Public or Private? Which Source of Financing Helps to Achieve Higher Health System Efficiency?

In this study, we analyze the relationship between health care system’s financing and health system’s efficiency. We pose the following research hypotheses: (H1) system with higher ratio of public financing should achieve higher efficiency; (H2) public financing increases system efficiency for hospitals and lowers for outpatient care. We find that private financing in stationary care can lead to negative externalities, while private financing in the case of ambulatory care helps to achieve better elasticity and adjustments to the system and patients’ needs. In order to prove these assumptions we analyze data for 21 European OECD countries (in the years 2000–2015) which describe population’s health status representing life expectancy (LE) and the structure of financing (public versus private spending).