A Value-Added Based Measure of Health System Output and Estimating the Efficiency of OECD Health Systems

Abstract

Life expectancy at birth is the most commonly used measure for health system output. However, there are a number of reasons why it may be a poor proxy. First, life expectancy assumes a stationary population and thus does not take into account the current demographic structure of a country; and second, the output of a health system should be measured in terms of the value-added to the population’s health status rather than health status itself. The paper develops a new measure of health system output, the Incremental Life Years to address these problems. The new measure is applied to study health system output, efficiency and total factor productivity in OECD countries for the years 2000 and 2004. The new measure provides different results compared to those based on the traditional life expectancy measure, and the differences are further accentuated when changes in efficiency and productivity are estimated.