1. What is health care capital and why does it matter?
24 October 2019
Without a hospital or GP practice there is nowhere to treat patients, and without the right medical equipment, staff can’t provide the best quality care. Of course, the reverse is also true – state-of-the-art equipment is useless without the trained staff to operate it.
The UK currently has the fewest CT and MRI scanners per capita among similar countries, with less than a third of the amount of Germany (see note 1 below). These scanners are vital for screening people’s symptoms and diagnosing conditions, including cancer, at an early stage.
Shortages in hospital beds are another potential indicator of underinvestment – the UK has fewer beds per capita than many other Organisation for Economic Co-operation and Development (OECD) countries. However, it’s important to note that these examples don’t necessarily reflect the overall level of capital in health care across countries. They may also be partly explained by different approaches to care.
Capital spending and capital value explained
Health care capital spending is used to finance long-term investment in buildings, equipment, medical technology and IT.
In the UK, the biggest contributor to capital spending is the DHSC’s capital budget, which is used for capital spending throughout the NHS in England. The recent government announcements of funding to upgrade hospitals or build new ones are examples of capital funding in the NHS.
Our previous analysis showed that the UK and the NHS lag far behind comparable countries in annual capital spending. While recent funding announcements will increase the capital budget significantly, they will still leave the NHS lagging behind comparable countries.
Annual capital spending contributes to a stock of capital. Capital stock is a measure of the value of capital. In health care, capital stock is the value of buildings, machinery, equipment, IT and other assets used in delivering services. From capital stock, health services can be delivered. For example, MRI machines will deliver a certain number of MRI scans over their useful life.
Capital stock declines in value over time through depreciation, and as assets age they may also be retired or scrapped. This value after depreciation is known as net capital stock, which is the measure of the value of capital we use in this analysis (see note 2 below).
Different values of health care capital between countries reflect a combination of things:
- The first is the amount of capital. More scanning equipment in one country will give a higher value of capital in that country.
- The second is age. As an asset declines in value over time, we expect it to deliver fewer services. An older machine may be able to deliver a similar number of scans this year but cannot be used for as long as a brand-new machine.
- The third is quality. For example, we expect newer IT infrastructure to be far more efficient than older infrastructure, and more efficient IT systems to be more expensive than less efficient ones.
- Lastly, there will also be differences in the price of assets between countries and changes in market prices over time.
The value of a country’s capital stock therefore provides a measurement of the quantity and quality of health services that can be delivered. A higher capital stock means we expect to be able to deliver more and/or better quality health care both now and in the future.
Capital is generally assumed to increase productivity and cross-country comparisons of health care capital may help explain some of the differences in the health care delivery we see across different countries. For more on how this analysis compares values of capital across countries, see note 3 below.
In the following sections we analyse trends in capital spending and the value of capital in health care in the UK compared to other OECD and European countries (see note 4 below). We estimate the total value of capital from 2000 to 2017 using capital stock data from Eurostat. Combined with labour data, we estimate trends in health care capital per worker in each of the countries. Capital per worker is a measure of the value of capital for each worker employed in health care, reflecting the resources available for workers to deliver health services.
Next section: How much does the UK spend on health care capital?
- Comparing MRI and CT scanners across countries is difficult. In the UK the data is only on MRI/CT scanners provided by the NHS.
- Gross capital stock refers to the cost of buying the same asset new, rather than in its current condition.
- To compare the value of capital stock across countries we convert all data using Purchasing Power Parities (PPP). PPP exchange rates are used to adjust for price differences between countries. We converted the data to GBP using the PPP exchange rates for actual individual consumption (AIC) from the OECD.
- All data are at a UK level so include all four countries of the UK, along with the private and volunteer sectors.
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