Drugs and Money - Prices, Affordability and Cost Containment
(2003; 158 pages) View the PDF document
Table of Contents
View the documentIntroduction
Open this folder and view contentsPart I: Problems and approaches to a solution
Close this folderPart II: Selected experiences with policy options
View the documentChapter 6: Measures relating to use of drug subsidy lists and to regulation
View the documentChapter 7: Experiences with budgets
View the documentChapter 8: Experiences with reference pricing
View the documentChapter 9: Experiences with patient charges
View the documentChapter 10: Switching to non-prescription status
View the documentChapter 11: Experiences with generics
View the documentChapter 12: Experiences with pharmacy benefit management programmes in the USA
View the documentChapter 13: Experiences with professional education
View the documentChapter 14: Providing affordable medicines in transitional countries
View the documentChapter 15: Access to medicines in low-income countries
View the documentList of Contributors
View the documentBack cover

Chapter 7: Experiences with budgets

Christine Huttin

1. Introduction

In many countries, as described in previous chapters, governments today use financial measures to contain drug costs. This chapter will review some major examples of concrete measures with which experience has been gained. They range from imposing an overall ceiling on national drug expenditure (France) to professional measures such as budget holding for physicians (implemented in countries such as the UK, Germany and Sweden in Europe, as well as in Israel).

2. National ceilings on drug expenditures

Some governments opt for financial ceilings on the various forms of health care expenditure and set sanctions which can be imposed if these ceilings are exceeded. Drug expenditure is likely to be a component in several of the areas of health care for which ceilings have been set. In France since 1997 a national target for annual health expenditure (ONDAM)1 has been set by the government, subject to approval by the parliament. The overall maximum level of expenditure is set in terms of four ceilings: for ambulatory care, for public hospitals, for private clinics and for other types of health care organizations, such as health centers for the elderly. The ceiling for primary health care expenditure is then split into three more specific ceilings: one for general practitioners, one for specialists and one for other services (e.g., dentists). These ceilings cover physicians’ fees nation. In 1997, for instance, the ceiling for primary health care expenditure was as follows (Source: Loi de Finances, 1997):

General practitioners

143 billion FF


68 billion FF


56 billion FF


1 ONDAM: Objectif National des Depenses d’Assurance Maladie (National Target for Health Insurance Expenditure).

Within the first two categories, the expenditures for fees and other services (prescriptions, exams and tests) were in 1997 as described in Table 1. Sanctions and other types of measures accompany such national ceilings and can be implemented where the ceilings are exceeded. Physicians or pharmaceutical companies, for instance, may be required to pay back part of the overspent budget.

Table 1

General practitioners



29 billion FF


42 billion FF

Prescriptions and other acts

114 billion FF

Prescriptions and other acts

26 billion FF


Source: Loi de Finances, 1997.

Instead of (or in addition to) national budget ceilings, some countries favour a series of financial measures involving health professionals, particularly physicians and pharmacists, to make them cost sensitive. This section will consider the approach whereby individual physicians are called upon to act as fundholders, i.e. to manage a health care budget (as for instance in the UK or in Germany), as well as certain measures designed to influence pharmacists via different systems of remuneration.

Fundholding: The theory of fundholding as developed in the 1980’s reflects the argument that incentives rather than mere financial mechanisms have to be designed if one is to address inefficiency and cost-control approaches effectively. Budgets can cover different types of health services, various types of organizations and different professional groups (e.g., physicians, pharmacists and nurses). Unlike pricing policies or reference price systems, a budget addresses global issues of spending, taking into account questions of price and volume, but also the allocation of resources between services. The most extensive experience in this field in Europe has been gained in Germany and the UK.

The United Kingdom implemented its system of individual budgets in general practice in 1989. Physicians could originally opt to enter a budget holding system or not. Since April 1999 however, the “New NHS” has set up new organizations for primary care, the so-called PCG’s (Primary Care Groups), and a predetermined budget has now become mandatory for all general practitioners who receive a group budget, a group normally comprising some 50 GP’s holding for physicians, numerous studies have assessed the impact of such measures [7]. In early evaluation studies, there was increasingly strong evidence that fundholding practices did limit prescribing cost more efficiently than did practices that were non-fundholders [3,5,8]. The Bradlow study, for example, provides an estimate of cost increases following the NHS reform of 1991 among different types of practices. A large proportion of the fundholding practices made savings in their drug budget at the end of the first year of fundholding, ranging from 2.9% to 10% measured as the net ingredient cost (NIC) for medicines, whereas among non-fundholders expenditures increased by 18.7%. Concerning the NIC increase among fundholders, the study shows that the effects differed between those practices which had dispensing rights and those which did not.

As for reference pricing, scientific research designs models, such as experimental longitudinal designs, are not widely used to provide scientific evidence as to the impact of fundholding on prescribing; outside Europe, only Israel has opted for such a design and has done so on a limited scale.

Factors determining response: There are not many data on the factors which determine the reduction in prescribing costs. However, Whynes et al. [11] suggested that GP’s who were total fundholders spent less time on management than did non-fundholders. In addition, a higher proportion of fundholders operated on the basis of a partnership agreement, in which all the partners had agreed on a protocol for patient management and operations. Moreover, fundholders possessed superior systems for dealing with information and patient management systems. The motivation to reduce prescribing costs was mainly the fact that fundholding practices could reinvest budgetary savings, so as to improve diagnostic facilities and raise the standard of patient care.

Health related effects: As there is no quality assessment of prescribing policies among overall fund-holders as compared with non-fundholders, it is not possible to determine whether prescribing cost economies obtained through the fundholding system are really in the community’s best interest. There is, for example, no evidence of the effects on outcome measures such as long-term morbidity or patient satisfaction.

The effects of fundholding on prescribing patterns and costs may have been transitory, since more recent studies show no differences in the reduction of prescribing costs between fundholders and non-fundholders (e.g., [9]). One can also argue that drug manufacturers may have adjusted their UK marketing policies to face the new reality of medical fundholder managers. Research into the impact of fundholding on referral patterns [4,10] suggests that financial pressures have had little effect on general practitioners’ referral decisions. Neither of these two studies found any evidence of change in the proportion of referrals between the two types of practice groups, i.e. fundholders and non-fundholders, following the National Health Service reform.

A major issue related to the fundholding system refers to the differences in access to secondary care according to the bargaining powers of fundholders versus non-fundholders or among different types of fundholders. If there is a stringent rationing of health services, then this negotiation power between different types of practices may support the strategies used by primary care services to facilitate access to secondary care for their patients (e.g., in the queuing system).

A fundholding system usually provides greater accountability to primary care physicians; it may for example empower the practices to provide extended community services. The terminology may become politically sensitive, particularly since creation of drug budgets at this level can be regarded as comprising a relative transfer of power to primary care physicians in the decision-making process on prescription drugs. This is the case, for instance, in the new NHS in the UK, where other concepts, such as Primary Care Group or Trust, with wider areas of accountability than budgets and forms of dynamics other than competition have been in place, especially in relation to drugs.

Though a fundholding system may appear as a power shift from national health fund agencies towards the medical profession, it may nonetheless be considered, at some stages of health care reform, as part of a hidden political agenda, where physicians feel they become “scapegoats”. The fundholding system is at all events an important instrument to modify the power relation between or within the medical profession and other stakeholders. Much depends on the implementation process (in stages) and the comprehensiveness of the system in determining whether the introduction of these changes will lead to a fragmentation of the professions’ power or The levels of fragmentation may be split between primary care physicians and consultants, or fundholders and non-fundholder physicians. By contrast, the fundholding system provides a larger power basis for collective decision making in organizations governed by clinicians. The implementation of fundholding in a health system may need to proceed in incremental steps in order to determine through experience the right organizational sizes for the grouping of primary care physicians.

Germany first implemented a national budgetary approach, thereafter introduced budgets at the provincial (Länder) level and then debated individual budgets for physicians. The UK, first experimented with partial fundholding (only one proportion of the general practitioners of the nation signed fundholding contract). Then, through the introduction of Primary Care Groups, it adapted the first concept of fund-holders into a system concerning the whole profession, within larger collective organizations than the first generations of fundholders. In relation to drug budgets, these larger organizations nonetheless had roles quite similar to the former fundholders. The forms of implementation may therefore partially depend on political options for centralization/decentralization of health care reforms. The US has experimented various types of Primary Care Groups, but the experiences appear not to have been very successful in terms of control over drug budgets. Little research has been performed so far to see whether within the context of a universal health system, such as Britain’s achieve their targets more successfully than in a highly competitive environment.

If a fundholding system is voluntary, only larger practices or more entrepreneurial physicians will embark on contractual fundholding agreements. Yet if it is made mandatory in order to avoid some of the inequity effects, then more discipline is introduced in the grouping of physicians and some doctors are obliged to join collective organizations against their will. This represents a management challenge for fundholders and can be addressed with incentive mechanisms.

Fundholding is a way to increase the accountability of the professions and it can become quite important, in the context of a growing empowerment of patients (e.g., as they become better informed, in part from direct sources such as websites, as to their conditions and treatment options).

Recent developments in fundholding such as the UK experience, tend to combine the approach with the implementation of clinical governance, which facilitates an increased leadership by physician-led organizations vis-à-vis the stewardship by physician groups usually share responsibilities, and clinical governance “leads” to sharing of key decisions in such organizations, for example as regards trade-offs on the cost and quality of primary care services (in particular drug interventions). Another recent development tends to extend the competence of primary care organizations with budgetary powers over drug budgets beyond the borders of health care services. Such approaches may lead to some forms of integration between primary care and social services.


[1] A.H. Anis, Pharmaceutical prices with insurance coverage and formularies, Canadian Journal of Economics 25(2) (1992), 420-437.

[2] D.L. Baines, K.H. Tolley and D.K. Whynes, Prescribing budgets and fundholding in general practice, Office of Health Economics report, n.125, 1997.

[3] J. Bradlow and A. Coutler, Effects of fundholding and indicative prescribing schemes on general practitioners’ prescribing costs, BMJ 307 (1993), 1186-1189.

[4] A. Coutler and J. Bradlow, Effects of NHS reforms on general practitioners’ BMJ 306 (1993), 433-437. [5] J.S. Dowell, D. Snadden and J.A. Dunbar, Changing to generic formulary: How one fundholding practice reduced prescribing costs, BMJ 310 (1995), 505-508.

[6] R.B. Haynes, Some problems in applying evidence in clinical practice, Annals of the New York Academy of Sciences 703 (1993), 210-224.

[7] C. Huttin, L’influence et Comment améliorer les pratiques médicales, Médecine-Sciences, Flammarion, 1998.

[8] D. Keeley, Fundholders had a head start, BMJ 308 (1994), 206.

[9] B.S. Stewart, R. Surender, J. Bradlow et al., The effects of fundholding in general practice on prescribing habits, three years after the introduction of the scheme, BMJ 311 (1995), 1543-1547.

[10] R. Surender, J. Bradlow, A. Coutler et al., Prospective study of trends in referral patterns in fundholding and non-fundholding practices in the Oxford region, 1990-4, BMJ 311 (1995) 1205-1208.

[11] D.K. Whynes, D.L. Baines and K.H. Tolley, GP Fundholding and the cost of prescribing, J. Public. Health Med. 17 (1995), 323-329.

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