Value for Money: Health System Efficiency and Preferences for Health Care

Health expenditure is influenced by health system efficiency, but it is also the result of societal decisions and preferences. Existing cross-national efficiency evaluations often do not fully take this into account, misinterpreting differences in preferences as differences in efficiency. This article estimates health system efficiency by taking preferences fully into account. The empirical findings confirm the theoretical argument, that omitting preferences leads to biased efficiency estimates. Countries and health systems differ with regard to health expenditure not so much because their institutional setting affects their efficiency, but because preferences and demands of their "customers" differ.