Public health in private sector

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Drug Financing Strategies

Jonathan D. Quick, MD, MPH November
2002 Essential Drugs and Medicines Policy
(EDM) Health Technology and Pharmaceuticals
Cluster World Health Organization
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Pharmaceutical spending, as of total health
spending, is greatest in developing countries
Challenges
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Per capita spending on pharmaceuticals increases
exponentially with national per capita income
Challenges
US per capita spending on pharmaceuticals
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Out of pocket payment is at the root of unfair
financing
Challenges
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Challenges
Who pays for drugs?
...people pay for drugs
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Drug financing alternatives
Financing alternatives

• 1. Public financing
• 2. Health insurance
• 3. User charges / out-of-pocket payment
• 4. Voluntary and other local financing
• 5. Donor financing
• 6. Development loans

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Public spending on drugs, as of total spending,
is lowest in developing countries
1. Public financing
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Public financing
1. Public financing
Public spending on health reflects both economic
conditions and national commitment
High commitment country
Low commitment country
US per capita
US per capita
GNP
400.00
400.00
Tax revenue (25 GNP)
100.00
100.00
5.00 (5 of govt expenditures)
10.00 (10 of govt expenditures)
Health budget
Recurrent health budget
4.00
8.00
0.20 (5 of recurrent health budget)
1.20 (15 of recurrent health budget)
Drugs
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1. Public financing(national and local general
revenues)
1. Public financing

• Responsibility and commitment of the government
  to drug financing is fundamental
• Arguments for public expenditures on essential
  drugs
• health impact
• economic impact
• political impact

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2. Health insurance
Insurance
2. Health insurance

• The fundamental concept behind health insurance
• sharing of the risk and burden of paying for
  illness among a group of people or a society
• old and young rich and poor healthy and
  unhealthy
• There are different insurance mechanisms
• Compulsory social health insurance
• Community pre-paid schemes
• Private health insurance

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Insurance coverage is everywhere rising - drug
benefits vary greatly among countries and
programmes
2. Health insurance
Each diamond represents of population covered
in one country Source WHO/DAP Global
pharmaceutical expenditures
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Consumers, payers and health care providers
2. Health insurance
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Providing drug benefits in health insurance has
benefits and challenges
Insurance
2. Health insurance

• Benefits -- reasons to include drugs
• drugs are an essential part of health care
• early treatment reduces costly hospitalization
• people prefer insurance plans with drug benefits
• Challenges -- threats to sustainability drug
  benefits
• moral hazard - increased use of services
• adverse selection - only the sickest join
• skimming - managers keep the sick out
• cost escalation - higher prices, other costs
• lack of understanding - public misconceptions
• fraud and abuse - either patients or providers

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Drugs can be dispensed through several mechanisms
- these affect quality, cost, fraud
Insurance
2. Health insurance

• community drug schemes
• reimbursement of members/beneficiaries
• reimbursement of independent pharmacies
• reimbursement of contracted/selected pharmacies
• insurer-affiliated pharmacies (health maintenance
  organizations national health services)
• pharmaceutical benefits management schemes (PBMs)

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Insurance programmes use the essential drugs
concept for rational use and cost control
Insurance
2. Health insurance
Prescribing practices essential drugs lists
non-reimbursable lists generic
prescribing clinical guidelines Dispensing
practices generic substitution dispensing
limits prior authorization Patient cost
sharing co-payment (eg, 1 per generic
drug, 2 per brand drug) co-insurance (eg,
25 for life-saving drugs, 50-75 other drugs)
deductable Reimbursement controls
maximum allowable cost reference pricing
pharmacoeconomic analysis provider budgets
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3. User charges / out-of-pocket expenditures
3. User charges

• Public and non-profit sector user fees
• revolving funds
• community drug schemes
• out-of-pocket private drug purchases

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Drugs are the largest health expenditure for poor
households - 60 to 80 of their health spending
Source Azerbaijan - UNICEF-Bamako Technical
Report No. 35 Bangladesh 1995 - National
Accounts 1996/97 Mali (1986) - Diarra K and
Coulibaly S. Financing of recurrent health costs
in Mali. Health Policy and planning 1990,
5(2)126-138
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Public sector user fees
3. User charges

• User charges should complement Government
  financing, not substitute for it.
• User charges for drugs pose some difficulties
• availability of drugs often shows no improvement
• replace rather than supplement government
  funding
• overprescribing
• In some situations user charges can help
• substantial revenue can be raised,
  decentralization is reinforced, efficiency can be
  fostered
• success depends on implementation policies and
  management

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Public-sector RDFs/community drug schemes have
advantages over private drug outlets
User charges
3. User charges

• 1. Provision of essential drugs -- selected
  generic drugs with good value for money
• 2. Social approach to pricing and protection
  mechanisms -- emphasis on affordability and
  protection of poor, disadvantaged, medically
  needy
• 3. Diagnosis and treatment appropriately linked
  -- drugs provided after assessment by trained
  health workers

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Impact on utilization influenced by type of fee
-outpatient attendances, provincial hospitals,
Kenya
User charges
3. User charges
Item Fee
Registration Fee Suspended
Registration Fee
- 27
- 6
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Several factors contribute to the likelihood of
success in RDFs/community drug schemes
3. User charges

• 1. local control of revenue
• 2. locally appropriate fee schedules
• 3. protection mechanisms for poor and
  disadvantaged
• 4. continued public funding
• 5. business-like management and customer
  relations
• 6. strict measures to ensure accountability
• 7. reliable supply of low-cost, good quality
  essential drugs
• 8. phased implementation by level or area

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The two faces of user fees...
3. User charges

• Cost-recovery mechanisms are transitional
  measures towards social health insurance

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4. NGOs, employers, community mechanisms,
cooperatives, employer-provided health care
4. NGOs, Employers

• employer-provided health services can apply the
  essential drugs concept to improve access to
  drugs
• NGOs cover 20-30 of health expenditures
  low-income Asian countries and in Sub-Saharan
  African
• NGOs provide up to 50 of curative services in
  some countries
• solidarity through cooperatives can play an
  important role in financing drug and health
  services

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5. Donor financing(bilateral grants,
multilateral grants)
5. Donor Financing

• External aid contributes to total health
  expenditures
• 3 - 30
• some countries may require external funding for
  drug supply for a number of years
• this is not ideal, but can improve the
  situation, particularly for the poorest segment
  of the population

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6. Development loans(The World Bank, regional
development banks)
6. Development loans

• Potential benefits
• financing drugs during economic or health
  emergencies
• may contribute to long-term health sector
  development
• useful to capitalize revolving drug funds
• Potential constraints
• principal and interest must be repaid
• loan conditions may conflict with national
  policies
• loan expenditure process may not build local
  capacity

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Countries use multiple drug financing strategies
- strategies vary in their feasibility and impact
Conclusions

• Public financing and social health insurance
• achieve equity and solidarity, but require effort
• User charges
• transitional measure - apply lessons from
  experience
• Voluntary and other local financing
• NGOs, community groups, employers can contribute
  greatly
• Development assistance and loans
• interim mechanism should not undermine national
  policy

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Future challenges for drug financing
Affordability
Conclusions

• Public financing of health services
• ensuring adequate financing for those in need
• Health insurance
• expanding population covered drug benefits
• Out-of-pocket purchases
• promoting availability, best prices, rational use
• Development assistance and loans
• investing in sustainable drug services

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