Pharmaceutical Financing Strategies. (MDS-3: Managing Access to Medicines and Health Technologies, Chapter 11)
(2012; 18 pages)

Medicines save lives and improve health, but they are costly. Nevertheless, they are necessary to make effective use of staff and other health resources. Financial sustainability requires establishing a balance among the demand for medicines, the cost of meeting this demand, and the available resources. Otherwise, shortages result and quality of care declines. A pharmaceutical financing strategy should begin with efforts to make better use of available funds. If improved efficiency in selection, procurement, distribution, and use of medicines does not create the necessary balance, options for increasing funding include making the case for greater government funding of medicines, introducing or strengthening health insurance coverage for medicines, or obtaining donor assistance. In recent years, the increase in the international community’s commitment to global health and access to pharmaceuticals has resulted in global health initiatives, private foundations, and public-private partnerships playing much larger roles in financing the health sector in developing countries. However, many countries have a hard time absorbing additional resources because of a lack of human and infrastructure capacity, and donor funding presents problems because of its unpredictability, making planning difficult for countries. Globally, 57 percent of health care is publicly financed, with the share increasing with national income. For health care, and especially for medicines, private spending usually represents a higher share of health financing in lower-income countries. Expanding private and nongovernmental organization (NGO) health services, including providing essential medicines, can shift demand away from overstretched public resources. But quality of care and equity must be ensured. Public financing through national and local government budgets is a major but sometimes inadequate source of financing for essential pharmaceuticals. The case for public financing of pharmaceuticals can be strengthened through better quantification of medicine needs, per capita pharmaceutical budgets, demonstration of medicines’ effect on health, recognition of political benefits, improved management, expenditure trend analysis, and comparative expenditure analysis. Efforts should be made to ensure that available public resources are targeted to those most in need. User charges may exist in the form of government revolving drug funds (RDFs), community medicine schemes, and retail purchase of medicines. Experience indicates that user charges pose many difficulties, but countries need to have an alternative funding strategy in place to make up the difference before discontinuing user-fee programs. Health insurance covers a small but growing portion of the population in most developing countries. Important elements of insurance include risk sharing and prepayment. Plans vary in the extent of and mechanisms for insurance coverage for medicines. National social insurance schemes, private voluntary insurance, and community prepayment schemes can increase access to essential medicines. Insurance programs can be designed to encourage cost control and rational medicine use. Voluntary and other local financing can contribute to improving the overall health care and pharmaceutical financing situation. Donor financing and development loans can help a country develop more efficient pharmaceutical supply systems and alternative financing approaches. For the poorest countries, some external financing for medicines may be needed to ensure universal access to essential medicines. And countries that are scaling up access to antiretroviral therapy for HIV/AIDS or changing first-line malaria treatment to artemisinin-based combinations must rely on external funders, such as the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) and the U.S. President’s Emergency Plan for AIDS Relief. Financing mechanisms can be compared in terms of access to medicines, rational medicine use, efficiency, equity, sustainability, and administrative requirements. Financial sustainability may require a pluralistic approach in which needs are met through a combination of financing mechanisms, and no one strategy will be applicable to all countries.
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