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The World Medicines Situation
(2004; 151 pages) View the PDF document
Table of Contents
View the documentContributors
View the documentIntroduction
View the documentChapter 1. World medicine production
View the documentChapter 2. Research and development
View the documentChapter 3. Medicines in international trade
View the documentChapter 4. World pharmaceutical sales and consumption
View the documentChapter 5. Global trends in medicines spending and financing
View the documentChapter 6. National medicines policies
View the documentChapter 7. Access to essential medicines
View the documentChapter 8. Rational use of medicines
View the documentChapter 9. Medicines regulation
View the documentConclusion
View the documentStatistical annex notes
Open this folder and view contentsStatistical annex
 

Chapter 5. Global trends in medicines spending and financing

SUMMARY

• In a quarter of WHO’s 192 Member States medicines spending was less than US$ 5 per person in 2000. Adequate and sustainable financing of medicines remains a remote prospect for almost half of the world’s population.

• WHO’s National Health Accounts (NHA) data, which provide a more comprehensive measure of pharmaceuticals financing than other available sources of data, suggest that actual global spending on pharmaceuticals is at least one-third higher than the figures reported in preceding chapters.

• Pharmaceuticals account for over 15% of measured global spending on health.

• In 2000, average per capita spending on pharmaceuticals in high-income countries was almost 100 times more than in low-income countries - nearly US$ 400 compared with slightly over US$ 4. At opposite ends of the spectrum, there is a thousandfold difference between what the highest spending and lowest spending countries spend on pharmaceuticals per capita.

• Private spending by households is today the principal source of pharmaceutical spending worldwide. This trend increased during the 1990s. Governments’ share in pharmaceutical spending has fallen faster than their share in total health spending.

• While external assistance has boosted pharmaceutical spending in a small number of countries, most countries with high HIV/AIDS mortality are still spending less than US$ 5 per capita on medicines overall.

• A much greater role for public finance of medicines is needed to counterbalance market demand. Both low-income country governments and external funders have roles to play.

5.1 TOTAL SPENDING ON PHARMACEUTICALS: A NEW ASSESSMENT

The data reported in preceding chapters on pharmaceutical production, trade and sales offer an incomplete picture of total spending on medicines by households, governments and other sources of funding. In particular, the data in preceding chapters exclude most spending on traditional and alternative medicinal products, which are part of the pharmacopoeia in many countries and a sizeable share of medicines consumption in Asia and other parts of the world. The available data on production, trade and sales also exclude many of the mark-ups and price additions identified in the preceding chapter, and exclude medicines transactions which occur in informal markets, through unregistered and unlicensed suppliers. In many countries, these are also an important component of the overall medicines market.

As part of its work in assembling systematic evidence of health system expenditures through supporting the preparation of National Health Accounts (NHA)i in Member States, WHO is now able to make a first attempt at a comprehensive estimate of pharmaceutical outlays. The methodology is still under development and subject to some risks of double counting and omissions. However, these new figures are believed to be more reliable estimates of spending on pharmaceuticals. A finely tuned statistical system is not required to identify the imbalances in world spending on pharmaceuticals. The evidence gathered for this report, which embraces 90% of the world’s countries and over 99% of world outlays on pharmaceuticals, lends additional rigour to the measurement of these inequalities. Moreover, anecdotal evidence suggests that the spending levels presented in this chapter are more likely to underestimate than to overstate the total level of pharmaceutical spending.

i NHA provide a quantitative, systematic, consistent and comprehensive model of resource flows in health systems.


Initial results suggest that the value of resources allocated to medicines in 2000 is US$ 440 billion - at least one-third higher than the total production, trade and sales figures reported above. It should be remembered that this estimate is not a global aggregate, but is based on individual country health accounting estimates for 180 of 192 WHO Member States in 2000. Pharmaceutical expenditure estimates for a large sample of countries are contained in the statistical annex.

Table 5.1 summarizes WHO’s estimates of measured pharmaceutical spending for all Member States, and by countries’ level of per capita income in three clusters for 1990, 1995 and 2000.

TABLE 5.1 Measured world pharmaceutical spending, by per capita income clusters, 1990-2000

Income cluster

Measured expenditure level

Share of world total

Share of expenditure on health

 

US$ million at exchange rate

%

%

 

1990

2000

1990

2000

1990

2000

WHO Member States

245,000

440,300

100

100

14.2

15.2

High -income

196,019

345,758

80.2

78.7

13.0

13.8

Middle -income

41,916

82,740

17.1

18.8

22.5

24.8

Low -income

6,568

10,675

2.7

2.4

20.8

19.2

 

Source: WHO National Health Accounts (NHA) datafiles

Notes:
1. Pharmaceuticals refers to medicines for human consumption.
2. The details do not add up exactly to 100% because the WHO total comprises 180 countries whereas the World Bank classification (see Note 3) includes only 161 countries. Data for an additional 11 WHO Member States were not available at the time this report was collated. Timor-Leste was not a Member State until 2002.
3. High-income countries refers to a World Bank classification of 33 countries (of which 23 from the OECD) with a per capita income (at average exchange rate in 1999) higher than US$ 9265. Among these, only the SAR Hong Kong is not monitored as a State entity in the WHO NHA files. Middle-income countries refers to a World Bank classification of 70 countries with a per capita income (at average exchange rate in 1999) of between US$ 756 and US$ 9265. Low-income countries refers to the same World Bank classification of 58 countries with a per capita income (at average exchange rate in 1999) lower than US$ 756.


The data on total pharmaceutical spending in Table 5.1 indicates that, at 15.2% of total expenditure on health in 2000, pharmaceuticals account for an important share of all health resources. According to the WHO World Health Report 2003, expenditure on medical goods and services constituted 8.1% of the combined GDP for the WHO Member States in 2000. Therefore, expenditure on pharmaceuticals for human consumption represents about 1.4% of world GDP.i

i This figure compares with the figure of 1.12% in Chapter 1, estimated by different procedures, for 1999. The ratios cited in the WHR 2003 are measured in international dollars, a numeraire that emulates economy-wide or GDP purchasing power parity values. At conventional average exchange rate, the health spending to GDP and the pharmaceutical spending to GDP ratios are 9.2% and 1.4% respectively. This report uses mainly exchange rate values, which are more relevant than international dollars to analyse pharmaceutical expenditure trends as these are widely traded at their actual exchange rate value. However, international dollars are more relevant to compare GDP and real health spending.


Table 5.1 suggests a slightly different balance in the distribution of pharmaceutical resources among countries than the sales estimates in Chapter 4 (Figure 4.1). According to National Health Accounts (NHA) data, the high-income countries account for slightly under 80% (rather than 90%) of global pharmaceutical spending, the middle-income countries for about 19% (rather than 6%) and the low-income countries for 2.4% (rather than 2.9%). This reflects a better capture by NHA data of the character of both low-income country markets and the many more middle-income country markets with a large informal medicine branch in which traditional remedies have an important role. The inequitable overall pattern of spending emerges clearly.

Table 5.1 also indicates that the share of high-income countries has fallen slightly, mainly due to a recent growth in the share of middle-income countries. The share of medicines in total health spending is lowest in high-income countries but is higher in middle-income countries than in the low-income group.

Table 5.1 also shows that global pharmaceutical spending grew in nominal terms 7% per annum from 1990 to 2000. The increase was faster in the middle-income countries, about 8% per year compared with about a 6.5% increase over the same period in the high-income countries;ii the increase was slower in the low-income countries. Absolute figures provide a more balanced perspective of change. The increase in expenditure on pharmaceuticals has been heavily concentrated in the high-income cluster, an estimated US$ 150 billion against US$ 36 billion for the middle-income cluster and US$ 4 billion for the low-income cluster during the 1990s.

ii These averages mask large differences within each grouping, including within the OECD group, in which the United States experienced an above trend expansion of its pharmaceutical consumption offset by restraint in several other countries of that group.


5.2 PER CAPITA EXPENDITURE ON PHARMACEUTICALS

Table 5.1 shows that, in 2000, the high-income countries (which comprised 14% of world population) accounted for 79% of the measured value of pharmaceutical outlays.iii A per capita analysis (Table 5.2) makes the contrasts between high- and low-income countries clearer. The 40% of the world’s population living in low-income countries spent on average US$ 4.40 a year per capita on medicines, a figure which did not change significantly between 1990 and 2000. Elsewhere, the 14% of the world’s population in high-income countries spent on average US$ 396 per capita in 2000 - almost 100 times more than those in low-income countries.

iii This chapter relies on what countries disclose and on data collated from hundreds of official statistical sources, as well as private analyses of the health systems of the world and pharmaceutical usage. That measurement will evolve as more sources become accessible and greater comparability is possible. As of mid-2004, the data used are the most comprehensive set constructed.


Economic growth has been good overall in a number of middle-income countries. Figure 5.1 shows trends in per capita spending on pharmaceuticals for 1993-2001. It confirms the widening gap between high- and low-income countries, and illustrates that average spending in the middle-income countries is far closer to that in low-income countries than in high-income countries.


FIGURE 5.1 Per capita pharmaceutical spending by income clusters, exchange rate values, 1993-2001

Source: WHO NHA datafiles


Figure 5.2 shows trends in a selection of large countries from 1990 to 2001, measured at exchange rates.


FIGURE 5.2 Per capita pharmaceutical spending in selected countries, exchange rate values, 1990-2001

Source: WHO NHA datafiles


Expenditure on pharmaceuticals ranges from 10%-20% of expenditure on health in the richest countries and 20%-60% in the poorer countries. Using an illustrative benchmark of US$ 5 per capita in 2000 and based on the expenditure estimates currently available, one-quarter of WHO’s 192 Member States had not attained that low threshold. Finding adequate financing for medicines remains a major public health challenge.

Global per capita average consumption of pharmaceuticals, estimated at US$ 74 in 2000, is well above the minimum figure suggested by the 1993 World Bank Report Investing in Health. That publication suggested US$ 12 a year per person for all medical goods and services in 1990, of which one-quarter (US$ 3 or about US$ 5 at 2000 prices) was suggested for spending on medicines.i The global average also exceeds the recommendation of the WHO Commission on Macroeconomics and Health (2002), which identified a minimum US$ 12-US$ 23 (based on 1997-1998 data adjusted for inflation). However, as Table 5.2 shows, the global average masks huge differences in spending on medicines.

i Straight proportions in the strict sense are not applicable. In the wealthier countries, the range is from 9.2% to 35% of health expenditure whereas in the poorer countries it is from 5% to 70%. In dollar terms, in the countries with higher per capita expenditure on pharmaceuticals, the range is from US$ 84 to US$ 549 (as indicated in Table 5.3), while in the poorer countries it is from less than US$ 0.6 to US$ 26.


TABLE 5.2 Dispersion in per capita pharmaceutical spending, by income clusters, 1990-2000 (US$ per capita at exchange rate)

Income cluster

Measured minimum

Measured maximum

Average expenditure

 

1990

2000

1990

2000

1990

2000

WHO Member States

< 0.5

0.6

330

549

49

74

High-income

50

84

330

549

240

396

Middle-income

2

4

79

198

18

31

Low-income

< 0.5

0.6

19

26

3.6

4.4

 

Source: WHO NHA datafiles

Notes:
1. The observed values for individual countries are, paradoxically, subject to more vagaries than the averages for different groupings used in the other tables and graphs as they include outliners, some of which are known to be statistical flukes.
2. For a definition of the income clusters, see Table 5.1 note 3.


5.3 GOVERNMENT AND PRIVATE ROLES IN PHARMACEUTICAL FINANCING

Figure 5.3 summarizes the relative size of government (public) and private per capita spending on pharmaceuticals in 1990 and 2000. It shows that, at the global level, the government share in pharmaceutical spending fell while the private component increased. The level of government spending on pharmaceuticals fell in both low- and high-income countries but increased slightly in middle-income countries overall.

Table 5.3 shows that, both globally and in all income groups, private spending by households is today the principal source of pharmaceutical expenditure, at 57.8% in high-income, 70.9% in middle-income, and 71.6% in low-income countries.


FIGURE 5.3 Average per capita US$ spending on pharmaceuticals by main financing entities, 1990 and 2000, by income clusters

Source: WHO NHA datafiles


TABLE 5.3 Private and government-funded expenditure on pharmaceuticals, 1990-2000 (% of total expenditure on pharmaceuticals)

Income clusters

1990

2000

 

Private

Public

Private

Public

WHO Member States

57.8

42.2

60.6

39.4

High-income

54.2

45.8

57.8

42.2

Middle-income

72.6

27.4

70.9

29.1

Low-income

71.4

28.6

71.6

28.4

 

Source: WHO NHA datafiles
Note: For a definition of the income clusters, see table 5.1 note 3.


Though high-income countries finance a larger percentage of pharmaceuticals from government sources than do low- and middle-income countries, the share of pharmaceutical financing falling directly on households has increased overall during the 1990s. This shift has occurred most sharply in high-income countries.

Table 5.4 shows government and private financing of pharmaceuticals in per capita terms for 1990 and 2000, using some of the data in Figures 5.1 and 5.3. The biggest per capita increase occurred in middle-income countries over the period. Several countries in this group experienced strong economic growth. Some, such as Egypt, expanded their publicly supported health insurance to include medicines coverage. The global average of US$ 74 per capita spending on pharmaceuticals represented 15.6% of total expenditure on health in 2000. Of that, 60.6% was financed by households and, marginally, by other private sources (health insurers, businesses and NGOs). Worldwide, the measured privately funded share was 57.8% in 1990. The dispersion between and within each income or geopolitical cluster is considerable and has been widening, as shown in Tables 5.5 and 5.6.

Government commitment to health care financing varies widely (World Health Report 2002, annex 5). High-income countries intervene considerably more in the delivery, financing and regulation of the health care market than is the case in low-income countries.

For countries in all income clusters, the government’s share in total pharmaceutical spending (Table 5.4) has fallen - from 42.9% to 39.2%.

TABLE 5.4 Private and government per capita expenditure on pharmaceuticals, 1990-2000 (US$ at exchange rate)

Income clusters

1990

2000

 

Private

Govt.

Total

Private

Govt.

Total

WHO Member States

28

21

49

45

29

74

High-income

130

110

240

229

167

396

Middle-income

13

5

18

22

8

30

Low-income

2.6

1

3.6

3.2

1.1

4.4

 

Source: WHO NHA datafiles
Note: For a definition of the income clusters, see Table 5.1 Note 3


In part, this may have occurred because, unlike “catastrophic” costs for an episode of inpatient care, medicine costs are a long string of smaller, recurrent bills. This makes them a more avoidable expense for insurers, including public insurers. Another reason may be that pharmaceutical access through pharmacies involves a wider range of both medicines and retail suppliers than through hospital-based (particularly surgical) activity. As a result, it is a less manageable object for public subsidy and regulation than hospital-based care where it is easier for governments to control spending. However, increased private funding of a wider range of pharmaceutical products does not necessarily equate with access to better medical care.

Behavioural patterns also have a key bearing on the consumption of medicines. Although pharmacies are scarce in most rural areas and in some suburban areas, they are the main source of non-prescription medicines for most people, provided the shelves are well-stocked. As a result, a great deal of self-diagnosis, self-medication and re-use of prescriptions occurs - often reinforced by pharmacists on the basis of very poor information about the properties of the medicines they sell.i

i While pharmaceutical retailing is a quasi public service involving medical advice, it is also a retail trade in which a retailer addresses an uninformed client, often on the basis of poor knowledge about the objectives of medicines or their appropriate use. In therapeutic as well as in economic terms, the shift towards a greater reliance on private finance cannot necessarily be equated - as some textbooks may suggest - with improved allocation of resources, greater efficiency, greater effectiveness, greater empowerment of the stakeholders. When the functions of prescribing and dispensing are combined, as with “dispensing doctors” or “prescribing pharmacists”, overprescribing is likely.


As Table 5.3 shows, in each of the income clusters, households account for the majority of pharmaceutical spending. However, the impact of this varies greatly. While in the high-income countries, a prominent concern is lengthy waiting lists for elective surgery, the poor in low-income countries are more likely to be preoccupied with how many items on a prescription they can afford to buy with the little money they have.

During the 1990s, public finance constraints prevented most low-income countries from substantively improving their pharmaceutical benefits. Although some middle-income countries have succeeded in making modest improvements in health insurance cover, household disbursements for health overall have increased in nominal terms by 30% against a 2.8% increase in real income per head during that period.ii

ii Measured in purchasing power parity/international dollars GDP per capita has increased substantially more than in figures at exchange rate US dollars: an estimated 22%.


5.4 POSSIBLE IMPLICATIONS OF THE GROWTH IN PRIVATE PHARMACEUTICAL FINANCING

Unregulated pharmaceutical markets are unlikely to lead to the safe use of medicines. Regulation of pharmaceutical production and distribution in high-income countries was strengthened in the 1960s, following a number of medicines-related accidents such as the thalidomide scandal. High-income countries generally have stronger regulatory control of their pharmaceutical and distribution industries, as Chapter 9 highlights. Elsewhere, in low-income countries and in some middle-income countries, greater reliance on under-regulated suppliers of medicines poses a potential threat to safe, appropriate and effective use of medicines.

The growth in the share of private financing of medicines has meant a reduction in the role of governments in funding pharmaceuticals, except in middle-income countries. Although the available documentation offers only limited information on the breakdown of pharmaceutical spending, there does appear to be a public health focus in the share of pharmaceuticals financed by governments. In particular, there has been greater emphasis on vaccination, a focus on a list of essential drugs, access to medicines for “catastrophic” illnesses and widespread campaigns to improve the health status of populations worst affected by malaria, tuberculosis, onchocerciasis and a range of other infectious diseases.

TABLE 5.5 Trends in government financing of pharmaceuticals, 1990-2000

Income clusters

Medicines share in government spending on health (%)

Medicines share in total government spending (%)

Per capita expenditure at average exchange rate (US$)

 

1990

2000

1990

2000

1990

2000

WHO Member States

10.2

10.2

3.0

3.9

21

29

High-income

9.9

9.8

2.8

3.6

110

396

Middle-income

11.9

13.1

4.5

5.6

5

8

Low-income

21.5

16

3.5

3.6

1

1.1

 

Source: WHO NHA datafiles

Notes:
1. General government comprises territorial authorities (central/federal, provincial/regional/state, local/municipal authorities) and autonomous/extra-budgetary funds (social security schemes, health boards and similar entities).
2. For a definition of income clusters, see Table 5.1 note 3.


The recent reduction in public commitment towards medicines in total health financing reflects a public finance constraint not limited to health, but shared by all public programmes. In the low- and middle-income countries, the share of medicines in total government spending has been inching slightly upwards (Table 5.5), from 3.5% to 3.6% and from 4.5% to 5.6% respectively. However, in low-income countries government spending priorities in the health system have clearly emphasized other inputs, as the share of medicines in government health spending fell dramatically from 21.5% to 16%. This downturn has occurred in countries which have been more severely affected by heavy debt burden and/or major epidemics of diseases such as HIV/AIDS. Figures 5.4 and 5.5 show pharmaceutical spending trends in GDP.


FIGURE 5.4 Pharmaceutical spending trends in selected middle-income countries 1990-2001 (percentage share in GDP)

Source: WHO NHA datafiles


FIGURE 5.5 Pharmaceutical spending in selected OECD countries, 1990-2001 (percentage share in GDP)

Source: WHO NHA datafiles


5.5 PHARMACEUTICAL CONSUMPTION: A GREATER ROLE FOR EXTERNAL FINANCING?

A number of low-income countries have been cushioned from the direct consequences of low economic growth on pharmaceutical spending by an increase in the level of transfers from high-income countries. These have been in the form of development loans and grants for the supply of vaccines and some essential drugs, as well as for other targeted programmes.

However, important though it is, the impact of health funding by external agencies should not be overstated. Greater international solidarity has certainly helped to increase the supply of pharmaceuticals in some of the poorest countries. In Mozambique, for instance, in 1987 only 10.1% of recurrent expenditure on pharmaceuticals came out of budgetary sources and 89.9% out of external funding; in 2000, these ratios were correspondingly 18.9% and 81.1%.i Yet, in average per capita expenditure terms, the total outlay on pharmaceuticals in both years was only US$ 1 per head.

i Departamento Farmaceutico-MISAU Report. Maputo, 2001.


In only seven heavily aid-dependent countries (i.e. in which the share of external resources in total expenditure on health is over 20% of the resources available to the government) has external assistance raised per capita expenditure on pharmaceuticals above US$ 5 dollars per head: Belize, Djibouti, Equatorial Guinea, Kenya, Kyrgyzstan, Papua New Guinea and Zimbabwe.ii

ii Unpublished details of the WHO National Health Accounts database, as reported in the World Health Report 2003.


TABLE 5.6 HIV/AIDS treatment needs in relation to pharmaceuticals spending

Country

Estimated treatment need 2003
(US$ thousands)

Percent of global treatment need

Total per capita pharmaceuticals expenditure 2000
(US$)

South Africa

934

15.8

31

India

616

10.4

3

Kenya

378

6.4

7

Zimbabwe

366

6.2

9

Nigeria

362

6.1

2

Ethiopia

299

5.0

1

United Republic of Tanzania

242

4.1

1

China

207

3.5

20

Zambia

196

3.3

5

Democratic Rep. of Congo

191

3.2

2

Malawi

136

2.3

3

Côte d’Ivoire

127

2.1

7

Cameroon

124

2.1

9

Mozambique

123

2.1

2

Thailand

107

1.8

21

Uganda

97

1.6

2

Rwanda

78

1.3

3

Burkina Faso

71

1.2

3

Sudan

62

1.1

4

Burundi

60

1.0

2

Ghana

58

1.0

4

Haiti

56

1.0

3

Guinea

56

1.0

3

Total

4946

83.6

 

 

Sources: WHO NHA datafiles; WHO/HIV/AIDS 3 x 5 Strategic Framework


A great deal of attention has been given to recent price arrangements that dramatically lower the cost of HIV/AIDS treatment in low-income countries. The costs of treatment for HIV/AIDS and accompanying opportunistic infections nevertheless remain relatively expensive, in excess of US$ 300 per annum in 2003. Yet, in only eight of the 23 countries which make up 80% of the global treatment need, was the average measured spending on pharmaceuticals above US$ 5 per head in 2000 (Table 5.6).

Pharmaceutical financing reveals the same patterns of gross imbalance observed in other aspects of the global medicines market place. Falling public support by governments for medicines has pushed the financial burden on to households in both high- and low-income countries, with attendant risks to public health objectives. While external support made a difference in some settings, adequate and sustainable financing of medicines remains a remote prospect for almost half of the world’s population.

As experience with responses to the HIV/AIDS epidemic shows, the programmes developed to supply medicines at discounted prices have so far made little more than a dent in the accessibility problems faced by people in the low-income countries. A much greater role for public finance is needed to counterbalance the consequences of market income distribution. Both developing country governments and external funding agencies have roles to play.

 

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