Determinants of expenditure variation in health care and care of the elderly among finnish municipalities

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Abstract
In Finland, municipal health care expenditure varies from FIM 3 800 per capita to FIM 7 800 per capita. The objective of this study was to estimate the impact of different economic, structural and demographic factors on the per capita costs of health services and care of the elderly. Using regression analysis we attempted to explain observed differences in expenditure by determining separately the effects of allocative and productive inefficiency and the effects of factors influencing the demand for services. We found income level of local population, generosity of central government matching grant, allocative efficiency (the mix of care between institutional and non‐institutional care), productive efficiency of service providers, and factors associated with the need of services (age structure, morbidity) to be the most important determinants of health care expenditure. Our results reveal that municipalities have the means at their disposal (by shifting resources to outpatient care and increasing productivity) to significantly reduce expenditure on health services and care of the elderly.