Health Reform and Drug Financing. Selected Topics - Health Economics and Drugs Series, No. 006
(1998; 49 pages) [French] [Spanish]
Table of Contents
View the documentAcknowledgements
View the documentExecutive summary
Open this folder and view contents1. Introduction
Close this folder2. Financing reforms
View the document2.1 Public financing though general revenues
View the document2.2 Health insurance
View the document2.3 User charges
View the document2.4 Voluntary and other local financing
View the document2.5 Donor financing and drug donations
View the document2.6 Development loans
Open this folder and view contents3. Affordability and efficiency
Open this folder and view contents4. Organizational reforms
View the documentConclusions
View the documentReferences
View the documentBack Cover

2.3 User charges

Private expenditures for pharmaceuticals in developing countries usually account for over two-thirds of all drug spending [46]. While drug sales from private vendors are the most common form, government cost-recovery health schemes and community revolving drug schemes also involve private contributions to cover the cost of drugs. These latter differ from direct private drug sales in their emphasis on access to affordable essential drugs. User fees in developing countries are primarily a way of contributing towards the recurrent costs of health services. After an initial investment is used to fill the drug supply chain with a selected number of drugs, these mechanisms seek to recover drug costs in part (long-term subsidies required), in full, or with a profit from patients. The money is used to fund new purchases of drugs and may, particularly in community programmes, also be used to provide other health services.

For these types of schemes, prices are usually set through a combination of a market approach (“willingness-to-pay”) and a cost-based accounting method. There exist different types of drug fees which can be charged, each with different impacts on consumption patterns, ease of collection and accounting, and the balancing of drug costs and revenues. These fee types are (Ref. [23], Cha. 44):

• course of therapy: fixed fee for an episode of illness associated with a standard treatment;

• prescription: standard fee per visit;

• item fee: standard fee per drug;

• multi-level item fee: different standard fee for different drug levels (determined by price bands);

• variable item fee: fee differs with drug depending on type or cost.

Generally, multi-level item fees and variable item fees provide consumers with the greatest incentives to buy low-cost drugs and use fewer drugs, but these fee systems are also the most difficult to handle in terms of collection and accounting (Ref. [23], Cha. 44). Regardless of the type of fees chosen, they should be frequently adjusted to reflect inflation.

In addition to improved drug availability and efficiency, the proposed advantages of cost-recovery schemes are the strengthening of local health services rather than referral services, improved use of drugs through cost incentives which keep patients from over-consuming, and greater community involvement and responsibility. Equity may be bolstered because limited public resources can be better focused on those in need.

Are these benefits actually seen in practice? Most Sub-Saharan African countries (34 out of 39 countries in a recent survey, Ref. [34], p. 8) have had some experience with cost-recovery in health care and revolving drug funds. Box 3 summarizes some useful insights from this experience.

User fee programmes can be successfully run as community initiatives. However community financing may also form part of a national health policy, and this presents certain advantages in terms of cohesion, consistency, and greater cross-subsidization in reform efforts. When fee mechanisms are instituted at a national level, a top-down approach, starting with major national and local hospitals may be preferable. Reasons for this include equity, reinforcement of the referral system, revenue potential, administrative capacity, and impact evaluation.

Box 3. Observations from user fee experiences in Africa

Revenue generation

• In 34 countries with user charges (out of 39 surveyed), the revenue generated by these fees was generally a very small share of public recurrent health expenditures (almost always less than 10%). However, for some of the systems which have remained in place over several years, modest improvements in this percentage have been observed (Ref.[34], p. 9-11).

Recovery of funds

• Of the community drug funds operating in 17 Sub-Saharan African countries (Benin, Chad, Niger, Sierra Leone, and Zaire are some examples), the success rate for the recovery of funds was about 50% with positive margins ranging from 49-83% (depending on the margin type) [34].

• Experiences of the Central African Republic indicate that public health centres which were self-managed, controlled their own drug sales, and had fees for all services, had higher cost-recovery rates than centres which did not exert as much control over drug sales and offered a range of free services [34].

Utilization of facilities and quality of care

• Demand for community health services which have user fees does seem to increase if quality, as measured by the availability of drugs, also increases. This is particularly true if accessing the next best care alternative involves significant time and travel costs [48].

• However, because user fees do not always succeed in making drugs more available, and other factors are also involved in utilization, decreases in use of health facilities are also frequently observed. Utilization of community health centres, after the adoption of revolving drug funds, was noted to have increased in seven countries, and to have decreased in four [34].

Equity and affordability

• Studies of health care use following the charging of fees show that the poor are more likely than other segments of the population to treat price increases as deterrents to accessing services [48].

• Of 25 Sub-Saharan countries with cost-recovery programmes, it appears that only one (Zimbabwe) had an official policy specifying national income ceiling criteria which would allow exemptions for the poor. Fourteen other countries indicated that exemptions for the indigent are permitted but did not provide criteria. The remaining 10 countries relied primarily on local and ad hoc measures for providing exemptions.

• Exemptions based on income are difficult to formulate and implement where formal employment is limited. In some countries, the fairness of certain exemption policies remains questionable. (Ref. [34], p. 34) Therefore, equity remains a critical issue. Easy-to-use, reliable methods for determining exemptions in mechanisms charging user fees are not readily available.

To be successful, user fee mechanisms must generally be accompanied by perceived quality improvements in services. This implies that improved supply mechanisms for drugs are both prerequisites and outputs of successful programmes. Access to foreign exchange, particularly for community schemes, is problematic but is essential to maintaining an adequate drug supply. A recent review of experiences with revolving drug funds and community drugs schemes concluded that the following factors are necessary to improve drug availability, equity of access, and efficiency (Ref. [23], Cha. 44):

1. local retention and control of revenue;
2. reliable supply of low-cost, good quality drugs;
3. locally appropriate price mechanisms and price levels;
4. protection mechanisms such as exemptions and differential pricing;
5. continued public subsidy for the poor and other target groups;
6. businesslike orientation to personnel, financial, and supply management;
7. strict measures to ensure accountability;
8. planned implementation in phases.

Cost-recovery mechanisms are a fact of life in many developing countries. When they are successful, and revenues are retained at the community level, they can be useful in improving health care provision. However, recent reviews [9, 19, 26] all note that these schemes have proven very difficult to properly implement. There are very few large-scale examples of programmes which cover all recurrent costs (particularly when salaries are included). In addition, implementation of effective exemption systems and other substantial issues pertaining to equity still remain to be adequately addressed [15].

User fees can be used to complement government allocations for pharmaceuticals, but should not be used to replace them. Future efforts need to ensure that the lessons from existing research and actual experience are applied to the design, implementation, and monitoring of user fee programmes, to ensure that access to drugs does improve and that rational use does not suffer.

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