other countries that are explained by this, we will collect and analyse data on the
number of people employed in different professions in the health sector and their wages. This
information is partly available from the OECD Health Data (remuneration of nurses and doctors,
number of nurses and doctors per hospital bed, total number of hospital beds). These data,
however, are incomplete and we focus on the Nordic countries since we have access to better
data on this region from a current project. Using these data we can compare actual health
expenses and the expenses one would have had if wages were more in line with the average. The
larger this difference is in the case of Norway, the more one may be inclined to believe the wage
hypothesis. Although not a major or technically challenging part of the project, it is important to
consider the wage explanation because it is both quantitatively important and often
misunderstood. According to the OECD salaried hospital nurses in Norway earned 45% more
than salaried nurses in Finland which indicates that this could be a very important factor.

3.2 Explanation 2: Priorities and lower returns

A recent report from the Norwegian Directorate for Health Affairs suggests that the reason
Norway appears to get less out of its health investments than other countries, is that Norway
spends much money in areas not captured by traditional health output indicators (life expectancy,
mortality, survival rates). Examples include spending on nursing homes, terminally ill patients,
psychiatric treatment and care, improving the situation for the disabled and individuals addicted
to alcohol and illegal drugs. This argument is important not only for Norway, but for
comparisons of health outcomes more generally.

2
 The general problem is not only that countries could choose to spend money in areas not
measured by traditional output indicators. It could also be that rich countries naturally tend to
have a lower return because they are rich enough to give priority to expensive health treatments
with a lower return. At the same time they already have a high health status from which it is
more difficult to improve. In this case the return from the last few billions invested is lower than
the first and the extra spending does not increase the health outcome very much. This is a
common phenomenon and it may explain some of the difference between Norway and other
countries. Limited data availability and practical constraints makes it impossible to estimate the
importance of all the factors above, so we have chosen to focus on some mechanisms, both
theoretically and empirically.

3.2.1 Investments with low or negative return on traditional indicators

Standard economic theory predicts that the marginal return to investment will decrease as one
invests more. There is even an additional and more surprising possibility that could arise in
health: More spending could in some cases lead to a reduction on the average reported level of
health. This sounds paradoxical, but the intuition is easy to understand. Increases in spending
may help save or extend the lives of people who sometimes will have very poor health. For
instance, a person who has had a stroke will often have a worse health situation after the stroke
than before. If increased spending enables us to save more people who have strokes, this implies
that we now have more individuals in the population who tend to have health problems. In this
case some average indicators of health in the whole population (e.g. – like self-reported health
status) will go down as spending goes up. In addition these patients often require additional and
costly treatment and medication, thus generating a feedback-loop: higher spending generates
even higher spending.
Not all health spending has large decreasing marginal return, but some of it does. For
instance, it has been estimated that a large share of the Medicare budget (30%) in the US is spent
on individuals in their last year of life (Lubitz, J.B. and Riley, G.F., 1993). Similarly, it has been
estimated that 5% of the old individuals gets half of the total health spending on old individuals
in the US (Garber et al., 1998) and that about 25% of all health care spending (private and
public) is used in the last year of a persons life (Hogan et al., 2000).
In contrast to the US literature, there is no systematic overview of how much different
countries in the OECD spend in this area. There is some data on spending by age category, and
for instance Zweifel et al (1999) has estimated the growth of spending on the old in Switzerland,
but little has been done on different disease categories. This is an important issue because of the
large importance of some diseases in the health care budgets, but also because of its potential for
explaining differences between countries. If some countries give this kind of treatment a high
priority, spending many resources on the terminally or permanently ill, this could explain why
they seemingly do not have as good results as others. To some extent such a comparison may
also function as an eye-opener, revealing an emphasis that was not intended or desired, but it
could also simply reflect different political and normative priorities on how to use health
resources.
In order to answer the question of whether spending in areas with low or negative
(economic) return could be an important explanatory factors we will start by collecting and
connecting data about the number and types of interventions in the last years before death and
the first years after being registered with heart problems, hip fracture or cancer:
• The Norwegian Registry of Patient Information (Norsk Pasientregister)
- Information on hospital interventions
• The Norwegian Prescription Database
- Information on use of pharmaceuticals
• The Norwegian Cause of Death Registry

3
This type of research has not been possible previously because the databases have not contained
unique identification for each patient, but this will change in 2009. We will also prepare the
collection of similar data from other OECD countries. In this sense, this is a first step towards a
larger European project which we will seek funding for through the European research
programme.
After collecting the data and analysing the number of interventions in general and for the
selected diseases, we will calculate the costs associated with the interventions. Some of the
interventions are already measures in monetary terms by DRG weights, but other costs will
require more data collection and estimation (costs of pharmaceuticals, travel costs and so on).
The project members have extensive experience with this kind of work from a previous project
calculating the costs associated with the treatment of colorectal cancer and can use both data and
knowledge from this project in order to create a database of the cost associated with the
interventions.
Doing this for Norway is interesting in itself, but in order to use it to explain differences
in costs and outputs, it is necessary to compare the results with other countries. The Nordic
countries already have similar data registers for patients as we do in Norway, so we will start by
collecting and analysing the same information in these countries. This is a major project since it
will require information about the cost of interventions in these countries. For this reason we will
focus mainly on some selected diseases when it comes to the cost comparison (heart problems,
cancer, hip fracture). These data will allow us to compare the Nordic countries on:
• The average number (and type) of interventions in the period before death (e.g. for
instance the three last years)
• Estimated spending in the period before death

The results will reveal to what extent the Norwegian spending pattern differs from the other
Nordic countries. If, for instance, the numbers reveal that Norway spends more on individuals in
the last years before death than others, this supports the argument that differences in priorities
may explain cost/outcome differences. The results will also reveal the strength of a feedback-cost
mechanisms whereby a cost generates further costs. For instance, if Norway has invested in a
costly treatment which results in a high 5 year survivial rate after myocardial infarct, the data on
cost within five year will tell us how much costs are increased as a result of better treatment.
Estimating the cost-feedback effect is, of course, not to suggest that the treatment is a
waste. It has also been argued by economists that society have a high willingness to pay for such
spending (Becker, Murphy & Philipson, 2007). The question of what kind of treatment we
should give priority is a normative one and no amount of positive analysis can give answers to
ethical questions. What we can do is to provide a basis for better decisions, information on how
much it costs, what the benefits are, and to what extent the priorities may explain why countries
seems to differ greatly when it comes to the return on their health investment. It is also possible
to provide a more theoretical framework in order to explain why different countries give high
priority, and accept high treatment costs, for some diseases. This is the topic of the next section.

3.2.2 High incidence, high priority, high unit costs

Differences in challenges should naturally lead to variations in health costs. However, it is not
clear that the variation in challenges should lead to variations in health outcomes measured per
patient. This would depend on the magnitude of the health system’s response to these variations.
From a decision theoretic perspective it makes sense that when scaling the health system’s
capability to treat different diseases, one would put higher emphasis per patient on diseases that
are common. Most potential patients would probably want a higher emphasis on treatment per
patient on diseases that are common than on diseases that are rare. This may explain why
survival rates for heart diseases is on average increasing with incidence rate as shown in the
figure below.

4
Incidence and mortality acute cardiac infarction wth trendline (OECD Health Data, 2007)
0.75

Ireland

0.5
Death rate per 100000

Finland

0.25

USA
Norway

0
0 50 100 150 200 250 300 350 400 450
Incidense per 100000

From the figure it is apparent that an individual from a country with a low incidence rate has a
much lower probability of surviving a heart attack than individuals from countries with high
probabilities. Norway represents one extreme with the highest incidence rate and the lowest
mortality rate (14.6%). To the extent that the low mortality rate follows from a rational response
to a high incidence rate, it is clear that this response must be financed through reduced services
for other treatments and/or higher health costs.
This reasoning has not been formally analysed in the literature and the project aims to
rectify that by developing a theoretical framework for management response to exogenous health
factors. Such a framework would indeed be beneficial both as a tool for comparison between
different health management regimes as well as providing guidance to policymakers on resource
utilization.

3.3 Explanation 3: Genetic differences: Heart disease and the Apolipoprotein E gene.
It has long been known that cardio-vascular disease in Europe shows clear regional variations,
with Scandinavia being a hot spot for atherosclerosis and associated heart infarctions. Much of
the variation has been associated with variation in diet and the public health response to these
variations have been recommendations for a general change in dietary habits. However, the link
between diet and health is not clear cut. It has been known for a long time that least two alleles, ε
2 and ε4 of the Apolipoprotein E gene affects the probability of developing atherosclerosis, Eto
et al. (1989). Further, it is also established that the ε4 allele has a strong north-south gradient in
Europe, with ε4 being more common in the north, Lucotte et al. (1997). Not surprisingly, for the
few countries where data allows a comparison, one finds a strong link between frequency of the
ε4 allele and the incidence of acute myocardial infarction. This is shown in Figure: Further,
differences in the frequency of ε4 translates into significant differences in mortality, Ewbank
(2004).

5
 APOE e4 and heart disease

450
Heart infarction rate per

400
350
300
100000

250
200
150
100
50
0
0,1 0,15 0,2 0,25 0,3 0,35 0,4
Fraction at least one copy with e4

Source: Heart Infarction rate from OECD Health Data (2007), Genetic frequency from Ewbank (2004). The plotted
countries are, from left to right, Italy, France, Netherlands, Denmark, Finland, Sweden.

The link between Apolipoprotein ε4 and cardiovascular disease presents a clear case that
genetics is a major determinant of the frequency of a major disease, Further, as cardiovascular
diseases are extremely costly to treat, Apolipoprotein ε4 probably affects measures of costs as
well as national health outcomes. Unfortunately, Apolipoprotein ε4 has other sinister effects as
well. There are clear links between this allele and the incidence of late onset Alzheimer’s disease,
Corder et al. (1993), although the link is less clear cut and depends on interaction with other
genes. In particular, it appears that Apolipoprotein ε4 is instrumental in hastening the onset. To
what extent this affects Alzheimers incidence rates in Scandinavia is not known.
Here we have described a major disease with important consequences for health
outcomes and health costs. Another example of similar disease is osteoporosis. Both these
diseases has a north-south gradient in Europe caused by underlying genetic and/or environmental
reasons. As these diseases affects significant fractions of the population and are costly to treat,
one would expect that they are important in explaining the observed national variations in health
costs. However, it is not clear how these factors should be taken into account when evaluating
the cost effectiveness of different health management regimes. Developing methods for such
comparisons is a main objective of the project.
Any comparison that fails to correct for differences in exogenous factors will fail to give
meaningful results. Here we propose to normalize costs to account for incidence rates. This will
be done by using relevant DRG amounts, where available, and multiply by the difference
between a country’s incidence rate and the mean incidence rate for the particular diseases. This
will be done for diseases where there are reliable incidence rates and DRG amounts for
individual countries and the incidence rates show significant national variation. An additional
criterion for including a particular disease is that there should exist a medical literature that
provides an explanation for these variations.

4. Micro-comparison: Acute Myocardial Infarction and other diseases in

Norway and Finland

4.1 Background
Macro-data are fine to study the variation in performance of the health sector across a panel of
many countries. As a complement, disaggregated data at the disease level are preferable for
doing in depth analysis of the factors that contribute to the observed variation. Disease specific

6
data are for instance needed to find out more about whether differences in cost or outcome are
due to differences in the composition of particular treatments or due to differences in the cost of
doing a particular part of a treatment or both. The simple table below illustrates possible
combinations of cost and outcome.

Cost Outcome
Good Poor
High 1 2
Low 3 4

Comparative studies may conclude with all kinds of combinations of costs and outcomes in one
country relative to another country. For instance, in Norway we know that costs in general
(although not necessarily for all treatments) are high. But the discussion of health policy
implication is likely to be much influenced of whether high cost is combined with good or poor
outcome.
Meaningful comparisons require comparable data. Since obtaining comparable data is a
resource consuming effort, we have decided to start out with two countries; Finland and Norway.
We may consider extending the number of countries later on when we have gained some
experience and produced some result for Finland and Norway.
Finland is not a random choice. Firstly, a lot of attention has been drawn to the
comparison between Finland and Norway lately. As already mentioned, Finland is using far less
resources on health care compared with Norway, while most aggregate health indicators show
quite similar results in the two countries. An analysis of micro-data would allow us to make
detailed analyses of the reasons behind cost and outcome variation for well defined types of
diseases. Secondly, Finland has already started with cost and outcome research at the micro-
level. As a coordinator of the PERFECT-project since 2004, Centre for Health Economics at
Stakes (CHESS) has adopted the disease-based approach and has indeed developed protocols for
seven diseases (AMI, hip fracture, breast cancer, hip and knee replacements, very low birth
weight infants, schizophrenia, and stroke). At present, register based individual data and thus
also indicators on the content of care, costs and outcomes are available between years 1998 and
2005 for five diseases. They have been widely used in local decision-making and have also been
discussed in the media. Hence, this project is likely gain a lot from the Finnish experience and
the potential for cross fertilization is present.
The sub-project is inspired by the OECD Health Care Quality Indicators Project (Arah et
al., 2006, Kelley et al., 2006 and Mattke et al., 2006) where the ambition is to establish quality
indicators at the aggregate level appropriate for comparing dimensions of health care quality
across the OECD countries. The long-term purpose of the OECD-project is: “… to develop a set
of indicators to raise questions about health care quality across countries for key conditions and
treatments. In essence, they should be used as the basis for investigation to understand why
differences exist and what can be done to reduce those differences and improve care in all
countries” (Mattke et al., 2006). Our ambition is to start taking this approach a step further by
investigating reasons for differences in quality and costs between a small number of countries by
using micro data at the patient level.

4.2 Research questions

We are going to start out with Acute Myocardial Infarction (AMI), since comparable data here
seem to exist in both countries. According to the OECD Health Database the annual discharge
rate from hospital per 100,000 inhabitants is 390 in Norway and 334 in Finland. The number of
death per 100,000 inhabitants because of acute myocardial infarction in 2003 was 76.5 in
Finland and 61.7 in Norway. A first fundamental research question is then why the proportion

7
that dies after AMI seems to be higher in Finland than in Norway. The following questions may
shed light on the differences:
- Are the figures reported by the OECD compatible with what we find when micro-data are
examined or do the differences in discharge rate reflect differences in administrative routines
(registration of patient vs. registration of treatment episodes)?
- Are the criteria used for diagnosing coronary heart patients similar in Finland and Norway?
- Are there differences between the two countries regarding the composition of treatment that
is offered? Are for example Norwegian patients offered PCI, CABG or medications more
frequently than Finnish patients?
The second basic research question is related to costs: Are the cost of treatment different between
the two countries? What are the costs of achieving the increased survival that Norwegian AMI
patients may experience?

4.3 Design and method

This kind of study requires longitudinal patient level data. The data set must contain registration
of major treatment events and information of whether the patient is alive or dead at the end of the
observation period.
One specific question that is going to be explored is whether differences in treatment
costs are due to improved survival, more intensive treatment for identical survival or more costly
treatment due to more resources used or more expensive factors of production.
Several statistical methods are to be used in analysing the data. With censored (not all
patient spells are finished during the observation period) longitudinal data at the patient level
statistical survival analysis is a rather obvious candidate. Cost in a certain period may then be
corrected for the probability of survival.
Both pooled data analysis and propensity score matching methods will be explored.

4.4 Data
The potential for micro-level studies of outcome and cost is going to take a big step forward
when the person identifiable patient register is expected to in operation from the end of this year.
Till now it has only been possible in Norway to register single hospital stays and not to observe a
particular patient through the full treatment in the specialist health sector. The ambition of this
project is to make use of the data from the Norwegian Patient Register (NPR) from the beginning
of 2009. Measures to prepare for this major event will be taken during the early part of autumn.
While we are waiting for data from the NPR we shall make use of a database that is
collected by cooperating Norwegian cardiologists. The data base is established at the
Lillehammer hospital by cardiologist Morten Grundtvig and consists of data from patients
coming from the catchment area of this hospital. Data are collected from 1998 and onwards. By
use of standard data collection forms information on history, presenting features and treatment
received was acquired for all coronary heart diseases, including AMI patients. The data were
prospectively and consecutively registered by doctors working in the hospital’s medical
department and were entered into the database by a research nurse. The discharges of all patients
with myocardial infarction between 1 January 1998 and 31 December 2000 are registered.
Examples of variables in the data base are: age, sex, diagnosis, history of smoking, history of
treatment, cholesterol values, presence of non-insulin-dependent or insulin-dependent diabetes
mellitus, presence of angina pectoris, history of stroke, procedures used and medications. The
Finnish data to be used are register data provided by our Finnish partner STAKES.

5. Project management, organisation and cooperation

The project is managed by HERO; the Health Economics Research Programme at the University
of Oslo (http://www.hero.uio.no). HERO consists of the Institute of Health Management and
Health Economics (http://www.med.uio.no/heled), The Frisch Centre (http://www.frisch.uio.no)

8
and The Department of Economics (http://www.oekonomi.uio.no). HERO is together with HEB
in Bergen appointed by the Research Council as a main health economics research group in
Norway. Since the project start in 1998, HERO has established a network of national as well as
international researchers, via cooperation, workshops, conferences, and appointments.
Internationally, we have established co-operation with Professor Unto Häkkinen and The
Centre for Health Economics at STAKES (http://groups.stakes.fi/CHESS/EN/index.htm). This
group is well-known for undertaking high-quality health economics research on health-policy
relevant issues. Their work centres on applied research and developing methods to support this
research. For us STAKES is a perfect match. As a coordinator of the PERFECT-project, Centre
for Health Economics at Stakes (CHESS) has already adopted a disease-based approach with
protocols and data registers for several diseases.
Project manager will be Professor Tor Iversen. He is currently Director of Research of
HERO. He is an experienced manager of large research projects in various sub-fields of health
economics. The project team at the time of application consists of (in alphabetic order):
Morten Grundtvig (physician, senior consultant in cardiology, Sykehuset Innlandet HF)
Terje P. Hagen (political scientist, professor, University of Oslo)
Unto Häkkinen (economist, research professor, STAKES, Finland)
Tor Iversen (economist, professor, University of Oslo)
Hans Olav Melberg (economist, post doc, University of Oslo)
Eric Nævdal (economist, post doc, University of Oslo)
Åsmund Reikvam (physician, specialist in cardiology, professor, University of Oslo)
Knut Røed (senior research economist, the Frisch Centre)
Ole Røgeberg (research economist, the Frisch Centre)
In addition, Zeynep Or (economist, senior research fellow at the Institute for research and
information in health economics (IRDES), Paris) is attached to the project as a consultant. She
has an extensive experience in doing comparative health economics research. Also in addition to
the group as it stands now, we will supplement the group of clinicians in each of the chosen
disease areas to help in designing the protocol for patients to be included in addition to other
decisions that require medical competence. So far professor Juha Hartikainen at Institute of
Clinical Medicine, University of Kuopio is included. Master students at the University of Oslo
will also be attached to the project as research assistants and through grants. We shall apply for
internal funding from the University to be able to recruit a research student (ph.d.-student) to the
project.
As the CVs show the research team has comprehensive experience with both theoretical
modelling and empirical analyses of health care provision. In particular, the group has research
background that involves large scale cost-benefit comparison and the use of statistical methods
to isolate causal effects in the analysis of health cost data. Also presented is extensive experience
with statistical analysis of panel data, which will be used in the micro-level comparison. One of
the researchers (Nævdal) has long experience in doing research on genetic differences. The
project team will meet regularly for discussions and progress evaluation. It also plans to organise
an international workshop on the project themes.

6. Ethical aspects
Generally, the project will comply with international and national ethical standards described by
The National Committee for Research Ethics in the Social Sciences and the Humanities and by
the Regional Committees for Medical Research Ethics (REK).
The sub-projects that involve micro-comparison will need permission from Privacy
Ombudsman for research. An allowance must be obtained from the Data Inspectorate and
Norwegian Board of Health to use information from the Norwegian Patient Register (NPR).
Furthermore, permission is needed from the Data Inspectorate to merge data from NPR with
other registers at Statistics Norway and the National Institute of Public Health.

9
7. Gender equality and gender perspectives
The effect of gender is fundamental in all health care research. In the studies similarities and
differences between men and women will be addressed in detail. In particular this applies to the
comparative studies of outcome and cost for specific diseases.

8. Dissemination plan
We refer to the application form for further information.

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