Select Committee on Health Written Evidence

Memorandum submitted by Professor Donald Light (CP 3)

  This testimony is based on the accompanying systematic review of all qualified studies in English published between 1977 and 2002 on the effects of user fees for prescription drugs in vulnerable populations. The review looks at a variety of mechanisms for cost sharing including flat co-payments, multi-tiered co-payments, and deductibles paid by patients, as well as reimbursement limits above which patients pay the entire amount. These 25 qualifying studies document that co-payments and other charges cause clinical harm in an effort to hold down expenditures. They are penny-wise and pound-foolish.

  By their nature, co-payments and charges can only save money by forcing patients to make decisions about whether or not to see a doctor, fill a prescription and then take the drugs as prescribed, or see a dentist about a problem. Changing the nature of these decisions could potentially save money but only by seriously discriminating against the most severely ill patients; the sickest 2% and 10% of patients consume 41% and 72%, respectively of all health care expenditures. Every study we know of done in Europe or North America documents again and again over the past 15 years that co-payments and other charges contradict the goals of a good health care system, harm patients, save little money, and generate little revenue.

  Co-payments and other charges discriminate sharply by income, constituting a burdensome expense for lower- and working-class patients. The greater the share of a household budget that a disincentive represents, the more effectively will user fees reduce consumption of medicines needed by patients. Even small co-payments have resulted in significant reductions in use lower-income patients.

  Since poorer people are more likely to be sick, and sicker people use many more drugs, user fees are an effective, well-targeted way to reduce the amount that the state spends on drugs. Studies show this reduction leads to significant increases in hospitalisation and emergency-room visits, but those costs occur on someone else's budget and thus represent false savings. The segmented budgets within the NHS assure that cost-shifting and care-shifting to other budgets will seem to save money, at least in the short run, but even greater costs occur down the road.

  Co-payments and other charges increase the very inequalities that current policy aims to reduce. They remove coverage and undermine the goal of universal health care. They are an example of the Inverse Coverage Law, that in cash and private insurance, coverage varies inversely with need. Ironically, co-payments and other charges frustrate the goal of prevention which is getting patients to see their primary care provider when they think they have a problem, and using drugs that their doctors judge they need. Why are co-payments being used at all?

  If co-payments and charges reflect the goals of the NHS, the system should move away from the principle of free at the point of service and towards having patients pay for their medicines. The Nobel laureate in economics, James Buchanan, pointed out in a notable report what he regarded as the "inconsistencies of the NHS"; that the cheaper something is, the more of it will be consumed, and free goods will induce infinite demand. This is basic economics, he wrote, and obvious to any thinking person. Buchanan likened the NHS principle of "free at the point of delivery" to offering free beer. The NHS is doomed to go bankrupt, he argued, if it offers free services, like free beer.

  However, Buchanan overlooked several important points. First, as Robert Evans[91] has pointed out, health care is not like beer or other goods people buy, because health care is desirable only for its (intended) positive effect on health status; consuming health care is not inherently pleasant and there is no rational incentive for anyone to use it, unless they think it is needed because of a concern about their health. Second, as has been documented by the Canadian Health Services Research Foundation, [92]patients do not control most health care expenditures, because doctors are the gatekeepers and make all of the expensive decisions (eg admitting to hospital and ordering tests). Finally, it is clear globally that public one-payer systems such as the NHS or Canadian Medicare have consistently controlled costs much better than does the U.S. with its high charges and partial health care coverage. In the former, those running the system can restrain both supply and demand more effectively and more equitably. This point is still true today. Co-payments and other charges advance the current privatization of the NHS, moving it closer to the kind of system the United States has, where the provision of medical care is increasingly dependent on patients paying cash. To be consistent, doctors and dentists should also be charged, to discourage them from seeing patients or prescribing medicines!

  There is one positive and evidence-based application for co-payments, applying fees to encourage patients to use the most cost-effective drug available for their condition: a system known as reference pricing. Under reference pricing, public drug coverage is automatically available for the cost of the designated reference drug within a therapeutic class. (A therapeutic class is a family of drugs, not chemically the same, used to treat the same medical condition. Independent expert review of the evidence is used to group drugs into therapeutic classes.) If patients want to use a more expensive drug in that therapeutic class, they pay the difference in cost. In cases where the reference (first-line) drug is inappropriate (for instance due to comorbidities) or causes unacceptable side effects, the physician can obtain a special authority for the patient to use a higher-cost alternative without paying the additional charge. Thus co-pays serve to keep overall costs down, yet support clinically appropriate prescribing. British Columbia's Pharmacare program uses reference pricing, and it has been shown to reduce costs without leading to negative clinical outcomes.[93],[94] Denmark and other countries operate similar schemes, with similar results. It is important to note that such a system also gives the right incentives to pharmaceutical companies, to spend less on derivative variations of existing drugs and more on clearly superior drugs. That is, after all, what patients, doctors, and society want them to do.

  Recommendation: Eliminate current co-payments and other charges so that prevention, quality care, more equitable access by social class, and patient adherence to professional advice are increased. Consider using co-payments to enhance clinically more appropriate prescribing. Adopt reference pricing to control drug budgets while providing patients with the medications they need.

Professor Donald Light

Princeton University, USA

22 November 2005

91   Evans R Strained mercy: the economics of Canadian health care. Toronto: Butterworths, 1984. Back

92   Canadian Health Services Research Foundation. Myth: user fees would stop waste and ensure better use of the healthcare system. Ottawa, Ontario: Canadian Health Services Research Foundation, 2005:1-2. Back

93   British Columbia Ministry of Health. Pharmacare: Reference drug program. Vol 2005: British Columbia Ministry of Health, 2005 (July). Back

94   Canadian Health Services Research Foundation. Reference-based drug insurance policies can cut costs without harming patients. Evidence Boost. Ottawa, Ontario: Canadian Health Services Research Foundation, 2005 (June):1-2. Back

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