WHO Drugs and Money - Prices, affordability and cost containment

Publication date: 2003

SEVENTH EDITION Drugs and Money Prices, affordability and cost containment Editors: M.N.G. Dukes F.M. Haaijer-Ruskamp C.P. de Joncheere and A.H. Rietveld ISBN 1 58603 334 4 (IOS Press) ISBN 4 274 90582 9 C3047 (Ohmsha) ISSN 0924-6479 During recent decades, society has attached great importance to improved health, and has witnessed a fast rising demand for health care. The very rapid growth of expenditure on medicines is of particular concern and it has attracted considerable political attention, in part no doubt because it is a concrete issue which at first sight appears readily amenable to economic control. Many member states have over the years approached the World Health Organization for advice or information on the feasibility of measures to control the growth of expenditure on medicines. Such calls for help led the Organization as early as 1983 to undertake a study under the title “Drugs and Money”; it culminated in a deliberately concise report, providing a critical overview of the effectiveness of older cost-containment schemes while also paying attention to innovative ventures. The report was widely used and repeatedly updated, and this is now its seventh edition. This latest edition aims to provide policy makers and regulators with a compact and practical review of the various approaches that have been developed and tested to date in an effort to contain the overall costs of pharmaceutical services and drug treatment. The true art of good housekeeping in this field is clearly to ensure that drugs continue to benefit society wherever they can, while eliminating every form of waste of public funds. Although the title “Drugs and Money” may to some suggest otherwise, this book also addresses issues of the organization, standards and delivery of health care. Many regulations concerning the intrinsic quality of pharmaceuticals, the quality of prescribing and the proper use of medicines have been introduced over the last four decades, and their influence is complementary to that of measures designed primarily to have economic effects in this field. Unlike earlier editions of “Drugs and Money”, this volume devotes considerable attention to the special problems of developing countries and those where the economy is currently in transition. Published on behalf of the World Health Organization Regional Office for Europe by IOS Press D rugs and M oney C .P . de Jo n cheere et al. (Eds.) DRUGS AND MONEY Amsterdam • Berlin • Oxford • Tokyo • Washington, DC Drugs and Money Prices, affordability and cost containment Edited by M.N.G. Dukes University of Oslo, Norway F.M. Haaijer-Ruskamp University of Groningen, The Netherlands C.P. de Joncheere WHO Regional Office for Europe, Copenhagen, Denmark A.H. Rietveld Cambridge Pharma Consultancy, Cambridge, United Kingdom Published on behalf of the World Health Organization Regional Office for Europe by IOS Press © 2003, World Health Organization All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without prior written permission from the publisher. ISBN 1 58603 334 4 (IOS Press) ISBN 4 274 90582 9 C3047 (Ohmsha) Library of Congress Control Number: 2003101613 Publisher IOS Press Nieuwe Hemweg 6B 1013 BG Amsterdam The Netherlands fax: +31 20 620 3419 e-mail: order@iospress.nl Distributor in the UK and Ireland Distributor in the USA and Canada IOS Press/Lavis Marketing IOS Press, Inc. 73 Lime Walk 5795-G Burke Centre Parkway Headington Burke, VA 22015 Oxford OX3 7AD USA England fax: +1 703 323 3668 fax: +44 1865 750079 e-mail: iosbooks@iospress.com Distributor in Germany, Austria and Switzerland Distributor in Japan IOS Press/LSL.de Ohmsha, Ltd. Gerichtsweg 28 3-1 Kanda Nishiki-cho D-04103 Leipzig Chiyoda-ku, Tokyo 101-8460 Germany Japan fax: +49 341 995 4255 fax: +81 3 3233 2426 LEGAL NOTICE The publisher is not responsible for the use which might be made of the following information. The views expressed in this publication are those of the author(s)/contributors and do not necessarily represent the decisions or the stated policy of the World Health Organization. PRINTED IN THE NETHERLANDS International Journal of Risk & Safety in Medicine 15 (2002) 1–3 1 IOS Press Introduction Drugs and Money During recent decades, society has attached great importance to improved health, and has witnessed a fast rising demand for health care. As a consequence of that development, most, if not all, countries have found themselves confronted with the problem of meeting growing expenditure on health care. That additional expenditure must either be financed or it must in one way or another be constrained; both approaches will probably have to be adopted in parallel. Increased public spending may meet with macro- economic difficulties, while increased private spending will give rise to equity concerns. The growth and the ageing of populations, the widening range and complexity of available medical interventions and changes in society’s expectations regarding attainable health and desirable health care all put pressure on the budget available for health systems, whether these comprise prevention, curative services or the provision of care for the aged or infirm. The very rapid growth of expenditure on medicines is of particular concern and it has attracted con- siderable political attention, in part no doubt because it is a concrete issue which at first sight appears readily amenable to economic control. That first impression has often proven misleading; despite the im- pressive variety of cost containment measures which have been devised over the years, drug expenditure has remained high and as a rule it has continued to grow. One of the complicating factors in this particular field is that in so many countries a regulated, col- lectively financed health care sector coexists with a free and profit-driven marketplace. Both are widely regarded as desirable and defensible, yet it is evident that where the two interact conflicts may arise; a country seeking to contain pharmaceutical expenditure will soon find itself imposing restraints on those very industrial and commercial processes which it is so anxious to promote. The countries of Cen- tral and Eastern Europe, currently transforming their centralized economies into market-driven systems, and with their frontiers now open to western products at western prices, have experienced these conflicts in a particularly acute form. They have struggled greatly to strike a balance between the one-time ideal of free health care and current concepts of free enterprise. In their determination to contain pharmaceutical costs, while at the same time aiming at improved care and equitable access to medicines, countries have often implemented a series of measures in rapid succession or even simultaneously, readily seizing on and adopting what appear to be promising policies developed in neighbouring countries. The result can be a bewildering, complex and dynamic patchwork of interacting approaches. In that situation it can be as difficult to identify the causes of failure as to explain whatever successes are attained; there is rarely anything in the nature of a controlled experiment in cost containment, and it has therefore become increasingly difficult for one member state to learn from the experiences of others. In some instances, too, the feasibility or otherwise of a particular approach is determined by purely national factors. It can for example be tempting, in a country where the bulk of drugs are supplied by national manufacturing firms, to impose limits on their promotional expenses or profits; such countries are today however few and far between, and where one is dealing largely with 0924-6479/02/$8.00  2002 – World Health Organization. All rights reserved 2 Drugs and Money multinational corporations one generally has neither the insight nor the implements which one needs to institute such methods successfully. Health care systems in Europe are largely based on the principles of health as a human right, on equitable access to health and health services, quality of health care, on solidarity, and on the active participation of society as a whole. Because of the difficulties associated with rising costs, however, it is today vital to translate those ideals into achievements which are quantifiable both in terms of health and of expenditure; only with the help of such exact information can one hope to develop defensible poli- cies which balance initiatives against resources. The 2000 World Health Report presented an approach to measuring the performance of health systems; it looked broadly at indicators in the areas of health attainment, of fair financing, of responsiveness of the system, and the efficiency with which these goals are achieved. Other publications have considered specifically the means which are available to assess the efficiency and costs of pharmaceutical care, a theme which is reflected throughout this book. Many member states have over the years approached the World Health Organization for advice or information on the feasibility of (generally short-term) measures to control the growth of expenditure on medicines. Such calls for help led the Organization as early as 1983 to conclude that there was an ongoing need among member states for guidance in the development of their national policies with regard to cost containment in this field. In that year the Pharmaceuticals Unit (PHA), now the Health Technologies and Pharmaceuticals Programme, of the WHO Regional Office undertook a study under the title “Drugs and Money”; it culminated in a deliberately concise report, providing a critical overview of the effectiveness of older cost-containment schemes while also paying attention to innovative ventures. The report was widely used and repeatedly updated, with its sixth edition appearing in book form in 1992. This present seventh edition aims, as its predecessors have done, to provide policy makers and reg- ulators with a compact and practical review of the various approaches which have been developed and tested to date in an effort to contain the overall costs of pharmaceutical services and drug treatment. New measures, enjoying a greater or lesser degree of success, have continued to emerge during the ’nineties and the end is not yet in sight. In this small volume particular emphasis is again placed on those princi- ples which may prove helpful in containing costs without introducing a disproportionate risk of adverse consequences. The true art of good housekeeping in this field is clearly to ensure that drugs continue to benefit society wherever they can, while eliminating every form of waste of public funds. Unlike earlier editions of “Drugs and Money” this volume devotes considerable attention to the special problems of developing countries and those where the economy is currently in transition. While lessons learnt in one type of national environment may prove applicable in another, it is important to realise that the situation in western industrialized countries still differs substantially from that elsewhere. Although the nature of the problem of cost containment may be the same, transitional and less-developed coun- tries do not find it easy to adopt many of the solutions developed by western-industrialised countries. Conversely, some of the approaches which have been developed in the developing world would not be applicable to industrial society. Throughout the years the World Health Organization has taken the position that the question as to how to provide access to medicines while containing their costs must be viewed as an integral part of long- term pharmaceutical policies. More broadly it is a part of overall health care policy and, more broadly still, a component of the entire economic and social policy of a country. The problem of cost containment of pharmaceuticals cannot be viewed separately from such issues as equity, market structure or the quality of therapeutic care. The book is structured in such a way as to provide the reader with a logical line of reasoning progress- ing from the scope and causes of the cost containment problem (Chapter 1) through the means which Drugs and Money 3 exist to examining and quantify it (Chapter 2), to an extensive consideration of the principal solutions which governments use to cope with the problem (Chapter 3) and to measure the impact of whatever measures are taken (Chapter 4). Actual experience with the most prominent of the methods used to date is considered in Chapters 6 to 13. In the last two sections of the book, special attention is devoted to the situation in developing countries and those undergoing structural transition. Although the various approaches to cost containment are in this volume necessarily discussed separately, they are in fact inter- linked and complementary; some overlap and cross-referencing between the various sections of the book is therefore unavoidable. Last but not least, although the title “Drugs and Money” may to some suggest otherwise, government influence is not limited to the financing of health care, but extends also to the organization, standards and delivery of health care in all its forms. Many regulations concerning the intrinsic quality of pharmaceu- ticals, the quality of prescribing and the proper use of medicines have been introduced over the last four decades, and their influence is complementary to that of measures designed primarily to have economic effects in this field. Developments in this field continue and are bound to expand further. The massive human and financial challenges presented by the HIV/AIDS epidemic could not have been foreseen when the first edition of “Drugs and Money” appeared twenty years ago. Nor however could the ongoing worldwide response, encompassing challenges to the entire issue of drug pricing and patents. For all that, many of the methods currently in use to contain costs in the field of pharmaceutical care have essentially developed from those which were first conceived in the ’eighties, and with which sufficient long-term experience has been gained in different environments to assess their strengths and weaknesses. It is to be hoped that this review of what has been done and what can be done to provide affordable pharmaceutical care will again provide a helpful guide to all those faced with the issue. M.N. Graham Dukes Institute of Pharmacotherapy University of Oslo, Norway Flora M. Haaijer-Ruskamp Department of Clinical Pharmacology University of Groningen, The Netherlands Kees de Joncheere Health Technologies and Pharmaceuticals Programme World Health Organization Regional Office for Europe Copenhagen, Denmark Ad H. Rietveld Cambridge Pharma Consultancy Cambridge, United Kingdom December 2002 Part I Problems and approaches to a solution International Journal of Risk & Safety in Medicine 15 (2002) 7–13 7 IOS Press Chapter 1 Scope of the problem Kees de Joncheere, Flora M. Haaijer-Ruskamp, Ad H. Rietveld and M.N.G. Dukes 1. Equity Most countries strive for some degree of equity with respect to the financing of pharmaceuticals, recognising the gap between the cost of drugs to the average patient and his or her ability to pay. They have therefore adopted health financing policies, often involving third-party payers, which are designed to ensure that patients have access to the medicines which they need, although the actual apportionment of the financial burden between society and the individual may vary (Fig. 1). Prevailing notions of culture, tradition and general ethics influence the latter. In the United Kingdom, for example, all residents are covered by the National Health Service (NHS) and access to drugs is subsidised directly, leaving only a minor role for private health insurance and a nominal charge to be borne by the patient. In the United States, at the other extreme, health insurance is voluntary and in the hands of profit-driven private insurance companies, leaving only a residual role Fig. 1. Public expenditure as part of total pharmaceutical expenditures, 1999. Source: OECD data. 0924-6479/02/$8.00  2002 – World Health Organization. All rights reserved 8 K. de Joncheere et al. / Scope of the problem for public health insurance as a safety net for those not able to pay the insurance premiums. In effect, therefore, health insurance in the UK is government controlled while in the US it is market-driven with only minor involvement of government. By contrast one sees that developing countries, struggling with growing populations and diseases such as HIV-AIDS, often lack any form of health insurance; the finan- cial burden of disease is carried by individual patients and their families, as a result of which patients commonly go untreated due to lack of money. Despite these wide variations from country to country, a common element is the concern of the payer – public, private or individual – with the need to live within a limited budget; all budget holders increasingly demand value for money. Where funding is in the hands of an insurance system, whether it be public or private, one might in theory raise contributions or premiums to whatever level is necessary to meet expenditure, but in practice there is a serious risk that this will in its own way place an intolerable burden on the individual or the community. The end result may thus again be that the patient is deprived of necessary treatment. The fact that both the prices of pharmaceuticals and the overall level of spending differ so greatly from one country to another fuels a continuing policy debate. Key discussions often relate to limiting the range of pharmaceuticals eligible for payment or reimbursement under an insurance system, and to proposals that even patients covered by an insurance system should be called on to carry some part of the financial burden themselves. 2. Cost containment As a rule, patients have very little insight into the actual cost of providing them with health services. This is particularly the case where there is a system of collective financing; the patient is rarely con- fronted with the cost of whatever commodity or service he or she has received, and is inclined to believe that prices and payments are not his concern. On the other hand, the individual has considerable faith in innovation; new medicines can mean hope for many patients. The private sector responds by developing and bringing a continuous stream of new medicines to the market; it is often far from clear to what extent the prices of these new preparations really reflect the cost of their development, production and market- ing, but it is clear that in many cases the manufacturer will attempt to set what is generally known in commercial circles as “the highest price that the market will bear”. In effect, where drugs are concerned, this usually means setting the highest price that the national insurance authorities are willing to tolerate. The negotiations to this end can be difficult and confusing, since the authorities commonly find it difficult to assess impartially in economic terms the ultimate benefit which the drug may provide, and they have little or no insight into the true costs which have been involved in developing the drug and putting it into production. The market for pharmaceuticals is for various reasons not fully comparable to the normal compet- itive market in which other consumer products are sold, and in which the critical individual buyer is to a large extent able to ensure that he or she gets value for money. The inability of the individual to judge the merits of a drug, the fact that a patient’s views may be governed by optimism rather than strict logic and the manner in which that choice is in any case largely entrusted to a third party (the physi- cian) distort the market. The fact that governments find themselves obliged to intervene at many points distorts competitive market operation still further. In addition to specific safety nets intended to ensure access to drugs, countries have from the perspective of consumer protection introduced many regulations concerning the intrinsic efficacy, safety and quality of pharmaceuticals, as well measures to raise the K. de Joncheere et al. / Scope of the problem 9 standard of prescribing and promote the appropriate (“rational”) use of medicines. These well-intended and necessary policies can nevertheless create on the one hand entry barriers for new market partici- pants and on the other domain monopolies (e.g., for pharmacists and doctors). In addition, in seeking to contain the costs of drug consumption, countries impose price controls, limit reimbursement of drugs, de-list drugs considered non-essential, provide non-commercial sources of information, and interfere with wholesale and retail margins, and may even restrict the manner in which medicines are prescribed and used [1]. Some parties argue that it is largely the wide scope of government regulation which is responsible for the absence of price competition in the pharmaceutical market. These critics maintain that if this market were to be fully liberalized it would function properly like other consumer markets. This view seems to overlook the existence of the fundamental factors noted above which render the market in pharma- ceuticals unusual; unhappy experience shows quite clearly that if this market is entirely unregulated the poor will be seriously deprived and both individual and community health will suffer. Nor is that view in line for example with the finding that, in particular when systems are based on equity, the absence of price control regulations is usually associated with high drug prices. In developing countries, where markets are usually less regulated, high prices of drugs are often a barrier to patients obtaining the drugs which they need, despite the fact that in theory a global industry should be capable of lowering prices selectively in poor communities in order to secure sales. Price controls and other cost containment measures must therefore be seen as ways of coping with the problem of pharmaceutical expenditure. It is however not surprising, taking into account the progressive ageing of the population and the tremendous commercial pressures which are excreted (notably towards prescribers, but increasingly also towards the public) when new drugs come onto the market, that these official measures are not always as effective as governments would wish them to be. 3. Causes of cost increases The reasons why the overall costs of pharmaceutical care tend to rise continuously have been well summarised by the National Institute on Health Care Management [7]. They are: 1. The replacement of older, cheaper medicines by newer, higher priced medicines. 2. Increases in the use of medicines 3. The introduction of new medicines for diseases for which hitherto no treatment (or at best a less effective treatment) has been available. 4. Increases in the price of existing medicines Ad 1. The substitution of older, cheaper medicines by newer, higher priced medicines It is estimated that in western industrialised countries about 70% of the annual cost increase of phar- maceuticals is due to expenditure on medicines introduced less than 5 years previously. These may be drugs for the treatment of diseases for which previously no pharmacotherapy existed (see above) but the great majority of new drugs do no more than provide an unexciting alternative to older (and usually cheaper) medicines. To give an example of these effects: if the treatment with a particular new medicine is ten times more expensive (which is the quite commonly the case) than the treatment with the older medicine which it is designed to succeed, the sum of money hitherto sufficient to treat ten patients will now suffice to treat only one. This phenomenon of artificial replacement is widespread; it is arguable, 10 K. de Joncheere et al. / Scope of the problem Table 1 The Netherlands: Turnover of top 10 products in 1997 Product Costs Increase Increase Price (Trade names in (mln dfl) (%)∗ in volume mutation brackets) (%) (%)∗ Omeprazol (Losec R©) 292 19 25 (5) Ranitidine (Zantac R©) 90 (36) (25) (16) Simvastatine (Zocor R©) 198 24 27 (2) Enalapril (Renitec R©) R© 97 0 11 (10) Amlodipine (Norvasc R©) 59 3 12 (8) Budesonide (Pulmicort R©) 75 0 2 (2) Beclometason (Becotide R©) 56 (10) (7) (3) Fluticason (Flixotide R©) 53 38 36 1 Paroxetine (Seroxat R©) 64 37 37 0 Insuline (Mixtard R©) 60 (1) 7 (7) Total top 10 products 1043 6 11 (5) Total costs reimbursed 3902 products dfl = Dutch Guilders, approx. US$ 0.50. Population: approx. 15 million. ∗The price mutations in 1997 were predominantly negative because of the implementation of the Drug Prices Act in that year. This largely offset the cost consequences of the growth in volume during that year. for example, that the great majority of patients with hypertension can today be treated adequately and safely with medicines which were available in 1970 or earlier, yet the machinery of persuasion provides an entirely different message. Since this process of replacement is continually taking place on a broad scale, the macro-effects on the growth of pharmaceutical expenditures are enormous; older medicines are crowded out by newer, and public money flows increasingly to the latter. In a sense, developing coun- tries with their tight budgets are fortunately protected in part from this phenomenon, as a result of the “essential drugs” policies which continue to focus on what is good and necessary rather than on what is new. Industrialized countries enjoy this protection to a much lesser extent. Research in the Nether- lands showed that in 1997 more than 25% of the total costs of pharmaceutical goods was attributable to the sales of only 10 products, the majority of these having been introduced fairly recently on the Dutch market (Table 1). In order to contain the cost of pharmaceutical care, it is therefore necessary to control the influx of new medicines in the public system, as well as to control the reimbursement level and the prices of these products. New products should preferably only be admitted to the reimbursement system after a careful consideration of their added therapeutic value and the extent to which this justifies a rise in expenditure. Ad 2. Increases in the use of drugs Other things being equal, there is an almost consistent increase in the use of drugs in any population over time. That is due variously to growth in the size of that population, the ageing process, and changing attitudes towards the use of drugs. In 1996 in the United States individuals aged 25 to 44 filled an average of two to three prescriptions each year; those aged 65 and over filled approximately nine to twelve. While K. de Joncheere et al. / Scope of the problem 11 the elderly represent only about 13 percent of the US population, i.e. about 34 million individuals, the US Senate Committee on Ageing found that they accounted for almost 35 percent of all prescriptions dispensed in the United States [10]. Increases in the use of drugs due to the expansion or ageing of the population are of course difficult to influence. However, there is also an increasing tendency in the population as a whole towards greater drug use. In part this may represent a spontaneous change in attitudes (e.g., a lesser willingness to tolerate illness or pain) but to a large extent attitudes both among patients and professions are clearly moulded by commercial pressures. There is heavy promotional pressure from the suppliers of pharmaceuticals, primarily on prescribers, but also on dispensers and users of pharmaceuticals. As the primary aim of promotion is to increase the supplier’s sales, it is evident that it has the potential to lead to waste, over-use and inappropriate use of medicines with a loss of quality in drug treatment as a result. Excessive or inappropriate use of drugs can undo much of the effect attained by even the strictest systems for setting prices and containing costs. Nor must one overlook the fact that considerable costs are involved in drug promotion. In the United States, pharmaceutical companies currently spend more than US$ 11 billion each year on promotion and marketing. It has been estimated that $8,000 to $13,000 is spent per year on promotion to each physician [12]. Laing, using publicly available data in the US, found that “marketing and administration” costs greatly exceeded expenditure on research [2]. These costs will have to be paid for out of the turnover of sales and they therefore contribute to the high price level of drugs. Commercial pressure on consumers was in much of the world confined until recently to the use of self- medication remedies, but there is now a movement towards direct promotion of prescription medicines as well (“Direct to Consumer Advertising”, DTCA). The industry argues that communicating the facts to the public would improve the knowledge of the latter concerning the use of these products, thereby improving the quality of pharmacotherapy. There has however been powerful criticism of the content and style of such advertising both in the United States and New Zealand [3], and with good reason most other industrialized countries have been very reluctant until now to allow it, though a compromise may be engineered in countries of the European Union. As in the case of drug promotion directed at physicians, considerable costs are involved in DTCA, and these costs again contribute to the high prices of drugs. In 1999 some US$ 1.8 billion was spent by pharmaceutical companies on DTCA, a rise of 38% over 1998 [8,9]. In order to prevent waste, over prescribing and inappropriate use, it is widely considered advisable to control the content as well as the form of promotion for pharmaceuticals. In any country there is need for an official set of enforceable standards, designed to ensure that promotion is truthful and that the information provided is both balanced and complete. This should be accompanied by public measures to promote the rational prescribing and use of medicines. Standard treatment protocols and treatment guidelines should be agreed and communicated to prescribers in an effective manner; in many countries these already exist – and provide an example to others – and it is striking how commonly the national associations of prescribers or general practitioners have played a role in their development and imple- mentation. A high priority should be accorded to the development of drug information services to ensure that health professionals and the public receive reliable non-commercial information on medicines. The emergence of drug promotion and even drug selling through the Internet renders it even more necessary now than it was a decade ago to provide objective information as a counterbalance to the immense pro- motional pressures now exerted on doctors and patients to prescribe and use medicines in general and new medicines in particular. 12 K. de Joncheere et al. / Scope of the problem Ad 3. The introduction of new medicines for diseases for which no prior or a less effective pharmacotherapy existed Any true extension to the range and potency of drug therapy is in principle welcome, especially where a hitherto intractable illness or symptom becomes amenable to treatment. The introduction of anti-retroviral treatment for HIV-AIDS is an important and clear example. Every year a small number of breakthroughs in drug treatment, some more spectacular than others, can be recognized and will merit acceptance [6]. The challenge will be to distinguish these from the very many other innovations which, however forcefully they are promoted, have nothing significant to add to existing means of treatment and cannot be said to justify any increase in expenditure. At the same time, increasingly conditions are labelled as medically treatable, leading to additional pharmaceutical expenditures with often unclear outcome [5]. Ad 4. Price increases of existing medicine In the absence of price control regulations or powerful large buyers (such a public health funds), the prices of prescription drugs tend to increase at a rate considerably greater than that of inflation [4]. In Brazil, following the abolition of price controls, the cost in dollars of each unit sold increased from $4.68 in 1995 to $6.26 in 1998 [11]. The number of units sold remained constant during the same period, indicating that the abolition of cost control had not improved the population’s access to drugs. 4. Implementing cost containment programs As pharmaceutical cost containment strategies touch upon the interests of many groups (industry, wholesalers, retailers, consumers, doctors, etc.), reactions sometimes amounting to forceful opposition are to be expected when such policies are proposed or implemented. Sometimes these reactions are based on misunderstandings which need to be countered with sound information. Fears as to the failure or possible adverse effects of a cost containment programme can for example often be allayed if it can be shown that similar measures have been successfully implemented, without doing harm, earlier in another country in a situation similar to one’s own. If support for such policies is to be obtained, and unjustified criticism defused in advance, a wide range of organizations and institutions need to be informed and invited to participate in the process. The best way to do so is to recruit them as participants at an early phase so that they can consider themselves in part responsible for the design and introduction of measures; at the very least they should be satisfied that their views have received a fair hearing. In some countries patient associations and consumers groups are well established and their voices may prove to be an important political factor in the success or failure of cost containment policies. The media naturally influence and lead public opinion and their support too is very important for the success of the new cost-control program. In many countries professional bodies such as the colleges of physicians and pharmaceutical societies have over a long period been accorded particular functions in setting standards of professional practice and health care, or have in some other way become active players on the health scene; for such reasons their involvement and support are essential, and they can contribute creatively to the development and implementation of many types of new health-related policies. Greater credibility will also be accorded to any policy if it has been underwritten by prestigious international organizations, such as the World Health Organization and the World Bank. K. de Joncheere et al. / Scope of the problem 13 The position of the pharmaceutical industry should be taken into account when the authorities plan to introduce new measures. It is clear that even fully justified policies may be criticized vigorously by industry if they impede its purely commercial interests, and that they will frequently have to be implemented in the face of such protest. On the other hand there are some situations in which caution is needed if one public interest is not to be sacrificed to another. While large multinational corporations are sufficiently resilient and flexible to adapt to restrictive measures, local firms in developing and transitional countries may much more susceptible. Industrial employment, income, exports and economic activity at large may be at stake, or even the continuity of supplies for essential medicines. References [1] S. Jacobzone, Pharmaceutical policies in OECD: reconciling social and industrial goals, OECD Labour market and social policy, occasional papers, 2000. [2] R.D. Laing, Health and pharmacy systems in developing countries. Paper delivered to the WHO/WTO Workshop on Differential Pricing and Financing of Essential Drugs, Hosbjor, Norway, 8–11 April, 2001. [3] C. Medawar, Direct to consumer advertising, Paper presented at the Conference on Consumer Reporting, Sigtuna, Sweden, 29 September–1 October, Int. J. Risk and Safety in Medicine 13 (2000), 81–86. [4] Families USA: Bitter Pill: The Rising Price of Prescription Drugs for Older Americans, June 2002, http://www. familiesusa.org/, accessed July 2002. [5] R. Moynihan, I. Heath and D. Henry, Selling sickness: The pharmaceutical industry and disease mongering, BMJ 324 (2002), 886–891. [6] National Institute of Health Care Management, Changing Pattern of Pharmaceutical Innovation, May 2002. http://www. nihcm.org/, accessed June 2002. [7] National Institute on Health Care Management (NIHCM), Prescription Expenditures in 2001, another year of escalating costs, 2002, http://www.nihcm.org/spending2001.pdf, accessed May 7, 2002. [8] National Institute on Health Care Management, Prescription drugs and mass media advertising, 2001, http://www.nihcm. org/DTCbrief2001.pdf, accessed March 25, 2002. [9] Scrip No. 2528, April 5th, 2002. [10] USA Senate Special Committee on Aging, http://aging.senate.gov/, accessed July 2002. [11] Dr. Gonzalo Vecina Neto, Director, President of the National Agency of Sanitary Vigilance, Ministry of Health, Brazil, Drugs CPI, Testimony of January 18th, 2000. [12] A. Wazana, Physicians and the Pharmaceutical Industry, JAMA 283(3) (2000), 373–380. International Journal of Risk & Safety in Medicine 15 (2002) 15–27 15 IOS Press Chapter 2 Data needed for developing and monitoring policies Elias Mossialos and Monique F. Mrazek To develop and monitor any aspect of drug policies – which naturally include cost containment – one needs to collect reliable and valid data on processes and outcomes. This chapter focuses on the data needed to detect and evaluate the impact of a drug policy on the different elements of drug management and delivery. Important variables relate to the various aspects of prescribing, dispensing and consump- tion, but also to the ultimate consequences in terms of health and finance. The types of data discussed in this chapter therefore include facts and figures on pharmaceutical expenditure, utilization, price, health and economics outcomes, as well as data on the pharmaceutical industry. Since drug expenditure is determined largely by price, patient need and prescribing choice, data on expenditure can only be realistically monitored by taking these elements into consideration. The data needed in order to develop and monitor drug policies must therefore relate to a whole series of issues and actors. One needs to consider how these data can be obtained and examine some methodological problems that can arise in collecting and using them. Monitoring alone will not explain the trend in drug expenditures, nor will it answer the question as to whether the level of expenditure is appropriate to meet reasonable goals in terms of health. It is therefore necessary to look beyond expenditure data and examine the changes in underlying trends in patient needs, prescribing choice and pricing. If we are to understand what factors create and modify a trend in drug expenditure, we shall need to look both at drug utilization and at prices. Expenditure data alone cannot, for example, differentiate a country with high unit consumption but low drug prices from one with high prices and lower levels of drug consumption. 1. Drug expenditure data Monitoring pharmaceutical expenditure over a period of time makes it possible to determine the over- all effect of cost containment policies (or other concurrent influences) on the size and growth of drug spending. Expenditure data can be expressed as a proportion of overall health care costs, as a percent- age of national economic output (Gross Domestic Product = GDP) or as average per capita spending. When comparing expenditure on drugs as a function of total health expenditure, or as a per capita fig- ure ratio, one finds wide variations between countries (Table 1). These relative expenditure levels and trends are used to make cross-national comparisons so as to understand better the relationship between structure and performance in different drug financing systems. It is particularly important to consider 0924-6479/02/$8.00  2002 – World Health Organization. All rights reserved 16 E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies Table 1 Pharmaceutical expenditure in selected OECD countries, 1997 Total expenditure on % GDP % Total Per capita, pharmaceuticals and healthcare US$ exchange other medical non-durables expenditure rate Hungary 1.9† 26.3† 83† Greece 1.8† 21.3† 211† Norway 0.7† 9† 259† Portugal 2.1 26.9 216 France 2 20.9 482 Czech Rep. 1.8 25.3 92 Spain 1.5 20.7 207 Japan 1.5 20 492 Italy 1.5 17.5 296 Belgium 1.4 16.1 334 United States 1.4 10.1 406 Iceland 1.3 16.3 353 Canada 1.3 14.5 272 Germany 1.3 12.2 329 United Kingdom 1.1 16.3 244 Finland 1.1 14.9 259 New Zealand 1.1 14.3 188 Austria 1.1 12.9 272 Sweden 1.1 12.8 282 Australia 0.9 11.3 213 Netherlands 0.9 10.3 216 Korea 0.8 17 88 Luxembourg 0.8 12.6 311 Switzerland 0.8 7.7 284 Ireland 0.7 9.3 138 Denmark 0.7 8.5 225 † indicates 1996 data. The consumption of pharmaceutical goods comprises both prescription medicines and self-medication products, often referred to as over-the- counter (OTC) medicines. The series includes the pharmacists’ remu- neration when the latter is separate from the price of medicines. Pharma- ceuticals consumed in hospitals are excluded. The expenditure includes VAT and sales taxes where applicable. The amount of consumption in hospitals is included under in-patient care. Source: [16]. drug expenditure data within the context of overall health care financing. Pharmaceutical services, like health care services generally, may be financed from public or private sources or from a combination of the two. Comparing trends in public versus private (including the over-the-counter market) drug ex- penditures gives an indication of the way in which the burden of drug financing is apportioned between individuals, society generally and different levels of government. Such differences in financing arrange- ments between countries should be taken into consideration when comparing trends; an apparent success in reducing public drug expenditure in a particular country is not necessarily praiseworthy if it proves to have placed an intolerable burden on individuals. E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies 17 It is also useful for policy development to break down drug expenditure within the pharmaceutical service into its various components. Significant variations in drug spending between different groups within the service will sometimes (but not always) be attributable to population characteristics (services directed at caring for the elderly patients or the chronically ill will for example be expected to spend pro- portionally more on drugs). Again, different policy initiatives may have been directed to drug spending in in-patient care (hospitals) as compared with out-patient care (general practice physicians). Differences in the level of spending and rate of growth in each of these fields may be directly attributable to such specific policy initiatives [7] though one will always need to be alert to other concurrent influences. 1.1. Sources of data on expenditure Ministries of Health or other government institutions in general report annually on national drug ex- penditure. Such sources, as well as those covering health expenditure generally, usually provide good coverage of the overall trend in public pharmaceutical spending. It is however often difficult to obtain complete data on drug expenditure which include (and differentiate between) in-patient and out-patient drug costs, prescription drugs and OTC, branded drugs and generic medicines, and spending in non- reimbursed and private pharmaceutical markets. National pharmaceutical industry associations often re- publish government data on expenditure in their annual reports along with other helpful figures. Com- mercial publications, such as Scrip and the Financial Times, occasionally publish national expenditure data. One set of figures commonly used in making cross-national comparisons of drug expenditure in Eu- rope is the OECD Health Database. The data generally cover both private and public pharmaceutical expenditure. However, as there is no cross-national agreement on statistical methods, the OECD data cannot be considered a standardised health statistic. The database is compiled from official government statistics. This limits its external comparability as variations between countries arise in terms of what is included in the calculations and how the categories are specified. Some countries are treated as spe- cial cases by the database because of variations in the characteristics of the population covered by the available statistics. In addition, limitations to the data arise because not all the information is up-to-date. At best, publication of annual expenditure figures usually takes a year. Figures from countries that have joined OECD only recently have not been fully integrated into the database. The quality and reliability of the data may also vary depending on what component of the data are being examined. For example, public expenditure data may be more accurate than information on private or out-of-pocket spending. 1.2. Methodological issues The first methodological issue to consider when using expenditure data is how the figures have been calculated. Drug expenditure is dependent on both drug consumption and price. It is important to know whether expenditure figures include the consumption of both in-patient and out-patient prescription medicines, and whether they also include OTCs. Drug expenditure figures will also vary depending on where in the drug distribution chain the drug price and consumption volumes for the calculation were obtained; retail and wholesale prices are naturally higher than the manufacturer’s price because of the intermediate mark-ups. Three methods are commonly used to calculate drug expenditure. The first method derives drug expen- ditures from the totality of receipts of pharmaceutical manufacturers or wholesalers (excluding exports). Secondly, pharmaceutical expenditure can also be estimated from a sample of prescriptions dispensed by 18 E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies pharmacies, provided we know the average price of a prescription. Finally, pharmaceutical expenditure can be estimated from the sales of prescription drugs by retail pharmacies to the public. When comparing data over time, or between countries, it is important to make sure that they are measured in the same way. For example, data should be measured at the same point and time in the distribution chain, should comprise the same segments in terms of hospitals and out-patient care, pre- scription and self-medication, and should cover either total, public, private or out-patient expenditures. Again, when monitoring pharmaceutical expenditures over time, or between countries, the figures used should be real (constant-price) and not nominal (current-price). Studies of “real” pharmaceutical expen- diture from year to year involve taking the costs for a baseline year and adjusting these for the subsequent effects of inflation on drug spending before making any comparisons with later years; this provides a true picture of the manner in which the cost burden on the community is changing. “Nominal” comparisons simply set the data for the baseline year alongside that for the years which follow, and therefore reflect both the effect of inflation and real changes in costs. When comparing drug expenditure between countries a common measure needs to be used. One ap- proach is to select a common currency unit. The problem with using a common currency unit is that bias may be introduced due to exchange rate fluctuations. What is more, exchange rates do not reflect the relative purchasing power between countries because they do not take account of the equalisation of prices of non-marketed commodities such as health care [12]. A similar degree of caution is needed when expressing pharmaceutical expenditure per capita using a constant dollar exchange rate. Here, although measuring pharmaceutical expenditure per capita provides a relative indication of consumption by adjusting for population size, the measure may be confounded by a number of factors including the purchasing power of the currency, and differences in the price at which a given product is sold in one country or another. Nor does this method necessarily provide a valid estimate of the changes in the burden borne by the individual as patients may have different combinations of private and public coverage, pay different amounts out-of-pocket, or may be exempt from all charges. To eliminate differences in price levels between countries, pharmaceutical expenditure can be con- verted to a common currency using rates of currency conversion called purchasing power of pari- ties (PPPs). PPPs convert currencies in such a way that the purchasing power in different countries is equalised to purchase the same basket of goods and services in all countries. The resultant comparisons provide a better picture of the real differences in the quantities of goods and services purchased. This is generally the recommended approach for cross-national comparisons. However, in using PPPs caution should be exercised as to their calculation: weak points are that the consumption functions for PPPs are in general only calculated every 5 years; what is more, health service costs are inevitably measured on the basis of a very small sample of prices and on weakly comparable volume indices [12]. Therefore, when using PPPs for international comparisons, not only may the composition of the baskets differ be- tween each country particularly for health care, but in addition different values may be attached to the components of the basket in each country. Pharmaceutical expenditure can be also expressed as a percentage of GDP, defined in the OECD Health database as the total domestic expenditure plus exports and less imports of goods and services. Moni- toring pharmaceutical expenditure as a percentage of GDP provides a relative indication of how much a country is spending on pharmaceuticals as compared to its economic status. However, using GDP as a denominator introduces a bias because, as the figure is a ratio, there is a risk of confounding changes in pharmaceutical expenditure with fluctuations in economic growth. Again, GDP expressed in national currency units indicates only how much of the economy is spent on pharmaceutical goods, but says nothing about the purchasing power of a country. E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies 19 Other common units of measure include drug spending as a percentage of total health expenditure; this gives a relative indication of resource use within the health sector. When examining this measure over time, it is important to distinguish rises and falls in health expenditure generally from rises and falls in pharmaceutical expenditure; the two may not run parallel. 2. Drug utilisation data Drug utilisation research throws light on the medical, social and economic consequences of the mar- keting, distribution, prescribing and use of medicines [20]. Utilisation data are both quantitative and qualitative. Patterns of drug utilisation can be used to determine how variations in need, prescribing choice and price account for differences in drug use in different countries [10]. The consumption of prescription medicines in a given population is closely related to a number of factors: its demographic structure (notably because older people use more drugs), to the incidence and prevalence of disease, to its socio-economic structure, to the nature and extent of health care coverage, medical culture [17], marketing by the pharmaceutical industry, as well as prescribing and dispensing incentives and regulations. By examining population characteristics, epidemiological data, and figures on the frequency and severity of illness one can arrive at an estimate of drug consumption, and therefore what allowance should be made for drug expenditure in health planning. However, it is important to note that the calculated level of reasonable need for prescription medicines will not necessarily correspond to the actual level of demand. If a patient does not seek medical intervention, demand will be less than need, and the resources used will be less than those estimated in advance. Conversely, if people buy drugs for which there is no reasonable need, whether under the influence of commercial persuasion or any other factor, demand will exceed need. 2.1. Sources of utilisation data In many situations, valid and reliable sources of utilisation data are not readily available. Sources of drug utilisation data include commercial and administrative databases, but only certain of these are designed in such a way that they capture the data needed for drug utilisation studies. Data from commercial survey organisations such as Intercontinental Medical Statistics (IMS)1 rely on sales figures as indicators of drug use. Figures are collected from manufacturers’ and importers’ records providing for a relatively complete coverage of the market. IMS also provides data based on samples of prescriptions from panels of pharmacists and physicians in each country. Analyses of sales data of this type have however primarily been designed for commercial purposes; various variables that are essential for assessing the appropriateness of drug use in a population are missing. Administrative databases collect information on users of a particular system or sets of systems in order to meet the needs of health service providers. Typical examples of administrative databases include those compiled by bodies dealing with prescription payments or reimbursement schemes. These are increas- ingly complemented by databases that link diagnostic data with prescribing data (such as the General Practice Research Database in the UK, for more info on the database see http://www.gprd.com). By using such sources one can obtain extensive and detailed information on prescribing, dispensing, admin- istration and the management of drug treatment in the public health service. One will find detailed figures 1IMS is an organization that collects data on pharmaceuticals, chemicals and other healthcare matters in sixty-two coun- tries. IMS has a near monopoly in the collection and distribution of international pharmaceutical sales figures, which are sold commercially to the pharmaceutical industry. 20 E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies on the level of use of particular drugs and classes of drugs, the quantities and doses prescribed, the price paid, and as a rule some information on the type of patient or indication for which the treatment has been given. It is also possible to detect trends to switch from one drug to another within a given therapeutic category, such as may happen where a new compound has been marketed or where the recommenda- tions in a formulary have been changed; as noted above, these can be matters of considerable financial significance. There are, however, major caveats associated with the use of these large computerised administrative databases [18]. Data compiled on the basis of public insurance or reimbursement schemes often do not collect data on drug consumption funded by private insurance or by the individual. Problems may arise in the use of these large databases because of non-randomly collected comparison groups; they may also present problems because of incomplete or inconsistent reporting, under-coding or coding errors. As a result studies using these data must be critically analysed and cautiously reported. 2.2. Methodological issues The reliability of comparisons made using drug utilisation data is dependent upon the use of a common drug classification scheme and unit of measurement. The WHO Regional Office for Europe has, since 1981, recommended the ATC/DDD system for international drug utilisation studies [19]. The Anatomical Therapeutic Chemical (ATC) system classifies drugs at five different levels of detail and provides for a unique identifier (Table 2); using this one can deal with a drug as an individual item, with all drugs having the same field of use, or with the entire therapeutic class to which they all belong. The Defined Daily Dose (DDD), which is the unit of measurement of drug use, is the assumed average dose per day for each active ingredient when it is used in its main indication for adults (it is based on an adult dose with the exception of preparations that are exclusive to children). This average dose selected for the DDD system is based on recommendations in the literature, the manufacturer’s advice and experience with the product. The DDD does not necessarily reflect the recommended or Prescribed Daily Dose (PDD) for any individual patient or patient group, but using it as a utilization unit does provide the best means available for expressing consumption levels, particularly when making comparisons between prescribers, regions or countries. Measuring the volume and the costs of drug use in terms of DDDs solves the problem of allowing for differences in prescription, duration of treatment or the potency of individual preparations. For example, it is possible to compare diabetes treatments between two centres, even though one may be using primar- ily (injectable) insulin with its potency measured in units and the other an oral antidiabetic drug dosed in milligrams; both types of drug have their own Defined Daily Doses and the number of DDD’s used can be compared directly. It would not be possible to make that same comparison if the two drugs were Table 2 Drug classification system. Example: Classification of Diazepam AT ATC N Central nervous system N Central nervous system N05 Psycholeptics N05 Psycholeptics N05A2 Tranquillisers N05B Tranquillisers N05BA Benzodiazepine derivatives N05BA01 Diazepam Source: [2]. E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies 21 to be measured in terms of common physical units (the number of packages, tablets, or injections) or the number of prescriptions written. Consumption within a geographic region, expressed as DDDs/1000 inhabitants/day provides a rough estimate of how many patients receive a standard dose per day. Alternatively one can express annual consumption levels in an entire country in terms of DDD per 1000 inhabitants per year; Lecomte and Paris [13] used this measure to identify differences in overall pharmaceutical consumption in Germany, France, Italy and UK. Others have chosen to express their data in terms of DDD per average inhabitant per year, while when considering levels of in-patient drug use, DDDs prescribed per 100 bed days is a helpful measure. Provided one ensures that the same measures are used throughout a study, one can choose the form of DDD measurement that is most convenient. Even when using the DDD, some caution may be needed in drawing conclusions regarding the data that emerge. A number of studies have for example found variations in the quantity and cost of prescrib- ing between individual prescribers from different geographic areas (see review by Bradley [1]), and it is all too easy to assume that some of these physicians are over-prescribing or under-prescribing; in fact one will need to know more about the patient populations involved (e.g., their age and socio-economic breakdown) before jumping to such a conclusion. This particular issue of differences in use between age and socio-economic groups needs to be tackled critically. A crude means of standardising the populations concerned by giving weights to older versus younger patients has been proposed but it is not reliable. A more accurate adjustment for demographic differences may involve taking into account proven differ- ences in drug needs between both the various age groups and the sexes [14]. The most important element to bear in mind however is that even such adjustments are only approximate, and that one should never draw conclusions as to the rationality of prescribing patterns from crude drug utilisation data. 3. Data on pharmaceutical prices Drug prices differ, sometimes very substantially, between countries, even within the same economic area. Data on pharmaceutical prices can be compared both nationally and internationally. They serve both as a measure of the effect of different regulatory policies on the cost of pharmaceuticals, and as a reference for setting national drug prices. Here again however one has to be sure that the figures are reliable and that the comparisons made are valid. The reliability of the absolute figures is generally not in doubt but one must ensure that they are mea- sured at the same level and in a comparable manner (i.e. price may be expressed at the retail, wholesale or ex-manufacturers level, it may relate to smaller or to larger packages and in some cases a company may set one price for the private sector and another for a public health care system). Nor is it not unknown for the price charged at a particular level to be influenced downwards by a form of subsidy or upward by the imposition of taxes or duties. The validity of any comparison will depend on one’s taking sufficient account of the reasons why drug prices differ from one country to another. The manufacturer’s own price-setting policy is obviously one determinant, and differences in price may in that respect reflect overcharging in some countries. However, government and insurance policies also play a role. The aim in negotiation may be to secure prices which are the very lowest attainable, or there may be some willingness to allow leeway for adequate input into research and development or to ensure sufficient income for retail pharmacists or dispensing physicians. 22 E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies 3.1. Sources of data on pharmaceutical prices Data on drug prices from country to country often prove surprisingly difficult to obtain, though some of the figures can be extracted laboriously from sources such as National Formularies and reimbursement tables. Detailed pricing data are not readily available from government sources for use by researchers or other outside agencies, though in general, governments do publish average price data. In 1988, recog- nising the limited availability of drug price data, the European Community attempted to compile a data bank of drug prices and other basic product information from Member States. The data bank was in- tended to interface with a variety of national databases. That initiative led to the development of the European Community Pharmaceutical Information Network (ECPHIN), set up by the European Com- mission’s Joint Research Centre. ECPHIN was supposed to provide a complete description of the medi- cinal products authorised by the European Union including price and reimbursement rates. This proved too ambitious, and by 2001 plans for ECPHIN had been abandoned. Commercial database organisations such as IMS (see Section 2.1 above) collect detailed drug pricing data. Their information includes prices at ex-manufacturer, wholesale and retail price levels. IMS does, however, acknowledge that price data are audited and adjusted to represent the whole market. It is difficult to verify the reliability and accuracy of this database since it is one of the few sources of detailed drug price data. 3.2. Methodological issues Any attempt to express the overall price level of drugs in a particular market must be based on figures for a sample of products. The validity of any overall conclusion or comparison regarding price levels is obviously dependent on how this “basket” of products is constituted. To be representative of the market as a whole, the basket should include a random selection of brand name, generic and OTC products. If international comparisons are being made, the samples for all the markets being compared should ideally be matched in terms of manufacturer, active ingredient, dosage form, strength, pack size and brand name. A standard unit of measurement and classification such as the ATC/DDD system described in the previous section should be employed. Constructing a truly ideal product basket as a basis for international comparisons is unfortunately often impossible. The range of products available varies from one country to another. Even if the same product is available it may not be made by the same manufacturer in all the countries which are being compared, or it may not everwhere be supplied in the same pack size, dosage form or strength of active ingredient. It is also important to consider how well the products selected represent national consumption patterns in the countries concerned. As noted earlier, it is also essential that comparisons be made between prices at the same level of distribution chain. As medicines move along the distribution chain from the factory, to the wholesaler, the pharmacist and finally to the consumer the price of the drug will rise to reflect the value added along the way. The consumer price of a pharmaceutical is generally composed of four parts: an ex-factory price paid to the manufacturer of the products; a wholesaler’s margin, a fixed tariff or margin for pharmacists; and whatever taxes may be applicable. Variation in the consumer price of medicines in between countries in Europe is attributable to differences in the ex-factory price (ranging from 87.5 per cent of the consumer price in the UK to 49.9 per cent in Greece), the wholesaler’s margin (12 per cent of the consumer price in the Netherlands but only 3.2 per cent in Sweden), the pharmacist’s margin (33.4 per cent in Ireland yet no more than 5 per cent in the UK) and the value added tax (zero in Sweden, UK, Austria, Ireland but E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies 23 20.3 per cent in Greece) [3]. These data illustrate how marked these variations from country to country are, even within this closely integrated economic area. A further complication when one makes comparisons is that in particular situations the prices charged may differ from the norm. It has already been noted that a company may charge different prices in the public and private sectors. In addition special discounts may be offered to bulk drug purchasers such as hospitals and retail pharmacy chains, and such discounts may or may not be passed on to the ultimate payer. Where these practices are widespread they can significantly affect the actual figures, both as regards true margins and consumer prices. As with comparisons of expenditure data, when comparing drug prices between countries the position of any one country relative to others is likely to depend in part on how the comparison is made. Again one approach is to compare the actual prices paid in each country, transposing them into a common currency using current bank exchange rates. Such comparisons using a common currency unit are subject to complications of exchange rate fluctuations. They have the additional disadvantage that they provide no indication of the extent of the burden which these prices represent for the communities or individual concerned. For example, even a high absolute price may be relatively affordable in a country where earnings are similarly high. For this reason it can be more informative to compare price levels per country in terms of the actual PPPs. When such studies are conducted over a period of time, it may be possible to detect trends in prices and to compare these trends from one country to another, again using a standard “basket” of representative products and applying a price index to it. For each country the index should measure the changes in the expenditure required to obtain the standard range and quantity of the drugs in the sample [4]. Using indexes alone to make comparisons between countries avoids the complications introduced by exchange rate conversions, and the local levels of inflation do not distort the comparisons. Consequently, it may be possible to conclude for example, that the burden of drug costs has risen less rapidly in one country than another. Again one must be aware that such a comparison requires that the pharmaceutical basket remains representative as time goes by, and this is not easy to ensure. Similarly, when constructing indexes it is difficult to take account of the effect of new drug introductions, the sometimes rapid change in the mix of drugs actually being prescribed, and developments in drug quality [11]. 4. Health outcomes data Data on health outcomes is required to develop, monitor and evaluate pharmaceutical policy. The types of health outcomes data commonly collected includes mortality and morbidity data, as well as data on health related quality of life (HRQL). Morbidity data can include both measures of actual and perceived disability. HRQL is in general measured using multi-dimensional health status instruments, either psychomet- ric or utility/preference instruments. Psychometric health status instruments measure health status along multiple domains and are either disease-specific (e.g., Skindex for skin diseases) or generic measures (e.g., the Sickness Impact Profile). Alternatively, preference weighting can be assigned to health states that reflect individual and population preferences for different health states. Quality weights can be as- signed to health states using several methods: the rating scale, the standard gamble, and the time trade-off (TTO) are the most common techniques. Each health state is then combined with a time score in order to determine the number of Quality-adjusted-life-years (QALYs). 24 E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies Deciding on the health outcomes to be measured depends on several things: potential differences in patient populations related to the main effects of the intervention; any side-effects or unintended con- sequences; and outcomes of interest depending on perspective taken (e.g., patient, third-party payers, society) [9, p. 84]. There may also be differences in the selection of health outcomes depending on whether our interest is clinical or economic. For example, health outcomes that are needed for economic evaluations may be final outcomes (e.g., rapidly of cure), while those of clinical interest may be inter- mediate outcomes such as changes in blood pressure. It may also be important to collect data on the frequency or probability of given outcomes. 4.1. Sources and methodological considerations of outcomes data Outcome data can be routinely monitored and collected as indicators of policy performance. If outcome data are to be used as part of an evaluation it has been recommended that the primary data be collected from randomly controlled trials (RCTs) [6], but this represents an ideal which is not always attainable. Although the most unbiased evidence on outcomes comes from RCTs, these may lack precise data on some of the clinical end-points that are relevant to a given situation because they were designed to answer clinical questions rather than economic ones (e.g., efficiency may be a very different matter from effectiveness when conducting economic evaluations). RCTs clearly have a high degree of internal validity but it may not be possible to generalize from them to real world settings. It may simply prove impossible to collect from an RCT the data which are needed for monitoring and evaluating health outcomes associated with policy changes. Alternatively prospective observational and descriptive studies can be used to generate data on out- comes. Both observational cohort and case-control studies can generate probability data of particular outcomes associated with an intervention; however, both types of observational studies are more prone to bias than RCTs (e.g., where patients are not randomly assigned, or questions of recall bias arise in case-control studies) [15, pp. 146–147]. Health outcome data can also be generated from administrative databases but the same caveats discussed earlier in this chapter apply. 5. Cost data on programmes or treatments There are different ways of considering cost. In its basic accounting form cost equals the number of resources used multiplied by the unit cost. Costing in this way requires that all resources used by a particular programme or treatment be identified and valued. However, to economists “cost refers to the sacrifice (of benefits) made when a given resource is consumed in a programme or treatment” or in other words the opportunity cost [5, p. 54]. The value of opportunity forgone in the next-best alternative use of the resources do not necessarily equate to the market prices of the resources used (e.g., patient time). The total costs therefore comprise the sum of all expenditures or opportunity costs during a given time frame. It is difficult to make adjustments to costs that reflect the opportunity cost of the resource used; for that reason the pragmatic approach often adopted is simply to use the market prices for these resources. Costs which may be measured should cover the direct costs incurred by the health care provider and (or) the patient (i.e. costs of hospitalisation, physician services, pharmaceuticals, etc.). Indirect costs to society of the productivity lost (e.g., due to the patient seeking care or costs resulting from disability or premature death). Data collected may also include intangible costs borne by patients in terms of pain and suffering; their inclusion is subject to debate [8, p. 189]. There is an ongoing debate on how to measure direct costs (i.e. marginal, variable, fixed, average, capital and shared costs), whether to included indirect E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies 25 costs and what the best way may be to measure opportunity cost. (See Drummond et al., 1997, Chapter 4.) There is also debate over how to measure unrelated future costs [9, pp. 45–48]. The implications of these debates are discussed further in Section 2, Chapter 5. The purpose and type of analysis undertaken will determine the categories for which cost data will need to be collected. For example, hospital costs may involve identifying costs of services, facilities and overheads, while community costs may involve costs associated with visits to GPs, nurses or other health professionals. From a third party perspective one may want to consider actual charges rather than costs because often third parties do not cover total health care costs. As regards patients it is important to place a value both on their time and that of their family, as well as to take into account any out-of-pocket expenses incurred. In such matters, however, it can be important to assess the relative importance of a cost item to the overall outcome since the cost of including some minor costs may not be justified by their significance in the total picture. There is also a decision to be made about the precision of the cost data to be collected. Micro costing includes each component of resources used and a unit cost for each. Costs can also be collected according to the case-mix group (i.e. the type of case category or patient). Per diem costs can also be collected as an average of all categories of patients or for each disease category. 5.1. Sources and methodological considerations of cost data The collection of cost data includes not only the collection the prices of the resources used but also the quantity of resources used. As with health outcome data, cost data can also be collected from Randomised Controlled Trials. The problem with obtaining costs from these RCTs is that, as noted above, they lack external validity and instead of reflecting costs associated with regular patient management and resource use, the costs obtained from RCTs may be protocol-driven. However, in many cases cost data will be collected either from routine sources (such as administrative databases) or by acquiring specific primary data collection (i.e. in observational studies). Both data on prices and costs are often based on accounting costs or service prices. It is important to be aware of level data collection as for example, the retail price of medicines is often different than that obtained in a hospital setting. Cost data can be estimated from chart reviews, administrative databases or reviews of other hospital and medical records. Cost estimates for non-market items can be estimated using market wage rates (i.e. for volunteer time); for items which are difficult to value (such the leusure time enjoyed by the patient or his family) the estimate may be set at zero and then adjusted using sensitivity analysis (see below) to examine impact. Alternatively cost data can be collected from other published literature. This is also useful for iden- tifying key costs. The problem with these is that they can vary considerably between different settings. Practice variation in for example facilities or services used, nursing time etc. can account for a number of differences from place to place. Variability also arises in estimating future costs. To overcome such variability sensitivity analysis is used. Sensitivity analysis is the process of repeatedly using different values for probability and utility values in order to assess the degree of uncertainty associated with a result. Inferences are also made from other studies. It may be necessary to ask patients directly for information (e.g., number and length of time of home visits by health professionals). Missing data can be estimated using meta-analysis to combine results from other studies. Alternatively assumptions can be based on expert opinion and then tested using sensitivity analysis. If data is collected from different sources then it will be important to use simulation models to combine the data and take account of the variation. 26 E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies In collecting data it is important to define the time horizon (i.e. short-run constrained by fixed resources versus long run where all inputs are variable). Resources may change over time and data may be limited to certain time horizons. Often data is limited to the trial period and estimating future costs requires either calculating survival within a given period of the trial (usually set at 5 years or less) and then either discounting costs during the time of the trial or extrapolating events and costs beyond the period of the trial [8, p. 191]. 6. Information relating to the pharmaceutical industry Up to this point we have considered solely the data required to examine the efficient use of pharma- ceutical resources within the health care system. It is however, also important to monitor and take into account data on the pharmaceutical industry, which in many countries forms a significant part of the manufacturing sector and as such contributes to a country’s overall economy. Successful development and maintenance of a domestic pharmaceutical industry can have a very positive effect on a country’s trade surplus, particularly in terms of foreign earnings and balance of trade. The interest of the health sector in regulating pharmaceutical expenditure, prices and profits may therefore have to be balanced judiciously against national economic interests. The latter will comprise the need to provide sufficient incentives and opportunities to preserve and develop an industry with a solid financial base, capable of effective innovation and sustained growth in the long-term. Data are therefore required to calculate the contribution of this industry to the economy as a whole. This will include monitoring the industry’s trade surplus, the volume of exports and the number of people employed. It is also important to monitor the investment of the pharmaceutical industry in R&D projects both in its own laboratories and externally at universities and clinics, or through other joint ventures such as those with biotech companies. Successful innovation can be monitored through the level of patenting and the success in commercialising innovative technologies. Finally, data on the environment in which the pharmaceutical industry is operating can be relevant; they will include figures and information on the availability of resources, the presence of related and supporting industries, and the availability of skilled labour. All these various forms of information will contribute to a view on the achievements and prospects of the national pharmaceutical industry, and the extent to which its interests should counterbalance those of containing pharmaceutical expenditure. One of the best sources of data on the national pharmaceutical industry is usually the national indus- try association. National associations of pharmaceutical manufacturers publish in their annual reports numerous facts and figures which are intended to promote the industry, but which can be valuable in assessing its situation. Commercial databases such as Datastream or those compiled by the IMS contain company-specific financial and commercial data. Annual reports from individual companies are also use- ful. Other industry specific information available in publications such as the Panorama of EU Industry published by the Eurostat, the statistical office of the European communities, and reports issued by the European and International Federations of Pharmaceutical Manufacturers’ Associations. However, with all of these aforementioned data sources, there is really no way to verify its validity. 7. Conclusion This chapter has focused on the types of data needed to develop and monitor drug policies. Whether using data on drug expenditure, utilisation, price, health outcomes or on the pharmaceutical industry E. Mossialos and M.F. Mrazek / Data needed for developing and monitoring policies 27 there are a number of common issues which should be taken into consideration particularly when making regional or international comparisons. It is important to be on the lookout for those characteristics of the pharmaceutical scene that are inevitably unique to each country, and to take them into account so that they do not invalidate comparisons. As pointed out in Section 3 above, for example, comparisons should be made using a common unit of measurement, matched samples and data from the same point in the drug distribution chain. In the past, too, bias has been introduced into some comparisons because of the limited availability and dissemination of good quality data on prices, volumes and outcomes outcome data. It is important that these and other possible sources of error raised in this chapter be addressed if data are to be obtained and used effectively to monitor and inform future policy development. References [1] C.P. Bradley, Decision making and prescribing patterns – a literature review, Family Practice 8(3) (1991), 276–287. [2] D. Capella, Descriptive tools and analysis, in: Drug Utilization Studies: Methods and Uses, M.N.G. Dukes, ed., World Health Organization, Copenhagen, 1993. [3] Danish Association of the Pharmaceutical Industry, Facts and Figures, Danish Association of the Pharmaceutical Industry (LIF), Copenhagen, 2001. [4] P.M. Danzon and J.D. Kim, International price comparisons for pharmaceuticals: Measurement and policy issues, Phar- macoeconomics 14(Suppl. 1) (1998), 115–128. [5] M.F. Drummond, B. O’Brian, G.L. Stoddart and G.W. Torrance, Methods for the Economic Evaluation of Health Care Programmes, 2nd edn, Oxford Medical Publications, Oxford, 1997. [6] M.F. Drummond, Experimental versus observational data in the economic evaluation of pharmaceuticals, Medical Deci- sion Making 18(2) (Suppl. 1) (1998), S12–S18. [7] A. Earl-Slater and C. Bradley, The Inexorable rise in the UK NHS drugs bill: Recent policies, future prospects, Public Administration 74 (1996), 393–411. [8] A.M. Garber, Advances in CE analysis, in: Handbook of Health Economics, J.P. Newhouse and A.J. Culyer, eds, Vol. 1A, North-Holland, New York, 2000. [9] M.R. Gold et al., Identifying and valuing outcomes, in: Cost-Effectiveness in Health and Medicine, M.R. Gold, J.E. Siegel, L.B. Russell and M.C. Weinstein, eds, Oxford University Press, Oxford, 1996. [10] F.M. Haaijer-Ruskamp and L.T.W. de Jong-van den Berg, Drug utilisation studies and drug monitoring in the Netherlands, Annali Dell Instituto Superiore Di Sanita 27 (1991), 217–223. [11] B. Jonsson, Pricing and reimbursement of pharmaceuticals in Sweden, Pharmacoeconomics 6(Suppl. 1) (1994), 51–60. [12] P. Kanavos and E. Mossialos, International comparisons of health care expenditures: What we know and what we do not know, Journal of Health Services Research and Policy 4(2) (1999), 122–126. [13] T. Lecomte and V. Paris, Consommation de pharmacie en Europe, 1992: Allemagne, France, Italie, Royaume-Uni, No 1048, Paris, Credes, 1994. [14] D.C.E.F. Lloyd, C.M. Harris and D.J. Roberts, Specific therapeutic group age-sex related prescribing units (STAR-PUs): weightings for analysing general practices’ prescribing in England, British Medical Journal 311 (1995), 911–994. [15] J.S. Mandelblatt et al., Assessing the effectiveness of health interventions, in: Cost-Effectiveness in Health and Medicine, M.R. Gold, J.E. Siegel, L.B. Russell and M.C. Weinstein, eds, Oxford University Press, Oxford, 1996. [16] OECD, OECD Health Data 2000, OECD, Paris, 2000. [17] L. Payer, Medicine and Culture, Henry Holt, New York, 1996. [18] W.A. Ray, Policy and program analysis using administrative databases, Annals of Internal Medicine 127(8 Pt 2) (1997), 712–718. [19] World Health Organization, Guidelines for ATC Classification and DDD Assignment, 2nd edn, WHO Collaborating Centre for Drug Statistic Methodology, Oslo, 1998. [20] WHO Expert Committee, The Selection of Essential Drugs, Technical Report Series No. 615, World Health Organization, Geneva, from 1977, continuing. International Journal of Risk & Safety in Medicine 15 (2002) 29–54 29 IOS Press Chapter 3 Policy options for cost containment of pharmaceuticals Ad H. Rietveld and Flora M. Haaijer-Ruskamp 1. Introduction In providing universal access to health care, a sound basis for the structural financing of national health care systems is of utmost importance. Cost containment can be seen as an ongoing series of attempts by governments to spend their limited financial resources as efficiently as possible. Essentially, there are three ways in which one can hope to control pharmaceutical expenditure: – Controlling prices of medicines at various levels. – Influencing demand by implementing financial measures, such as budgeting and reimbursement. – Influencing demand by implementing professional measures. In this chapter, an overview is provided of the different options available. The key features, strengths and weaknesses of the various initiatives are discussed. In the subsequent chapters examples will be given of selected experiences with different approaches. 2. Price controls 2.1. Reasons for price controls Drug prices are high for four primary reasons. Firstly, rigorous standards to protect the public from poor quality, unsafe and inefficacious drugs require manufacturers to invest in expensive research and development programmes. Those drugs that pass the standards are priced so that a company obtains a return sufficient to cover its investment in the drugs themselves, the costs of the drug research projects that failed, the costs of promotion, investment in future research and development and still yield the shareholders an attractive dividend. Secondly, there are certain factors which tend to create monopolies. One such factor is the quality standard already referred to, which imposes significant entry barriers for new market participants. Alongside patent protection it allows pharmaceutical companies to build up monopolistic positions within important segments of the pharmaceutical market. Products that improve health are relatively inelastic commodities, and strong demand enables the monopoly holder to command a high price. Thirdly, third party payers, rather than the patient, pay for drugs, making the consumer less price sensitive. Fourthly, as with all products of which the consumer has no real understanding, he or she tends to judge the quality and perhaps also the efficacy of a drug on the basis of its price: a higher price 0924-6479/02/$8.00  2002 – World Health Organization. All rights reserved 30 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals is thought to indicate better quality and, vice versa, a low price (as in the case of generics) is believed to signify a lower standard. In the market for more typical consumer products, the “fair” price of an item is the result of an ongoing process of negotiation between the supplier and the user. The outcome of such a process depends on the strength of the parties involved relative to each other. In the pharmaceutical market, by contrast, there can be no real negotiation between the patient and the supplier of drugs. The patient is simply not in a position to enter into such negotiation, as he would (either individually or by contributing to market resistance) when buying another type of product. Free pricing of pharmaceuticals is, as has been pointed out in Chapter 1, usually associated with high price levels. The retail price of a medicine is not determined by the real costs of its development, production and distribution, but as with any other commercial products by what the market will bear. From the perspective of safeguarding universal access to health care, it is however necessary that prices be kept at reasonable levels. Most European countries, even those that at one time maintained a system of free pricing, have therefore implemented some form of price control. It should however be borne in mind that price control measures are just one of the instruments available to governments to contain the costs of the health care. A sound pharmaceutical cost containment policy comprises a mixture of the varying instruments and it refrains from interference whenever this is feasible. It is not realistic to assert, as is sometimes done, that over-zealous price controls are generally likely to push prices down to levels that are too low to deliver a profit and to finance research and development. That may well have happened incidentally in the case of a particular drug in a particular market, but across the board the process is one of give and take; the parties put their cards on table, compromises result, and what a company loses on one drug it is likely to gain on another. Especially in the larger markets, companies are quite capable of standing firm to ensure that their earnings are adequate; if pressed beyond the limit in such a market a firm can always choose to withdraw a product from sale rather than trade it at a loss. There are however no signals that western countries have in fact pushed prices down to such low levels. 2.2. Methods of price control Several alternative methods are used to contain the prices of pharmaceuticals. All these methods have in common that regulators attempt to calculate a price for pharmaceuticals which is “correct” or “fair” to the various parties concerned. Prices can be controlled at different points in the chain: (1) At ex manufacturer level; (2) At ex importer level; (3) At wholesale level; (4) At pharmacist level. Usually combinations of these approaches are used. Examples can be found of systems in which the ex manufacturer/ex importer prices are regulated while the maximum margins allowed to wholesalers and pharmacists are simultaneously fixed. One also encounters systems in which only the pharmacy selling prices are regulated, while manufacturers, importers, wholesalers and pharmacies negotiate with each other on their charges and margins. The most difficult step in developing any price control system is the establishment of a “fair” price. As stated above, in a market for more typical consumer products, the “fair” price of an item is the result A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 31 of a negotiating process between the supplier and the user. Consumer markets are usually transparent and it is possible to obtain information on product characteristics and to compare prices. By contrast, pharmaceutical markets are often characterized by monopolies or oligopolies, while the user generally has insufficient insight into products and prices. If it is not possible to compare prices with those of other comparable products, it becomes very difficult indeed to know what a “fair” price is. However a number of methodologies have been developed to calculate fair prices; five such methods will be described below: (1) Cost plus calculations; (2) Profit ceilings; (3) Comparative pricing; (4) Price negotiations; (5) Pharmaco-economic calculations. Again, combinations of the different methods are as a rule used. 2.3. Price control at ex manufacturer/ex importer level 2.3.1. Cost-plus systems The cost-plus method usually involves complicated calculations with respect to the costs of production of individual products and, allowing a certain profit margin, thereby arriving at a justifiable price level for these products. The pricing authority needs extensive and reliable information about the costs and mar- gins of companies. Regulators can demand such data, but they may well find the information supplied by companies difficult to verify. Costs and margins are not independent of company policies: the basic costs of production, research and marketing may vary considerably between companies. Where the company with which one is dealing is a daughter firm of a multinational concern, it can be well-nigh impossible for the outsider to obtain any reliable overview of where and how costs are being incurred and profits taken. Furthermore, there is the problem of allocating overhead and research costs to individual products. Cost-plus systems are usually rather static, creating problems for regulators and companies, as the prices of individual products cannot be promptly adjusted to changes in market conditions. There are no incentives for companies to increase efficiency and introduce cost-saving innovations. In some of the former Eastern Block countries, the cost-plus method has had detrimental consequences for the local pharmaceutical industry due to the reluctance of regulators to compensate for their R&D and marketing costs, thereby weakening their competitive position relative to that of foreign producers. In an environment in which economies are much more open and much less predictable, and where companies have to compete with other (foreign) firms such systems have become ineffective and admin- istratively too complicated to apply (although some countries still maintain variants on the method). 2.3.2. Profit ceilings In this method the pricing authority sets a ceiling on the return on capital (sometimes on sales) for the company as a whole. In Europe only the United Kingdom operates a voluntary profit maximization sys- tem, the so-called Pharmaceutical Price Regulation Scheme (PPRS), in which the government negotiates with individual pharmaceutical companies on the amount of profit that can be made through selling their products to the National Health Service. Although profit control schemes are associated with the same problems as the cost-plus method, profit control systems can be more flexible as the profitability of a company as a whole is controlled, rather than the margins on individual products. The greatest difficulty, as with the cost-plus approach, arises with 32 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals multinationals and their far from transparent earnings and costs; it is significant that the British PPRS scheme operates in a country where a substantial part of the market is still in the hands of domestically based producers. 2.3.3. Comparative pricing systems In comparative pricing systems the prices of identical or similar products marketed in certain other countries are compared to the prices of products on the domestic market. A growing number of countries (e.g., Portugal, Romania and The Netherlands) have implemented comparative pricing systems. Several methods are in use. Some countries compare price increases in drugs in order to determine permissible price increases for domestic products. Other countries require companies, when bringing new products to the market, to supply information on the prices for these products in selected foreign countries. A more comprehensive model involves comparing the prices of all (reimbursed) products on the market with the prices of similar or identical products in other reference countries. Comparing prices of medicines between countries can be difficult due to methodological and data problems. Firstly, it may be difficult to identify entirely identical medicines due to differences in brand names, pharmaceutical forms and unit strengths. Secondly, the prices in different countries may be hard to compare due to differences in the margins allowed to wholesalers and pharmacies, differences in VAT and so on. Thirdly, there may be obstacles in obtaining accurate and up to date data on the prices of medicines abroad. Fourthly, depending on the type of comparative pricing system that is chosen, extensive computer hardware and software may be necessary to operate the system. However, experience shows that by using the right comparator one can solve these problems. The system used for setting prices in The Netherlands is an example of an advanced comparative pric- ing scheme. Maximum permissible prices of pharmaceuticals are set by calculating an average wholesale price for medicines on the basis of the prices of comparable products in Belgium, Germany, UK and France. Medicines are considered comparable when they have the same active ingredient, the same unit strength and a comparable pharmaceutical form. Prices are compared at the pharmacy buying level, net of Value Added Tax (VAT). When this system was implemented in 1996, prices of pharmaceuticals on the Dutch market fell by on average of 20%. 2.3.4. Price negotiation models In the pharmaceutical market the individual patient is, as already noted, in a too weak a position to enter into negotiation with the supplier of drugs. Furthermore, as it is the prescribing doctor who decides on the drug and since the patient usually has some form of insurance, the patient may not be very price sensitive. This lack of price sensitivity is further increased by the consumer’s incomplete knowledge concerning drugs. Institutional buyers such as hospitals, health insurers, regional and national governments, on the other hand, have more technical expertise and information than do individuals and are, due to budgetary constraints, sensitive to the prices of drugs. Furthermore, due to their size and resources, they can exercise considerable bargaining power, and are capable of negotiating prices with the supply side of the market. Negotiation on prices is made easier for buyers when (generic) substitutes are available. In those cases where a pricing authority negotiates on behalf of a large group of people or for a major market, the bargaining power can be considerable. In most European countries, virtually no market for pharmaceuticals exists outside the social health care system and often pricing authorities can refuse to admit a drug to the reimbursement system if they consider that the price is too high. Negotiation can also take place in a decentralised manner, being handled by hospitals and other health care services, provided they have the organisation and incentives (e.g., budgetary constraints) to act in a cost conscious manner. A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 33 Some bodies, mainly in the public sector, use tender systems. This is often the case when vaccines are purchased for immunization campaigns or when drugs are bought for the armed forces or to provide a strategic reserve. In developing countries, tendering is commonly used to cover the needs of hospitals and primary clinics for essential medicines. An example of a negotiation model can be found in France, where the government controls prices through direct negotiations before the launch of a product. In the United States, Health Maintenance Organisations (HMO’s) negotiate on the prices of the drugs which they purchase. In varying degrees the element of negotiation can be found in most systems, since regulations usually allow some room for interpretation. Even the bargaining power enjoyed by large public buyers naturally has its limitations. Especially in cases where the supplier has a monopoly due to patent protection and the product fulfils a health care need (e.g., the treatment of a previously incurable disease), the supplier is in a strong bargaining position to impose prices on the buyer. A good example of this is the market for HIV-AIDS drugs. Suppliers may also refuse flatly to accept low prices where there is a clear risk that a product sold at an exceptionally low price may “leak” into another market through parallel importation, thus undermining a company’s consolidated income and profits. There is also the possibility of a spill-over of low pricing to other countries that have implemented comparative pricing systems. 2.3.5. Pharmaco-economic evaluations Pharmaco-economic evaluations are new as a tool to control prices. In essence, regulators (or other purchasers) try to establish “fair” prices on the basis of complicated calculations, taking into account the costs of other treatments, the costs of disease for society and so on. The costs of a drug are thus set against its direct and indirect benefits, as compared with alternative drugs and treatments, and its possible disadvantages and risks. The essential question is how much the drug is worth to the community. Currently a number of countries (Australia, Canada, Finland, Norway, UK, The Netherlands) are us- ing pharmaco-economic evaluation, experimentally or definitively, as an additional tool in the decision- making process regarding the pricing and reimbursement of medicines; one of the most developed of such systems is that applied by the Australian Ministry of Health. Although attractive as a theoretical model, the outcome of pharmaco-economic calculations seems to be rather dependent on the use and misuse of a drug when actually marketed. Various assumptions (e.g., about future use) have to be made when making these calculations. Although in some aspects promising, the science of pharmaco-economics must still be considered a developing field in which a lot of debate is going on [25]. The data needed and some of the methodological issues are discussed in detail in Chapters 3, 4, 8 and 9. Australia seems to have proven that one can operate a system like this if one has a first class group of experts. However, like other countries Australia is not immune from other pressures; recently strong political pressure, clearly resulting from the pressures exercised by pharmaceutical industry on politicians, has succeeded in undermining the composition and the work even of this eminent this body of experts. 2.4. Price control at the level of the wholesaler and the pharmacy 2.4.1. Limiting distribution margins The costs associated with the distribution of drugs consist of the mark-ups of the wholesalers and the pharmacies. Distribution margins are usually regulated, as they contribute considerably to the consumer price of drugs; these margins can represent more than 40% of the price ultimately paid. 34 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals Limiting wholesale margins Limiting the wholesale margin can be achieved either (1) by allowing the wholesaler a maximum margin for its services, or (2) by setting a maximum for the price at which the wholesaler can sell a product to pharmacies. A combined approach can also be adopted in which a maximum is set for the total distribution mark-up; wholesalers and pharmacies then have to negotiate with one another for their share of this mark-up. An example is Romania, where a maximum is set for the total distribution mark- up, with subsidiary provisions setting a maximum margin for the wholesaler and a minimum margin for the pharmacy within this total mark-up. Limiting pharmacy retailing margins Systems of remuneration for pharmacies fall into two classes, the one being product-orientated and the other patient-oriented [15]. Many systems are in fact hybrid schemes, in which elements of both approaches are used. Product oriented remuneration systems for pharmacies can be divided in three categories: (1) Fixed margin systems: a fixed percentage mark-up is added to the wholesale prices of all dispensed medicines. This principle is widely used in competitive retailing systems, both in the USA but also in more tightly regulated systems such as exist in Europe. In European markets, mark-ups are gen- erally fixed and are re-negotiated periodically with governments. Retail mark-ups on prescription drugs vary but are usually around 30%. Most countries refrain from regulating margins on OTC drugs, since for these the rules of the free market apply much more clearly than for prescription drugs. A pitfall with fixed margin systems is that the pharmacist may negotiate discounts on the wholesale price of a drug, thus increasing his gross margin without consumers necessarily ben- efiting by lower prices (although in some countries – like the USA – part of such a discount is indeed reflected in a lower consumer price). Some countries have therefore introduced systems to recover these discounts (e.g., the “claw back” system in the UK and The Netherlands) to the benefit of the National Health Service or its equivalent. Other countries, such as Denmark, have simply forbidden wholesalers and pharmacies from offering or accepting discounts. (2) Mark-ups may be maximised instead of fixed. This variation is inspired by the thought that third- party payers may negotiate lower margins and consequently lower prices with wholesalers and pharmacies. The effect of this negotiation will however depend on the respective bargaining pow- ers of the parties; in practice therefore, maximisation of the mark-up will not per se lead to a reduction in the consumer price. One of the arguments used against systems exerting such pres- sure on the retailer is the risk of lower quality service, such as a reduction in stock levels for high priced but essential medicines. In order to prevent a loss of service quality, countries may impose additional requirements on pharmacy operations (such as an obligation to deliver any drug within a given time frame). (3) Mark-ups may be digressive: here the percentage mark-up decreases as the price of the drug in- creases. Usually the main purpose of digressive margins is to make it less attractive for the phar- macist to dispense high priced drugs than low priced drugs. The structure of margin rates differs greatly among the countries which have adopted such systems. Usually the rate differences take into account specific domestic price structures and consumption patterns. The patient-oriented systems for remuneration of the pharmacist can be divided into two categories, although combinations may be used: (1) Capitation systems in which the pharmacy receives a fixed sum per patient per year. This sum may be digressive depending on the number of patients per pharmacy. In capitation systems it A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 35 is usually necessary to ensure specifically that pharmacies do not place an additional mark-up on the drugs they dispense. As in other systems, combinations of approaches may be used, e.g., so that alongside a capitation fee an additional margin on dispensed products contributes to the pharmacy’s remuneration. The purpose of capitation systems is to make the remuneration of the pharmacist as far possible independent of the volume and the price of the drugs dispensed. Although in theory capitation sys- tems for pharmacies are effective in achieving this, in practice (as with the fixed margin systems) pharmacies may receive discounts on the price of the medicines they buy. It has proved difficult to prevent this as discounts may take many shapes and forms and are therefore usually difficult to detect. Furthermore, if a pharmacy is involved in wholesaling or if a wholesaler owns a pharmacy, discounts may be transferred to the wholesaling operation. Some countries, notably Denmark, have responded to the problem by forbidding the offering and acceptance of discounts altogether. Other countries (The Netherlands and the UK) have introduced systems to “claw back” these discounts to the National Health Service or its equivalent, thereby using the bargaining power of pharmacies as a tool to attain additional price decreases. (2) Fixed fees per prescription. In these systems the pharmacy is paid for its activities by a fixed sum per prescription dispensed. As in capitation systems, the purpose of a fixed fee per prescription is to make the remuneration of the pharmacist as far as possible independent of the volume and the price of the drugs dispensed. Again, as in capitation systems, a fixed fee per prescription system renders it necessary to prohibit pharmacies by regulation from placing an additional mark-up on the drugs which they dispense. 3. Reimbursement measures 3.1. Positive lists 3.1.1. The concept of a positive list A list of those medicines eligible for reimbursement is usually called a positive list. The opposite of a positive list is naturally a negative list, specifying those drugs which will not be reimbursed. The National Health Service of the United Kingdom maintains a negative list on which about 129 substances are placed. An important advantage of a positive over a negative list is that separate decisions have to be made to add new drugs to the list. In addition, because of pressures exercised by user groups, transferring drugs to a negative list is usually politically more difficult than maintaining a limited positive list to which only selected drugs will be admitted. The existence of an approved list of reimbursable medicines is regarded as an important tool in im- proving the quality of care as well as in containing the costs of pharmaceutical care. Experience in many countries, both in Europe and the developing world, strongly suggests that limitation of the range of re- imbursed drugs can be achieved without depriving the population of valuable therapeutic opportunities. Norway, for instance, had until a few years ago only 600 drug substances on the market, and achieved the same pharmacotherapeutic results as other countries with many times more registered drugs on sale. Ac- cording to EU regulations, no restriction on the number of drugs on the market is permitted, and member states have therefore usually followed an alternative course by limiting the list of those drugs for eligible for payment under a national health service or public reimbursement system. From the therapeutic point of view, the selection of drugs available on the market is in most industrialised countries so broad that considerable limitations can be imposed without creating any real threat to patients’ interests. 36 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 3.1.2. Global and national lists Although there may be differences between countries with respect to medical culture and the preva- lence of certain diseases, it is today well established that the drawing up of a uniform drug list sufficient to meet normal health needs is entirely feasible. The success of the model list of “essential drugs” agreed under the auspices of the World Health Organization is a case in point. Although its main purpose was not to support cost-containment – it has always been intended as a minimum list to meet the principal health needs of a community with very restricted resources – it has shown the way to the compilation of drug lists which reflect the needs of a population. It is striking that the WHO Model List has been so widely adopted, with only minor modifications from one country to another. Although in an industrial- ized country with a well-developed economy a somewhat wider range of drugs will generally be regarded as justifying payment from the public purse, the principle is the same; one is defining a common core of needs which will very largely be the same in different communities; alternative drugs or more recent drugs which offer no particular advantages but generally cost more, will have no place on the list. 3.1.3. Establishing a list Each country has direct responsibility for developing and adopting a list of essential drugs, according to its own policy in the field of health; such variations as occur from one country to the next are likely to reflect the need to make special provision for regional or rare diseases, or differences of medical opinion as to the importance of minor differences between drugs. There are however some basic rules, regarding the list and the organisation around it, that should be applied in order to make the use of a positive list effective. In particular, the criteria for drug selection should be objective and transparent, their application consistent and the criteria should be laid down in a law or other form of regulation. They will tend to be similar to those developed by WHO in drawing up its model list of essential drug list, and laid down in the Organization’s relevant Technical Reports [29,30]. The first decision to be taken by any country is which classes of treatment are to be financed collectively: is the disease for which a particular drug or class of drugs is intended of such a nature that patients should have universal access to the treatment? Tuberculosis and rheumatoid arthritis clearly fall within the category of disorders for which the community should fund therapy; the common cold may well be considered to fall outside it. The second decision is which individual drugs or therapies for a disorder are to be paid for, out of the various alternatives available. As a rule of thumb one should be restrictive in reimbursing new, more expensive medicines that are meant for the treatment of diseases that can already be treated with existing products; new products which are not more effective and/or encumbered with fewer side effects than well-tried older drugs should not be reimbursed. Furthermore, where equally effective alternative drug treatments are available, the least costly alternatives should have preference for reimbursement purposes. Where new drugs appear to have advantages over existing drugs, a careful assessment is necessary as to whether these advantages are relevant. If the answer to this question is affirmative, the issue is whether these advantages merit the price difference with older drugs and consequently inclusion on the positive list. A positive list should specify drugs under their generic names, and not by their brand or speciality names. Medicines intended for the treatment of minor, self-limiting diseases should in principle not be on the list; this rule will usually exclude from reimbursement products clearly intended for (and suitable for) self-medication, such as simple antacids and cough syrups. When drawing up the list, one would do well to concentrate in first instance on excluding such items, and on the elimination of those products that have already been criticised as useless or superfluous by official publications or by the medical profession itself. Well-known textbooks and bulletins on drug treatment will provide particularly useful guidelines. A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 37 Meeting the criteria for admission to the list should not lead automatically to reimbursement. The available budget and the financial consequences of a proposed reimbursement list will have to be set against one another before the list is accepted. 3.1.4. Updating A systematic procedure for updating the list is necessary. This is likely to entail dealing with represen- tations from the health professions, patient organizations, and commercial firms with new products, all of whom will be likely to present arguments for adding items to the list. As the decision on reimbursement should be based on the added value of a certain product, it is clear that the main criterion for addition will be true and useful innovation; an innovative product can only be added to the list if from the perspective of health care there is an objective need for such a product. As implied above, not every new product is sufficiently novel to attain this standard; merely presenting a new structure, a new mode of action, an improved dissolution time or a longer duration of action does not mean that the new drug is necessarily more reliable, safer or simpler to use than those already on the list. The question whether a given product is or is not covered by patents plays no direct role in its eligibility for reimbursement, though the fact that a patent brings with it a degree of monopoly is likely to be reflected in a demand for a high price, and it is this price which in turn must affect the decision for or against inclusion in the list. 3.1.5. De-listing of drugs A problem frequently experienced, especially in western-industrialised countries that have already operated positive lists for a considerable length of time, is that the criteria for admission to the list are not applied consistently or with sufficient strictness, as a result of which expensive drugs are added which do not in fact offer real therapeutic or other benefits as compared to older items. At the same time the list becomes ever longer as new drugs are added, and since most of the additions relate to new and costly items the value of the list in containing costs tends over time to decline. This necessarily raises the question of removing items from the list. From time to time a drug will cease to be eligible because it has in effect been supplanted by a better alternative at reasonable cost. This may be the case (as in the situation where drugs are removed from WHO’s Model List of Essential Drugs) because a new generation of drugs is so superior to older products in terms of efficacy or safety that the latter have to be regarded as obsolete. It can however also happen that the price of a drug on the positive list is increased to a point where it is no longer commensurate with its merits; in that case, the authorities will need to insist on a return to a lower price, or to replace the product on the positive list. Not surprisingly, any attempt to remove an established drug from the list of reimbursable items is likely to prove unpopular, both with its manufacturer and with those physicians and patients who are accustomed to using it. When de-listing drugs, it is advised to follow the same principles as when creating a positive list: the criteria for de-listing drugs must be objective and transparent, their application consistent and the criteria should be laid down in a law or regulation; drugs should be de-listed by generic name. When de-listing drugs, it is again best to concentrate in first instance on elimination of those products which are widely agreed to be useless or superfluous. Medicines which have been released for over the counter (OTC) sale, i.e. items likely to be used in self- medication, should as a principle be de-listed although exceptions may be made; listing should probably be maintained for a drugs which also retain important prescribed uses in the treatment of major diseases or where there is a substantial risk that de-listing will result in a shift in prescribing to more expensive or more potent drugs simply because these remain reimbursable. Such a shift could impair the quality of pharmaceutical care. 38 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 3.1.6. Structure and procedures In order to structure the decision making process around the positive list efficiently, a formal advisory committee can be established. It should consist of medical and pharmaceutical experts, and have ready access to internationally recognized experts in the field of clinical pharmacology who can be consulted when necessary. This committee will on request provide advice as to whether particular products meet the criteria for reimbursement. The committee may also be accorded the task of periodically revising the drug list and make proposals for deleting obsolete items. Companies should apply to the Ministry of Health for medicines to be entered on the list of reim- bursable drugs, submitting a motivated and documented request. The Ministry of Health will then request the committee to examine the submission and to advise the minister, who will take the ultimate decision, in the light both of this advice and of the available budget. 3.2. Reference price systems 3.2.1. Principle of reference pricing Contrary to what the name suggests, reference pricing is not a form of price regulation: it is a means of setting limits to the reimbursement level of a drug by making use of the existence of equivalent drugs on the market [16]. In this respect, a consensus seems to be emerging that if a price is to be accepted as eligible for full public payment or reimbursement, it must be closely comparable to those of the cheapest therapeutically equivalent drugs on the market. In the light of the current prices of similar drugs, a single “reference price” is fixed, which the authorities regard as acceptable for funding. If the price of any product is higher than the reference price, public payment or reimbursement will only be granted up to the level of the latter, and the difference between this and the actual market price will have to be paid by the patient (“co-payment principle”). The means adopted to fix a reference price are considered later in this section. In practice one usually finds that within a given therapeutic group several closely similar drugs are available. Particularly where the market includes generic products or where there are parallel imports the choice is likely to be a wide one. Unless the prescriber or patient has a very strong preference for a highly priced item, treatment can be provided using one of the drugs sold at or below the reference price and co-payment can be avoided. The reference price system provides a strong stimulus to the physician to adopt low-cost prescribing and to the patient to accept it. In addition a strong stimulus is given to companies to lower the prices of their products to the reference price level so as to retain market share. In that way they will avoid loss of sales as patients shift to cheaper products in order to avoid co-payments, and the lower price may actually lead to an increase in unit sales and market share. Thus price competition between companies is fostered. In summary, reference price systems generally serve three purposes. Firstly, they are a tool to induce doctors and patients to choose cheaper medicines within a therapeutic group, thus decreasing the costs for society. Secondly, they stimulate the suppliers of the more expensive medicines within a group to lower their prices. Thirdly, they make both prescribers and patients more aware of possible alternatives to the drugs which they might in the first instance be inclined to choose, thus increasing the transparency of the pharmaceutical market. For such reasons, reference price systems are nowadays widely used, usually in combination with positive lists, and as a rule based on the ATC-classification. Various different pharmaceutical forms can often be considered as essentially similar and thus grouped together. A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 39 3.2.2. Grouping of medicines The first question to be answered when introducing a reference price system is how to classify medi- cines into more or less homogenous groups of closely similar products which can be regarded as inter- changeable in treatment. This is essential. The entire system will fail if opponents can validly demonstrate that the various products within a group are not in fact closely similar, one being superior to another or having different uses, and that it is improper to apply a single reference price to them all. The simplest approach is one in which each category comprises no more than alternative brands or versions of the same generic drug substance, available in the same form and the same dosage strength. This can be useful in some areas. A benzodiazepine tranquillizer, a long-established anti-inflammatory compound or a corticosteroid is likely to be out of patent and available from many sources. Provided all the alternative products have passed the regulatory system and are thus known to be of adequate quality, the homogeneity of such a group cannot be challenged. It is only a small step beyond this to compile a group of drugs based on closely similar but not chem- ically identical substances, used for the same purpose. To take the same example: a group of benzodi- azepine tranquillizers, of anti-inflammatory drugs or of corticosteroids can readily be recognized within which all the products are interchangeable (provided one takes account if some variations in potency and thus dosage) and to which a single reference price can fairly be applied. Another small step is to bring together within a group different brands or product which do in fact differ to some extent in their form of administration (e.g., tablets, capsules, rectal or transdermal forms of administration) but which are still interchangeable when one comes to treat the patient. The system in The Netherlands uses these approaches, bringing together in a group a series of products with the same therapeutic properties despite the fact that they may be based on different generic substances and pharmaceutical forms, provided there are considered to be no significant differences in wanted and unwanted effects between them. A more ambitious and more difficult step is to group together as reference price units a series of drugs which, although they differ in their form, nature and mechanism of action, are all used for the same purpose and are all similarly safe and convenient in use. This approach could, for example, involve bringing together in a group a series of quite different types of agent for treating hypertension. Here one is likely to encounter challenges, sometimes rightly so, if the imposition of a single reference price on an excessively broad group would mean that many patients are likely to be treated with a drug which is not in fact suited to them, merely because it is cheap. Whether countries should opt for the simpler versions of a reference price system or the more advanced versions is, among others things, dependent on the country’s wealth, its ability to maintain complex systems and its own national policies in the field of health and health financing. Clearly the most important single element in a reference price system is to ensure a reasonable degree of homogeneity in the reference price groups, however they are constituted. In this respect, several countries use the ATC (Anatomic, Therapeutic, Chemical) classification of drugs, developed and maintained under the auspices of the World Health Organization for the purpose of drug utilisation studies only, as it provides a classification of drugs at various levels of detail ranging from very broad therapeutic classes through sub-groups of similar agents down to individual drug substances. Various national drug reference price systems use the ATC and data on dose-equivalence in establishing the groups to which reference prices are to apply. 3.2.3. Fixing the reference price Once a group of interchangeable drugs has been defined, a reference price for the group has to be defined. This reimbursement level can be based on the average price of the medicines within the group: drugs with a price lower than this calculated average will be fully reimbursed. The alternative option is simply set the reference price at the level of the price charged for the cheapest medicine in the group. 40 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals This second option is usually adopted in simple reference price systems where each category of drugs comprises only products based on the same generic substance. 3.2.4. Levels of payment or reimbursement Where the reference price for a category of drugs is based on an average, rather on the cost of the cheapest, one will usually find that several products are available at this level or below it. All these will be eligible for full reimbursement. As noted above, patients who choose for a more expensive drug within a group are entitled to it, but they will only be reimbursed up to the reference price, and at the pharmacy they will have to pay the difference between the reference price and the actual price of the product chosen. Doctors should be encouraged to inform their patients about the reimbursement status of equivalent products. 3.2.5. Pitfalls and limitations The challenges which arise to any definition of a broad category carrying a standard reference price will have to be faced. Valid objections will need to be respected, but provided drugs have been carefully selected for their equivalence and interchangeability in medical practice the category will be defensible. A phenomenon to which one should be alert is that, while the manufacturers of expensive drugs may lower their prices to meet a reference level based on a calculated average, the manufacturers of low cost drugs may actually increase their prices up to the reference level in order to increase their income. If this happens on a large scale, overall costs to the public purse may actually increase. The only adequate answer will lie in complementary approaches, such as a system to require official approval of price increases, which will only be granted on reasonable grounds. Finally, a reference price system will clearly not be applicable to certain highly innovative drugs which are unique in nature and cannot be said to belong to any pre-existing therapeutic group of products interchangeable with them, so this drug will form a class of its own. To ensure fair pricing of such products one will clearly have to adopt other approaches. 3.2.6. In summary On theoretical grounds, but also in practice, reference price systems appear to be successful in stim- ulating low-cost prescribing, price reductions by manufacturers and importers, and price competition in the drug market generally. They are applicable over a large area of the pharmaceutical market, but are not helpful in containing the prices of highly innovative and unique products having no true equiva- lents. Their successful operation depends in great measure on the definition of clusters which comprise reasonably interchangeable drugs and for which reference prices can be set. 3.3. Co-payments 3.3.1. The principle of co-payments The notion of co-payments has been referred to briefly above in connection with reference pricing systems. It is however of broader application. All that it means is that a system of public health financing has chosen deliberately to limit its commitment to pay for pharmaceutical care, shifting a part of the burden onto the patient himself or herself. In some or all instances, the patient will be obliged to make a co-payment before a drug is dispensed. Co-payment systems usually serve three complementary purposes. Firstly, they oblige patients to fi- nance part of the costs of their medication thereby decreasing the financial burden on society. Secondly, they make patients more aware of the costs of health care. Thirdly, they discourage patients from using too many or excessively expensive medicines. Co-payments are generally used in combination with a A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 41 positive list and can be built into reference price systems, but they can also be imposed as an alternative to the latter. There is a conceptual difference between co-payment systems as such and co-payment within reference price systems; as noted under 3.2.1 above, co-payments within reference pricing schemes can generally be avoided by choosing lower-priced drugs; in a co-payment system, by contrast, the payments are universal and generally unavoidable, except in certain well-defined situations which justify exemption from charges. Reports on the effectiveness of co-payment systems in lowering pharmaceutical expendi- ture have up to the present been contradictory: this may be due at least in part to differences between the various systems in use, and between the national systems of health care within which they operate. 3.3.2. Alternative structures Co-payment systems can variously be based on: (1) the imposition of a fixed “prescription charge” for each prescription dispensed (2) introduction of a variable prescription charge representing a percentage of the total cost of a prescription; (3) combinations of fixed sums and percentage charges; and (4) the setting of an annual minimum level for drug expenditure per patient, below which no reimbursement will be granted (“annual deductible” system). 3.3.3. Safety nets and exemptions It is important to build into any co-payment system certain provisions to ensure that it does not deprive individuals of essential treatment or expose the community to epidemic risks (e.g., by inducing patients suffering from infectious diseases to forego treatment). Access to essential but expensive drugs can be preserved by a system of charges which protects the patient against burdensome levels of co-payment for these items; the level of co-payment may for example be set to reflect the therapeutic value of a drug (e.g., with a low co-payment for a drug of great therapeutic value). Vulnerable groups, such as children or pregnant women, will generally be granted exemption from co-payment, as will patients suffering from epidemic diseases (such as tuberculosis) or conditions demanding life-long treatment (such as diabetes). There is often much pressure from society to create widespread exemptions from any co-payment system for additional population groups, involving for example the elderly, pensioners, the disabled or government employees. Exemptions must however be kept in hand if the system is not to become excessively complex or expensive in operation, vulnerable to massive litigation and ultimately ineffective. 3.3.4. Organization As a general rule, co-payment systems should be transparent for the patient and should be kept as sim- ple as possible. In particular the pharmacist, who in most instances is the agent charged with collecting co-payments, will cooperate most readily with co-payment schemes that are simple, efficient and easy to implement. 3.3.5. Pitfalls The need to avoid adverse consequences of co-payment schemes, and to limit exemptions and com- plications, has been outlined above. In addition one must beware of introducing well-intentioned special provisions which can be misused or manipulated. If for example the level of co-payment for an valuable but expensive drug is deliberately set at a low level so as preserve its accessibility, whereas a low-priced item in the same therapeutic category carries a high co-payment, one may thereby create a “perverse” incentive; the prescriber and patient who would ordinarily have chosen the low-priced drug may move to the expensive item in order to evade the high co-payment, resulting in a greater cost to the public purse. Similarly, when implementing a system of flat rate co-payments (for example a fixed sum per prescrip- tion) one should also implement measures to limit the dispensed volume per prescription. Experience 42 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals teaches that patients may otherwise try to minimise co-payment by asking the doctor to prescribe drugs in greater quantities for longer periods, thus again in some cases raising total expenditure rather than lowering it. Any system of “annual deductible” ceilings for individual contributions is particularly tricky to operate. While they may, as intended, stimulate patients to request cheaper (e.g., generic) medicines so long as they are below their ceiling and are thus paying all costs themselves, it can happen that, once the ceiling has been or is about to be passed, particular patients who are heavy users of drugs may create stocks for the next year by obtaining addition prescriptions which will be covered from the public purse. In addition, a “deductible” system is complex to administer since it usually applies to all health services and not merely to drugs; a patient may have reached the ceiling by using other health care services and therefore. obtain all drugs without co-payment. Finally, it is necessary to find ways to be fair to the individual who has particular difficulty in making co-payments. In some systems, patients may have to contribute to the cost of other health care services and not merely to that of pharmaceuticals, resulting in an intolerable burden. In one way or another such cases of hardship have to be identified and relief provided, e.g., by limiting the totality of co-payments by an individual to a fixed sum. 3.4. Generic substitution and parallel imports 3.4.1. Generic substitution Generic substitution is defined as the process through which governments seek to reduce costs by stimulating the prescription and dispensing of generally cheaper generic medicines instead of their more expensive branded equivalents. The opportunity for generic substitution arises wherever the patent pro- tection on the original branded drug has expired, enabling other manufacturers to produce it at a compet- itive price, either under the generic (international non-proprietary) name or under brand names of their own. Although unpopular with research-based companies, the situation is generally regarded as fair. Dur- ing the period of patent protection the inventor has had many years to recoup investments and make a profit, and after this time the community should be able to benefit from the price reductions resulting from the introduction of competition. The savings to the public budget can on the one hand be used to benefit health care generally or on the other hand to render possible the purchase of newer high-cost drugs which expand the scope of drug treatment. The argument has often been advanced by research-based manufacturers that the “generic” equivalents of their products are likely to be deficient in quality. In the past there have been problems regarding qual- ity with some generic suppliers (just as there have been problem with brand-name drug manufacturers) but nowadays generic products and their manufacturers, like the original specialities and their sponsors, are legally obliged to go through the process of regulatory approval. 3.4.2. Parallel importation As noted earlier in this volume, the price of a drug supplied by a multinational manufacturer may vary considerably from one country another. As a rule the sale of the drug in a particular country is channelled only through an agent appointed by the manufacturer, and the price charged is that which the manufacturer has set for that country (subject to whatever government permission is required). In practice, however, small firms and even individual pharmacists or traders in a high price market soon identify means of obtaining the drug in bulk in a foreign country where the sales price is much lower and importing it independently in “parallel” with the official agent. Even after the costs and overheads A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 43 involved have been paid and profits earned, it often will prove possible to sell this “parallel” version of the original drug at a considerably lower price than that charged by the official agent. In theory the constitution or quality of a manufacturer’s drug may prove to be somewhat different in various countries, and manufacturers objecting to the “parallel” importation of their products have sometimes made his point; in practice, however, any differences which exist relate only to particular excipients or colouring agents or to the language of the packaging text. It is now in any case common practice for “parallel” products to be examined and approved by the regulatory authorities to establish the fact that they are indeed identical to the version imported officially. 3.4.3. Experience with substitution Over a period of some 25 years, the trade in both generic equivalents and parallel imports has greatly expanded, and their availability has resulted in considerable cost savings both to the health services and to patients. While adverse publicity by the original speciality producers has engendered some distrust of these products, both among health professionals and the public, this has largely been overcome, partic- ularly by provision of objective information and in view of the savings which can be achieved. These savings may be sufficient to render superfluous more complex and more unpopular cost containment measures, such as de-listing of reimbursable drugs. 3.4.4. Implementing substitution An essential starting point is the implementation of a requirement that both generic drugs and drugs im- ported in parallel must go through the usual national regulatory approval process so that their equivalence can be guaranteed. If the labelling is in a language not generally understood in the importing country, or if there is a difference in the name of the product, regulatory approval may be subject to the provision of appropriate stickers and package inserts. If the regulatory authorities register these products, buyers can safely assume that there are truly no differences in quality between regular imported branded medicines, generics and parallel imported drugs. Governments and/or third party payers can consequently promote generic substitution and parallel imports, thereby reducing pharmaceutical expenditure by substituting more expensive drugs by cheaper, similar (or identical) drugs. The best way to promote substitution is to stimulate the prescribing doctor to specify only the generic (international non-proprietary) name of a medicine on his prescription instead of a particular brand name. In practice this is sometimes difficult to achieve. Many physicians are less familiar with the generic names of drugs than with the heavily promoted brand names. The generic names of some drugs, in particular when they are combinations of different substances (as in the case of most oral contraceptives) can be complex and difficult to remember. There may also be a residual degree of distrust or doubt regarding the equivalence of generic or parallel items. One step which is permissible in most countries, is for the doctor to specify, alongside the speciality name, “. . . or equivalent” (the exact term to be used depends on the prescribing and dispensing regulations in force) so that the pharmacist is free to substitute a parallel or generic version of the same drug; conversely it may be possible to introduce the more drastic rule (subject to its conformity with international agreements on patents and copyright) that substitution by the pharmacist will always be allowed unless the prescriber has explicitly indicated his desire to use a particular branded speciality. Measures regarding doctors need to be complemented by measures concerning dispensing pharma- cists. Regulations need to be drawn up and promulgated permitting pharmacists to substitute branded medicines by generic or parallel imported items, either at their own initiative or where the physician has specifically indicated his approval. Where the physician has prescribed generically, the regulations on 44 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals dispensing should at least entitle the pharmacist (and preferably oblige him) to issue a low-cost item in the spirit of the prescription. Finally, some form of incentive may be developed to encourage the dispensing of low cost equivalents. An example of a financial incentive can be found in The Netherlands where the pharmacist may retain, at public expense, one-third of the price difference between the drug prescribed and the cheaper drug actually dispensed. 3.4.5. Educational measures For reasons already touched on above, both health professionals and the public need to be educated and reassured if cost-containment initiatives based on substitution are to have maximum effect. The residual distrust in this area needs to be countered by reassurance, for example as regards the quality guarantees inherent in national regulatory approval. Minor though insignificant differences between the original speciality to which the patient is accustomed and the equivalent product which he is offered at the pharmacy may reawaken the distrust: minor differences in colour, taste or packaging need to be explained and the reassurance repeated that the product being supplied is in no sense inferior to or different from that which it replaces. 3.5. Prescription controls and limits on the duration of prescribed drug treatment Many a medicine has a range of indications; it is prescribed for a wide variety of patients suffering from various disorders present in varying degrees of severity. The authorities or third party payers may deem it unnecessary to reimburse such a drug when it is prescribed for one indication (e.g., a minor self limiting disease, such as use of aspirin for an incidental headache), but entirely proper to do so when it is used for some other purpose (e.g., long-term use of aspirin in chronic rheumatoid arthritis). Such a differential approach is feasible; it involves introducing the principle that medicines may only be reimbursed when certain conditions are met. It may similarly prove necessary to attach specific conditions to the reimbursement of a particularly expensive item or where the drug is such that extensive misuse can be expected (e.g., stimulants). Actually implementing such conditions can however be problematical, because of the difficulty in recognizing situations in which the conditions for reimbursement are indeed met. A prescribing doctor might for example bend the rules to some extent so as to enable a patient to avoid paying for his or her medicine. Where conditions are imposed they should be simple and they should apply only to a small number of medicines where they are unavoidable, otherwise severe problems in implementation and control will arise. The same advice applies to a system in which prescribing doctors and patients have to seek written permission from the authorities (government or health insurer) for the prescribing and use of a given drug. Devising and implementing conditions for the reimbursement of particular drugs is nevertheless fea- sible, using well-recognized textbooks and bulletins on drug treatment as guidelines. Again, as in the case of creating a positive list, a formal advisory committee should be established. Composed of medical and pharmaceutical experts, it could well be the same committee as that advising on the positive list for reimbursement. In the case of exceptionally expensive drugs which have to be used very selectively, one option is to limit their prescribing to specific locations, e.g., certain specialized hospitals or clinics. Patients with a disorder for which these drugs are likely to be needed can there be assessed by clinical specialists and, if appropriate, a prescription for the drug in question can be issued. Again it must be noted, however, that A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 45 the system must be manageable; this will only be case where the number of patients likely to be eligible for such treatment is small. One other option is to limit the quantity of any medicine that will be reimbursed. The limit can take the form of a maximum total quantity which the physician is allowed to prescribe for a patient, or the imposition of a maximum duration of therapy that can be reimbursed (e.g., medication sufficient for one week when prescribed for the first time or for three months during follow-up treatment). As many patients prove to discontinue their therapy before they have used all their medication, limitation in the quantity prescribed at any one time will often prevent waste without impairing treatment. Where a tariff system based on capitation with dispensing fees is introduced for pharmacists, one should be alert to any subsequent increase in the number of prescriptions dispensed, as pharmacists may find it more profitable to break down a single prescription into two or more dispensing acts, each of which will earn a fee. 3.6. Budgeting Governments may opt for financial ceilings on health care expenditures. The global budget is then broken down to provide budgets for the individual sectors in health care and these may be split further, resulting for example in the calculation of a further ceiling for the total costs of goods of pharmaceuticals and the costs associated with the distribution by pharmacists. In such a situation it will be necessary to introduce sanctions for those firms, individuals or practices exceeding the budget, e.g., compulsory price reductions or a the lowering of tariffs. When rationally devised, overall budgets in health care prove to be an effective means of containing the costs of health care. There are indications that insurance-based systems (Germany, Belgium, The Netherlands, France, Sweden) encounter more difficulties in setting budget limits than do tax-based systems (UK, Denmark, Italy). This may be due to the fact that in insurance-based systems more parties are involved, rendering the process of negotiation complex and difficult to manage. 3.7. General Practitioner fund holding Setting a budget for individual general practitioners provides a global approach to issues of spending, involving both price and volume questions but also the allocation of resources between services. The greatest experience with this approach in Europe has been gained in Germany and the United Kingdom. The primary motivation to reduce prescribing costs by budget holders is essentially financial, and the latter may be subject to financial sanctions if they exceed their permitted budget. Fundholding practices seem to be prone to limit their prescribing expenditure, although there is also evidence suggesting that these effects may be transitory [11]. There is however a general lack of evidence as to whether prescribing cost economies obtained through a fundholding system are really in the best interest of the community; there is for example no evidence of the consequences in terms of long term morbidity or patient satis- faction. Furthermore, general practitioners seek to ease pressure on their budgets by earlier referral of patients to second line health care, which so far as the overall health service is concerned is likely to raise costs. Last but not least, the concept of GP-fundholding appears to have suffered from the fact that budgeting has taken place at too low a level; if standard budgets are set for all practices, despite the fact that the financial needs of practices differ, some such practices (e.g., those treating a population in poor health) will find their permitted expenditure reduced in all too drastic a manner. This risk can be largely avoided by setting budgets further upstream e.g., at the level of the insurer or the regional government, so that these genuine differences in need are averaged out. 46 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 3.8. Pharmacy Benefit Management (PBM) In the United States, where the health system is market driven, a system of managed care through Health Maintenance Organisations has been established. Various definitions of managed care exist, but common to all is the active management of utilisation of services by controlling access, costs and or quality through direct intervention before, during or after service delivery. Pharmacy Benefit Manage- ment (PBM) schemes were set up within this system to provide drug-related administrative services and to manage pharmacy costs. PBM’s often provide an integrated package of cost-containment measures based on formularies, generic substitution, co-payments and utilisation control, sometimes combined with use of purchasing power to obtain reduced drug prices from manufactures. PBM’s are typical of a primarily market driven health system, where coverage of health care costs is delegated to private insurance companies and private HMO’s, supported by private PBM-companies. European and other countries have followed with interest American developments in managed care and PBM’s. One should be aware, however, of the basic differences in health system on the two sides of the Atlantic; the US system is inherently based on differences in access to care, while in European and other countries equal access to adequate care is the primary objective. The disadvantages of profit-driven HMO’s and PBM’s have been well defined by critical reviewers. Profit driven HMO’s are stated to deliver a lower quality of care [14], while patients’ prescription information has been used to advertise a new drug without patients being aware of it [20]. PBMs often have alliances with drug companies, a fact which casts doubt on their objectivity. A more detailed description of experiences with PBM’s in the US is provided in Chapter 12. 4. Professional interventions and strategies for influencing demand It is feasible to influence demand by educating prescribers and users. The objective here is not pri- marily to contain costs, but to influence demand and optimise rational drug prescribing and use. The relevance for expenditure is that by optimising rational prescribing and drug use one will commonly pre- vent direct waste (overuse of drugs) and render treatment more cost-effective. An overview is provided here of the different options available to influence prescribers or patients, with some discussion of their effectiveness in actually changing the pattern of drug use. 4.1. Prescribers The key principle in professional interventions is to provide prescribers with the information and edu- cation needed to make medically sound and cost effective drug choices. This involves continuous effort. The pharmaceutical sector is dynamic and it is strongly influenced by socio-economic circumstances. Traditionally, education is the realm of the medical profession itself, but in the face of rising costs the health authorities have in recent decades become more involved, particularly in providing a counterbal- ance to the slanted prescribing information emanating from the pharmaceutical industry. The industry invests heavily in inducing prescribers to make use of its products, and there is ample evidence that prescribers are sensitive to these promotional efforts which often lead to extravagant prescribing [28]. The profession itself has, in general, not invested resources in seeking to counter the promotional efforts of the industry, for example by developing continuous medical education in this field. On the contrary, programmes for continuous education have in many countries depended heavily for their maintenance on financial support from the pharmaceutical industry. In order to ensure the availability of objective information health authorities have to become involved. A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 47 4.1.1. Drug formularies and drug bulletins The first step is to provide the prescriber with practical, objective and evidence based information on drugs and prescribing, and to keep him up to date. Drug formularies (or formulary manuals) and drug bulletins are now widely available. The term formulary can be confusing since it is used in different senses. Here the term is used for a reference book providing summary drug information on individual drugs including for each the generic name, indication(s) for use, contraindication(s), dosage schedules, side effects and warnings. Such a drug formulary is intended as a handy reference guide, covering most (but not necessarily all) of the drugs on the market. In some formularies, therapeutic assessments of all drugs are included as well as cost comparisons, culminating in advice as to which drugs within a group should be regarded as products of first choice. Clear examples are the British National Formulary (BNF) and The Netherlands “Farmacotherapeutisch Kompas”, both of which provide evaluations, advice on choosing between drugs and cost comparisons. In general, formularies would benefit if they were to provide in addition information on the reimbursement status of drugs, as well as relevant patient charges or co-payment levels. Specialised types of formularies include those limited to reimbursed drugs or to drugs in the public health system; there are also smaller formularies providing a selection of a limited number of first-choice drugs within a drug group (drug based formulary), or first choice drugs for treating selected common clinical problems (indication-based formulary). These specialized formularies are more condensed than the general type; the selective indication-based formulary is particularly helpful to the prescriber because it is limited to the most relevant information and is easy to use. Its value and acceptance naturally depend on the expertise of the people responsible for selecting the first choice drugs, and the transparency of the process of compilation. The best of these selected formularies are those which are demonstrably based on a process of evidence-based drug choice. From a public health perspective, the cost of treatment should be one of the selection criteria. The newly formed NICE mechanism in the UK has added affordability to the traditional criteria of safety and efficacy, thus establishing a better basis for prioritisation of resources (DoH, Faster access to modern medicines 1999). 4.1.2. Industry-sponsored formularies Particularly in countries where the public health authorities have failed to step in, the pharmaceutical industry has itself sponsored formularies, such as MIMS (The Monthly Index of Medical Specialities). The disadvantage of these commercial formularies is that they tend to provide incomplete information (for example, about adverse effects), or provide only information on drugs produced by the firms which have sponsored the publication. As a rule they also contain advertising and their contents are heavily weighted towards specialities rather than generic equivalents. 4.1.3. Therapeutic guidelines Whereas formularies provide drug centred information, therapeutic guidelines centre on each disease in turn and its most appropriate treatment. The best of such guidelines are fully evidence-based and sys- tematically developed on the basis of wide consensus; they provide valuable assistance to prescribers in deciding on appropriate treatments for specific clinical problems. In their most complete form, guide- lines also provide give information on diagnostic procedures and set out clear, diagnostic criteria for starting or adjusting treatment, as well as proposing the treatment of first choice. They are extensions of indication-based formularies in providing more extensive information about the entire treatment process. Guidelines are the most practical form of information for the doctor, because they provide support on decision-making in practice and do not focus only on drugs. 48 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals Most guidelines have been developed by the profession, as for example in The Netherlands, where the College of General Practitioners has developed individual guidelines for a series of diseases, and in Scotland with the so-called SIGN guidelines. In other countries, the health authorities have taken the lead, such as in France. In many developing countries Standard Treatment Guidelines (STG) for different levels of care have been developed, for example those in Uganda or Malawi and those recently developed for East Timor which are attuned to the special problems of the many clinics which are headed by a medical assistant or a nurse because so few physicians are available. 4.1.4. Structures and techniques The responsibility for formularies and guidelines may lie variously with the public health authorities, health insurance institutions or scientific organizations within the medical or pharmaceutical professions. Ideally, the information provided should be evidence based, the decision making process transparent, and the choices such as to reflect optimal treatment. The extent to which this is attained may be influenced by the source of the publication. One could argue that private health insurers, such as third party payers in the US, run the risk of leaning too heavily on cost driven decisions. Formularies and guidelines developed by the medical and pharmaceutical professions’ (scientific) organisations have the advantage of being the most acceptable and credible for the prescribers, particularly if they involve opinion leaders prominent in their field. The responsibility of public health authorities is to ensure the development and distribution of objective formularies and guidelines, preferably by the medical and pharmaceutical profession. When that is not feasible, the public health authorities should initiate the development of and establish a (na- tional) formulary and guideline committee, consisting of prominent physicians and pharmacists on order to ensure quality as well as credibility and acceptability to the field. Since most principles of evidence-based medical care and drug treatment are universally applicable, one might in theory expect that formularies and guidelines would be developed for international or re- gional use. Some such international publications do indeed exist, but most formularies and guidelines are in fact produced nationally or even locally. This reflects the fact that national or local circumstances (such as the economic environment, the standard of professional training and the range of drugs avail- able). Considerations of cost will have to weigh relatively more heavily in poorer countries then in richer countries. Moreover, there is always an element of assessment and interpretation of the different ele- ments of evidence when set against national/local circumstances. In addition to the fact that national and local formularies and guidelines can be tailor-made to fit the circumstances of the community, it seems clear that the fact that where they reflect consensus attained in the community or profession this is an important element in their acceptance. Information technology facilitates the use and the impact of formularies and guidelines. In industrial- ized countries. the use of computers in the consultation room is spreading fast; practical decision support systems are becoming available. Whatever techniques are used, it is important that the material is readily accessible to prescribers and other users; that is most likely to be the case if printed publications are distributed free of charge to all who need them. 4.1.5. Updating and the significance of bulletins There is a constant risk that formularies and guidelines will become outdated as new information and drugs become available and concepts of treatment change. Formulary and guideline development is therefore a continuous process, and not a ‘once-only’ effort; the best of such publications appear at least once annually. Again the primary role of the health authorities is to see that this is the case. More detailed information about the development process can be found in ‘Managing Drug Supply’ [23]. A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 49 Drug and prescribing bulletins, though generally independent of formularies and guidelines, play in effect an important role in updating them as new drugs and new facts appear. Often published monthly or even fortnightly, bulletins may emanate from drug regulatory authorities, professional organizations, consumer organizations or independent foundations. In some cases, bulletins produced independently enjoy a financial subsidy from the authorities in order to enable them to be distributed without cost to the professions, as well as to libraries and students. As with formularies and bulletins, there is an absolute need for an objective and transparent approach if a drug bulletin is to attain and retain credibility. A large number of drug bulletins now collaborate in the International Society of Drug Bulletins, resulting in a wide international exchange of data, draft texts and experience (see http://www.isdbweb.org). 4.1.6. The choice and effectiveness of interventions The provision of information is an important and necessary step for increasing knowledge and com- petence. However, it is generally not enough to change existing prescribing patterns. To that end, the concept of formularies has to gain acceptance with the health professionals; a good distribution system for the drugs listed in the formulary has to be in place to ensure their ready availability and intensive strategies have to be adopted to ensure the formulary’s selection of drugs actually becomes the basis for day-to-day prescribing. A wide range of approaches to implement change in medical practice have been used, separately or in combination. In the present chapter a general outline is given, while in Chapter 13 the issue is dealt with in-depth. The principle methods of professional approaches used to implement change are listed in Table 1. The choice of interventions intended to influence the prescriber needs to be carefully considered and should be based on the available evidence of success for particular strategies, otherwise projects may waste scarce resources on ineffective approaches. Evidence about the effectiveness of different approaches on different medical activities is accumulating [4,5,10]. As is the case with other areas in medicine, modest improvements are found in general in prescribing behaviour [10]. Table 2 provides an overview of the effectiveness of the different approaches to change prescribing behaviour. Most of the studies reviewed (81%) were conducted in the US, often relating to interventions in hospital care; generally modest improvements in performance were found following after interventions. Effectiveness Table 1 The professional approaches used to implement changes include – Distribution of written educational material. – Conferences or educational meetings. – Interventions that involve locally deriving consensus recommendations. – Educational outreach visits and academic detailing that take place at the prescribers’ location. – Exploiting the influence of local opinion leaders. – Patient-mediated interventions in which information given to or received from patients is intended to influence profes- sional practice. – Audit and feedback, where physicians receive summary information on their performance over time. – Patient mediated interventions in which information, given to or received from patients, is mobilized to influence doctors’ practice. – Reminder systems where doctors receive specific reminders at the time of prescribing decisions (decision support sys- tems), either computer generated or by hand-written reminders. – Marketing, in which physicians are targeted by public interventions similar to those, used to market commercially specific desired prescribing choices. Adapted from EPOC [5]. 50 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals Table 2 Effectiveness of professional interventions to optimise prescribing No. of Positive %Positive 95% interventions findings interventions CI Distribution educational 7 3 43 13–78 materials Audit and feedback 33 17 52 34–66 Outreach 4 2 50 10–90 Patient mediated 8 5 63 30–90 Conferences 1 1 100 – Marketing 0 0 0 – Multifaceted 43 21 49 20–80 Overall 96 49 51 41–61 Source [10]. seemed to be greater in the case of interventions carried out in other countries (mainly Europe and Aus- tralia) where there was a greater focus on primary care, but it is still not entirely clear how effectiveness differs from one health care level to another. It is clear that the health care tradition and cultural con- text modify the success of implementation strategies. For example, a local consensus strategy on asthma treatment, involving small groups of general practitioners and combined with audit and feedback tech- niques, was successful in The Netherlands and Norway, but proved inapplicable in Germany because of differing views on asthma and different expectations regarding education [26]. Few studies have looked at the effect of computerised decision support on prescribing, though there is reason to believe that im- provement is attained as regards decisions on drug dosage [17]. In some countries nevertheless, decision support systems in using guidelines or formularies have been implemented nationwide (UK, NL). Passive dissemination of information, e.g., by simply publishing formularies and guidelines is gener- ally ineffective unless it is supported by other measures. The frequent use of multifaceted approaches is creates the problem that since various complementary approaches are necessarily used at the same time it can be difficult or impossible which has made a contribution to change. 4.1.7. The situation in developing countries In their review of approaches to improving rational drug use in primary care in developing countries, Laing [19] found that most of the interventions identified had some form of education as at least one of their components. Workshops and training as well as community case management strategies were the most frequent types of approach. Community case management is a multifaceted technique primarily encountered in developing countries; typically it involves the training of community health workers in the appropriate diagnosis and treatment of a key health problem, often involving care of children. This approach is often combined with community sensitisation and education, active community based case finding and parallel training of facility based health workers. Community case management for acute respiratory infection (ARI) and diarrhoea were clearly suc- cessful in reducing mortality; their overall effects on the appropriateness of drugs choices, especially in the case of ARI, have however not been well studied. Other approaches that may yield moderate to large improvements were audit and feedback (or group processes), and audit combined with supervi- sion. As in the industrialised world, the simple dissemination of printed educational material (clinical guidelines, prescribing information) had no impact. Experience in Zimbabwe underlines the relevance of A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 51 active and continuing programme implementation; when the activities were discontinued, irrational drug use increased again. 4.2. Interventions targeting consumers and patients Where overuse of drugs is demonstrable, the patient or consumer is sometimes in part responsible, insisting that the doctor write a prescription for him. Misconceptions about drugs in general, or about specific drugs in particular, commonly play a role in this matter; the misconceptions may be of long standing, or they may have been fostered by pharmaceutical marketing of a type which can only be said to comprise misinformation. Conversely, a patient may be so afraid of a drug or so ignorant of its proper use that he takes it improperly or not at all; inadequate “compliance” with agreed therapy is a widespread problem, one consequence again being waste of resources, either because the drug remains unused or because illness is unnecessarily prolonged. While “intelligent non-compliance” by the patient provides him with some opportunity to correct irrational prescribing when he recognizes it, the ideal to aim at is clearly one in which the patient and his doctor agree on what therapy is to be chosen, prescribed, and taken. Public education regarding drugs involves an approach to the entire community (i.e. including healthy people not using medicines) and aims to promote awareness of irrational drug use, and possibilities for change. Communication channels may include printed materials (posters, leaflets, textbooks), mass media, interpersonal encounters with health workers, schoolteachers, or folk media community theatre, singing groups, puppet shows etc. In some countries, such as France, general teaching about drugs has long been part of health education in schools. There are many indications that public education can be successful, but there is a general lack of good evaluation of the impact of the various activities and approaches on the rationality of drug use, nor are data available which could render possible a proper cost-benefit analysis [9]. A systematic review of the effectiveness of mass media campaigns on health service utilisation does seem to show how use of these media can have a positive impact [12]. Quite apart from the possibility that public education may result in economies, one should also realise that it is wise to enlist the understanding of the public when contemplating cost containment measures. Some such measures have encountered opposition from the public which has proved to be generated in part by lobbying from interested parties. It is particularly necessary to create understanding among the public of the value and significance of a positive list; the misunderstanding should not be allowed to arise that such a list limits treatment unduly or results in the use of medicines of lesser quality. A new com- munication channel is the Internet, where a massive and confusing volume of information on medicines – objective and commercial, scientific and nonsensical – is to be found; it is very necessary that reli- able official guidance, recognisable as such, also be represented in this medium. To date, the positive or negative impact of public education on rational drug use is still completely unclear with only anecdotal information available, advanced both by proponents and opponents. Product information for patients, in printed form and dealing with individual drugs, is likely to be influential and widely popular. While the task of the physician and pharmacist in informing the patient about a drug and its proper use is beyond doubt, this form of information needs to be supplemented by others. Drug compendia, providing the officially approved information on all marketed drugs, have existed for many years as a source of reference for doctors, but in more recent years they have proved helpful to patients as well. In Denmark and various other countries the current Drug Compendium is always available in the pharmacy where patients can consult it when coming to collect their medicine; in some other countries, the Compendia also appear in shorter patient-orientated editions for home use. 52 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals Patient Information Leaflets (PIL’s) – officially approved printed patient information sheets describing the drug and proving instructions on how to use it – have proved a very necessary, efficient and highly appreciated mans of informing the user. After a long period during which some countries made no pro- vision for such package inserts (and others had package inserts which were written primarily for the health professional) provision of PIL’s has become standard practice in the member states of the Euro- pean Union and many other parts of the world. Such inserts need to be well written with effective graphic designs, large print size and clear layout to enhance legibility. Pictograms may overcome linguistic or literacy barriersd. Many countries cannot as yet afford to provide Patient Information Leaflets for all medicines and to all individual patients, yet simple instructions for the most commonly used drugs, printed on inexpensive paper and handed out by the pharmacist at the time of dispensing are within reach of most countries. Other interventions to assist patients to follow their prescriptions – primarily developed in industri- alised countries and for chronic diseases – include well thought-out programmes designed to increase user-friendliness, to promote patient empowerment through self-management and self-monitoring (for example in asthma, or hypertension), and to provide reminders regarding compliance, reinforcement of information or rewards for improved adherence. There is little evidence that such complex approaches consistently improve medication adherence; the results suggest that there is still a need to develop inno- vative approaches that can be applied with the resources usually available in clinical settings [13]. Prevention of misinformation is a complementary and very necessary approach to guiding the public. The provision of reliable education and information, considered above, naturally enables the public to protect itself to some extent from misleading influences, but in some matters there remains a consider- able risk that misunderstandings will be fostered. For many decades it has been the case that advertising for prescription-only drugs has, at least in most western industrialized countries, been directed only to physicians and pharmacists, who are assumed to be capable of adopting a critical attitude to it when necessary. Within the last decade, however, a move has arisen to permit direct advertising to the public of products of this type; the practice emerged first in the United States and then in New Zealand. Re- cent proposals of the European Commission open up possibilities of pharmaceutical companies offering information to patients with AIDS, diabetes or asthma directly. This proposal is viewed by many as a first step to allowing direct marketing to patients, although the EU Commission has denied this [27]. From the side of large pharmaceutical companies it has been argued that this comprises a new and use- ful form of public information, but from the content of such advertising it is clear that it is designed to induce the user to pressure his or her physician to prescribe new drugs. This practice has two seriously adverse consequences for the public purse; on the one hand the turnover of new and expensive medicines is unnecessarily increased, on the other hand the heavy promotional expenditure is inevitably, though indirectly, financed by the community in terms of high drug prices. In 1996, $600 million was paid for televised commercials for prescription drugs in the United States, and the commercial results have in- duced advertisers to increase their promotional budgets further [23]. In 2000 the amount for DTC was estimated at US$ 2.5 billion [21]. The authorities need to be similarly alert to the indirect public dissemination of commercial informa- tion on prescription drugs. Use of the Internet opens this possibility; in the recent past, the Bristol Myers Squibb concern was found to have breached the UK code of practice for advertising by maintaining a promotional website for health care professionals which could be accessed by the public [2]. Finally, in this connection it should be pointed out that some commercial companies have exerted an important effect on public opinion by the manipulation of patient groups. It has for example been shown that belief among the US public that the condition known as “Attention Deficient Hyperactivity A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals 53 Disorder” in children is a biological defect requiring drug treatment, reflects in part the heavy financial support provided to the organization of parents of these children by a drug manufacturer. 5. Conclusion and recommendations Experience so far with different professional interventions targeting prescribers has provided us with effective tools for improving the rationality of prescribing and preventing the waste of public funds re- sulting from overuse and inappropriate use of drugs. This is the case in both industrialized and developing countries. The next challenge is to make wide use of such tools, and in that respect many countries still lag behind. The same has to be said as regards the health education of the public in these matters; we have learned how to achieve success, but we do not always apply the lessons. Up to the present both prescriber-oriented professional interventions and public education remain under-utilized approaches in the quest for effective and efficient drug use. Patient information has been rather more widely developed, in particular through the use of patient package inserts. If that advance is not to be undermined, it will be important to avoid the error of introducing “direct to consumer advertising” for prescription drugs, which is all too likely to promote overuse and misuse. References [1] B. Abel-Smith and E. Mossialos, Cost containment in the pharmaceutical sector in the EU member states, London School of Economics, London, 1996. [2] Anon, Scrip no 2508, UK, January 26, 2000. [3] Australia Dept. of Health and Ageing, Guidelines for the pharmaceutical industry on preparation of submissions to the Pharmaceutical Benefits Advisory Committee: including major submissions involving economic analyses, http://www. health.gov.au/pbs/pubs/pharmpac/gusubpac.htm, accessed March 11, 2002. [4] L.A. Bero, R. Grill, J.M. Grimshaw et al., Closing the gap between research and practice: an overview of systematic reviews of interventions to promote the implementation of research findings, BMJ 317 (1998), 465–468. [5] Cochrane Effective Practice and Organisation of Care group, http://www.abdn.ac.uk/hsru/epoc, accessed February 20, 2002. [6] D.A. Davis, M.A. Thomson, A.D. Oxman et al., Changing physician performance: a systematic review of the effect of continuing medical education strategies, JAMA 274 (1995), 700–705. [7] Department of Health, Faster Access to Modern Treatment: How NICE appraisal will work. Pub. DoH, London, 1999. [8] EU, L.S.E. Panos Kanavos, Health and social care: Overview of pharmaceutical pricing and reimbursement regulation in Europe, http://dg3.eudra.org/F3/G10/docs, accessed February 19, 2002. [9] D.A. Fresle and C. Wolfheim, Public education in rational drug use: a global survey, WHO/DAP/97.5, WHO, Geneva, 1997. [10] P.S. Gill, M. Mäkelä, K.M. Vermeulen, N. Freemantle, G. Ryan, C. Bond, T. Thorsen and F.M. Haaijer-Ruskamp, Chang- ing doctor prescribing, Pharmacy World & Science 21 (1999), 158–167. [11] T. Gosden, D.J. Torgerson and A. Maynard, What is to be done about fundholding, BMJ 315 (1997), 170–171. [12] R. Grilli, N. Freemantle, S. Minozzi, G. Domenighetti and D. Finer, Impact of mass media on health services utilisation (Cochrane review), in: The Cochrane Library, Issue 1, Update Software, Oxford, 1999. [13] R.B. Haynes, K.A. McKibbon and R. Kanani, Systematic review of randomised trials of interventions to assist patients to follow prescriptions for medications, The Lancet 368 (1996), 383–386. [14] D.U. Himmelstein, S. Woodhandler, I. Hellander and S.M. Wolfe, Quality of care in investor-owned vs not-for-profit HMOs, JAMA (1999), 159–163. [15] C. Huttin, A critical review of the remuneration system of pharmacists, Health Policy 36 (1996), 53–68. [16] S. Jacobzone, Pharmaceutical policies in OECD: reconciling social and industrial goals, OECD Labour market and social policy, occasional papers, 2000. [17] M.E. Johnston, K.B. Langton, R.B. Haynes and A. Matthieu, Effects of computer-based clinical decision support systems on clinician performance and patient outcome. A critical appraisal of research, Annals of Internal Medicine 120 (1994), 135–142. 54 A.H. Rietveld and F.M. Haaijer-Ruskamp / Policy options for cost containment of pharmaceuticals [18] D.H. Kreling, H.L. Lipton, T.C. Collins and K.C. Hertz, Assessment of the Impact of Pharmacy Benefit Managers, Final Report to the Health Care Financing Administration, National Technical Information Service, Springfield, VA, Pub. No. PB97-103683, 1996. [19] R.O. Laing, H.V. Hogerzeil and D. Ross Degnan, Ten recommendations to improve the use of medicines in developing countries, Health Policy and Planning 16(1) (2001), 13–20. [20] B. Lo and A. Alpers, Uses and abuses of prescription drug information in pharmacy benefits management programs, JAMA 283 (2000), 801–806. [21] National Institute for Health Care Management, Prescription Drugs and Mass Media Advertising 2000, http://www.nihcm. org/DTCbrief2001.pdf, accessed February 18, 2002. [22] R. O’Harrow Jr., Plans’ access to pharmacy data raises privacy issue, Washington Post (27 Sept. 1998) A1. [23] Public Citizen Health Research Group, Worst Pills, Best Pills; http://www.citizen.org/hrg, USA, January 2000. [24] J.D. Quick, J.R. Rankin, R.O. Laing et al., eds, Managing Drug Supply: The Selection, Procurement, Distribution and Use of Pharmaceuticals, 2nd edn, Kumarian Press, USA, 1997. [25] D. Rennie and H.S. Luft, Pharmacoeconomic analyses, JAMA 283 (2000), 2158–2160. [26] C.C.M. Veninga, P. Lagerlov, R. Wahlstrom et al., Evaluating an educational intervention to improve the treatment of asthma in four European countries, Am. J. Respir. Crit. Care Med. 160 (1999), 1254–1262. [27] R. Watson, EC moves towards ‘direct to consumer’ advertising, BMJ 323 (2001), 184. [28] A. Wazana, Physicians and the pharmaceutical industry, JAMA 283 (2000), 373–380. [29] WHO, Technical Report Series 895, The Use of Essential Drugs, Geneva, 2000. [30] WHO, Tenth report of WHO Expert Committee, Geneva, 2002 (in press as Technical report series). International Journal of Risk & Safety in Medicine 15 (2002) 55–66 55 IOS Press Chapter 4 Methods for monitoring and evaluating processes and outcomes Monique F. Mrazek and Elias Mossialos 1. The notion of monitoring When any form of policy – economic or otherwise – is intended to have an impact on pharmaceutical care, it is important to measure its intended (and possibly unintended) effects. The present chapter will consider methods that can be used to monitor those effects on both process and outcomes. Monitoring process involves a regular review of the activities that make up drug management and delivery programs, and that are intended to achieve policy objectives as regards to both health and expenditure; it is some- times more clearly known as “internal” assessment. Monitoring the results, i.e. the outcomes, will show whether these policy objectives are being achieved; this is sometimes termed “external” assessment. Monitoring initially involves selecting particular indicators that can serve as measures of policy perfor- mance. Indicators of both process and outcomes are initially measured and then followed over the course of time. The information obtained can be compared against a predetermined target for each indicator providing a basis for the evaluation. 2. Linking monitoring to policy goals and objectives 2.1. Components of policy Any long-term policy needs to have a clear overall goal, as well as a set of specific objectives which one intends to attain and a list of the outcomes which can be anticipated. These three components need to be set in advance when the policy is planned and adopted. One will also need to devise a system to measure progress as the policy is implemented. The ultimate goal of drug policies must be to improve the well-being and health status of the patient population. However, given the inevitable constraints on funding in this area, an associated goal would be to ensure that drugs are managed, delivered and used in a cost-effective manner. A competing goal in setting drug policy may be to foster or sustain the contribution of the R&D based drug industry to the domestic economy. Where a balance is struck between competing health and industrial policy goals will depend on the weightings of the domestic interests. The objectives of a policy are detailed end-points that need to be attained and steps that need to be taken over time. Objectives are commonly defined by an analysis of the population’s clinical needs and demands to be met. 0924-6479/02/$8.00  2002 – World Health Organization. All rights reserved 56 M.F. Mrazek and E. Mossialos / Monitoring and evaluating processes and outcomes Finally, one will have to define at the outset the outcomes that can realistically be anticipated, i.e. the specific effects in the field, at the level where the community is affected by the policy. The monitoring of policies will thus need to be based not only on internal feedback from within the administrative structure (to check on measures taken and other aspects of implementation), but also on external feedback from the field (to determine the attainment of objectives and the effects as the popula- tion experiences them). Monitoring will have to reflect all aspects of the execution of the policy, but in particular the goals, objectives and outcomes which have been defined in advance, should wherever pos- sible, be concrete enough to render possible the measurement of progress. The methods of measurement are considered under Sections 3 and 4, below. While all these concepts are straightforward, one can run into problems when putting them into prac- tice. It might for example be said that the level and pattern of drug utilization is an outcome measure, but quite apart from the difficulties which can arise when measuring utilization (see Chapter 2) it may be far from clear what its significance is. The level of drug use does not necessarily equal the level of clinical need, since there may be over-use or under-use as well as inappropriate patterns of use. Nor is the level of clinical need necessarily an indication of the level of demand, for as pointed out earlier in this vol- ume the latter may be unreasonably high and sometimes (e.g., because of lack of money) unreasonably low. Levels of utilization, clinical need and demand therefore should be tracked separately. Each of them varies from country to country according to epidemiological, demographic and cultural factors, while the availability of resources (such as personnel, technology, institutions and finance) to meet needs will vary between health care systems. It follows that the goals and objectives of drug policies are likely to be country- and health care system-specific, and that the measures of progress that can be used in those policies will similarly be specific to the situation. 2.2. Setting priorities Because some of the various interests reflected in a policy may inevitably conflict with one another – especially in terms of vying for financial resources – priorities will have be set at the outset. Criteria that are well recognized for evaluating the allocation of health care and pharmaceutical resources are effectiveness, efficiency, equity and quality. As the policy is implemented, the feedback attained through monitoring may indicate the need to revise or adjust the policy or some of its components, and this can mean a rethinking of priorities and a reallocation of resources. For example if a cost containment plan for drugs proves to be producing disproportionate hardship for the elderly (inequity) or causes a worsening of outcomes (ineffectiveness), or even increases costs rather than reducing them (which will point to increasing inefficiency unless there has been no commensurate increase in effectiveness) these problems should show up in the course of monitoring and the priorities may have to be revised. 2.3. Setting objectives The point has already been made that progress towards meeting objectives must wherever possible be measurable and it is therefore necessary that objectives should be expressed in concrete rather than gen- eral terms [13]. Objectives should be set at both micro and macro levels. Micro level objectives concern effects on individual patients, physicians or institutions. At the macro level objectives will typically relate to the operation of the pharmaceutical service, the overall health care system or the wider social, polit- ical and economic environment in which government decisions are taken; examples of the latter might include the objective of securing a change in the system of university medical education or amendments in the tax system relating to drug imports. M.F. Mrazek and E. Mossialos / Monitoring and evaluating processes and outcomes 57 2.4. Effectiveness as a criterion Drug cost containment policies should not significantly impair effectiveness in terms of improvements in health outcomes, and wherever possible effectiveness should be enhanced [1]. Better health outcomes should be expected if the process of drug use is made more effective. Whether drug management and delivery truly has become more effective will depend on the quantity, quality and appropriateness of the drugs prescribed, dispensed and consumed, relative to a patient’s clinical need. This is true at both the micro and macro levels. Patient needs can be assessed using a consensus of expert opinion as to what ought-to-be provided, based on the clinical facts and the epidemiological situation. Improvements in the effectiveness of the process of drug management and delivery can be detected in terms of health outcomes in the patient population. 2.5. Efficiency as a criterion Efficiency relates health outcomes to the resources used to produce them. Drug policies should aim to maximize health gains subject to equity constraints (i.e. equity-efficiency trade-off) while keeping the costs to society as low as they can reasonably be. At the macro level it is important to achieve both production efficiency (producing services at the least cost) and efficiency in the allocation and application of those resources (maximizing health gains given limited resources). Maximizing efficiency at a micro level implies among other things that effective pharmaceuticals should be supplied at a price reflecting the contribution of the drug to improving health status as compared with alternative treatments. In other words, this means maximizing the use of cost-effective drugs. Efficiency at all levels is thus a necessary element in improving economic outcomes. 2.6. Equity as a criterion Equity is concerned with ensuring that the benefits and burdens of pharmaceutical care are fairly distributed. Applying the principle of equity is complex and can be confusing. Equity in terms of finance means that patients, society, the professions and the industry should each make a reasonable contribution to the cost, commensurate with their means. Distributing access and delivery fairly will involve ensuring that all population groups are treated equally, with no deprivation as a result of their location, age, sex or other characteristics. It is simple to propound these general principles of equity, but in applying them one is inevitably faced with the difficulty of deciding, in specific situations, what is “just” and “fair”. If, to take an extreme example, a group of individuals live by choice or necessity on a remote outlying island, far removed from any pharmacy or specialised prescriber, will it be “fair” to expend the same percentage of our budget per household on them as on city dwellers, despite the fact that less resources can be purchased for the same amount of money for the islanders as compared to the city dwellers? Or should one, to be equitable, allocate more of our budget and hence resources to the islanders in order to attain an urban level of service, despite the fact that the city dwellers will in effect be shouldering a disproportionate burden to the benefits received? Multiple definitions of a fair or just distribution have been used in health care, reflecting variously quality of utilisation, distribution according to need, equality of access and equality of health (see [6,16]). Each of these definitions relies on value judgements which differ (see [1]). When evaluating the effect of a drug policy in a particular health system it is therefore important to know which definition of equity has been adopted. A system adopting an egalitarian approach (distribution according to need and financing 58 M.F. Mrazek and E. Mossialos / Monitoring and evaluating processes and outcomes based on ability to pay) will have different objectives than a libertarian system (entitled to what they get provided it is acquired justly), and therefore cannot be evaluated using the same definition of equity. 2.7. Quality as a criterion All the criteria so far discussed are certainly important but it is also crucial that what is provided meets the patient’s reasonable expectations with regard to quality in the broad sense [10]. The meaning of quality at one level may be to equate it to effectiveness, but the definition of quality certainly goes beyond a reflection of how patients perceive the effectiveness of the services they receive. The definition of quality

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