Efficiency and equity effects of healthcare decentralization: evidence from Italy

Decentralization in public health care systems is common to many countries. It is also one of the pillars of most recent health care reforms, as a means to increase efficiency and quality of public provision, to promote accountability of decentralized units and improve the overall governance of health care systems. The advantages of fiscal decentralization are well acknowledged from a theoretical point of view: decentralization increases efficiency and effectiveness in public service delivery. However, these results are valid only under specific conditions and circumstances, which include, for instance, the local public good nature of goods provided, the absence of externalities, the symmetric distribution of relevant information and the absence of agency problems. The conditions for fiscal decentralization to be beneficial, as described in the relevant theoretical literature, are not easily fund in the health care sector. In particular, health care is a merit good rather than a local public good and decentralized provision shows significant spillovers and agency problems. Therefore, fiscal federalism in the context of health care provision has particular characteristics that need to be carefully analyzed. In addition, besides efficiency concerns, equity is critical in publicly provided health care services. In fact, health care is generally conceived as a citizenship right to be ensured equally to all members of a community. Therefore, universality and equity are founding criteria of public intervention in the health care sector. When health systems are decentralized, equity should be ensured not only among different individuals, but also across different jurisdictions, the latter being a critical issue especially in countries characterized by stark geographical and income distribution differences. The properties of decentralization in terms of equity enhancement are rather disregarded by the economic literature, and the effects of decentralization on equity in health care provision need to be further investigated. This chapter analyses the problems that arise when public health care systems are decentralized, both from an efficiency and an equity perspective. It also focuses on Italy as a case study to exemplify these specific problems and the impact of strategies and policy approaches to tackle them. Italy is an interesting and useful case study for at least three main reasons. First the Italian National Health System (Sistema Sanitario Nazionale - SSN), introduced in the late 1970s, successfully attained universality in service provision, in a country where the previously existing mutualistic organization of health care produced a highly uneven coverage both socially and geographically. Sine the 1992-1993 reform, cost containment and efficiency in public provision were also enhanced through the introduction of quasi markets. Second, the organization of the Italian SSN, since its inception, has involved all levels of government (national, regional, local), each one with specific tasks and responsibilities. Then, two SSN reforms, implemented in 1992-1993 and in 1999, introduced fiscal federalism in health care, increasing the fiscal autonomy of the regional level of government and its programming and organizational role. Finally, Italy is a country characterized by stark regional differences as regards socio-economic conditions as well as public sector performance. In such a setting, fiscal decentralization of a function of government requires particular attention and fiscal arrangements need to be carefully designed, to ensure efficiency but also to prevent distorted incentives and reduced fiscal responsibility of decentralized governments. This applies, for instance, to the design of financial grants from central to regional governments, which are needed for equity concerns, to compensate for the significant differences in regional fiscal capacities and for cross border provision. The Italian NHS is therefore a useful case study to explore the impact of decentralization on healthcare systems both under an efficiency and an equity perspective, to identify critical stances and derive lessons on policies and strategies to tackle them. This chapter is structured as follows. Section 1 briefly outlines the main results of the so-called first and second generation theories of fiscal federalism as regards the relative advantages of a decentralized system as compared to a centralized one. Section 2 investigates the economic rationale for healthcare decentralization and identifies the main problems arising when health care provision and financing is decentralized. These include, in particular, concerns about the financial sustainability of the healthcare system, equity problems related to services’ accessibility for all citizens and population health outcomes, and wide interregional differences resulting from the devolution of policy responsibilities. Finally, section 3 describes the asset and organization of the Italian National Health System (SSN), with specific reference to the choices concerning decentralization of tasks and competencies, as well as decentralized governments’ fiscal autonomy (revenue and expenditure decentralization). Fiscal arrangements that involve the different levels of government are also analyzed, with specific reference to intergovernmental grants and their impact on the fiscal responsibility of decentralized governments and on the performance of the health system. The specific efficiency and equity problems arising in this decentralized setting are analyzed and policy solutions evaluated and discussed. This analysis aims to increase the understanding of the relationships between decentralization and the performance of health systems, under both an efficiency and an equity perspective.