From the nineteen seventies, the continuous rise in the cost of health care has caused increasing concern to governments. The principal factors underlying the expansion of health care spending are the aging population with the growth of chronic diseases and increasing need for care, but increasingly recognised as even more important are the technological developments in health care, many of which are cost-increasing.

The main response to rising costs has been an increasing series of ad hoc measures to contain them. Some of them have been very short-term such as holding down the levels of pay or controlling prices in the health sector. Some have been likely only to achieve the results on a «once for all» basis, such as increasing cost-sharing, reducing the scope of insurance, or limiting employment in the health sector. Others have been more fundamental such as changing the incentives facing providers by alterations in the relative value of different fees or changing the methods of remunerating physicians. The effectiveness of different measures is discussed in section 2.8.

Cost containment measures and health care reforms have been trying to change the incentives operating on providers to make them more cost conscious in what they authorise. A fundamental question is, however, the long term effectiveness of different measures. Are there more fundamental solutions?

Should the scope of publicly financed services be reduced? Should governments seek to increase efficiency by funding only those services that are effective and of lower cost? Do market oriented health care reforms lead to more cost effective patterns of service provision?

This paper gives a brief account of cost containment measures in the European Union (EU) Member States and focuses on pharmaceutical cost containment and pricing policies. It then goes on the issues underlying the need to make fundamental choices in health policy, discussing the effectiveness of market oriented reforms and finally focuses on the use of outcome information to determine what services are necessary. Emphasis is given to pharmaceuticals and on how new trends and priorities may affect the development of specific policies in this field.

To a considerable extent this paper will be drawing upon the work which four groups of researchers, coordinated by LSE Health, have completed for the European Commission (ABEL-SMITH et al., 1995a, ABEL-SMITH and MOSSIALOS, 1994, MOSSIALOS et al., 1994a, MOSSIALOS and ABEL-SMITH, 1995).