Public Health Finance:

Theory and Practice

Feb 8 2006, Washington DC

Thomas E. Getzen, Ph.D.

Professor of Risk, Insurance & Healthcare Management

Temple Universityand

Executive Director, iHEA

The function of

FINANCE in Public Health

Theory

Public Health Core FunctionsEconomics Public Goods

Finance Risk, Time

Practice

• Financial Management

• Public Health Financing and Organization

Definition

• “Public health finance is a field of science and practice that deals with the acquisition, management, and use of financial resources to advance the health of populations through prevention and health promotion.” (Moulton, Halverson, Honore and Berkowitz, 2004).

Core Functions

• IOM, WHO, DHHS – many versions• Assessment, Assurance, Policy

The provision of information, and the mobilization of action based on that information.

• “information goods”

Public Health Finance is Complex

• Network, system management.

• Different from physical goods and services.

• Thus, simply getting a set quantity of funds is not sufficient.

Characteristics of Public Goods

• COST: Non-exhaustiveno additional cost per added user.

• REVENUE: Non-exclusive can’t charge (must use general tax).

• Externalities (infectious diseases)

• Knowledge transfer

• Distribution (taxes, benefits)--only Government can transfer $$$.

Typical Public Goods

• National Defense

• Money Supply, Stabilizations

• Education

• Environment

• Industrial Policy (trade)

Behavioral Finance

• Savings “mental accounts”

• Money illusion

• 401(k)’s

• Regulations and help needed for efficiency.

core aspects

• Information

• Regulation

• Distribution

• Catastrophe

• Prevention

Information

regulation

distribution

Catastrophes

Prevention

Financial Theory

• Timing

• Risk

Time

• Discounted Present Value

• “discount rate” matters

• Fairly simple to implement.

• Time discounting applies to health, as well as to money.

Risk

• Actual risk is never really known.

• Win some, lose some.

• ROI is not certain, or regular.

• Some losses are just too large for the market – for catastrophes, need Govt.

• --and health is too big a risk for most people to take care of on their own.

Behavioral Finance

• Why public finance for individual illnesses with no externalities?

• Individuals rarely behave optimally without help.

• 401(k) example.

• Thus, we need guidance, and the guiding agencies (SEC, FDA, FTC, CDC) need resources.

Practice

• Financial Management

• Public Health Financing and Organization

Financial Management

• Operations

• Ratios

• different from for-profit corporation.--capital allocation treated as expense, rather than as an asset.

What is “ROE” for public health?

Where do reserves, rewards come from?

Public Health Financing & Organization

• Form follows function.

• Short-term (budget) v. Long-Term (growth)

• Changing environment

• “creative destruction”

• --public entrepreneurship---examples: HIV/aids, Bioterrorism.

• Must update ratios and benchmarks.(otherwise, same-old same-old)

Building Public Health Finance

• Support

• “Venture Capital”

Training Programs

• Mix of degree and continuing ed.

• Core curricula.

Organization and Funding

• Think outside the box.

• Shrink or collapse some of the boxes.

• Not just bridge-building, but reconfiguration.

• Use “information industries” (software, media, biotech) as models.

--nb, creative financing rather than unit pricing.

Research and Theory

• Public Health was at the forefront of science in 1905. Why not in 2005?

• Information science, network models.

• Import ideas (options, volatility, risk segmentation, rating agencies).

Conclusion• Getting better at what is currently done is

necessary, but not sufficient.• To fulfill the core functions:

(assessment, assurance, policy)

create a theory and practice of

investment

in population health.