Memorandum submitted by Ms Anna Dixon
and Ms Sarah Thomson (CP 44)
Anna Dixon is Lecturer in European Health Policy
in the Department of Social Policy at the London School of Economics
and Political Science and currently a Commonwealth Fund Harkness
Fellow in Health Care Policy based at the University of Oregon,
USA. Author of numerous articles on health care financing including
co-editor of Funding Health Care: options for Europe (Open University
Press, 2002)
Sarah Thomson is Research Officer in Health
Policy at LSE Health and Social Care and a Research Officer at
the European Observatory on Health Systems and Policies and author
of numerous articles and chapters on user charges and private
health insurance
SUMMARY
This evidence focuses on user charges that apply
to prescription drugs within the English National Health Service
(NHS). We present evidence to suggest that the prescription charge
scheme (PCS) as currently designed results in inequities in access.
User charges may be appropriate to achieve certain objectives
such as utilization of cost-effective drugs but they are a weak
instrument compared to incentives for providers on the supply
side (eg doctors, nurses and pharmacists). We present data on
types of user charging schemes found in other countries and recommend
that a system of variable coinsurance rates be considered for
drugs in the NHS. We would argue that rational use of cost-effective
health care can best be promoted through ensuring that the behaviour
of providers is controlled.
ARE CHARGES
EQUITABLE AND
APPROPRIATE?
1. User charges may be appropriate depending
on their objectives and how they are implemented. Economic theory
underlies arguments put forward both in favour of and against
user charges for health care. There are a number of stated objectives
that user charges may achieve:
— reducing unnecessary or excess
utilisation;
— reducing overall expenditure
(cost containment);
— raising additional revenue;
and
— directing utilisation to more
appropriate care/services.
2. Neo-classical economists claim that the
use of health services exceeds socially beneficial levels when
health care costs are fully covered by insurance or free at the
point of use. Because the price of using health services is effectively
zero, individuals make use of more health care then they would
if they had to pay for it at the point of use (Arrow 1963; Pauly
1968). It is often argued that user charges (such as prescription
charges) will reduce "excess" utilisation and selectively
discourage the use of health services that provide little value
to the individual.
3. A number of arguments are used to criticise
the neo-classical economic model which would suggest user charges
are inappropriate:
— the diverse nature of health
care "goods";
— the existence of information
asymmetries in the health care market;
— individuals may not be well-informed
about their own need for health care;
— individuals may be unable to
distinguish between effective and ineffective or harmful treatment;
— health care providers are usually
better informed than patients; and
— providers can influence both
the type and quantity of health services used (Evans 1984).
4. The case for user charges as a means
of reducing excess utilisation is weak, particularly when charges
are applied to health services that are used as a result of a
provider's recommendation, referral or prescription (Chalkley
and Robinson 1997).
5. The prescription charge scheme (PCS)
in the NHS may be regarded as inequitable for the following reasons:
— it exempts some patient groups
but not others; the list of medical conditions exempt from prescription
charges has not been updated since 1968 and excludes several chronic
conditions that have become prominent since then, such as cancer,
multiple sclerosis, arthritis and HIV/AIDS; patient groups such
as diabetics are exempt, but those suffering from cystic fibrosis,
chronic asthma, hypertension and a variety of dermatological conditions
are not;
— the blanket nature of some exemptions
means that some people with high incomes may be exempt while some
people with low incomes may not be exempt; for example, the PCS
exempts anyone aged 65 and over and all pregnant women (although
the latter could be seen as a means of protecting the health of
the foetus); and
— it presents a financial barrier
to access to prescribed drugs for people with low incomes, particularly
those whose earnings are just above the threshold for receipt
of government benefits.
6. The PCS (along with other NHS charges)
undermines a core principle of the NHS, which is to provide services
that are free at the point of use (Department of Health 2000).
WHAT IS
THE OPTIMAL
LEVEL OF
CHARGES?
7. There is no optimal level at which user
charges should be set. Such a decision will depend on the balance
between revenue raised (income), administrative costs (direct
expenditure) and the ability to control expenditure. We look at
these issues in turn.
Revenue raising
8. The revenue-raising potential of user
charges may be limited by the existence of protection mechanisms,
high transaction costs, fraud or providers' reluctance to enforce
charges (Brandt, Horisberger et al. 1980; Evans and Barer
1995). However, increasing the financial burden on individuals
lowers equity in access to health care. Those with low incomes
are most likely to be discouraged from using health services,
while those in poor health will suffer most from lower levels
of use. Attempts to exempt these groups of people are not always
successful (Brandt, Horisberger et al. 1980) and the claim that
any extra revenue raised can be directed towards people with low
incomes or in poor health may be difficult to substantiate in
practice.
Administrative costs
9. The costs of administering the PCS exemptions
may be high relative to the amount of revenue generated by non-exempt
prescriptions. If the objectives of the PCS are to generate revenue
while preserving equity, then the use of prescription charges
is a weak instrument.
Expenditure control
10. The PCS is unlikely to succeed in controlling
expenditure in the long term for various reasons and may encourage
inefficient patterns of health services utilisation.
11. Prescription drugs are provider-initiated
care (that is, initiated by the prescribing doctor, usually the
general practitioner, and not the patient). Consequently, a demand-side
incentive such as the PCS is unlikely to have much impact on controlling
drug expenditure. Supply-side controls such as prescribing budgets
and prescribing guidelines are more effective in ensuring the
rational use of drugs. Furthermore, total expenditure on pharmaceuticals
is generally rising due to increases in the cost per item rather
than volume. Therefore, pricing regulation is more likely to have
an impact on overall spending than volume controls.
12. Prescription charges are a weak instrument
for deterring frivolous or unnecessary consumption of high-cost
or low-effectiveness pharmaceuticals. As a result of prescription
charges a patient may choose not to fill a prescription or not
to take a full course of medication by not filling a repeat prescription,
but this behaviour might lead to worse health outcomes. Also,
because charges apply to all prescription drugs, regardless of
whether they are high or low cost, branded or generic, high or
low efficacy, they do not encourage cost-effective patterns of
drug utilisation or substitution of generic drugs by pharmacists.
13. User charges are unlikely to contain
health care costs in the long term, as spending on health care
is primarily driven by supply-side factors (Evans and Barer 1995).
WHAT CRITERIA
SHOULD DETERMINE
WHO SHOULD
PAY AND
WHO SHOULD
BE EXEMPT?
14. Prescription charges in the United Kingdom
(UK) are flat-rate payments; regardless of the cost of the drug,
the patient pays the same amount, with the remaining cost met
by the NHS. Drugs received in hospital or from a hospital pharmacy
are not subject to co-payments. The current system of exemptions
from prescription charges is extensive, accounting for about 85%
of all prescriptions dispensed.
15. Lowering the charge could reduce financial
barriers for some non-exempt categories of patients.
16. The current system of means-tested exemptions
means that those who fall just above the threshold are disadvantaged.
Raising the income threshold for exemptions would enhance equity
but result in revenue losses. It would still leave those whose
incomes fell just above the exemption cut-off at a disadvantage.
As will all means testing, there is a trade-off between targeting
benefits and the need to keep down administrative costs.
17. The current system of charges results
in inappropriate utilisation patterns. Drugs prescribed in hospital
are not subject to any charges, but in an attempt to shift costs
to primary care, hospitals are increasingly reducing the amount
of drugs prescribed on discharge. This requires individuals to
go to their general practitioner for follow up prescriptions after
discharge from hospital. The availability of prescriptions for
P category drugs leads to a perverse situation in which those
who are exempt from prescription charges will go to the general
practitioner simply to get OTC drugs on "free" prescription.
Some people may try to avoid having to pay prescription charges
by going to an A & E department instead of seeing their general
practitioner. Standardisation of charging across settings would
reduce this problem.
18. Updating the list of exempt conditions
to take into account developments in drug technology would ensure
that the system was more equitable for patients with different
conditions. Ensuring that patients with chronic conditions have
access to appropriate prescription drugs without financial barriers
could have a positive impact on efficiency by reducing inappropriate
utilisation of health services due to poor drug compliance. It
would also result in a reduction in revenue.
SHOULD CHARGES
BE ABOLISHED?
19. If the objective is to improve efficiency
by promoting more appropriate and cost-effective use of drugs
and to reduce expenditure on pharmaceuticals, there appears to
be no logic in applying a demand-side measure to a prescribed
substance. Furthermore, there is no evidence to suggest that user
charges are successful in controlling overall levels of health
care expenditure. It would be more effective to introduce supply-side
measures aimed at influencing the behaviour of prescribers (general
practitioners) and suppliers (pharmacists).
20. Abolishing the PCS would remove any
financial barriers for those not currently exempt, thereby enhancing
equity and bringing drug coverage in line with other NHS services
(that is, free at the point of use).
21. It would be useful to evaluate the phased
abolition of prescription charges in Wales.
User charges in other countries
22. There are a variety of different forms
that user charges may take in different health care systems. These
include:
— flat-rate payments: fixed fees
per item prescribed or per prescription;
— co-insurance: the patient pays
a fixed percentage of the total cost of a good or service;
— deductible: the patient pays
the full costs of goods and services consumed directly out of
pocket up to a defined ceiling after which the services are free
(costs being met by the insurer or the NHS); deductibles can apply
to specific cases or to a period of time (usually a year);
— extra billing: the patient pays
the difference between the reimbursement value and the actual
price of the good or service (see reference pricing, below).
23. In the pharmaceutical sector extra billing
is often used where a fixed or reference price is set for a group
of drugs with similar therapeutic effects. This may be set at
the average price of the drugs in the group, the price of cheapest
drug in the group or benchmarked to the price of similar drugs
in other countries or the price of the generic alternative. The
reference price is the amount that the insurer or the NHS pays.
If the patient chooses a drug that is more expensive than the
reference price, they must pay the difference themselves.
24. Other features of user charge schemes
exist in other countries:
— annual out-of-pocket maximum:
in order to limit the total amount spent by an individual in the
course of a year, a maximum ceiling may be set on the total amount
of out-of-pocket payments; for example, a chronic disease patient
who requires a lot of medication might have to pay for their drugs,
but if, after nine months, they had reached the out-of-pocket
maximum they would not need to pay for drugs consumed in the rest
of the year;
— variable co-insurance: in some
countries different levels of co-insurance (for example, 20%,
50%, 100%) apply to different groups of drugs depending on their
efficacy/cost-effectiveness; for example, a 20% co-insurance rate
might apply to generic drugs, whereas "lifestyle" drugs
with no proven efficacy might carry a 100% co-insurance rate.
25. Examples of specific charging policies
in different countries and their impacts are evaluated in more
detail in Thomson S and E Mossialos (2004), "Influencing
demand for drugs through cost sharing" in Mossialos E, M
Mrazek and T Walley Regulating pharmaceuticals in Europe: striving
for efficiency, equity and quality, Open University Press, which
is attached for your information.
RECOMMENDATIONS
26. User charges can be used to encourage
more cost-effective patterns of utilisation. This is achieved
by conveying price signals to users to opt for certain types of
health care or follow a particular system of referral or to providers
responsible for prescribing treatment (via users) (Brandt, Horisberger
et al 1980). Introducing a system of variable co-insurance based
on cost-effectiveness aims to increase micro-efficiency. It may
also contribute to controlling drug expenditure, as has happened
in Italy and New Zealand.
27. A variable co-insurance system would
negatively affect equity unless there was no charge for effective
prescription drugs. Combining co-insurance with other measures
such as an out-of-pocket maximum or exemptions for poorer people
would help to preserve equity. Depending on how it is introduced,
there might be significant costs of obtaining cost-effectiveness
information and administrative costs.
28. The following suggestions closely follow
proposals set out by Walley (Walley 1998):
— abolish the flat-rate charge
and introduce variable co-insurance rates based on the cost-effectiveness
of different drugs, with no charge for effective prescription
drugs (see Table 1 below);
— all drugs approved by the Medicines
and Healthcare products Regulatory Authority and available on
the UK market would be assigned to one of the four categories
in the variable co-insurance system set out below; the lists would
need to be updated on a regular basis; most new drugs would be
B or C initially, but a few might be A immediately;
— in the short term patients currently
exempt might be entitled to B list drugs free of charge to give
general practitioners time to adjust their prescribing behaviour
and to allow time for evaluation of the reformed scheme; a reduced
co-insurance rate for B list drugs might be considered in order
to preserve equity for low-income households, although the use
of means testing carries administrative costs and is inconsistent
with the principle of universality;
— protect low-income households
and people with chronic conditions from excessive out-of-pocket
costs by setting an annual out-of-pocket maximum; this would replace
the pre-payment certificates, which currently cap prescription
drug expenditure at £33.40 per quarter or £91.80 per
year[11].
29. Co-insurance rates and cost-effectiveness
thresholds would need to be calculated on the basis of information
about the value and volume of drugs consumed in each category,
the willingness to pay and affordability of different co-insurance
rates and the cost-effectiveness thresholds and recommendations
of NICE.
Table 1
EXAMPLES OF A VARIABLE CO-INSURANCE CHARGING
SCHEME
|
| Category | Description
| Co-insurance rate |
|
| A | — a selection of effective medicines
— sufficiently comprehensive to allow treatment of all major conditions
— free of charge to all
| 0 |
| B | — medicines either no more effective than A list medicines or offer minor benefits at a disproportionate cost
— might require a low co-payment, perhaps related to the cost of the prescription, to a pre-set maximum
— a maximum cumulative annual co-payment per patient should also be set
— general practitioners might be allowed to endorse a prescription for exceptional patients who would benefit more from the B list than the A list drug, but would have to justify this
| 20% |
| C | — medicines for which effective alternatives are already listed; for example, branded preparations where a generic equivalent is available or which are largely directed at patient convenience, such as many modified release preparations
— patients pay 50% of the cost of these medicines
| 50% |
| D | — medicines not funded by the NHS at all (negative list)
| 100% |
|
Source: Walley 1998.
These views are our personal views and do not represent the
position of either the London School of Economics or the European
Observatory on Health Systems and Policies
Ms Anna Dixon and Ms Sarah Thomson
London School of Economics
28 February 2006
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