Ten years experience with models for financing of outpatient prescriptions

BackgroundRisk sharing mechanisms in health care balance between need and demand within the financial limits, acceptable from medical, political and ethical perspectives. Subsidising outpatients' medicines is part of the risk sharing. In order to stimulate a more cost-effective use of resources decentralisation of the financial responsibility for pharmaceuticals was introduced in Sweden in 2002. In this study we explored the development 10 years after the implementation.MethodThe Swedish counties are responsible for all financing and provision of health care. In this study nine representative counties were included, each with its own set of models for devolution of financial responsibilities. Information was collected from written sources and supplemented by interviews with high level officials and administrators in each county.ResultsTwo main models were found; in the population based model the responsibility for subsidising pharmaceuticals is decentralised to the primary care units and their responsibility follows listed patients regardless of prescriber. In the other model each prescriber is financially responsible for own prescribing. In addition, over time mixed models were developed.ConclusionsIncentives for cost containment on an organisational level seem to be highly effective although there is no individual economic return involved. The prescriber based model seems to be more robust in terms of capping costs while the population based includes a higher level of service to the patient. The choices of principles were based on norms and responses from the users, and were not actively assessed by the counties in terms of cost efficiency.     

DRGs U.K. style: a comparison of U.K. and U.S. policies for hospital cost containment and their implications for health status.

Health care cost containment in the U.K. has been characterised by the imposition of cash limits on health and personal social services. More recently performance appraisal has been introduced. The U.S. approach, on the other hand, has linked both cost containment and implicit performance appraisal by funding hospital activities on a DRG basis. Under the U.K. approach there is an internal inconsistency between the funding of hospital activities, primarily determined by the characteristics of the served population, and the appraisal of hospital performance by reference to the use of resources in relation to national norms not necessarily corresponding to the characteristics of the served population. Under the U.S. approach performance is appraised implicitly, not by the use of real resources but by the cost to the hospital of the service provision for each individual patient. Consequently the incentive is to minimise the cost of the service provision regardless of the output produced. The incentives, in both the U.K. and the U.S. approach, generate similar effects: an off-loading of responsibility for service provision at the margin onto other sectors of the health care system. They are the response to the incentive to minimise the costs incurred by the hospital in providing services to the patient. Until greater attention in paid to the monitoring of the outcomes achieved by all sectors of the health care system, and to the incentives generated to shift demands between the sectors, the respective policies will continue to be successful simply in controlling the resource cost of the hospital system.     

Centralized or decentralized? A case study of Norwegian hospital reform

In recent years, decentralization of financial and political power has been perceived as a useful means to improve outcomes of the health care sector of many European countries. Such reforms could be the result of fashionable policy trends, rather than being based on knowledge of "what works". If decentralization is the favored strategy in health care, studies of countries that go against the current trend will be of interest and importance as they provide information about the potential drawbacks of decentralization. In Norway, specialized health care has recently been recentralized. In this paper, we review some of the evidence now available on the economic effects of recentralization. Although recentralization has been associated with improvements in both cost efficiency and technical efficiency this may have been caused by the increasing role of activity-based funding methods used in the allocation of health care resources. However, recentralization was also associated with an increase in the rate of growth of real resources and the proportion of total costs being met by supplementary funding. As a result, recentralization failed to address the issues of cost containment and reductions in budget deficits.     

Cost containment, solidarity and cautious experimentation: Swedish dilemmas

This paper uses secondary data analysis and a literature review to explore a "Swedish Dilemma": Can Sweden continue to provide a high level of comprehensive health services for all regardless of ability to pay--a policy emphasizing "solidarity"--or must it decide to impose increasing constraints on health services spending and service delivery--a policy emphasizing "cost containment?" It examines recent policies and longer term trends including: changes in health personnel and facilities; integration of health and social services for older persons; introduction of competition among providers; cost sharing for patients; dismantling of dental insurance; decentralization of government responsibility; priority settings for treatment; and encouragement of the private sector. It is apparent that the Swedes have had considerable success in attaining cost containment--not primarily through "market mechanisms" but through government budget controls and service reduction. Further, it appears that equal access to care, or solidarity, may be adversely affected by some of the system changes.     

Budgeting in health care systems

During the last decade there has been a recognition that all health care systems, public and private, are characterised by perverse incentives (especially moral hazard and third party pays) which generate inefficiency in the use of scarce economic resources. Inefficiency is unethical: doctors who use resources inefficiently deprive potential patients of care from which they could benefit. To eradicate unethical and inefficient practices two economic rules have to be followed: (i) no service should be provided if its total costs exceed its total benefits; (ii) if total benefits exceed total costs, the level of provision should be at that level at which the additional input cost (marginal cost) is equal to the additional benefits (marginal benefit). This efficiency test can be applied to health care systems, their component parts and the individuals (especially doctors) who control resource allocation within them. Unfortunately, all health care systems neither generate this relevant decision making data nor are they flexible enough to use it to affect health care decisions. There are two basic varieties of budgeting system: resource based and production targeted. The former generates obsession with cash limits and too little regard of the benefits, particularly at the margins, of alternative patterns of resource allocation. The latter generates undue attention to the production of processes of care and scant regard for costs, especially at the margins. Consequently, one set of budget rules may lead to cost containment regardless of benefits and the other set of budget rules may lead to output maximization regardless of costs. To close this circle of inefficiency it is necessary to evolve market-like structures. To do this a system of client group (defined broadly across all existing activities public and private) budgets is advocated with an identification of the budget holder who has the capacity to shift resources and seek out cost effective policies. Negotiated output targets with defined budgets and incentives for decision makers to economise in their use of resources are being incorporated into experiments in the health care systems of Western Europe and the United States. Undue optimism about the success of these experiments must be avoided because these problems have existed in the West and in the Soviet bloc for decades and efficient solutions are noticeable by their absence.     

Modelling strategies for reducing pharmaceutical costs in hospital.

OBJECTIVE: To describe drug utilization and cost in a large hospital and to compare the impact of different strategies on cost associated with drug prescribing. DESIGN: Retrospective data on drug utilization and cost, linked to patient clinical data and prescriber data from November 1998 were analyzed and modelled. MAIN OUTCOME MEASURES: Impact of different strategies for cost control. SETTING: A large hospital in Sydney, Australia. RESULTS: The mean cost of drugs per episode of care was 28 Australian dollars. Of all drug costs, 79% was incurred by medical units and 14% by surgical units. Oncology accounted for 42% and inpatients for 91% of drug costs. Although section-100 (S-100) drugs incurred a high cost (640 dollars) per episode of care, there were only 41 episodes where S-100 drugs (expensive, restricted drugs) were used, and the total cost of S-100 drugs was only 3.7% of the total cost to the hospital. Antibiotics were the most commonly prescribed drug category, prescribed in 14% of all hospital episodes, and accounting for 14% of total drug costs. Anti-ulcer drugs were the next most costly group, accounting for 7% of total drug costs. A 20% reduction in use of antibiotics would save four times that (233,832 dollars pa) of a 20% reduction in use of S-100 drugs (61,392 dollars pa). DISCUSSION: Our study suggests that reducing inappropriate use of high volume drugs such as antibiotics could be more effective in optimising health facility drug budgets than attempts concentrating solely on reducing use of high cost drugs alone. Moreover our study suggests that systematic measurement of drug utilisation patterns is a key element of drug cost control strategies.     

Mixed signals: public policy and the future of health care R&D

The incentives facing health care research and development (R&D) are influenced by the ambiguous signals sent by private and public insurance decisions affecting the use of, and payments for, existing technologies. Increasingly, that uncertainty is exacerbated by confusion over technologies' impact on health care costs, how costs are to be measured, and the social difficulty of determining medical "need" for purposes of insurance coverage. R&D executives appear to believe that "major" advances are more likely to win such coverage and thus to be profitable. The products that result, therefore, may make the current policy dilemma of cost containment versus service restriction more acute rather than less so. If the aim of policy is to cut costs, innovative remedies are necessary.     

The impact of decentralised drug-budgets in Sweden - a survey of physicians' attitudes towards costs and cost-effectiveness

In Sweden decentralised drug-budgets at health-care facility levels were introduced in 1997 in an attempt to contain increasing pharmaceutical expenditures. This paper reports the findings of a postal survey which investigates whether decentralised drug-budgets according to a so-called primary-care based model in Swedish health care have led to increased cost awareness and changed attitudes towards cost-minimisation and cost-effectiveness as decision-making criteria among physicians. In particular, it was investigated whether there were differences in this respect between general practitioners (GPs) and specialists. The postal survey was sent to 1,520 Swedish physicians from a stratified sample of Swedish county councils. A total of 738 physicians responded (response rate 49%). Statistical analysis was performed of logistic regression analysis and independent or paired samples t-tests. The results suggest that GPs have a higher degree of cost awareness than specialists. Physicians with experience of decentralised drug-budgets have a higher degree of cost awareness than other physicians. However, the rating of the top four decision-making criteria; therapeutic effects, side effects, compliance and cost-effectiveness, were not significantly different when comparing GPs against specialists, and physicians practising in county councils with decentralised drug-budgets against other physicians. The main barriers to considering costs to a greater extent were perceived difficulties in switching drugs and a fear among physicians of losing credibility among patients. In conclusion, decentralisation of drug-budgets according to the Swedish primary-care based model increases cost awareness, especially among GPs. Such responsibility, however, does not create strong incentives for physicians to reconsider the importance of cost-effectiveness in relation to other decision-making criteria when prescribing. Parallel interventions are needed to meet the objective of cost-effective prescribing.     

The effect of health payment reforms on cost containment in Taiwan hospitals: the agency theory perspective

This study aims to determine whether the Taiwanese government's implementation of new health care payment reforms (the National Health Insurance with fee-for-service (NHI-FFS) and global budget (NHI-GB)) has resulted in better cost containment. Also, the question arises under the agency theory whether the monitoring system is effective in reducing the risk of information asymmetry. This study uses panel data analysis with fixed effects model to investigate changes in cost containment at Taipei municipal hospitals before and after adopting reforms from 1989 to 2004. The results show that the monitoring system does not reduce information asymmetry to improve cost containment under the NHI-FFS. In addition, after adopting the NHI-GB system, health care costs are controlled based on an improved monitoring system in the policymaker's point of view. This may suggest that the NHI's fee-for-services system actually causes health care resource waste. The GB may solve the problems of controlling health care costs only on the macro side.     

Hospital design to support greater operating efficiency

With the new imperative on cost containment and particular emphasis on prospective payment, hospital design must support greater productivity. It is incumbent on architects and engineers to reduce construction costs; but more importantly, to design facilities that improve personnel productivity. Several approaches to designing for efficiency are discussed including improving the development process; systems building, ease of maintenance, and conserving energy; developing the model hospital; minimizing travel throughout the hospital; centralization vs. decentralization; automating support systems; designing for growth and change; analyzing workflow; utilizing swing space; and emphasizing consumer centered care.     

Costs and revenue of health care in a rural Zimbabwean district

The District Health Executive of Tsholotsho district in south-west Zimbabwe conducted a health care cost study for financial year 1997-98. The study's main purpose was to generate data on the cost of health care of a relatively high standard, in a context of decentralization of health services and increasing importance of local cost-recovery arrangements. The methodology was based on a combination of step-down cost accounting and detailed observation of resource use at the point of service. The study is original in that it presents cost data for almost all of the health care services provided at district level. The total annualized cost of the district public health services in Tsholotsho amounted to US$10 per capita, which is similar to the World Bank's Better Health in Africa study (1994) but higher than in comparable studies in other countries of the region. This can be explained by the higher standards of care and of living in Zimbabwe at the time of the study. About 60% of the costs were for the district hospital, while the different first-line health care facilities (health centres and rural hospitals together) absorbed 40%. Some 54% of total costs for the district were for salaries, 20% for drugs, 11% for equipment and buildings (including depreciation) and 15% for other costs. The study also looked into the revenue available at district level: the main source of revenue (85%) was from the Ministry of Health. The potential for cost recovery was hardly exploited and revenue from user fees was negligible. The study results further question the efficiency and relevance of maintaining rural hospitals at the current level of capacity, confirm the soundness of a two-tiered district health system based on a rational referral system, and make a clear case for the management of the different elements of the budget at the decentralized district level. The study shows that it is possible to deliver district health care of a reasonable quality at a cost that is by no means exorbitant, albeit unfortunately not yet within reach of many sub-Saharan African countries today.     

Socioeconomic costs of rheumatic diseases. Implications for technology assessment

OBJECTIVES: To study the socioeconomic impact of rheumatic illness in Sweden and to discuss the consequences for technology assessment studies. METHODS: A cost-of-illness study based on data from official statistics and treatment studies. RESULTS: The total socioeconomic cost was 52 billion Swedish kronor (SEK) in 1994. The imbalance between direct (10% of total) and indirect costs (90 effectiveness of the healthcare sector, the need for new treatment methods, appropriate information systems, and technology assessment studies as well as the institutional arrangements for rehabilitation and basic medical research. CONCLUSIONS: A discussion of solutions for financial cooperation between county councils and regional social insurance offices should be considered. The new biotechnological pharmaceuticals will increase the cost for drugs in health care about 20 times, but the total socioeconomic cost for society may remain at the same level due to a decrease of inpatient costs and indirect costs for loss of production as well as a decrease of transfer payments from social insurance. It is unavoidable that the new pharmaceuticals require priority discussions and active resource allocation in health care and in other sectors of society.     

Costs of informal care for patients in advanced home care: a population-based study

OBJECTIVES: Several studies have sought to analyze the cost-effectiveness of advanced home care and home rehabilitation. However, the costs of informal care are rarely included in economic appraisals of home care. This study estimates the cost of informal care for patients treated in advanced home care and analyses some patient characteristics that influence informal care costs. METHODS: During one week in October 1995, data were collected on all 451 patients in advanced home care in the Swedish county of Osterg?tland. Costs were calculated by using two models: one including leisure time, and one excluding leisure time. Multiple regression analysis was used to analyze factors associated with costs of informal care. RESULTS: Severity percent of the patients in the study had informal care around the clock during the week investigated. The patients had, on average, five formal care visits per week, each of which lasted for almost half an hour. Thus, the cost of informal care constituted a considerable part of the cost of advanced home care. When the cost of leisure time was included, the cost of informal care was estimated at SEK 5,880 per week per patient, or twice as high as total formal caregiver costs. When leisure time was excluded, the cost of informal care was estimated at SEK 3,410 per week per patient, which is still 1.2 times higher than formal caregiver costs (estimated at SEK 2,810 per week per patient). Informal care costs were higher among patients who were men, who were younger, who had their own housing, and who were diagnosed with cancer. CONCLUSIONS: Studies of advanced home care that exclude the cost of informal care substantially underestimate the costs to society, regardless of whether or not the leisure time of the caregiver is included in the calculations.     

The demand for statin: the effect of copay on utilization and compliance

Increasing drug costs in the US have prompted employers and insurers alike to turn to higher drug copays for cost containment. The effect of rising copays on compliance with statins (HMG-CoA reductase inhibitors) treatment has received surprisingly little attention in the applied literature. This paper uses pharmacy claims data from a commercially insured adult population to determine the effect of copay change on compliance at the individual level. Fixed effect logit and Poisson regressions estimate the effect of copays on monthly likelihood of high compliance and average monthly days of supply respectively. Higher copays reduce compliance among statin users, with less compliant patients responding more strongly to copay change than compliant patients. These results suggest that specific financial incentives given to less compliant patients could improve compliance with statin treatment at a relatively low cost.     

Capitated payments for mental health patients: a comparison of potential approaches in a public sector population

BACKGROUND: Both private and public health care systems have embraced capitated reimbursement as a method of controlling costs. AIMS OF THE STUDY: This study explores the financial implications of using reimbursement models based on clinically based patient classification schemes to distribute funds for the treatment of mental health patients in the Department of Veterans Affairs (VA). METHODS: We identified 53700 veterans treated in VA specialty mental health outpatient clinics during the first 2 weeks of fiscal year (FY) 1991 for whom relevant clinical data were available. We calculated total utilization and costs for this sample during the remainder of FY 1991 using VA administrative databases and simulated hypothetical distributions of funds based on seven alternative capitation models. The resulting distributions of funds across service networks and facility types were compared to actual expenditures. RESULTS: Approximately 8% of overall VA budget was redistributed under a simple capitated scheme, and some individual networks and facility types experienced changes in funding of over 30%. Models based on clinical data resulted in only minor differences from average-cost reimbursement. Substantial variation in practice style was observed across Veterans Integrated Service Networks (VISNs), which was significantly associated with funding shifts under capitation. DISCUSSION: A simple capitated payment scheme would result in large changes in funding for some VISNs. Adjustments for case mix did not substantially affect patterns of redistribution. Patterns of redistribution appear to reflect large differences in practice style across VISNs. Although a capitated system will create incentives to reduce such variation, the effect of such shifts on patient well-being is unknown. IMPLICATIONS FOR HEALTH POLICIES: Any capitated system will create incentives to provide a uniform standard of care. In our analyses, the capitation rate was based on the average cost per treated patient in each category; however rates could be set higher or lower as policy makers deem necessary. The standard of care associated with the average cost is not necessarily the "correct" level of care. IMPLICATIONS FOR FURTHER RESEARCH: Our analyses explore the implications of capitated systems for mental health patients in the absence of behavioral change. Further research is needed to determine how providers actually respond to the different incentives created by capitation and what impact these changes have on patient well-being. lems.