45 3. Health Politics under Suspicion – a Public Choice Perspective 3.1. Introduction Health care reform acts are always a ? ne balance for politicians. Due to the fact that “health” is the most valuable good in human life, people have highly sensitive reactions to reductions in health care provision. Moreover, the false understanding of health care as a public good results in negative attitudes towards co-payments or increasing contribution rates. For these reasons, politicians are caught in a dilemma of interests: on the one hand, votes-maximizing politicians should aspire to a comprehensive health care provision without placing a higher burden on the population. On the other hand, the ageing demographics as well as technological progress escalate costs and necessitate higher ? nancial funding or lower service offered, what in turn worsens re-election chances. The question arises of how politicians deal with this dilemma of interests. Obviously, if changes in policy to the disadvantage of the insurants are associated with the loss of votes, politicians should favour cost cuttings at the expense of health care suppliers. But the medical fraternity has especially close relationships to patients and act as opinion multipliers. Accordingly, burdening physicians could hardly be used as a votes-maximizing strategy. In contrast, pharmaceutical business companies possess only minor in? uence on public opinion and in fact have a bad reputation among broad population demographics. It can be supposed that savings at the expense of the pharmaceutical industry are more likely to gain votes than bene? t cuts or increasing contribution rates. But again politicians are caught in a trap because the pharmaceutical industry is one of the most important economic sectors in Germany and a key industry for economical prosperity. This chapter tries to evaluate how politics deals with these problems. Empirical data will be presented and econometric tests will show the existence of interrelations between pharmaceutical expenditure and the elections for the German Bundestag (Lower House of German Parliament). The results presented give rise to the hypothesis that politicians deliberately use health policy for pursuing votes and clientele oriented interests. The chapter is organised as follows: section 3.2 gives a short outline of the development of drug expenditure in Germany in the past. The almost linear growth trend proves that governments had obviously failed to achieve the of? cial declared goal of cost-containment. In scienti? c literature, this political ineffectiveness is usually explained with the theory of “negotiation democracy”, which is presented in section 3.3. We augment this approach by introducing the public choice view in section 3.4. To test the hypothesis that health politics is in? uenced by politicians’ own interests, in section 3.5 an econometric model is speci? ed. We run two regressions, an ordinary least squares (OLS) regression and an error correction model (ECM). Section 3.6 checks if 46 the attained results correspond with empirical observations. Finally, section 3.7 will state the conclusion. 3.2. Development of Drug Expenditure With around € 25 billion, the drug sales volume29 of the “German Statutory Health Insurance System” (SHI) once again reached a record high in 2005.30 Between 1983 and 2005 drug disbursements have increased by more than 230 %. In contrast, German GDP has increased by only 160 % (nominal values). Especially within the last decade, the drug expenditure development has become more dynamic. As a consequence the ratio of drug expenditure to total SHI expenditure has grown from 13.9 % in 1993 to 17 % in 2005. The comparably strong rise of drug costs motivated the legislator to introduce a series of reform acts and to establish a complex regulatory framework.31 Figure 3.1 delivers an overview of cost development and the most important reforms. Figure 3.1: SHI Drug Expenditure 1983 - 2005 and Health Care Reform Acts (selection). 100 150 200 250 300 198 3 198 5 198 7 198 9 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 Index (1983 = 100 % ) Year Health Care Modernisation Act 7th Health Care System Modification Act Drug Budget Replacement Act Health Care Reform Act Health Care Structure Act Source: Based on data from the Federal Statistical Of? ce and Schwabe/Paffrath (several volumes). From 1992 inclusive the new German Laender. 29 The drug sales volume is the gross turnover of pharmacies with reimbursed, ? nished product pharmaceuticals. 30 The data from this section are taken from the SHI-Drug-Index of the Scienti? c Institute of the Health Care Fund (WIdO), published in Schwabe & Paffrath (volumes 1985 - 2006) and from the Ministry of Health (2006a). 31 For detailed information about the regulatory framework see Schreyögg et al. (2004).