Ad H. Rietveld and Flora M. Haaijer-Ruskamp
In providing universal access to health care, a sound basis for the structural financing of national health care systems is of utmost importance. Cost containment can be seen as an ongoing series of attempts by governments to spend their limited financial resources as efficiently as possible.
Essentially, there are three ways in which one can hope to control pharmaceutical expenditure:
- Controlling prices of medicines at various levels.
- Influencing demand by implementing financial measures, such as budgeting and reimbursement.
- Influencing demand by implementing professional measures.
In this chapter, an overview is provided of the different options available. The key features, strengths and weaknesses of the various initiatives are discussed. In the subsequent chapters examples will be given of selected experiences with different approaches.
2. Price controls
2.1. Reasons for price controls
Drug prices are high for four primary reasons. Firstly, rigorous standards to protect the public from poor quality, unsafe and inefficacious drugs require manufacturers to invest in expensive research and development programmes. Those drugs that pass the standards are priced so that a company obtains a return sufficient to cover its investment in the drugs themselves, the costs of the drug research projects that failed, the costs of promotion, investment in future research and development and still yield the shareholders an attractive dividend. Secondly, there are certain factors which tend to create monopolies. One such factor is the quality standard already referred to, which imposes significant entry barriers for new market participants. Alongside patent protection it allows pharmaceutical companies to build up monopolistic positions within important segments of the pharmaceutical market. Products that improve health are relatively inelastic commodities, and strong demand enables the monopoly holder to command a high price. Thirdly, third party payers, rather than the patient, pay for drugs, making the consumer less price sensitive. Fourthly, as with all products of which the consumer has no real understanding, he or she tends to judge the quality and perhaps also the efficacy of a drug on the basis of its price: a higher price is thought to indicate better quality and, vice versa, a low price (as in the case of generics) is believed to signify a lower standard.
In the market for more typical consumer products, the “fair” price of an item is the result of an ongoing process of negotiation between the supplier and the user. The outcome of such a process depends on the strength of the parties involved relative to each other. In the pharmaceutical market, by contrast, there can be no real negotiation between the patient and the supplier of drugs. The patient is simply not in a position to enter into such negotiation, as he would (either individually or by contributing to market resistance) when buying another type of product.
Free pricing of pharmaceuticals is, as has been pointed out in Chapter 1, usually associated with high price levels. The retail price of a medicine is not determined by the real costs of its development, production and distribution, but as with any other commercial products by what the market will bear. From the perspective of safeguarding universal access to health care, it is however necessary that prices be kept at reasonable levels. Most European countries, even those that at one time maintained a system of free pricing, have therefore implemented some form of price control.
It should however be borne in mind that price control measures are just one of the instruments available to governments to contain the costs of the health care. A sound pharmaceutical cost containment policy comprises a mixture of the varying instruments and it refrains from interference whenever this is feasible.
It is not realistic to assert, as is sometimes done, that over-zealous price controls are generally likely to push prices down to levels that are too low to deliver a profit and to finance research and development. That may well have happened incidentally in the case of a particular drug in a particular market, but across the board the process is one of give and take; the parties put their cards on table, compromises result, and what a company loses on one drug it is likely to gain on another. Especially in the larger markets, companies are quite capable of standing firm to ensure that their earnings are adequate; if pressed beyond the limit in such a market a firm can always choose to withdraw a product from sale rather than trade it at a loss. There are however no signals that western countries have in fact pushed prices down to such low levels.
2.2. Methods of price control
Several alternative methods are used to contain the prices of pharmaceuticals. All these methods have in common that regulators attempt to calculate a price for pharmaceuticals which is “correct” or “fair” to the various parties concerned.
Prices can be controlled at different points in the chain:
(1) At ex manufacturer level;
(2) At ex importer level;
(3) At wholesale level;
(4) At pharmacist level.
Usually combinations of these approaches are used. Examples can be found of systems in which the ex manufacturer/ex importer prices are regulated while the maximum margins allowed to wholesalers and pharmacists are simultaneously fixed. One also encounters systems in which only the pharmacy selling prices are regulated, while manufacturers, importers, wholesalers and pharmacies negotiate with each other on their charges and margins.
The most difficult step in developing any price control system is the establishment of a “fair” price. As stated above, in a market for more typical consumer products, the “fair” price of an item is the result of a negotiating process between the supplier and the user. Consumer markets are usually transparent and it is possible to obtain information on product characteristics and to compare prices. By contrast, pharmaceutical markets are often characterized by monopolies or oligopolies, while the user generally has insufficient insight into products and prices. If it is not possible to compare prices with those of other comparable products, it becomes very difficult indeed to know what a “fair” price is. However a number of methodologies have been developed to calculate fair prices; five such methods will be described below: (1) Cost plus calculations; (2) Profit ceilings; (3) Comparative pricing; (4) Price negotiations; (5) Pharmaco-economic calculations.
Again, combinations of the different methods are as a rule used.
2.3. Price control at ex manufacturer/ex importer level
2.3.1. Cost-plus systems
The cost-plus method usually involves complicated calculations with respect to the costs of production of individual products and, allowing a certain profit margin, thereby arriving at a justifiable price level for these products. The pricing authority needs extensive and reliable information about the costs and margins of companies. Regulators can demand such data, but they may well find the information supplied by companies difficult to verify. Costs and margins are not independent of company policies: the basic costs of production, research and marketing may vary considerably between companies. Where the company with which one is dealing is a daughter firm of a multinational concern, it can be well-nigh impossible for the outsider to obtain any reliable overview of where and how costs are being incurred and profits taken. Furthermore, there is the problem of allocating overhead and research costs to individual products.
Cost-plus systems are usually rather static, creating problems for regulators and companies, as the prices of individual products cannot be promptly adjusted to changes in market conditions. There are no incentives for companies to increase efficiency and introduce cost-saving innovations. In some of the former Eastern Block countries, the cost-plus method has had detrimental consequences for the local pharmaceutical industry due to the reluctance of regulators to compensate for their R&D and marketing costs, thereby weakening their competitive position relative to that of foreign producers.
In an environment in which economies are much more open and much less predictable, and where companies have to compete with other (foreign) firms such systems have become ineffective and administratively too complicated to apply (although some countries still maintain variants on the method).
2.3.2. Profit ceilings
In this method the pricing authority sets a ceiling on the return on capital (sometimes on sales) for the company as a whole. In Europe only the United Kingdom operates a voluntary profit maximization system, the so-called Pharmaceutical Price Regulation Scheme (PPRS), in which the government negotiates with individual pharmaceutical companies on the amount of profit that can be made through selling their products to the National Health Service.
Although profit control schemes are associated with the same problems as the cost-plus method, profit control systems can be more flexible as the profitability of a company as a whole is controlled, rather than the margins on individual products. The greatest difficulty, as with the cost-plus approach, arises with multinationals and their far from transparent earnings and costs; it is significant that the British PPRS scheme operates in a country where a substantial part of the market is still in the hands of domestically based producers.
2.3.3. Comparative pricing systems
In comparative pricing systems the prices of identical or similar products marketed in certain other countries are compared to the prices of products on the domestic market. A growing number of countries (e.g., Portugal, Romania and The Netherlands) have implemented comparative pricing systems. Several methods are in use. Some countries compare price increases in drugs in order to determine permissible price increases for domestic products. Other countries require companies, when bringing new products to the market, to supply information on the prices for these products in selected foreign countries. A more comprehensive model involves comparing the prices of all (reimbursed) products on the market with the prices of similar or identical products in other reference countries.
Comparing prices of medicines between countries can be difficult due to methodological and data problems. Firstly, it may be difficult to identify entirely identical medicines due to differences in brand names, pharmaceutical forms and unit strengths. Secondly, the prices in different countries may be hard to compare due to differences in the margins allowed to wholesalers and pharmacies, differences in VAT and so on. Thirdly, there may be obstacles in obtaining accurate and up to date data on the prices of medicines abroad. Fourthly, depending on the type of comparative pricing system that is chosen, extensive computer hardware and software may be necessary to operate the system. However, experience shows that by using the right comparator one can solve these problems.
The system used for setting prices in The Netherlands is an example of an advanced comparative pricing scheme. Maximum permissible prices of pharmaceuticals are set by calculating an average wholesale price for medicines on the basis of the prices of comparable products in Belgium, Germany, UK and France. Medicines are considered comparable when they have the same active ingredient, the same unit strength and a comparable pharmaceutical form. Prices are compared at the pharmacy buying level, net of Value Added Tax (VAT). When this system was implemented in 1996, prices of pharmaceuticals on the Dutch market fell by on average of 20%.
2.3.4. Price negotiation models
In the pharmaceutical market the individual patient is, as already noted, in a too weak a position to enter into negotiation with the supplier of drugs. Furthermore, as it is the prescribing doctor who decides on the drug and since the patient usually has some form of insurance, the patient may not be very price sensitive. This lack of price sensitivity is further increased by the consumer’s incomplete knowledge concerning drugs. Institutional buyers such as hospitals, health insurers, regional and national governments, on the other hand, have more technical expertise and information than do individuals and are, due to budgetary constraints, sensitive to the prices of drugs. Furthermore, due to their size and resources, they can exercise considerable bargaining power, and are capable of negotiating prices with the supply side of the market. Negotiation on prices is made easier for buyers when (generic) substitutes are available. In those cases where a pricing authority negotiates on behalf of a large group of people or for a major market, the bargaining power can be considerable. In most European countries, virtually no market for pharmaceuticals exists outside the social health care system and often pricing authorities can refuse to admit a drug to the reimbursement system if they consider that the price is too high. Negotiation can also take place in a decentralised manner, being handled by hospitals and other health care services, provided they have the organisation and incentives (e.g., budgetary constraints) to act in a cost conscious manner.
Some bodies, mainly in the public sector, use tender systems. This is often the case when vaccines are purchased for immunization campaigns or when drugs are bought for the armed forces or to provide a strategic reserve. In developing countries, tendering is commonly used to cover the needs of hospitals and primary clinics for essential medicines.
An example of a negotiation model can be found in France, where the government controls prices through direct negotiations before the launch of a product. In the United States, Health Maintenance Organisations (HMO’s) negotiate on the prices element of negotiation can be found in most systems, since regulations usually allow some room for interpretation.
Even the bargaining power enjoyed by large public buyers naturally has its limitations. Especially in cases where the supplier has a monopoly due to patent protection and the product fulfils a health care need (e.g., the treatment of a previously incurable disease), the supplier is in a strong bargaining position to impose prices on the buyer. A good example of this is the market for HIV-AIDS drugs. Suppliers may also refuse flatly to accept low prices where there is a clear risk that a product sold at an exceptionally low price may “leak” into another market through parallel importation, thus undermining a consolidated income and profits. There is also the possibility of a spill-over of low pricing to other countries that have implemented comparative pricing systems.
2.3.5. Pharmaco-economic evaluations
Pharmaco-economic evaluations are new as a tool to control prices. In essence, regulators (or other purchasers) try to establish “fair” prices on the basis of complicated calculations, taking into account the costs of other treatments, the costs of disease for society and so on. The costs of a drug are thus set against its direct and indirect benefits, as compared with alternative drugs and treatments, and its possible disadvantages and risks. The essential question is how much the drug is worth to the community.
Currently a number of countries (Australia, Canada, Finland, Norway, UK, The Netherlands) are using pharmaco-economic evaluation, experimentally or definitively, as an additional tool in the decision-making process regarding the pricing and reimbursement of medicines; one of the most developed of such systems is that applied by the Australian Ministry of Health.
Although attractive as a theoretical model, the outcome of pharmaco-economic calculations seems to be rather dependent on the use and misuse of a drug when actually marketed. Various assumptions (e.g., about future use) have to be made when making these calculations. Although in some aspects promising, the science of pharmaco-economics must still be considered a developing field in which a lot of debate is going on . The data needed and some of the methodological issues are discussed in detail in Chapters 3, 4, 8 and 9. Australia seems to have proven that one can operate a system like this if one has a first class group of experts. However, like other countries Australia is not immune from other pressures; recently strong political pressure, clearly resulting from the pressures exercised by pharmaceutical industry on politicians, has succeeded in undermining the composition and the work even of this eminent this body of experts.
2.4. Price control at the level of the wholesaler and the pharmacy
2.4.1. Limiting distribution margins
The costs associated with the distribution of drugs consist of the mark-ups of the wholesalers and the pharmacies. Distribution margins are usually regulated, as they contribute considerably to the consumer price of drugs; these margins can represent more than 40% of the price ultimately paid.
Limiting wholesale margins
Limiting the wholesale margin can be achieved either (1) by allowing the wholesaler a maximum margin for its services, or (2) by setting a maximum for the price at which the wholesaler can sell a product to pharmacies. A combined approach can also be adopted in which a maximum is set for the total distribution mark-up; wholesalers and pharmacies then have to negotiate with one another for their share of this mark-up. An example is Romania, where a maximum is set for the total distribution markup, with subsidiary provisions setting a maximum margin for the wholesaler and a minimum margin for the pharmacy within this total mark-up.
Limiting pharmacy retailing margins
Systems of remuneration for pharmacies fall into two classes, the one being product-orientated and the other patient-oriented . Many systems are in fact hybrid schemes, in which elements of both approaches are used.
Product oriented remuneration systems for pharmacies can be divided in three categories:
(1) Fixed margin systems: a fixed percentage mark-up is added to the wholesale prices of all dispensed medicines. This principle is widely used in competitive retailing systems, both in the USA but also in more tightly regulated systems such as exist in Europe. In European markets, mark-ups are generally fixed and are re-negotiated periodically with governments. Retail mark-ups on prescription drugs vary but are usually around 30%. Most countries refrain from regulating margins on OTC drugs, since for these the rules of the free market apply much more clearly than for prescription drugs. A pitfall with fixed margin systems is that the pharmacist may negotiate discounts on the wholesale price of a drug, thus increasing his gross margin without consumers necessarily benefiting by lower prices (although in some countries - like the USA - part of such a discount is indeed reflected in a lower consumer price). Some countries have therefore introduced systems to recover these discounts (e.g., the “claw back” system in the UK and The Netherlands) to the benefit of the National Health Service or its equivalent. Other countries, such as Denmark, have simply forbidden wholesalers and pharmacies from offering or accepting discounts.
(2) Mark-ups may be maximised instead of fixed. This variation is inspired by the thought that third-party payers may negotiate lower margins and consequently lower prices with wholesalers and pharmacies. The effect of this negotiation will however depend on the respective bargaining powers of the parties; in practice therefore, maximisation of the mark-up will not per se lead to a reduction in the consumer price. One of the arguments used against systems exerting such pressure on the retailer is the risk of lower quality service, such as a reduction in stock levels for high priced but essential medicines. In order to prevent a loss of service quality, countries may impose additional requirements on pharmacy operations (such as an obligation to deliver any drug within a given time frame).
(3) Mark-ups may be digressive: here the percentage mark-up decreases as the price of the drug increases. Usually the main purpose of digressive margins is to make it less attractive for the pharmacist to dispense high priced drugs than low priced drugs. The structure of margin rates differs greatly among the countries which have adopted such systems. Usually the rate differences take into account specific domestic price structures and consumption patterns.
The patient-oriented systems for remuneration of the pharmacist can be divided into two categories, although combinations may be used:
(1) Capitation systems in which the pharmacy receives a fixed sum per patient per year. This sum may be digressive depending on the number of patients per pharmacy. In capitation systems it is usually necessary to ensure specifically that pharmacies do not place an additional mark-up on the drugs they dispense. As in other systems, combinations of approaches may be used, e.g., so that alongside a capitation fee an additional margin on dispensed products contributes to the pharmacy’s remuneration. The purpose of capitation systems is to make the remuneration of the pharmacist as far possible independent of the volume and the price of the drugs dispensed. Although in theory capitation systems for pharmacies are effective in achieving this, in practice (as with the fixed margin systems) pharmacies may receive discounts on the price of the medicines they buy. It has proved difficult to prevent this as discounts may take many shapes and forms and are therefore usually difficult to detect. Furthermore, if a pharmacy is involved in wholesaling or if a wholesaler owns a pharmacy, discounts may be transferred to the wholesaling operation. Some countries, notably Denmark, have responded to the problem by forbidding the offering and acceptance of discounts altogether. Other countries (The Netherlands and the UK) have introduced systems to “claw back” these discounts to the National Health Service or its equivalent, thereby using the bargaining power of pharmacies as a tool to attain additional price decreases.
(2) Fixed fees per prescription. In these systems the pharmacy is paid for its activities by a fixed sum per prescription dispensed. As in capitation systems, the purpose of a fixed fee per prescription is to make the remuneration of the pharmacist as far as possible independent of the volume and the price of the drugs dispensed. Again, as in capitation systems, a fixed fee per prescription system renders it necessary to prohibit pharmacies by regulation from placing an additional mark-up on the drugs which they dispense.
3. Reimbursement measures
3.1. Positive lists
3.1.1. The concept of a positive list
A list of those medicines eligible for reimbursement is usually called a positive list. The opposite of a positive list is naturally a negative list, specifying those drugs which will not be reimbursed. The National Health Service of the United Kingdom maintains a negative list on which about 129 substances are placed. An important advantage of a positive over a negative list is that separate decisions have to be made to add new drugs to the list. In addition, because of pressures exercised by user groups, transferring drugs to a negative list is usually politically more difficult than maintaining a limited positive list to which only selected drugs will be admitted.
The existence of an approved list of reimbursable medicines is regarded as an important tool in improving the quality of care as well as in containing the costs of pharmaceutical care. Experience in many countries, both in Europe and the developing world, strongly suggests that limitation of the range of reimbursed drugs can be achieved without depriving the population of valuable therapeutic opportunities. Norway, for instance, had until a few years ago only 600 drug substances on the market, and achieved the same pharmacotherapeutic results as other countries with many times more registered drugs on sale. According to EU regulations, no restriction on the number of drugs on the market is permitted, and member states have therefore usually followed an alternative course by limiting the list of those drugs for eligible for payment under a national health service or public reimbursement system. From the therapeutic point of view, the selection of drugs available on the market is in most industrialised countries so broad that considerable limitations can be imposed without creating any real threat to patients’ interests.
3.1.2. Global and national lists
Although there may be differences between countries with respect to medical culture and the prevalence of certain diseases, it is today well established that the drawing up of a uniform drug list sufficient to meet normal health needs is entirely feasible. The success of the model list of “essential drugs” agreed under the auspices of the World Health Organization is a case in point. Although its main purpose was not to support cost-containment - it has always been intended as a minimum list to meet the principal health needs of a community with very restricted resources - it has shown the way to the compilation of drug lists which reflect the needs of a population. It is striking that the WHO Model List has been so widely adopted, with only minor modifications from one country to another. Although in an industrialized country with a well-developed economy a somewhat wider range of drugs will generally be regarded as justifying payment from the public purse, the principle is the same; one is defining a common core of needs which will very largely be the same in different communities; alternative drugs or more recent drugs which offer no particular advantages but generally cost more, will have no place on the list.
3.1.3. Establishing a list
Each country has direct responsibility for developing and adopting a list of essential drugs, according to its own policy in the field of health; such variations as occur from one country to the next are likely to reflect the need to make special provision for regional or rare diseases, or differences of medical opinion as to the importance of minor differences between drugs. There are however some basic rules, regarding the list and the organisation around it, that should be applied in order to make the use of a positive list effective. In particular, the criteria for drug selection should be objective and transparent, their application consistent and the criteria should be laid down in a law or other form of regulation. They will tend to be similar to those developed by WHO in drawing up its model list of essential drug list, and laid down in the Organization’s relevant first decision to be taken by any country is which classes of treatment are to be financed collectively: is the disease for which a particular drug or class of drugs is intended of such a nature that patients should have universal access to the treatment? Tuberculosis and rheumatoid arthritis clearly fall within the category of disorders for which the community should fund therapy; the common cold may well be considered to fall outside it.
The second decision is which individual drugs or therapies for a disorder are to be paid for, out of the various alternatives available. As a rule of thumb one should be restrictive in reimbursing new, more expensive medicines that are meant for the treatment of diseases that can already be treated with existing products; new products which are not more effective and/or encumbered with fewer side effects than well-tried older drugs should not be reimbursed. Furthermore, where equally effective alternative drug treatments are available, the least costly alternatives should have preference for reimbursement purposes. Where new drugs appear to have advantages over existing drugs, a careful assessment is necessary as to whether these advantages are relevant. If the answer to this question is affirmative, the issue is whether these advantages merit the price difference with older drugs and consequently inclusion on the positive list.
A positive list should specify drugs under their generic names, and not by their brand or speciality names. Medicines intended for the treatment of minor, self-limiting diseases should in principle not be on the list; this rule will usually exclude from reimbursement products clearly intended for (and suitable for) self-medication, such as simple antacids and cough syrups. When drawing up the list, one would do well to concentrate in first instance on excluding such items, and on the elimination of those products that have already been criticised as useless or superfluous by official publications or by the medical profession itself. Well-known textbooks and bulletins on drug treatment will provide particularly useful guidelines.
Meeting the criteria for admission to the list should not lead automatically to reimbursement. The available budget and the financial consequences of a proposed reimbursement list will have to be set against one another before the list is accepted.
A systematic procedure for updating the list is necessary. This is likely to entail dealing with representations from the health professions, patient organizations, and commercial firms with new products, all of whom will be likely to present arguments for adding items to the list. As the decision on reimbursement should be based on the added value of a certain product, it is clear that the main criterion for addition will be true and useful innovation; an innovative product can only be added to the list if from the perspective of health care there is an objective need for such a product. As implied above, not every new product is sufficiently novel to attain this standard; merely presenting a new structure, a new mode of action, an improved dissolution time or a longer duration of action does not mean that the new drug is necessarily more reliable, safer or simpler to use than those already on the list. The question whether a given product is or is not covered by patents plays no direct role in its eligibility for reimbursement, though the fact that a patent brings with it a degree of monopoly is likely to be reflected in a demand for a high price, and it is this price which in turn must affect the decision for or against inclusion in the list.
3.1.5. De-listing of drugs
A problem frequently experienced, especially in western-industrialised countries that have already operated positive lists for a considerable length of time, is that the criteria for admission to the list are not applied consistently or with sufficient strictness, as a result of which expensive drugs are added which do not in fact offer real therapeutic or other benefits as compared to older items. At the same time the list becomes ever longer as new drugs are added, and since most of the additions relate to new and costly items the value of the list in containing costs tends over time to decline.
This necessarily raises the question of removing items from the list. From time to time a drug will cease to be eligible because it has in effect been supplanted by a better alternative at reasonable cost. This may be the case (as in the situation where drugs are removed from WHO’s Model List of Essential Drugs) because a new generation of drugs is so superior to older products in terms of efficacy or safety that the latter have to be regarded as obsolete. It can however also happen that the price of a drug on the positive list is increased to a point where it is no longer commensurate with its merits; in that case, the authorities will need to insist on a return to a lower price, or to replace the product on the positive list. Not surprisingly, any attempt to remove an established drug from the list of reimbursable items is likely to prove unpopular, both with its manufacturer and with those physicians and patients who are accustomed to using it. When de-listing drugs, it is advised to follow the same principles as when creating a positive list: the criteria for de-listing drugs must be objective and transparent, their application consistent and the criteria should be laid down in a law or regulation; drugs should be de-listed by generic name. When de-listing drugs, it is again best to concentrate in first instance on elimination of those products which are widely agreed to be useless or superfluous.
Medicines which have been released for over the counter (OTC) sale, i.e. items likely to be used in self-medication, should as a principle be de-listed although exceptions may be made; listing should probably be maintained for a drugs which also retain important prescribed uses in the treatment of major diseases or where there is a substantial risk that de-listing will result in a shift in prescribing to more expensive or more potent drugs simply because these remain reimbursable. Such a shift could impair the quality of pharmaceutical care.
3.1.6. Structure and procedures
In order to structure the decision making process around the positive list efficiently, a formal advisory committee can be established. It should consist of medical and pharmaceutical experts, and have ready access to internationally recognized experts in the field of clinical pharmacology who can be consulted when necessary. This committee will on request provide advice as to whether particular products meet the criteria for reimbursement. The committee may also be accorded the task of periodically revising the drug list and make proposals for deleting obsolete items.
Companies should apply to the Ministry of Health for medicines to be entered on the list of reimbursable drugs, submitting a motivated and documented request. The Ministry of Health will then request the committee to examine the submission and to advise the minister, who will take the ultimate decision, in the light both of this advice and of the available budget.
3.2. Reference price systems
3.2.1. Principle of reference pricing
Contrary to what the name suggests, reference pricing is not a form of price regulation: it is a means of setting limits to the reimbursement level of a drug by making use of the existence of equivalent drugs on the market . In this respect, a consensus seems to be emerging that if a price is to be accepted as eligible for full public payment or reimbursement, it must be closely comparable to those of the cheapest therapeutically equivalent drugs on the market. In the light of the current prices of similar drugs, a single “reference price” is fixed, which the authorities regard as acceptable for funding. If the price of any product is higher than the reference price, public payment or reimbursement will only be granted up to the level of the latter, and the difference between this and the actual market price will have to be paid by the patient (“co-payment principle”). The means adopted to fix a reference price are considered later in this section.
In practice one usually finds that within a given therapeutic group several closely similar drugs are available. Particularly where the market includes generic products or where there are parallel imports the choice is likely to be a wide one. Unless the prescriber or patient has a very strong preference for a highly priced item, treatment can be provided using one of the drugs sold at or below the reference price and co-payment can be avoided.
The reference price system provides a strong stimulus to the physician to adopt low-cost prescribing and to the patient to accept it. In addition a strong stimulus is given to companies to lower the prices of their products to the reference price level so as to retain market share. In that way they will avoid loss of sales as patients shift to cheaper products in order to avoid co-payments, and the lower price may actually lead to an increase in unit sales and market share. Thus price competition between companies is fostered.
In summary, reference price systems generally serve three purposes. Firstly, they are a tool to induce doctors and patients to choose cheaper medicines within a therapeutic group, thus decreasing the costs for society. Secondly, they stimulate the suppliers of the more expensive medicines within a group to lower their prices. Thirdly, they make both prescribers and patients more aware of possible alternatives to the drugs which they might in the first instance be inclined to choose, thus increasing the transparency of the pharmaceutical market. For such reasons, reference price systems are nowadays widely used, usually in combination with positive lists, and as a rule based on the ATC-classification. Various different pharmaceutical forms can often be considered as essentially similar and thus grouped together.
3.2.2. Grouping of medicines
The first question to be answered when introducing a reference price system is how to classify medicines into more or less homogenous groups of closely similar products which can be regarded as interchangeable in treatment. This is essential. The entire system will fail if opponents can validly demonstrate that the various products within a group are not in fact closely similar, one being superior to another or having different uses, and that it is improper to apply a single reference price to them all.
The simplest approach is one in which each category comprises no more than alternative brands or versions of the same generic drug substance, available in the same form and the same dosage strength. This can be useful in some areas. A benzodiazepine tranquillizer, a long-established anti-inflammatory compound or a corticosteroid is likely to be out of patent and available from many sources. Provided all the alternative products have passed the regulatory system and are thus known to be of adequate quality, the homogeneity of such a group cannot be challenged.
It is only a small step beyond this to compile a group of drugs based on closely similar but not chemically identical substances, used for the same purpose. To take the same example: a group of benzodi-azepine tranquillizers, of anti-inflammatory drugs or of corticosteroids can readily be recognized within which all the products are interchangeable (provided one takes account if some variations in potency and thus dosage) and to which a single reference price can fairly be applied. Another small step is to bring together within a group different brands or product which do in fact differ to some extent in their form of administration (e.g., tablets, capsules, rectal or transdermal forms of administration) but which are still interchangeable when one comes to treat the patient. The system in The Netherlands uses these approaches, bringing together in a group a series of products with the same therapeutic properties despite the fact that they may be based on different generic substances and pharmaceutical forms, provided there are considered to be no significant differences in wanted and unwanted effects between them.
A more ambitious and more difficult step is to group together as reference price units a series of drugs which, although they differ in their form, nature and mechanism of action, are all used for the same purpose and are all similarly safe and convenient in use. This approach could, for example, involve bringing together in a group a series of quite different types of agent for treating hypertension. Here one is likely to encounter challenges, sometimes rightly so, if the imposition of a single reference price on an excessively broad group would mean that many patients are likely to be treated with a drug which is not in fact suited to them, merely because it is cheap. Whether countries should opt for the simpler versions of a reference price system or the more advanced versions is, among others things, dependent on the country’s wealth, its ability to maintain of health and health financing. Clearly the most important single element in a reference price system is to ensure a reasonable degree of homogeneity in the reference price groups, however they are constituted.
In this respect, several countries use the ATC (Anatomic, Therapeutic, Chemical) classification of drugs, developed and maintained under the auspices of the World Health Organization for the purpose of drug utilisation studies only, as it provides a classification of drugs at various levels of detail ranging from very broad therapeutic classes through sub-groups of similar agents down to individual drug substances. Various national drug reference price systems use the ATC and data on dose-equivalence in establishing the groups to which reference prices are to apply.
3.2.3. Fixing the reference price
Once a group of interchangeable drugs has been defined, a reference price for the group has to be defined. This reimbursement level can be based on the average price of the medicines within the group: drugs with a price lower than this calculated average will be fully reimbursed. The alternative option is simply set the reference price at the level of the price charged for the cheapest medicine in the group. This second option is usually adopted in simple reference price systems where each category of drugs comprises only products based on the same generic substance.
3.2.4. Levels of payment or reimbursement
Where the reference price for a category of drugs is based on an average, rather on the cost of the cheapest, one will usually find that several products are available at this level or below it. All these will be eligible for full reimbursement. As noted above, patients who choose for a more expensive drug within a group are entitled to it, but they will only be reimbursed up to the reference price, and at the pharmacy they will have to pay the difference between the reference price and the actual price of the product chosen. Doctors should be encouraged to inform their patients about the reimbursement status of equivalent products.
3.2.5. Pitfalls and limitations
The challenges which arise to any definition of a broad category carrying a standard reference price will have to be faced. Valid objections will need to be respected, but provided drugs have been carefully selected for their equivalence and interchangeability in medical practice the category will be defensible.
A phenomenon to which one should be alert is that, while the manufacturers of expensive drugs may lower their prices to meet a reference level based on a calculated average, the manufacturers of low cost drugs may actually increase their prices up to the reference level in order to increase their income. If this happens on a large scale, overall costs to the public purse may actually increase. The only adequate answer will lie in complementary approaches, such as a system to require official approval of price increases, which will only be granted on reasonable grounds.
Finally, a reference price system will clearly not be applicable to certain highly innovative drugs which are unique in nature and cannot be said to belong to any pre-existing therapeutic group of products interchangeable with them, so this drug will form a class of its own. To ensure fair pricing of such products one will clearly have to adopt other approaches.
3.2.6. In summary
On theoretical grounds, but also in practice, reference price systems appear to be successful in stimulating low-cost prescribing, price reductions by manufacturers and importers, and price competition in the drug market generally. They are applicable over a large area of the pharmaceutical market, but are not helpful in containing the prices of highly innovative and unique products having no true equivalents. Their successful operation depends in great measure on the definition of clusters which comprise reasonably interchangeable drugs and for which reference prices can be set.
3.3.1. The principle of co-payments
The notion of co-payments has been referred to briefly above in connection with reference pricing systems. It is however of broader application. All that it means is that a system of public health financing has chosen deliberately to limit its commitment to pay for pharmaceutical care, shifting a part of the burden onto the patient himself or herself. In some or all instances, the patient will be obliged to make a co-payment before a drug is dispensed.
Co-payment systems usually serve three complementary purposes. Firstly, they oblige patients to finance part of the costs of their medication thereby decreasing the financial burden on society. Secondly, they make patients more aware of the costs of health care. Thirdly, they discourage patients from using too many or excessively expensive medicines. Co-payments are generally used in combination with a positive list and can be built into reference price systems, but they can also be imposed as an alternative to the latter. There is a conceptual difference between co-payment systems as such and co-payment within reference price systems; as noted under 3.2.1 above, co-payments within reference pricing schemes can generally be avoided by choosing lower-priced drugs; in a co-payment system, by contrast, the payments are universal and generally unavoidable, except in certain well-defined situations which justify exemption from charges. Reports on the effectiveness of co-payment systems in lowering pharmaceutical expenditure have up to the present been contradictory: this may be due at least in part to differences between the various systems in use, and between the national systems of health care within which they operate.
3.3.2. Alternative structures
Co-payment systems can variously be based on: (1) the imposition of a fixed “prescription charge” for each prescription dispensed (2) introduction of a variable prescription charge representing a percentage of the total cost of a prescription; (3) combinations of fixed sums and percentage charges; and (4) the setting of an annual minimum level for drug expenditure per patient, below which no reimbursement will be granted (“annual deductible” system).
3.3.3. Safety nets and exemptions
It is important to build into any co-payment system certain provisions to ensure that it does not deprive individuals of essential treatment or expose the community to epidemic risks (e.g., by inducing patients suffering from infectious diseases to forego treatment). Access to essential but expensive drugs can be preserved by a system of charges which protects the patient against burdensome levels of co-payment for these items; the level of co-payment may for example be set to reflect the therapeutic value of a drug (e.g., with a low co-payment for a drug of great therapeutic value). Vulnerable groups, such as children or pregnant women, will generally be granted exemption from co-payment, as will patients suffering from epidemic diseases (such as tuberculosis) or conditions demanding life-long treatment (such as diabetes). There is often much pressure from society to create widespread exemptions from any co-payment system for additional population groups, involving for example the elderly, pensioners, the disabled or government employees. Exemptions must however be kept in hand if the system is not to become excessively complex or expensive in operation, vulnerable to massive litigation and ultimately ineffective.
As a general rule, co-payment systems should be transparent for the patient and should be kept as simple as possible. In particular the pharmacist, who in most instances is the agent charged with collecting co-payments, will cooperate most readily with co-payment schemes that are simple, efficient and easy to implement.
The need to avoid adverse consequences of co-payment schemes, and to limit exemptions and complications, has been outlined above. In addition one must beware of introducing well-intentioned special provisions which can be misused or manipulated. If for example the level of co-payment for an valuable but expensive drug is deliberately set at a low level so as preserve its accessibility, whereas a low-priced item in the same therapeutic category carries a high co-payment, one may thereby create a “perverse” incentive; the prescriber and patient who would ordinarily have chosen the low-priced drug may move to the expensive item in order to evade the high co-payment, resulting in a greater cost to the public purse. Similarly, when implementing a system of flat rate co-payments (for example a fixed sum per prescription) one should also implement measures to limit the dispensed volume per prescription. Experience teaches that patients may otherwise try to minimise co-payment by asking the doctor to prescribe drugs in greater quantities for longer periods, thus again in some cases raising total expenditure rather than lowering it.
Any system of “annual deductible” ceilings for individual contributions is particularly tricky to operate. While they may, as intended, stimulate patients to request cheaper (e.g., generic) medicines so long as they are below their ceiling and are thus paying all costs themselves, it can happen that, once the ceiling has been or is about to be passed, particular patients who are heavy users of drugs may create stocks for the next year by obtaining addition prescriptions which will be covered from the public purse. In addition, a “deductible” system is complex to administer since it usually applies to all health services and not merely to drugs; a patient may have reached the ceiling by using other health care services and therefore. obtain all drugs without co-payment.
Finally, it is necessary to find ways to be fair to the individual who has particular difficulty in making co-payments. In some systems, patients may have to contribute to the cost of other health care services and not merely to that of pharmaceuticals, resulting in an intolerable burden. In one way or another such cases of hardship have to be identified and relief provided, e.g., by limiting the totality of co-payments by an individual to a fixed sum.
3.4. Generic substitution and parallel imports
3.4.1. Generic substitution
Generic substitution is defined as the process through which governments seek to reduce costs by stimulating the prescription and dispensing of generally cheaper generic medicines instead of their more expensive branded equivalents. The opportunity for generic substitution arises wherever the patent protection on the original branded drug has expired, enabling other manufacturers to produce it at a competitive price, either under the generic (international non-proprietary) name or under brand names of their own. Although unpopular with research-based companies, the situation is generally regarded as fair. During the period of patent protection the inventor has had many years to recoup investments and make a profit, and after this time the community should be able to benefit from the price reductions resulting from the introduction of competition. The savings to the public budget can on the one hand be used to benefit health care generally or on the other hand to render possible the purchase of newer high-cost drugs which expand the scope of drug treatment.
The argument has often been advanced by research-based manufacturers that the “generic” equivalents of their products are likely to be deficient in quality. In the past there have been problems regarding quality with some generic suppliers (just as there have been problem with brand-name drug manufacturers) but nowadays generic products and their manufacturers, like the original specialities and their sponsors, are legally obliged to go through the process of regulatory approval.
3.4.2. Parallel importation
As noted earlier in this volume, the price of a drug supplied by a multinational manufacturer may vary considerably from one country another. As a rule the sale of the drug in a particular country is channelled only through an agent appointed by the manufacturer, and the price charged is that which the manufacturer has set for that country (subject to whatever government permission is required). In practice, however, small firms and even individual pharmacists or traders in a high price market soon identify means of obtaining the drug in bulk in a foreign country where the sales price is much lower and importing it independently in “parallel” with the official agent. Even after the costs and overheads involved have been paid and profits earned, it often will prove possible to sell this “parallel” version of the original drug at a considerably lower price than that charged by the official agent.
In theory the constitution or quality of a manufacturer’s in various countries, and manufacturers objecting to the “parallel” importation of their products have sometimes made his point; in practice, however, any differences which exist relate only to particular excipients or colouring agents or to the language of the packaging text. It is now in any case common practice for “parallel” products to be examined and approved by the regulatory authorities to establish the fact that they are indeed identical to the version imported officially.
3.4.3. Experience with substitution
Over a period of some 25 years, the trade in both generic equivalents and parallel imports has greatly expanded, and their availability has resulted in considerable cost savings both to the health services and to patients. While adverse publicity by the original speciality producers has engendered some distrust of these products, both among health professionals and the public, this has largely been overcome, particularly by provision of objective information and in view of the savings which can be achieved. These savings may be sufficient to render superfluous more complex and more unpopular cost containment measures, such as de-listing of reimbursable drugs.
3.4.4. Implementing substitution
An essential starting point is the implementation of a requirement that both generic drugs and drugs imported in parallel must go through the usual national regulatory approval process so that their equivalence can be guaranteed. If the labelling is in a language not generally understood in the importing country, or if there is a difference in the name of the product, regulatory approval may be subject to the provision of appropriate stickers and package inserts. If the regulatory authorities register these products, buyers can safely assume that there are truly no differences in quality between regular imported branded medicines, generics and parallel imported drugs. Governments and/or third party payers can consequently promote generic substitution and parallel imports, thereby reducing pharmaceutical expenditure by substituting more expensive drugs by cheaper, similar (or identical) drugs.
The best way to promote substitution is to stimulate the prescribing doctor to specify only the generic (international non-proprietary) name of a medicine on his prescription instead of a particular brand name. In practice this is sometimes difficult to achieve. Many physicians are less familiar with the generic names of drugs than with the heavily promoted brand names. The generic names of some drugs, in particular when they are combinations of different substances (as in the case of most oral contraceptives) can be complex and difficult to remember. There may also be a residual degree of distrust or doubt regarding the equivalence of generic or parallel items. One step which is permissible in most countries, is for the doctor to specify, alongside the speciality name, “... or equivalent” (the exact term to be used depends on the prescribing and dispensing regulations in force) so that the pharmacist is free to substitute a parallel or generic version of the same drug; conversely it may be possible to introduce the more drastic rule (subject to its conformity with international agreements on patents and copyright) that substitution by the pharmacist will always be allowed unless the prescriber has explicitly indicated his desire to use a particular branded speciality.
Measures regarding doctors need to be complemented by measures concerning dispensing pharmacists. Regulations need to be drawn up and promulgated permitting pharmacists to substitute branded medicines by generic or parallel imported items, either at their own initiative or where the physician has specifically indicated his approval. Where the physician has prescribed generically, the regulations on dispensing should at least entitle the pharmacist (and preferably oblige him) to issue a low-cost item in the spirit of the prescription.
Finally, some form of incentive may be developed to encourage the dispensing of low cost equivalents. An example of a financial incentive can be found in The Netherlands where the pharmacist may retain, at public expense, one-third of the price difference between the drug prescribed and the cheaper drug actually dispensed.
3.4.5. Educational measures
For reasons already touched on above, both health professionals and the public need to be educated and reassured if cost-containment initiatives based on substitution are to have maximum effect. The residual distrust in this area needs to be countered by reassurance, for example as regards the quality guarantees inherent in national regulatory approval. Minor though insignificant differences between the original speciality to which the patient is accustomed and the equivalent product which he is offered at the pharmacy may reawaken the distrust: minor differences in colour, taste or packaging need to be explained and the reassurance repeated that the product being supplied is in no sense inferior to or different from that which it replaces.
3.5. Prescription controls and limits on the duration of prescribed drug treatment
Many a medicine has a range of indications; it is prescribed for a wide variety of patients suffering from various disorders present in varying degrees of severity. The authorities or third party payers may deem it unnecessary to reimburse such a drug when it is prescribed for one indication (e.g., a minor self limiting disease, such as use of aspirin for an incidental headache), but entirely proper to do so when it is used for some other purpose (e.g., long-term use of aspirin in chronic rheumatoid arthritis). Such a differential approach is feasible; it involves introducing the principle that medicines may only be reimbursed when certain conditions are met. It may similarly prove necessary to attach specific conditions to the reimbursement of a particularly expensive item or where the drug is such that extensive misuse can be expected (e.g., stimulants).
Actually implementing such conditions can however be problematical, because of the difficulty in recognizing situations in which the conditions for reimbursement are indeed met. A prescribing doctor might for example bend the rules to some extent so as to enable a patient to avoid paying for his or her medicine. Where conditions are imposed they should be simple and they should apply only to a small number of medicines where they are unavoidable, otherwise severe problems in implementation and control will arise. The same advice applies to a system in which prescribing doctors and patients have to seek written permission from the authorities (government or health insurer) for the prescribing and use of a given drug.
Devising and implementing conditions for the reimbursement of particular drugs is nevertheless feasible, using well-recognized textbooks and bulletins on drug treatment as guidelines. Again, as in the case of creating a positive list, a formal advisory committee should be established. Composed of medical and pharmaceutical experts, it could well be the same committee as that advising on the positive list for reimbursement.
In the case of exceptionally expensive drugs which have to be used very selectively, one option is to limit their prescribing to specific locations, e.g., certain specialized hospitals or clinics. Patients with a disorder for which these drugs are likely to be needed can there be assessed by clinical specialists and, if appropriate, a prescription for the drug in question can be issued. Again it must be noted, however, that the system must be manageable; this will only be case where the number of patients likely to be eligible for such treatment is small.
One other option is to limit the quantity of any medicine that will be reimbursed. The limit can take the form of a maximum total quantity which the physician is allowed to prescribe for a patient, or the imposition of a maximum duration of therapy that can be reimbursed (e.g., medication sufficient for one week when prescribed for the first time or for three months during follow-up treatment). As many patients prove to discontinue their therapy before they have used all their medication, limitation in the quantity prescribed at any one time will often prevent waste without impairing treatment.
Where a tariff system based on capitation with dispensing fees is introduced for pharmacists, one should be alert to any subsequent increase in the number of prescriptions dispensed, as pharmacists may find it more profitable to break down a single prescription into two or more dispensing acts, each of which will earn a fee.
Governments may opt for financial ceilings on health care expenditures. The global budget is then broken down to provide budgets for the individual sectors in health care and these may be split further, resulting for example in the calculation of a further ceiling for the total costs of goods of pharmaceuticals and the costs associated with the distribution by pharmacists. In such a situation it will be necessary to introduce sanctions for those firms, individuals or practices exceeding the budget, e.g., compulsory price reductions or a the lowering of tariffs.
When rationally devised, overall budgets in health care prove to be an effective means of containing the costs of health care. There are indications that insurance-based systems (Germany, Belgium, The Netherlands, France, Sweden) encounter more difficulties in setting budget limits than do tax-based systems (UK, Denmark, Italy). This may be due to the fact that in insurance-based systems more parties are involved, rendering the process of negotiation complex and difficult to manage.
3.7. General Practitioner fund holding
Setting a budget for individual general practitioners provides a global approach to issues of spending, involving both price and volume questions but also the allocation of resources between services. The greatest experience with this approach in Europe has been gained in Germany and the United Kingdom.
The primary motivation to reduce prescribing costs by budget holders is essentially financial, and the latter may be subject to financial sanctions if they exceed their permitted budget. Fundholding practices seem to be prone to limit their prescribing expenditure, although there is also evidence suggesting that these effects may be transitory . There is however a general lack of evidence as to whether prescribing cost economies obtained through a fundholding system are really in the best interest of the community; there is for example no evidence of the consequences in terms of long term morbidity or patient satisfaction. Furthermore, general practitioners seek to ease pressure on their budgets by earlier referral of patients to second line health care, which so far as the overall health service is concerned is likely to raise costs. Last but not least, the concept of GP-fundholding appears to have suffered from the fact that budgeting has taken place at too low a level; if standard budgets are set for all practices, despite the fact that the financial needs of practices differ, some such practices (e.g., those treating a population in poor health) will find their permitted expenditure reduced in all too drastic a manner. This risk can be largely avoided by setting budgets further upstream e.g., at the level of the insurer or the regional government, so that these genuine differences in need are averaged out.
3.8. Pharmacy Benefit Management (PBM)
In the United States, where the health system is market driven, a system of managed care through Health Maintenance Organisations has been established. Various definitions of managed care exist, but common to all is the active management of utilisation of services by controlling access, costs and or quality through direct intervention before, during or after service delivery. Pharmacy Benefit Management (PBM) schemes were set up within this system to provide drug-related administrative services and to manage pharmacy costs. PBM’s often provide based on formularies, generic substitution, co-payments and utilisation control, sometimes combined with use of purchasing power to obtain reduced drug prices from manufactures. PBM’s are typical of a primarily market driven health system, where coverage of health care costs is delegated to private insurance companies and private HMO’s, countries have followed with interest American developments in managed care and PBM’s. One should be aware, however, of the basic differences in health system on the two sides of the Atlantic; the US system is inherently based on differences in access to care, while in European and other countries equal access to adequate care is the primary objective. The disadvantages of profit-driven HMO’s and PBM’s have been well defined by critical reviewers. Profit driven HMO’s care , while patients’ prescription information being aware of it . PBMs often have alliances with drug companies, a fact which casts doubt on their objectivity. A more detailed description of experiences with PBM’s in the US is provided in Chapter 12.
4. Professional interventions and strategies for influencing demand
It is feasible to influence demand by educating prescribers and users. The objective here is not primarily to contain costs, but to influence demand and optimise rational drug prescribing and use. The relevance for expenditure is that by optimising rational prescribing and drug use one will commonly prevent direct waste (overuse of drugs) and render treatment more cost-effective. An overview is provided here of the different options available to influence prescribers or patients, with some discussion of their effectiveness in actually changing the pattern of drug use.
The key principle in professional interventions is to provide prescribers with the information and education needed to make medically sound and cost effective drug choices. This involves continuous effort. The pharmaceutical sector is dynamic and it is strongly influenced by socio-economic circumstances. Traditionally, education is the realm of the medical profession itself, but in the face of rising costs the health authorities have in recent decades become more involved, particularly in providing a counterbalance to the slanted prescribing information emanating from the pharmaceutical industry. The industry invests heavily in inducing prescribers to make use of its products, and there is ample evidence that prescribers are sensitive to these promotional efforts which often lead to extravagant prescribing . The profession itself has, in general, not invested resources in seeking to counter the promotional efforts of the industry, for example by developing continuous medical education in this field. On the contrary, programmes for continuous education have in many countries depended heavily for their maintenance on financial support from the pharmaceutical industry. In order to ensure the availability of objective information health authorities have to become involved.
4.1.1. Drug formularies and drug bulletins
The first step is to provide the prescriber with practical, objective and evidence based information on drugs and prescribing, and to keep him up to date. Drug formularies (or formulary manuals) and drug bulletins are now widely available. The term formulary can be confusing since it is used in different senses. Here the term is used for a reference book providing summary drug information on individual drugs including for each the generic name, indication(s) for use, contraindication(s), dosage schedules, side effects and warnings. Such a drug formulary is intended as a handy reference guide, covering most (but not necessarily all) of the drugs on the market. In some formularies, therapeutic assessments of all drugs are included as well as cost comparisons, culminating in advice as to which drugs within a group should be regarded as products of first choice. Clear examples are the British National Formulary (BNF) and The Netherlands “Farmacotherapeutisch Kompas”, both of which provide evaluations, advice on choosing between drugs and cost comparisons. In general, formularies would benefit if they were to provide in addition information on the reimbursement status of drugs, as well as relevant patient charges or co-payment levels.
Specialised types of formularies include those limited to reimbursed drugs or to drugs in the public health system; there are also smaller formularies providing a selection of a limited number of first-choice drugs within a drug group (drug based formulary), or first choice drugs for treating selected common clinical problems (indication-based formulary). These specialized formularies are more condensed than the general type; the selective indication-based formulary is particularly helpful to the prescriber because it is limited to the most relevant information and is easy to use. Its value and acceptance naturally depend on the expertise of the people responsible for selecting the first choice drugs, and the transparency of the process of compilation. The best of these selected formularies are those which are demonstrably based on a process of evidence-based drug choice. From a public health perspective, the cost of treatment should be one of the selection criteria. The newly formed NICE mechanism in the UK has added affordability to the traditional criteria of safety and efficacy, thus establishing a better basis for prioritisation of resources (DoH, Faster access to modern medicines 1999).
4.1.2. Industry-sponsored formularies
Particularly in countries where the public health authorities have failed to step in, the pharmaceutical industry has itself sponsored formularies, such as MIMS (The Monthly Index of Medical Specialities). The disadvantage of these commercial formularies is that they tend to provide incomplete information (for example, about adverse effects), or provide only information on drugs produced by the firms which have sponsored the publication. As a rule they also contain advertising and their contents are heavily weighted towards specialities rather than generic equivalents.
4.1.3. Therapeutic guidelines
Whereas formularies provide drug centred information, therapeutic guidelines centre on each disease in turn and its most appropriate treatment. The best of such guidelines are fully evidence-based and systematically developed on the basis of wide consensus; they provide valuable assistance to prescribers in deciding on appropriate treatments for specific clinical problems. In their most complete form, guidelines also provide give information on diagnostic procedures and set out clear, diagnostic criteria for starting or adjusting treatment, as well as proposing the treatment of first choice. They are extensions of indication-based formularies in providing more extensive information about the entire treatment process. Guidelines are the most practical form of information for the doctor, because they provide support on decision-making in practice and do not focus only on drugs.
Most guidelines have been developed by the profession, as for example in The Netherlands, where the College of General Practitioners has developed individual guidelines for a series of diseases, and in Scotland with the so-called SIGN guidelines. In other countries, the health authorities have taken the lead, such as in France. In many developing countries Standard Treatment Guidelines (STG) for different levels of care have been developed, for example those in Uganda or Malawi and those recently developed for East Timor which are attuned to the special problems of the many clinics which are headed by a medical assistant or a nurse because so few physicians are available.
4.1.4. Structures and techniques
The responsibility for formularies and guidelines may lie variously with the public health authorities, health insurance institutions or scientific organizations within the medical or pharmaceutical professions. Ideally, the information provided should be evidence based, the decision making process transparent, and the choices such as to reflect optimal treatment. The extent to which this is attained may be influenced by the source of the publication. One could argue that private health insurers, such as third party payers in the US, run the risk of leaning too heavily on cost driven decisions. Formularies and guidelines developed by the medical and pharmaceutical professions’ most acceptable and credible for the prescribers, particularly if they involve opinion leaders prominent in their field. The responsibility of public health authorities is to ensure the development and distribution of objective formularies and guidelines, preferably by the medical and pharmaceutical profession. When that is not feasible, the public health authorities should initiate the development of and establish a (national) formulary and guideline committee, consisting of prominent physicians and pharmacists on order to ensure quality as well as credibility and acceptability to the field.
Since most principles of evidence-based medical care and drug treatment are universally applicable, one might in theory expect that formularies and guidelines would be developed for international or regional use. Some such international publications do indeed exist, but most formularies and guidelines are in fact produced nationally or even locally. This reflects the fact that national or local circumstances (such as the economic environment, the standard of professional training and the range of drugs available). Considerations of cost will have to weigh relatively more heavily in poorer countries then in richer countries. Moreover, there is always an element of assessment and interpretation of the different elements of evidence when set against national/local circumstances. In addition to the fact that national and local formularies and guidelines can be tailor-made to fit the circumstances of the community, it seems clear that the fact that where they reflect consensus attained in the community or profession this is an important element in their acceptance.
Information technology facilitates the use and the impact of formularies and guidelines. In industrialized countries. the use of computers in the consultation room is spreading fast; practical decision support systems are becoming available. Whatever techniques are used, it is important that the material is readily accessible to prescribers and other users; that is most likely to be the case if printed publications are distributed free of charge to all who need them.
4.1.5. Updating and the significance of bulletins
There is a constant risk that formularies and guidelines will become outdated as new information and drugs become available and concepts of treatment change. Formulary and guideline development is therefore a continuous process, and not a ‘once-only’ once annually. Again the primary role of the health authorities is to see that this is the case. More detailed information about the development process can be found in ‘Managing Drug Supply’ .
Drug and prescribing bulletins, though generally independent of formularies and guidelines, play in effect an important role in updating them as new drugs and new facts appear. Often published monthly or even fortnightly, bulletins may emanate from drug regulatory authorities, professional organizations, consumer organizations or independent foundations. In some cases, bulletins produced independently enjoy a financial subsidy from the authorities in order to enable them to be distributed without cost to the professions, as well as to libraries and students. As with formularies and bulletins, there is an absolute need for an objective and transparent approach if a drug bulletin is to attain and retain credibility. A large number of drug bulletins now collaborate in the International Society of Drug Bulletins, resulting in a wide international exchange of data, draft texts and experience (see http://www.isdbweb.org).
4.1.6. The choice and effectiveness of interventions
The provision of information is an important and necessary step for increasing knowledge and competence. However, it is generally not enough to change existing prescribing patterns. To that end, the concept of formularies has to gain acceptance with the health professionals; a good distribution system for the drugs listed in the formulary has to be in place to ensure their ready availability and intensive strategies have to be adopted to ensure the formulary’s day-to-day prescribing. A wide range of approaches to implement change in medical practice have been used, separately or in combination. In the present chapter a general outline is given, while in Chapter 13 the issue is dealt with in-depth. The principle methods of professional approaches used to implement change are listed in Table 1.
The professional approaches used to implement changes include
- Distribution of written educational material.
- Conferences or educational meetings.
- Interventions that involve locally deriving consensus recommendations.
- Educational outreach visits and academic detailing that take place at the prescribers’
- Exploiting the influence of local opinion leaders.
- Patient-mediated interventions in which information given to or received from patients is intended to influence professional practice.
- Audit and feedback, where physicians receive summary information on their performance over time.
- Patient mediated interventions in which information, given to or received from patients, is mobilized to influence doctors’ practice.
- Reminder systems where doctors receive specific reminders a t the time of prescribing decisions (decision support systems), either computer generated or by hand-written reminders.
- Marketing, in which physicians are targeted by public interventions similar to those, used to market commercially specific desired prescribing choices.
Adapted from EPOC .
The choice of interventions intended to influence the prescriber needs to be carefully considered and should be based on the available evidence of success for particular strategies, otherwise projects may waste scarce resources on ineffective approaches. Evidence about the effectiveness of different approaches on different medical activities is accumulating [4,5,10]. As is the case with other areas in medicine, modest improvements are found in general in prescribing behaviour . Table 2 provides an overview of the effectiveness of the different approaches to change prescribing behaviour. Most of the studies reviewed (81%) were conducted in the US, often relating to interventions in hospital care; generally modest improvements in performance were found following after interventions. Effectiveness seemed to be greater in the case of interventions carried out in other countries (mainly Europe and Australia) where there was a greater focus on primary care, but it is still not entirely clear how effectiveness differs from one health care level to another. It is clear that the health care tradition and cultural context modify the success of implementation strategies. For example, a local consensus strategy on asthma treatment, involving small groups of general practitioners and combined with audit and feedback techniques, was successful in The Netherlands and Norway, but proved inapplicable in Germany because of differing views on asthma and different expectations regarding education . Few studies have looked at the effect of computerised decision support on prescribing, though there is reason to believe that improvement is attained as regards decisions on drug dosage . In some countries nevertheless, decision support systems in using guidelines or formularies have been implemented nationwide (UK, NL).
Effectiveness of professional interventions to optimise prescribing
No. of interventions
Distribution educational materials
Audit and feedback
Passive dissemination of information, e.g., by simply publishing formularies and guidelines is generally ineffective unless it is supported by other measures. The frequent use of multifaceted approaches is creates the problem that since various complementary approaches are necessarily used at the same time it can be difficult or impossible which has made a contribution to change.
4.1.7. The situation in developing countries
In their review of approaches to improving rational drug use in primary care in developing countries, Laing  found that most of the interventions identified had some form of education as at least one of their components. Workshops and training as well as community case management strategies were the most frequent types of approach. Community case management is a multifaceted technique primarily encountered in developing countries; typically it involves the training of community health workers in the appropriate diagnosis and treatment of a key health problem, often involving care of children.. This approach is often combined with community sensitisation and education, active community based case finding and parallel training of facility based health workers.
Community case management for acute respiratory infection (ARI) and diarrhoea were clearly successful in reducing mortality; their overall effects on the appropriateness of drugs choices, especially in the case of ARI, have however not been well studied. Other approaches that may yield moderate to large improvements were audit and feedback (or group processes), and audit combined with supervision. As in the industrialised world, the simple dissemination of printed educational material (clinical guidelines, prescribing information) had no impact. Experience in Zimbabwe underlines the relevance of active and continuing programme implementation; when the activities were discontinued, irrational drug use increased again.
4.2. Interventions targeting consumers and patients
Where overuse of drugs is demonstrable, the patient or consumer is sometimes in part responsible, insisting that the doctor write a prescription for him. Misconceptions about drugs in general, or about specific drugs in particular, commonly play a role in this matter; the misconceptions may be of long standing, or they may have been fostered by pharmaceutical marketing of a type which can only be said to comprise misinformation. Conversely, a patient may be so afraid of a drug or so ignorant of its proper use that he takes it improperly or not at all; inadequate “compliance” with agreed therapy is a widespread problem, one consequence again being waste of resources, either because the drug remains unused or because illness is unnecessarily prolonged. While “intelligent non-compliance” by the patient provides him with some opportunity to correct irrational prescribing when he recognizes it, the ideal to aim at is clearly one in which the patient and his doctor agree on what therapy is to be chosen, prescribed, and taken.
Public education regarding drugs involves an approach to the entire community (i.e. including healthy people not using medicines) and aims to promote awareness of irrational drug use, and possibilities for change. Communication channels may include printed materials (posters, leaflets, textbooks), mass media, interpersonal encounters with health workers, schoolteachers, or folk media community theatre, singing groups, puppet shows etc. In some countries, such as France, general teaching about drugs has long been part of health education in schools. There are many indications that public education can be successful, but there is a general lack of good evaluation of the impact of the various activities and approaches on the rationality of drug use, nor are data available which could render possible a proper cost-benefit analysis . A systematic review of the effectiveness of mass media campaigns on health service utilisation does seem to show how use of these media can have a positive impact .
Quite apart from the possibility that public education may result in economies, one should also realise that it is wise to enlist the understanding of the public when contemplating cost containment measures. Some such measures have encountered opposition from the public which has proved to be generated in part by lobbying from interested parties. It is particularly necessary to create understanding among the public of the value and significance of a positive list; the misunderstanding should not be allowed to arise that such a list limits treatment unduly or results in the use of medicines of lesser quality. A new communication channel is the Internet, where a massive and confusing volume of information on medicines - objective and commercial, scientific and nonsensical - is to be found; it is very necessary that reliable official guidance, recognisable as such, also be represented in this medium. To date, the positive or negative impact of public education on rational drug use is still completely unclear with only anecdotal information available, advanced both by proponents and opponents.
Product information for patients, in printed form and dealing with individual drugs, is likely to be influential and widely popular. While the task of the physician and pharmacist in informing the patient about a drug and its proper use is beyond doubt, this form of information needs to be supplemented by others. Drug compendia, providing the officially approved information on all marketed drugs, have existed for many years as a source of reference for doctors, but in more recent years they have proved helpful to patients as well. In Denmark and various other countries the current Drug Compendium is always available in the pharmacy where patients can consult it when coming to collect their medicine; in some other countries, the Compendia also appear in shorter patient-orientated editions for home use.
Patient Information Leaflets (PIL’s) - officially the drug and proving instructions on how to use it - have proved a very necessary, efficient and highly appreciated mans of informing the user. After a long period during which some countries made no provision for such package inserts (and others had package inserts which were written primarily for the health professional) provision of PIL’s has become standard practice in the member states of the European Union and many other parts of the world. Such inserts need to be well written with effective graphic designs, large print size and clear layout to enhance legibility. Pictograms may overcome linguistic or literacy barriersd.
Many countries cannot as yet afford to provide Patient Information Leaflets for all medicines and to all individual patients, yet simple instructions for the most commonly used drugs, printed on inexpensive paper and handed out by the pharmacist at the time of dispensing are within reach of most countries.
Other interventions to assist patients to follow their prescriptions - primarily developed in industrialised countries and for chronic diseases - include well thought-out programmes designed to increase user-friendliness, to promote patient empowerment through self-management and self-monitoring (for example in asthma, or hypertension), and to provide reminders regarding compliance, reinforcement of information or rewards for improved adherence. There is little evidence that such complex approaches consistently improve medication adherence; the results suggest that there is still a need to develop innovative approaches that can be applied with the resources usually available in clinical settings .
Prevention of misinformation is a complementary and very necessary approach to guiding the public. The provision of reliable education and information, considered above, naturally enables the public to protect itself to some extent from misleading influences, but in some matters there remains a considerable risk that misunderstandings will be fostered. For many decades it has been the case that advertising for prescription-only drugs has, at least in most western industrialized countries, been directed only to physicians and pharmacists, who are assumed to be capable of adopting a critical attitude to it when necessary. Within the last decade, however, a move has arisen to permit direct advertising to the public of products of this type; the practice emerged first in the United States and then in New Zealand. Recent proposals of the European Commission open up possibilities of pharmaceutical companies offering information to patients with AIDS, diabetes or asthma directly. This proposal is viewed by many as a first step to allowing direct marketing to patients, although the EU Commission has denied this . From the side of large pharmaceutical companies it has been argued that this comprises a new and useful form of public information, but from the content of such advertising it is clear that it is designed to induce the user to pressure his or her physician to prescribe new drugs. This practice has two seriously adverse consequences for the public purse; on the one hand the turnover of new and expensive medicines is unnecessarily increased, on the other hand the heavy promotional expenditure is inevitably, though indirectly, financed by the community in terms of high drug prices. In 1996, $600 million was paid for televised commercials for prescription drugs in the United States, and the commercial results have induced advertisers to increase their promotional budgets further . In 2000 the amount for DTC was estimated at US$ 2.5 billion .
The authorities need to be similarly alert to the indirect public dissemination of commercial information on prescription drugs. Use of the Internet opens this possibility; in the recent past, the Bristol Myers Squibb concern was found to have breached the UK code of practice for advertising by maintaining a promotional website for health care professionals which could be accessed by the public .
Finally, in this connection it should be pointed out that some commercial companies have exerted an important effect on public opinion by the manipulation of patient groups. It has for example been shown that belief among the US public that the condition known as “Attention Deficient Hyperactivity Disorder” in children is a biological defect requiring drug treatment, reflects in part the heavy financial support provided to the organization of parents of these children by a drug manufacturer.
5. Conclusion and recommendations
Experience so far with different professional interventions targeting prescribers has provided us with effective tools for improving the rationality of prescribing and preventing the waste of public funds resulting from overuse and inappropriate use of drugs. This is the case in both industrialized and developing countries. The next challenge is to make wide use of such tools, and in that respect many countries still lag behind. The same has to be said as regards the health education of the public in these matters; we have learned how to achieve success, but we do not always apply the lessons. Up to the present both prescriber-oriented professional interventions and public education remain under-utilized approaches in the quest for effective and efficient drug use. Patient information has been rather more widely developed, in particular through the use of patient package inserts. If that advance is not to be undermined, it will be important to avoid the error of introducing “direct to consumer advertising” for prescription drugs, which is all too likely to promote overuse and misuse.
 B. Abel-Smith and E. Mossialos, Cost containment in the pharmaceutical sector in the EU member states, London School of Economics, London, 1996.
 Anon, Scrip no 2508, UK, January 26, 2000.
 Australia Dept. of Health and Ageing, Guidelines for the pharmaceutical industry on preparation of submissions to the Pharmaceutical Benefits Advisory Committee: including major submissions involving economic analyses, http://www.health.gov.au/pbs/pubs/pharmpac/gusubpac.htm, accessed March 11, 2002.
 L.A. Bero, R. Grill, J.M. Grimshaw et al., Closing the gap between research and practice: an overview of systematic reviews of interventions to promote the implementation of research findings, BMJ 317 (1998), 465-468.
 Cochrane Effective Practice and Organisation of Care group, http://www.abdn.ac.uk/hsru/epoc, accessed February 20, 2002.
 D.A. Davis, M.A. Thomson, A.D. Oxman et al., Changing physician performance: a systematic review of the effect of continuing medical education strategies, JAMA 274 (1995), 700-705.
 Department of Health, Faster Access to Modern Treatment: How NICE appraisal will work. Pub. DoH, London, 1999.  EU, L.S.E. Panos Kanavos, Health and social care: Overview of pharmaceutical pricing and reimbursement regulation in Europe, http://dg3.eudra.org/F3/G10/docs, accessed February 19, 2002.
 D.A. Fresle and C. Wolfheim, Public education in rational drug use: a global survey, WHO/DAP/97.5, WHO, Geneva, 1997.
 P.S. Gill, M. Mäkelä, K.M. Vermeulen, N. Freemantle, G. Ryan, C. Bond, T. Thorsen and F.M. Haaijer-Ruskamp, Changing doctor prescribing, Pharmacy World & Science 21 (1999), 158-167.
 T. Gosden, D.J. Torgerson and A. Maynard, What is to be done about fundholding, BMJ 315 (1997), 170-171.
 R. Grilli, N. Freemantle, S. Minozzi, G. Domenighetti and D. Finer, Impact of mass media on health services utilisation (Cochrane review), in: The Cochrane Library, Issue 1, Update Software, Oxford, 1999.
 R.B. Haynes, K.A. McKibbon and R. Kanani, Systematic review of randomised trials of interventions to assist patients to follow prescriptions for medications, The Lancet 368 (1996), 383-386.
 D.U. Himmelstein, S. Woodhandler, I. Hellander and S.M. Wolfe, Quality of care in investor-owned vs not-for-profit HMOs, JAMA (1999), 159-163.
 C. Huttin, A critical review of the remuneration system of pharmacists, Health Policy 36 (1996), 53-68.
 S. Jacobzone, Pharmaceutical policies in OECD: reconciling social and industrial goals, OECD Labour market and social policy, occasional papers, 2000.
 M.E. Johnston, K.B. Langton, R.B. Haynes and A. Matthieu, Effects of computer-based clinical decision support systems on clinician performance and patient outcome. A critical appraisal of research, Annals of Internal Medicine 120 (1994), 135-142.
 D.H. Kreling, H.L. Lipton, T.C. Collins and K.C. Hertz, Assessment of the Impact of Pharmacy Benefit Managers, Final Report to the Health Care Financing Administration, National Technical Information Service, Springfield, VA, Pub. No. PB97-103683, 1996.
 R.O. Laing, H.V. Hogerzeil and D. Ross Degnan, Ten recommendations to improve the use of medicines in developing countries, Health Policy and Planning 16(1) (2001), 13-20.
 B. Lo and A. Alpers, Uses and abuses of prescription drug information in pharmacy benefits management programs, JAMA 283 (2000), 801-806.
 National Institute for Health Care Management, Prescription Drugs and Mass Media Advertising 2000, http://www.nihcm.org/DTCbrief2001.pdf, accessed February 18, 2002.
 R. O’Harrow Jr., Plans’ access to pharmacy data raises privacy issue, Washington Post (27 Sept. 1998) A1.
 Public Citizen Health Research Group, Worst Pills, Best Pills; http://www.citizen.org/hrg, USA, January 2000.
 J.D. Quick, J.R. Rankin, R.O. Laing et al., eds, Managing Drug Supply: The Selection, Procurement, Distribution and Use of Pharmaceuticals, 2nd edn, Kumarian Press, USA, 1997.
 D. Rennie and H.S. Luft, Pharmacoeconomic analyses, JAMA 283 (2000), 2158-2160.
 C.C.M. Veninga, P. Lagerlov, R. Wahlstrom et al., Evaluating an educational intervention to improve the treatment of asthma in four European countries, Am. J. Respir. Crit. Care Med. 160 (1999), 1254-1262.
 R. Watson, EC moves towards ‘direct to consumer’ advertising, BMJ 323 (2001), 184.  A. Wazana, Physicians and the pharmaceutical industry, JAMA 283 (2000), 373-380.
 WHO, Technical Report Series 895, The Use of Essential Drugs, Geneva, 2000.
 WHO, Tenth report of WHO Expert Committee, Geneva, 2002 (in press as Technical report series).