The Pharmaceutical Journal
Vol 275 (Supplement) F23
October 2005

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FIP Congress 2005

Controlling costs of medicines — how are those used in hospitals paid for?

Pharmacists from four countries gave presentations on paying for medicines in hospitals. A common theme was the difficulty in controlling the cost of medicines and, despite varying approaches to addressing the problem, the lack of a solution.

Australia

Giselle Gallego, of the University of Sydney, described how spending on health in Australia is a mix of private and public funds, and that there are divisions between that funded by the Commonwealth government and that funded by the individual states. Funding streams are complex with different public funders and an increasing private sector. Pharmaceuticals, as in many countries, are the largest growth area in the health budget.

Private hospitals currently account for 35 per cent of all hospital beds, and some private costs are publicly funded through the Pharmaceutical Benefits Scheme (PBS) with the remainder through patient charges or insurance. They generally obtain their medicines through community pharmacists.

Public hospitals are funded through the states, provide the majority of inpatient and emergency care, and undertake training of health professionals. Inpatient drug costs are funded through the hospital with outpatient funding being a mix of PBS, the hospital budget, and patient co-payment.

Difficulties arise from the increased costs of developing technology and because reimbursement through the PBS scheme tends to lag behind current practice. The dual funding arrangements also encourage cost shifting from secondary to primary care and inequalities in access. Some states had not even accepted the PBS scheme, so there are calls, including from the Society of Hospital Pharmacists of Australia, for a simplified national funding scheme for medicines.

United Arab Emirates

Mike Fahey, from Abu Dhabi, United Arab Emirates, said that pharmacists in the UAE have great opportunities to make a major contribution to cost control.

The UAE is about the size of Ireland and is the fourth largest oil producer in the world. The demographics are different from those of most countries, reflecting the youth of the state (established 34 years ago). With a population of four million, less than 20 per cent are UAE nationals, of whom 50 per cent are aged under 16 years. Of the majority expatriate workforce, less than 6 per cent are aged over 50. This leads to a different disease burden, with the three main causes of death being cardiovascular disease, cancer, and road accidents.

Inflationary social trends, including an increase in lifestyle-related illness and increasing population, may be offset by mandatory health insurance and greater use of private medicine. Medicine prices are regulated by the federal government and, with 95 per cent of medicines imported, current legislation requires a single UAE distributor for each medicine; these are procured through tenders or other agreements. Because of the youth of the countries, governments do not see health expenditure as a current priority and have tried to control medicines costs through formularies and use of generics. Developing ideas include unit dose distribution, clinical pharmacy, and information systems.

United States

Lee Vermeulen, of the University of Wisconsin, gave an overview of the US health care finance system, where again there are multiple funders. The government pays for about 40 per cent of health care expenditure and employers fund the remainder. Public funding is further divided through Medicare (which covers the elderly and disabled), Medicaid (for the poor), and specific funding for veterans and others. There is a multitude of “fiscal intermediaries”, for-profit insurance companies that carry the risk and are in contract with providers to reimburse for care provided. Each provider will have contracts with several intermediaries. The arrangements for an individual are complex as they change in relation to factors such as age, employment status and the care setting. There are three main models for reimbursement of hospitals:

• Discount fee for service — in which medication charges are reimbursed at the same rate as other charges

• Capitated reimbursement — in which there is a fixed fee for an admission with no additional fees for medicines

• Risk transfer structures — in which the hospital becomes the fiscal intermediary and accepts the full risk, often including preventive medicines

Dr Vermeulen described factors accounting for the increased expenditure on medicines. These are increased prices (due to shortages and manufacturers’ consolidation), higher throughput of patients in hospitals and innovation in technology. There are many strategies to respond to these factors including a significant role for a clinical pharmacist. He illustrated a specific example of a prior authorisation programme. In this, for specific medication, the doctor would have to gain pharmacy approval against agreed criteria before prescribing expensive medicines.

Wales

Carwen Wynne Howells, chief pharmaceutical officer, Wales, summarised the issues in her country. She described the use of reverse auctions (where companies bid against each other by reducing their price) as one component of a widespread approach to cost-containment. There is a difference between the funding stream for medicines in hospital and primary care in that the latter is managed by an allocated drugs budget, whereas hospital medicines expenditure comes out of the hospital’s global income. Expenditure on hospital medicines is about £100m, and on primary care £550m. Various methods are being used to control the increase in medicines expenditure. These include:

• Influence through central guidance such as the National Institute for Health and Clinical Excellence, through horizon scanning for forthcoming new technologies and medicines and through formularies

• Incentives, such as the new community pharmacy contract

• Patient-oriented factors, such as use of original packs and patients’ own medicines, shared care arrangements between primary and secondary care, and increased use of over-the-counter medicines

• Redesign of services, including automation (all hospitals to have system), new IT, new prescribers (eg, pharmacists and nurses) and e-auctions (where companies bid on-line with reducing offers to supply medicines on contract)