Do pharmaceutical budgets deliver financial sustainability in healthcare? Evidence from Europe

Journal Pre-proof Do pharmaceutical budgets deliver financial sustainability in healthcare? Evidence from Europe Mackenzie Mills (Data curation) (Formal analysis) (Visualization) (Writing - original draft), Panos KanavosConceptualisation) (Methodology) (Supervision) (Writing - review and editing)

PII:

S0168-8510(19)30284-2

DOI:

https://doi.org/10.1016/j.healthpol.2019.12.002

Reference:

HEAP 4184

To appear in:

Health policy

Received Date:

3 July 2019

Revised Date:

25 November 2019

Accepted Date:

6 December 2019

Please cite this article as: Mills M, Kanavos P, Do pharmaceutical budgets deliver financial sustainability in healthcare? Evidence from Europe, Health policy (2019), doi: https://doi.org/10.1016/j.healthpol.2019.12.002

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Do pharmaceutical budgets deliver financial sustainability in healthcare? Evidence from Europe. Mackenzie MillsA and Panos KanavosA

A- Department of Health Policy and LSE Health, Medical Technology Research Group, London School of Economics and Political Science

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Address for correspondence

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Panos Kanavos Department of Health Policy Medical Technology Research Group, LSE Health Houghton Street London WC2A 2AE England [email protected]

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Mackenzie Mills Department of Health Policy Medical Technology Research Group, LSE Health Houghton Street London WC2A 2AE England [email protected] +44 (0) 7522725371

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Authors and affiliations

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Mackenzie Mills Department of Health Policy Medical Technology Research Group, LSE Health Houghton Street London WC2A 2AE England [email protected] +44 (0) 7522725371 Highlights 

Pharmaceutical budgets are frequently used as a means of cost-containment

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GDP-linked budgets neither address drivers of expenditure or promote efficiency

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Silo budgeting reduces flexibility in allocating health resources optimally

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Soft budgets lack enforcement and are frequently overrun

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Complimentary policy measures are needed to promote health system objectives

Abstract Payers have increasingly implemented a variety cost-containment measures to promote sustainability within the pharmaceutical sector. This paper provides an assessment of a range of different applications of budgets within the pharmaceutical sector and assesses the impact of pharmaceutical budgets in the context of health financing goals. A comprehensive literature review was carried out in order to identify evidence on the presence and impact of budget capping in the pharmaceutical sector and an analytical framework was developed. Evidence

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generated from the literature was validated by experts in pharmaceutical policy through a round-table meeting and a series of semi-structured interviews. Five broad types of budgets were employed in the pharmaceutical sector: global, regional, disease-specific, productspecific, and prescribing. Global budgets on total pharmaceutical expenditure are relatively straightforward tools for promoting cost-containment however their use often restricts

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flexibility in terms of total health budget allocation. Disease specific budgets without consequences for exceeding the budget are unlikely to promote fiscal sustainability as these

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budgets are frequently exceeded. Product specific budgets and prescribing budgets can play an important role in promoting microeconomic efficiency however evidence on their impact is

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mixed. Overall, budgets are present at both macroeconomic and microeconomic levels. While they are important tools for promoting fiscal sustainability, additional policy measures are

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needed to further enhance value for money within the pharmaceutical sector.

Keywords: Pharmaceutical spending; Budget setting; Resource allocation; Payback; Clawback; Pharmaceutical policy

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Introduction

In response to growing pharmaceutical fiscal pressure, payers have increasingly employed a range of different budgeting approaches to promote both fiscal and economic sustainability. Health care budgets, which tend to be set prospectively, set caps on spending within the healthcare sector to reduce financial risk for payers. Conceptually, the idea of budget setting is not new and has been discussed extensively within the health policy literature [1-5].

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Recent epidemiological trends and growth in pharmaceutical expenditure have raised concerns that the provision of safe and efficacious medicines may become unsustainable [5]. A healthy pace of innovation, characterised by an increased number of new products coming to market, an increasing incidence of non-communicable diseases, and an ageing population have resulted in growing financial pressure within health care systems across the world over the past two decades [6]. The pharmaceutical sector has been a key contributor to this growth, with global sales in pharmaceutical expenditure increasing from 887 billion (USD) in 2010 to 1135 billion (USD) in 2017 [7]. In response, many countries have implemented aggressive costcontainment policies, including price controls, volume controls, budgeting, and market

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oriented policies in order to promote economic and fiscal sustainability [5, 8].

For economic sustainability, the social value provided by the health care system must exceed its opportunity cost. In terms of total national resources, health spending represents an opportunity cost that must be balanced against other economic inputs such as education,

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national defence and housing [1]. For instance, during a period of economic downturn an increase in health expenditure may be economically unsustainable if it threatens other

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economic areas that provide social value. However, during periods of economic growth spending on healthcare can be increased in an economically sustainable way, provided that this

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is balanced against other areas of spending [9]. Fiscal sustainability, on the other hand, refers directly to a payer’s ability to raise sufficient revenue to meet its health system obligations [1]. Health financing requires collection of funds, pooling of funds and purchasing of health care

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services. Issues in fiscal sustainability can emerge from problems in both collection of resources (e.g. if governments struggle in their capacity to enforce taxation due to a large informal work sector), and in purchasing of health care services (e.g. if demand for covered health services exceeds forecasts) [9]. In both these cases, health spending may be insufficient

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to meet health system obligations [1, 4].

Budget setting is a key tool used in health financing for risk-averse payers to promote both economic and financial sustainability. Under tax-financed health systems (‘Beveridge’ systems), governments set health care budgets based on the total pool of general tax revenue. This is could be fixed at a set percentage of GDP, or could be determined annually based on additional macroeconomic criteria such as historical spending, predicted GDP growth and public deficit in order to promote economic sustainability [8]. From a fiscal policy standpoint, fixed budgets set ex-ante can also limit the financial risk of healthcare deficits, by shifting the 3

financial risk away from payers towards health care providers (e.g. hospitals) or health technology manufacturers (e.g. pharmaceutical manufacturers). In contrast, retrospective feefor-service payment models place financial risk on the payer. Relevant to this discussion is the mechanism through which the budget holder is incentivized to keep within pre-determined limits and what safeguards are there if pre-determined budgets are exceeded. While the former has been discussed extensively in the literature and relates to the implementation financial and/or non-financial incentives to shape prescribing [10-12] or the pay-for-performance mechanisms [8, 13, 14], the latter remains relatively under-explored. Available tools in this context are paybacks, a form of revenue transfer to payers in order to ensure that any over-runs

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are budget neutral to the health care system concerned. Payback refers to a penalty imposed on manufacturers on revenue in excess of a pre-determined budget [8]. Although often used interchangeably, paybacks are distinct from rebates or clawbacks, two other forms of revenue transfer to payers. Rebates refer to the transfer of a fixed amount of total revenue from manufacturers to the health system, irrespective of a budget. These are frequently applied in

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settings with external reference pricing in order to maintain list prices and secure confidential discounts [15]. Clawbacks are also independent of a budget overrun and are applied to

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pharmacists and wholesalers in order to counter-act mark-ups and return a portion of pharmacist and wholesaler profit margin to the public sector [16]. The present study is only

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concerned with the consequences of budget overrun and will adopt the prevailing nomenclature that defines revenue transfer due to a budget overrun as a payback [8].

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The same principles of economic sustainability and fiscal sustainability seen in general health financing also apply towards the pharmaceutical sector, which carries an opportunity cost relative to other health inputs such as inpatient care or outpatient care. However the approaches taken by countries to achieve these objectives, particularly in the types of budgets employed vary considerably across settings [2, 8, 16]. Although we have knowledge of budgets in

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different formats (e.g. UK Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) vs disease specific drug budgets such as the England Cancer Drugs Fund), evidence on how they work in practice is scarce. Given the range of various pharmaceutical policies implemented within a given country, and changes in technology and epidemiology over time, it is challenging to assess the impact of pharmaceutical budgets on health system objectives [2, 17].

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The present paper seeks to fulfil two key objectives: first, to compare and contrast various modalities of pharmaceutical budget setting and capping by drawing on the international experience; and second, to develop an analytical framework for the categorization of pharmaceutical budget caps. In so doing, it adds to the literature in three directions: first, it provides clarity on the various modalities of pharmaceutical budget setting and capping; second, it presents evidence on their advantages and disadvantages based on primary data collection; and, third, it concludes by developing an analytical framework, categorizing country use of pharmaceutical budget capping according to key policy objectives such as costcontainment and microeconomic efficiency. While the impact of other policies on budget

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setting is discussed, a full analysis of the impact of all pharmaceutical demand and supply policies on health system objectives is beyond the scope of this paper.

Methods

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The evidence base for this paper has been developed in two phases. First, a comprehensive literature review was carried out in order to identify peer-reviewed articles and grey literature

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with evidence on the presence and impact of budget capping in the pharmaceutical sector. Medline, Scopus, Web of Science, EBSCOhost (EconLit+CINAHL Plus), and Google Scholar

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were searched with combination of the following search terms: “pharmaceuticals” OR “drugs” OR “medicines”, and “expenditure capping” OR “expenditure cap” OR “budget capping” OR “budget cap” OR “payback”. The study was restricted to articles published between January

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2000 and February 2017. No geographical restrictions were placed. Grey literature was collected through google searches and through searches of national and international health organization websites.

Data was extracted according to a number of predefined research endpoints relating to the

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implementation of pharmaceutical budgets and to the impact of pharmaceutical budgets on health financing objectives. Research endpoints included: (a) the scope of pharmaceutical budget(s); (b) the mechanism(s) for setting pharmaceutical budgets; (c) the consequences for exceeding pharmaceutical budgets; (d) payback mechanisms and exemptions from these; (e) impact on macroeconomic efficiency; (f) impact on micro-economic efficiency; (g) impact on rational use of medicines; and (h) impact on access to medicines. The scope of pharmaceutical budgets refers to the geographic region, the type of medicines (e.g. in-patient, out-patient, individual products), whether they relate to a particular disease, and the stakeholders (e.g. 5

manufacturers or health care providers) which apply to the budget. The mechanism for setting the budget refers to the criteria employed by payers or the central planning authority used to determine the size of the budget, while the consequences for exceeding it refer to any penalties implemented to ensure the budget is not exceeded. Exemptions refer to any particular types of products or individuals that are exempt from penalties for exceeding the budget. Macroeconomic efficiency refers to economic sustainability and the extent to which payers are able to promote this through budgets that contain costs at an aggregate level. Microeconomic efficiency refers the value for money from a given level of pharmaceutical expenditure. Rational use of medicines refers to appropriate prescribing and the extent to which budgets can

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promote medicines use within their intended indication. Finally, access to medicines refers to the extent to which patients are able to access quality and efficacious medicines.

Secondly, evidence was synthesized and validated with nine expert stakeholders within the pharmaceutical sector at a technical meeting held at the London School of Economics and

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Political Science on 20th March 2017. Expert with extensive experience in pharmaceutical policy, budget setting or healthcare financing were identified from the public sector,

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international organisations, and academia. Invitations for the technical meeting were sent out between January and March 2017 by email. A total of nine experts accepted invitations to

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participate, six senior academics, two pharmaceutical payers and policy makers, and one senior policy analyst. Experts were recruited from the UK (3), France (1), Spain (4), and Italy (1). Experts were asked to provide evidence on a) the mechanism of setting a cap within their

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county, b) the consequences for exceeding the cap, c) the advantages and disadvantages of different pharmaceutical budget modalities, d) the impact of pharmaceutical budgets on costcontainment, diffusion of innovation and efficiency, and e) required complimentary policy measures for promoting health system objectives. Follow-up interviews were conducted between March 2017 and September 2017 with each participant in order to a) confirm and

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clarify evidence gathered during the technical meeting and b) offer further reflections on the use of pharmaceutical budgets.

Primary evidence obtained from experts was transcribed and synthesized with secondary evidence using Microsoft Excel. Synthesized evidence was analysed thematically according to the research endpoints listed above. Descriptive information relating to the scope of pharmaceutical budgets, mechanisms for setting budgets, consequences for exceeding a budget, and exemptions were grouped broadly based on the type of budget cap. Each type of 6

budget cap was then assessed in terms of whether it had a net positive, negative, or no direct impact on health policy outcomes. Finally, an analytical framework for the implementation of pharmaceutical budget caps was produced, outlining the various scopes, modalities, consequences of non-adherence and health policy priorities of pharmaceutical budgets. Application of the framework was tested in a conceptual exercise examining the trade-off between cost-containment and promotion of microeconomic efficiency. In this exercise, primary and secondary data were used to interpret how countries differ in their use of pharmaceutical budgets. Countries were ranked on a scale of low, medium or high in terms of the extent to which their use of budgets prioritized cost-containment and in terms of the extent

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to which their use of budgets prioritized efficiency. Interpretation was dependent on both the context in which a policy was implemented and on the specific characteristics of that policy.

Results

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The comprehensive literature review yielded a total of 104 citations (see Figure 1). A total of 26 studies met study endpoints, of which 13 were peer review articles and 13 were reports from

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grey literature. From these, evidence was collected on the use of pharmaceutical budgets within 18 countries: France, Germany, Italy, Netherlands, Spain, England, Scotland, Wales, Belgium,

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Hungary, Portugal, Latvia, Romania, Greece, Cyprus, Lithuania, Sweden, and Slovenia. Evidence on global budgets was present in 10 studies, on regional budgets in 2 studies, on disease specific budgets in 5 studies, on product specific budgets in 5 studies, and on

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prescribing budgets in 5 studies.

[INSERT FIGURE 1 HERE]

Examples of pharmaceutical budgets can be found in Table 1. Comparing across various types

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of budgets, differences and similarities emerge in a) the mechanism for budget setting; b) the consequences of exceeding the budget, and c) the types of products which are eligible for payback [2, 8, 10, 14, 16, 18-20].

[INSERT TABLE 1 HERE]

Types of budgets and evidence on their use and impact 7

(a) Global Budgets

Global budgets refer to budgets set at a national level on total pharmaceutical expenditure. Some countries (i.e. Greece), only assign a budget for out-patient pharmaceutical spending, and fund hospital spending through separate mechanisms [8], while other countries (i.e. Portugal) set budgets for all pharmaceutical expenditure. In the examples listed, there are four key mechanisms employed for setting a global budget: a) pharmaceutical spending is linked to GDP or GDP growth (i.e. Greece, Portugal, Spain), b) pharmaceutical spending is linked to

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total health expenditure (i.e. Italy), c) pharmaceutical spending growth is set at a fixed % (i.e. UK), d) pharmaceutical spending fixed based on macro criteria (i.e. France).

There is limited peer-reviewed literature on the impact of global budgets in the pharmaceutical sector. Early literature examined the use of pharmaceutical budgets in France, Germany, Italy,

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Netherlands, Spain and the United Kingdom [2]. Here, the authors caution against the use of silo-budgeting as treating pharmaceutical expenditure as a separate health input may reduce

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overall efficiency of the health-care system by preventing an optimal mix of services within the health care system. However, quantifying the impact of pharmaceutical budgets in terms of

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inefficient spending or health outcomes remains extremely difficult. Another study demonstrates that the implementation of global budgets can have a substantial impact on pharmaceutical expenditure, accounting for a 6% reduction over a 12-year period. However,

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other measures, such as negotiation of pharmaceutical pricing are likely more effective at reducing expenditure [17]. Empirical evidence from the international literature indicates that budgets are only successful in containing costs if they are transparent, hard, and enforce penalties/rewards [21].

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Experts generally agree that global budgets can be a straightforward mechanism for promoting fiscal sustainability, but raised concerns about the mechanism for setting budgets. Specifically, GDP was criticised as a poor measure for setting pharmaceutical expenditure given the methodological challenges involved in accurately forecasting GDP ex-ante. Further, GDP is not linked to drivers of pharmaceutical expenditure and may be viewed as an arbitrary measure for setting pharmaceutical expenditure [14].

(b) Regional Budgets 8

In some cases, countries with devolved health care systems have implemented budgets at regional level. In Italy and Spain, health spending is the responsibility of regions within a national budget framework. Target budgets are set for each region, with adjustments made based on historical spending and demographic differences. Regional governments have the opportunity to budget additional funds for some purposes and raise additional taxes. The exact mechanisms for determining regional budgets remains unclear in these settings and is likely subject to changes over time. In the case of Italy, regions are responsible for 40% of excess expenditure above national targets. Regional payback depends on whether a region exceeded

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their own targets [22]. Within Spain, the consequences of exceeding regional budgets remain unclear [8].

No peer-reviewed articles were found examining the impact of regional budgets. In principle, assigning some responsibility for excess expenditure to regional governments could incentivize

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reforms to promote greater efficiency. However, this would be very difficult to quantify in practice. Issues were noted in the mechanism for setting regional budgets, particularly in the

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context of a national budget framework set based on GDP. While regional budgets often capture differences in health care utilisation and demand, regional budgets are not sensitive to

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regional variations in GDP [14].

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(c) Disease-specific budgets

Several countries have established budgets for particular therapy areas or groups of drugs. These are specialized funds earmarked for particular types of products that historically have operated outside of traditional reimbursement systems. These funds were set up to provide access to specific therapies that are deemed clinically effective, but that have failed to receive

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a positive Health Technology Assessment (HTA) recommendation because of poor costeffectiveness and high levels of uncertainty [23]. Examples include the England Cancer Drugs Fund for oncology products and the New Medicines Fund in Scotland for orphan, ultra-orphan and end of life products. [24, 25]. The England CDF and Scotland New Medicines Fund were both introduced as indicative budgets, without a payback mechanism in place. Other countries such as Belgium and France, have allocated their national budget frameworks into groups of drugs. Within France, budgets for drug groups were set by the pricing committee based on an

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evaluation of medical needs for different categories of drugs and the natural evolution of treatment [16, 26].

Garrison and Towse advocate for the use of disease specific budgets as they provide greater flexibility for allocating to funds from different health inputs in order to optimise outcomes within a therapeutic area [2]. However, in the context of disease specific budgets, it remains unclear how much flexibility providers would have in practice to allocate these funds. In the case of France, the disease specific budget was restricted to a particular group of pharmaceuticals and could not be reallocated to other areas. Earmarked drug funds such as the

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England Cancer Drugs Fund (CDF) have come under criticism for being financially unsustainable, largely due to their lack of payback mechanism. From 2010 until 2016, the CDF budget increased from £50 million to £340 million. Over 6 years in existence the budget has been exceeded by a total of £164 million [23, 27]. In response, the CDF underwent significant reform in 2016. The new CDF is integrated in the National Institute for Health and Care

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Excellence (NICE) decision making process for cancer drugs. Under the new system, the CDF represents an early access pathway, which allows for additional evidence generation for

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products with high levels of clinical uncertainty. NICE now evaluates all cancer drugs for and decides whether or not to recommend a product for routine use or for time-limited use and

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manged access through the CDF. The new CDF also includes a payback mechanism, based on market share if the annual budget is over-run requiring participating manufacturers to payback all excess expenditure[23]. The annual budget for the new CDF has been set at £340 million

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and has not been overrun in its first three years [28].

Experts highlighted the importance of distinguishing between disease specific budgets, which allow for flexibility in allocating funds, with disease specific drug budgets that have traditionally been implemented as a political tool to prioritise access to medicines for a specific

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group of patients. Experts were generally critical of the later due to issues around financial sustainability and concerns about equity. For instance the presence of the England Cancer Drugs Fund outside the national drug financing framework, implicitly suggested that the lives of cancer patients were assigned a higher value than those of patients with other diseases. The new CDF, which is integrated in the national drug framework and provides an opportunity for managed access is more appropriate from an equity standpoint, although significant uncertainty around the clinical and economic effectiveness of the products remains [14].

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(d) Product-specific budgets

Increasingly, countries are employing risk-sharing agreements or managed entry agreements to facilitate the entry of a new product. A common risk-sharing tool is price-volume agreements, whereby the price and reimbursement of a product is linked to the volume of a drug sold. This places an annual budget on the sale of a product. There are different possible consequences for exceeding the volume of patients agreed-upon: a) price cut, whereby any additional patients are reimbursed at a lower price, b) payback, whereby revenue collected from any additional patients must be refunded or c) free-doses whereby any additional patients are

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treated free-of-charge [15, 18]. Within France, a tiered payment structure is defined for different levels of sales, with repayments being converted into price cuts at the end of the study period. Once a budget ceiling is reached, companies are required to supply all patients that can benefit from the drug without restriction and pay back any revenue made above the ceiling to the national health insurance [29]. Within Lithuania, payback from exceeding a product

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specific expenditure threshold can either be partial or full. The use of price volume agreements

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(PVAs) is also documented in Belgium, Italy, Poland, Portugal, and Spain [18].

In part because these are relatively novel agreements and in part because details of agreements

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are confidential, the impact of price-volume agreements has not been explored extensively in peer-reviewed literature [18]. By nature, price-volume agreements reduce uncertainty around the financial impact of a product and can help contain expenditure at the product level[18].

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Early experience suggest that high administrative burden can limit the effectiveness of these schemes [30]. However, comparing the impact across settings is challenging as managed-entry agreements are infrequently applied in similar fashion across multiple countries [31].

Beyond product-specific budgets, some countries also employ budget impact thresholds to help

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guide introduction of new pharmaceuticals. Within England, the budget impact test was implemented in 2017. Products which are expected to exceed an annual total of £20 million in any of its first 3 years are eligible to engage in commercial discussion with NHS England [32]. In France, innovative products with an expected annual budget impact greater than €20 million are subject to a health economic assessment as part of the HAS Health Technology Assessment process[33]. While not strictly a budget, the introduction of budget impact thresholds infer that payers are not only becoming sensitive to the overall pharmaceutical budget, but also to the

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financial impact of individual products. Further, these thresholds can indirectly set incentives around the establishment of product-specific budgets.

Experts highlighted that the use of product-specific budgets is variable and context specific. Different diseases and treatments frequently have different uncertainties that act as barriers to reimbursement and patient access. In some instances, a patient may require multiple courses of a treatment. In this context a fixed cost-per-patients agreement can help to alleviate uncertainty in the number of courses taken and total cost per patient. In other instances, there may be uncertainty in the disease prevalence and expected utilisation of a product. In this context, a

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price volume agreement is more appropriate. As a general rule, experts indicated a preference for simple agreements based on aggregate measures over complex agreements based on measures that are more difficult and potentially costly to measure [14].

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(e) Prescribing Budgets

Governments can also assign prescribing budgets to physicians/prescribers in order to promote

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rational use of medicines. For instance, within Germany, drug budgets were first employed at regional level in 1992, with no in initial implications for individual physicians. In 2002, an ex-

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ante cap at physician level was also employed into the drug budget system, with penalty mechanisms in place for overspending. [11]. Prescribing budgets can also be indirectly applied through capitation models, whereby GPs receive a fixed payment per patient used to pay for

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all health care services (e.g. UK). Target prescribing budgets are also implemented within France, Spain, Hungary, Latvia, Greece, Sweden, Czech republic in Ireland, and Slovakia, although only Czech Republic imposes penalties for exceeding this budget. Some target budgets include positive financial incentives if physicians meet targets (i.e. France and Spain)

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[8].

In a recent systematic review, the impact of physician level budgets on physician behaviour was studied [10]. Evidence on the impact of prescribing budgets is mixed. An early study reported that drug budgets in Germany resulted in substantial reductions in the cost of prescriptions [11]. However, it is possible that these cost savings are simply being shifted to another health sector. Another study reports that GPs under a drug budget increase referrals to specialists as substitute to prescriptions in order to avoid penalties [12]. However, within diabetes care, the presence of drug budgets does not change prescribing patterns, suggesting 12

that the impact of prescribing budgets may not be generalizable across therapeutic areas [34]. The UK’s experience with capitation is well documented. Initially, pharmaceutical expenditure fell as physicians began to prescribe cheaper generics in lieu of originator products. However, findings become inconsistent in the long run, suggesting that the impact becomes more ambiguous over time [10]. This is consistent with an earlier systematic review which found significant reductions in expenditure following introduction of prescribing budgets in the UK, but non-significant reductions in expenditure following introduction of prescribing budgets in Ireland [35].

While the primary objective of prescribing budgets is to contain expenditure, several

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unintended consequences can occur. These include a) ‘Cream skimming’ whereby physicians choose to treat healthier patients given that they are associated with lower costs, and/or refer severely ill or those with co-morbidities to hospitals, b) poor patient outcomes if physicians choose not to prescribe more expensive, yet appropriate treatments, and c) eroded patient

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confidence in physicians if they are aware of the financial incentives associated with

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prescribing behaviour [3].

Experts emphasised the importance of addressing drivers of pharmaceutical expenditure. In this context, prescribing budgets can be an effective tool by incentivizing appropriate

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prescribing. However, careful monitoring is required alongside prescribing budgets to ensure

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that quality of care is maintained [14].

Enforcement of budgets

Budget caps also vary in terms of their enforcement. They can either be ‘indicative’ with no enforcement or ‘hard’ with either a penalty (e.g. repayment of overspending) or reward (e.g.

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retention/reinvestment of surplus funds) to ensure the budget is not exceeded [3, 36]. The most common method of enforcing budgets is implementation of a payback system. However, the conditions, mechanisms and exemptions for paybacks vary across settings [8]. In some cases (i.e. Greece, Spain, UK), all excess expenditure must be paid back by industry. The amount of payback is determined based on the market share of each pharmaceutical manufacturer. In other cases, only a part of excess expenditure must be paid back (i.e. Portugal) or divided amongst different stakeholders beyond industry such as pharmacists, wholesalers, and regions (i.e. Italy). Many countries place exemptions for generics, orphan products, or highly innovative

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products. For instance, in Belgium, generic products are exempt from payback, in France, all three types are exempt, and in the UK VPAS, newly introduced products are exempt from payback [8, 20, 37].

In principle, payback is a preferable mechanism of revenue transfer to payers over price cuts. In both cases, manufacturers are subject to lower net revenue, however payback allows manufacturers to maintain higher list prices and avoid negative spill-over effects from external reference pricing. However, expert stakeholders also raised concerns surrounding the implementation of paybacks. Within Italy, the use of paybacks has been subject to extensive

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legal challenges, as manufacturers claim it unreasonable to claim back revenue after a patient has already benefited. Finally, experts also highlighted the potential negative impact of paybacks on innovation and access to medicines. Exemptions for innovative products or commitments for growth in pharmaceutical expenditure is advisable to promote sustainable

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innovation [14].

Traditionally, disease specific budgets have been implemented with no payback mechanism in

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the event of a budget overrun. These indicative budgets are frequently exceeded and have been criticised for failing to promote value for money [23-25]. As described above, the enforcement

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of price-volume agreements varies across settings ranging from price cuts for subsequent use of a product to full payback of any excess expenditure [15]. Finally, prescribing budgets are enforced through a variety of mechanisms, including audits and payback of excess expenditure

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beyond a certain threshold. Under capitation models, budgets are indirectly enforced as physician income is linked to the capitation payment. Inappropriate expenditure will result in lower profit margins and income, therefore encouraging rational use and discouraging expenditure deficits [10]. While target prescribing budgets are indicative, and therefore do not some countries (i.e. France and Spain) have implemented rewards to incentivize physicians to

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remain within target [8]. In 2004, the UK introduced the Quality and Outcomes Framework (QOF), a large pay-for-performance scheme, in order to both supplement GP income and promote higher quality in primary care. The most recent scheme for 2019/2020 includes 68 clinical indicators relating to clinical care, public health, and quality improvement across 19 conditions [38]. While some improvements in quality of care have occurred in the UK since introduction of the QOF, a causal link has not been established as NHS underwent a large number of other quality improvement programmes over the same time period [39]. Theoretically the scheme is capped given a maximum of 559 QOF points are available across 14

all clinical indicators. A set value of £187.74 is provided for each QOF point in 2019/2020. Overall the QOF is one of the largest pay-for-performance schemes in the world, worth £691 million in 2016/2017 [38]. While the QOF generates expenditure based on GP performance, it can also theoretically decrease instances of inappropriate prescribing. Overall, the impact of the QOF on net expenditure remains unclear.

Advantages and disadvantages of various pharmaceutical budget capping modalities

The use of budgets and paybacks in the pharmaceutical sector as a cost-containment tool had

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mixed reviews in stakeholder feedback and in literature. Table 2 outlines the key advantages and disadvantages of various budget capping modalities identified through literature and validated with stakeholders. Note that Table 2 provides a synthesis of different types of budget caps based on primary and secondary evidence collected and the authors’ own understanding of the implications. Many of the insights collected from expert stakeholders reflect value

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judgments and may not be generalizable across all budgets types. In practice, the structure of budgets can vary considerably within a particular budget type. For instance, disease-specific

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budgets may have different advantages and disadvantages based on scope and enforcement (e.g. old CDF vs new CDF). Further, the structure or shape of different types of budgets can

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often overlap and a number of similar negative and positive effects are noted across types of budgets. The analysis provides an overview of whether there is a net positive, negative, or no

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direct impact based on the evidence collected.

[INSERT TABLE 2 HERE]

In analysing the advantages and disadvantages of different types of budget caps, consideration was given to whether or not a budget has a direct impact on policy objectives. Direct impact of

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cost-containment policies can be assessed in terms of both price or volume effects. In general, budgets which lower net prices of pharmaceuticals (e.g. through a payback mechanism) and budgets which lower volumes of drugs prescribed (e.g. by reducing active purchasing) will have a positive effect on cost-containment [5]. In addition, budgets were assessed in terms of administrative simplicity, avoidance of spill-over effects (e.g. from reference pricing), impact on innovation, impact on equity, and impact on medicine quality.

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Proponents of global budgets argue that they are a relatively simple and straightforward policy tool for controlling unsustainable healthcare expenditure [14]. Global budget on total pharmaceutical expenditure assign responsibility of budget overruns solely to manufacturers. In the event of a payback, global budgets lower the net price of a product leading to an overall positive effect on cost-containment. By virtue of the payback, global budgets also avoid negative spill-over effects of reference pricing, as the real price cannot be detected. As such, global budgets are likely to be the preferred mechanism of expenditure control from an industry standpoint relative to straight price cuts (an example of this is the UK VPAS negotiated between the pharmaceutical industry and the NHS) [20] . Indirect effects of global budgets

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vary based on the mechanism for setting the budget. Global budgets linked to GDP can help promote affordability by ensuring financial risk is minimized during economic crisis. In other settings, flexibility in allocating budget to other health inputs is prioritised. Global budgets linked to health expenditure and global budgets set based on macro criteria are both set annually in order to optimise allocation of resource across health inputs, while ensuring financial

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sustainability [14].

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A key criticism of global budgets and paybacks in the pharmaceutical sector is that they fail to directly address the drivers of expenditure and promote microeconomic efficiency [14]. While

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they may help to contain expenditure and generate savings, they do not necessarily reduce inefficient spending and may disincentive new product entry. Specifically, the choice of an aggregate measure such as GDP to anchor expenditure was criticized by expert stakeholders

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[14]. From a methodological standpoint, GDP is volatile and difficult to forecast accurately. As such, budgets anchored to GDP prospectively have a high likelihood of missing targets. GDP can also vary at regional level, creating challenges for implementation of regional budgets within a national framework linked to GDP. Global budgets linked to GDP and linked to health expenditure may also fail to adequately promote access to new medicines, particularly during

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economic downturn. If adequate exemptions are not in place, innovative products may be penalised for entering the market and providing important value to the healthcare system. Problems are also noted in the payback system, which we can be both inefficient administratively and difficult to enforce. In particular, the Italian experience payback was highlighted, where Italy faced lengthy legal challenges around the legitimacy of their payback system [14]. In this circumstance, a prospective price cutting policy would have been a less costly and simpler approach to containing expenditure.

16

Similar to global budgets, regional budgets can reduce the effective price of medicines through payback mechanisms, leading to a positive effect on macroeconomic efficiency. Further regional budgets may exert an effect on volume and microeconomic efficiency if payback is split between regions, wholesalers, and manufacturers [14]. Regions may be incentivized to reduce inappropriate prescribing and promote microeconomic efficiency in order to avoid paybacks [14]. Depending on the national framework, regional budgets can be difficult to implement. It may be challenging to capture inter-regional variations in GDP and regions may vary in their ability to reach and exceed the cap. Prescribing budgets exert the largest effect on volume, as physicians are directly incentivised

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to reduce prescribing. If a payback mechanism is in place, then a price effect may also be present. Overall prescribing budgets have a positive effect on macroeconomic efficiency [14]. If tied to pay-for-performance metrics, prescribing budgets can also promote rational use of medicines and microeconomic efficiency. However the use of prescribing budgets has at times

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been associated with negative unintended consequences [10]. Specifically, physicians may be incentivized to treat only the simplest of cases and fail to provide appropriate care. The

guarantee appropriate prescribing.

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presence of a prescribing budget may reduce excessive prescribing but does not necessarily

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Product-specific budgets also carry several advantages as they can help promote access to medicines by mitigating financial risk at the product level. While product specific budgets may be linked to volume, the primary effect is to lower the effective price of a product (e.g. through

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a price cut or payback if a particular volume of patients is exceeded) [18]. In the case of fixedcost per patient budgets, the overall cost-effectiveness of a product can be guaranteed, however measuring cost-per-patient can be difficult in practice. Finally, disease specific budgets can have both price and volume effects depending on the structure of the budget. The first England CDF resulted in both higher volumes and higher

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prices, as it allowed physicians to prescribe otherwise unavailable drugs at a price deemed not cost-effective by NICE. The overall impact on cost-containment and microeconomic efficiency was negative, given no enforcement mechanism and the reimbursement of cost-ineffective products [14]. Meanwhile, the new England CDF operates within traditional reimbursement systems and requires discounted prices. While the effect on volume is still positive, this is balanced by lower prices and a payback mechanism that ensures the total CDF budget remains sustainable. However, given the uncertainty in clinical benefit of products in the new CDF, total impact on microeconomic efficiency remains unclear. 17

Discussion

It is important to note that while a number of differences are noted in the implementation of pharmaceutical budgets across settings, the structure of different types of budgets can overlap significantly. In theory, budgets that are smaller in scope, such as product-specific budgets and disease-specific budgets, can mimic larger global or regional budgets in terms of their function and objective. While the majority of disease-specific budgets identified in this study are indicative, the new CDF provides an important example of a disease specific budget which

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minimizes financial risk and promotes sustainability. Ultimately, payers have flexibility in designing their budgets and should reflect on the evidence of different types of budgets. For instance, while the lack of enforcement of pharmaceutical budgets is most common in diseasespecific budgets, similar issues can also arise from lack of enforcement in other types of budgets. Similarly, while global budgets include exemptions for certain types of innovative

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products, other types of budgets may also implement exemptions in order to safeguard against

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negative effects.

The material collected within our literature review and subsequently validated with expert

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stakeholders has enabled us to think conceptually on a framework for classifying pharmaceutical budget schemes (Figure 2). Overall, we have identified five major types of pharmaceutical budgets which vary in scope, capping mechanism, payback mechanism and

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product applicability, reflecting the range of objectives that payers are attempting to satisfy. Caps have been placed on total pharmaceutical expenditure for all pharmaceutical products, on expenditure for groups of products, and on expenditure for individual products. The mechanism for setting budget caps also varies across settings. For instance, Greece and Portugal anchor pharmaceutical expenditure to GDP, while Italy fixes pharmaceutical expenditure as a

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proportion of total health expenditure [8]. Regional budgets typically operate within the context of a national budget framework. These are typically risk-adjusted according to demographic differences in order to better promote equitable access to care. Further, by making regions liable for excess expenditure, regions are encouraged to take steps to improve value for money in the use of pharmaceuticals. Beyond the conceptual classification of different budgeting schemes, key differences also emerge in the ability of pharmaceutical budgets to address key health policy objectives.

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[INSERT FIGURE 2 HERE]

Towards a methodological framework for the analysis of budget caps

In many ways, the use and application of healthcare budgets highlights differences across settings in the extent to which countries prioritize efficiency vs cost-containment. Figure 3 outlines the extent to which seven European countries prioritize one objective over another in

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their application of pharmaceutical budgets. While informed by primary and secondary evidence, this is a subjective classification and is intended as a conceptual exercise. Countries are classified according to the extent to which their use of budgets prioritises either costcontainment or microeconomic efficiency. Countries are ranked in an additive manner, based on both the number of effects and the size of the effects. Interpretation of the effect of a budget

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policy is both context specific and dependent on the characteristics of that policy. For instance, the context in which Greece implemented a global budget linked to GDP is very different than

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the context in which France sets their global budget based on macro-criteria which includes, among other things, GDP. In the former, the policy was implemented as part of the 2011

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Economic Adjustment Programme following financial crisis in order to directly contain pharmaceutical costs. In the latter, cost-containment represents one of several considerations in budget allocation and therefore the effect is interpreted as smaller. Further, this figure does

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not reflect a comprehensive evaluation of all pharmaceutical policies implemented within a country, but rather presents an assessment of how pharmaceutical budgets in particular have historically been used to promote various policy goals. As such, this figure does take into account the use of health technology assessment, pharmaceutical pricing policies, cost-sharing or generic policy; each of which play critical roles in the promotion of both macroeconomic

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efficiency and microeconomic efficiency [6, 8].

[INSERT FIGURE 3 HERE]

Portugal, Greece, France, Spain, Italy, Germany and the UK have taken different approaches towards the issue of macroeconomic efficiency and microeconomic efficiency. Countries such as Portugal, Greece, and Spain place a high priority on macroeconomic efficiency and financial 19

risk minimisation through their use of global budgets linked to GDP with full payback mechanisms. Budgets linked to GDP demonstrate high levels of risk-aversion by ensuring expenditure growth is only possible when GDP levels increase [14]. Further, the use of payback mechanisms ensures cost-certainty. Meanwhile the UK, who commit to fixed growth in expenditure, place a relatively lower priority on cost-containment in order to provide room for introduction of new and innovative medicines. At times, national priorities have directly contradicted objectives of rational use and cost-containment. This is evident in the use of disease-specific budgets which traditionally have been soft budgets, without payback

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mechanisms for the use of cost-ineffective and expensive medicines (i.e. Italy & UK).

Meanwhile, microeconomic efficiency is typically promoted through regional budgets or through prescribing budgets. Regional budgets, such as those applied in Spain and Italy, can help to improve microeconomic efficiency by encouraging regions to reduce inappropriate prescribing and by reducing funds lost to mark-ups by pharmacists and wholesalers. Similarly,

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prescribing budgets discourage excessive prescribing and have the potential to improve efficiency if sufficient enforcement are in place. Methods such as capitation payments and

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prescribing budgets may unintentionally lead to cream-skimming whereby physicians only treat the simplest cases and fail to provide appropriate care. Careful monitoring is required

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implementing these type of healthcare budgets. In this sense hard prescribing budgets (i.e. Germany), or capitation models (i.e. UK) are more aggressive measures than target prescribing

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budgets that carry no penalty for exceeding the threshold (i.e. France and Spain).

The variations seen across countries in the application of pharmaceutical budgets reflect the often conflicting objectives present in national pharmaceutical policy. Fundamentally, the implementation of a health care budget suggests that payers are risk averse and desire higher certainty in their country’s level of expenditure. In this context, the types of budgets employed

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suggest differences in the importance countries place on budget certainty and on minimizing financial risk. Categorization of national pharmaceutical policy objectives depends on a range of demand- and supply-side policy objectives. Previous health policy literature has contributed extensively towards classification and assessment of cost-containment policies [5, 40]. Beyond budgets, price controls, such as reference pricing and negotiations, volume controls, such as cost sharing, and market structure policies, such as managed care organizations all play critical roles in promoting fiscal and economic sustainability. A number of these policies are likely to influence the impact of pharmaceutical budgets. Cost-sharing, for instance, may reduce public 20

pharmaceutical expenditure and decrease the likelihood of triggering a payback [40]. Depending on cost-sharing exemptions, the impact of pharmaceutical budgets on promoting access to care may also be limited. A full analysis of the role of different demand- and supplyside policies is beyond the scope of the present paper.

Nevertheless, based on the evidence collected, a number of inferences can be drawn around the impact of pharmaceutical budgets. First, global pharmaceutical budgets are relatively simple and straightforward policy tools for promoting cost containment. The use of external reference pricing is widespread across Europe. In principle, a payback on total expenditure can achieve

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the same reduction in expenditure as across the board cut in the prices of pharmaceuticals. From an industry standpoint, global payback mechanisms are preferable to price cuts as they do not spill-over effects in other countries.

Second, the use of global budgets may reduce flexibility in allocating a health care budget and

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may create barriers to entry for new pharmaceuticals. Global budgets on pharmaceuticals represents a form of silo budgeting and has the potential to distort production and produce

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inefficiencies across the entire health care system. In theory, a bundled payment method based on therapeutic area provides greater flexibility in allocating a health care budget and would be

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more likely to produce efficient outcomes [2]. In practice, it remains unclear if health systems have the capacity to implement such a system. Establishing the most optimal allocation of health inputs for a therapeutic area is not a straightforward exercise. It may be the case that

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even if health systems provided the opportunity to freely allocate a health budget across inputs they will still not arrive at the optimal outcome.

Third, indicative budgets such as the first edition of the England Cancer Drugs Fund are unlikely to promote fiscal sustainability as these budgets are frequently exceeded and operate

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outside traditional reimbursement pathways. Not only do these drug budgets fail to promote affordability, they also promote inefficient spending. Standalone drug budgets, such as the CDF, signal that the current pricing and reimbursement system of a country fail to adequately capture national drug priorities as these budgets apply to products that have failed to receive positive coverage decisions. In response to this, England significantly reformed the CDF by integrating it into their national drug financing framework. The new CDF now represents an opportunity for managed access of cancer products and has not been associated with the same budget overrun issues. Disease specific drug budgets, if implemented, should be done within 21

the context of a national reimbursement systems. For instance, within France and Belgium, global budgets are frequently devolved further into budgets for groups of products or for disease areas [8, 26].

Finally, in isolation, global pharmaceutical budgets do not address microeconomic drivers of expenditure and require implementation of additional policy tools. In particular, the use of GDP as an anchor for pharmaceutical expenditure appears to be arbitrary in nature and signals a clear focus on affordability rather than efficiency. In practice, global budgets are implemented alongside a series of other microeconomic policies which aim to reduce waste and promote

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efficiency both on the demand and supply side. For instance, within Greece, a global budget cap was implemented as part of the Economic Adjustment Programme alongside a series of other policies including external reference pricing, reduced mark-ups, compulsory eprescription, sanctions for fraudulent prescribing, compulsory prescribing by international nonproprietary name (INN), compulsory generic substitution, and introduction of prescribing

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guidelines [8, 19]. On the demand side, strong generic policy can significantly reduce inefficient spending on pharmaceuticals. Countries with high pharmaceutical expenditure (i.e.

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Greece and Portugal) tend to perform poorly in generic penetration and pricing. Mandatory generic prescribing and mandatory generic substitution have been shown to generate

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substantial savings in pharmaceutical expenditure [21, 41].

At the microeconomic level the use of prescribing budgets has been shown to have a significant

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impact on prescribing behaviour in terms of prescription costs, but it remains unclear if this impact distinguishes between efficient and inefficient spending [10]. While physicians are incentivized to cut costs, and have done so in-part through increased generic prescribing, concerns emerge that physicians may engage in ‘cream-skimming’ or inappropriate prescription. Regulations mandating generic prescribing and substitution likely represent more

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direct ways of ensuring that reduction in expenditure at the micro-level applies only to inefficient spending. On the supply side, outcomes-based risk sharing agreements are an attractive alternative for ensuring value for money and efficient spending. In practice, evidence on the benefits of outcome-based agreements remain mixed as monitoring performance is administratively complex and can carry a financial burden [30]. Health technology assessment is becoming an increasingly popular tool to advise decision making on the pricing and reimbursement of pharmaceuticals [42]. Within this process, budget impact thresholds can be utilised to identify and prioritize products with high potential financial impact for economic 22

evaluation and for negotiations on product specific budgets. Within the context of global pharmaceutical budgets, it is critical to have tools in place to ensure the budget is allocated efficiently [43]. Pre-launch policies such as horizon scanning and scientific advice, peri-launch policies such health technology assessment and external reference pricing, and post-launch policies such as clinical practice guidelines are increasingly being implemented alongside budgets in the pharmaceutical sector to ensure that spending is not only affordable, but also efficient [6].

Study limitations

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The present study addressed several types of budgets. Expert’s knowledge of pharmaceutical budgets was predominantly limited to European countries and the literature review was restricted to Europe. Given the range of different budget schemes explored, it is likely that the evidence collected may be transferrable to other developed countries outside of Europe.

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However, the transferability of this evidence to low-income countries (LIC) is questionable. LIC countries face different challenges in financing healthcare than developed countries

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including lack of adequate funding and poor ability to generate tax revenue. The objective of this study was not to have transferrable results across all types of health care systems. Further

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research is needed to explore the implementation of pharmaceutical budgets in LIC setting. Finally, given the broad scope of the present study, it was not feasible to conduct in-depth country level analysis alongside other types of pharmaceutical policy. In particular, price or

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volume control supply-side policies, additional market structure policies and demand-side policies such as cost-sharing are likely to have an impact on pharmaceutical expenditure and may impact the extent to which a particular pharmaceutical budget addresses health policy objectives. As such, these findings spoke only to the specific role of budgets, rather than providing a comprehensive analysis of each country’s overall ability to meet health system

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objectives. Future research at country level will be vital in showcasing how pharmaceutical budgets fit into a broader national pharmaceutical policy framework.

Conclusions

In conclusion, budgets and payback are present at both the macroeconomic and microeconomic levels within the pharmaceutical sector. Budgets can be applied at global level, at regional level, at the disease level, at product level and for physicians prescribing. The use of budgets 23

in the pharmaceutical sector represents as a relatively simple and straightforward mechanism for controlling costs and promoting affordability. However, in isolation drug budgets often fail to promote efficiency and value for money at the microeconomic level. A number demand and supply side policies are typically implemented alongside pharmaceutical budgets to ensure that spending in the pharmaceutical is not only affordable, but also efficient.

Credit Author Statement

Mackenzie Mills: Data curation, Formal analysis, Visualization, Writing - Original draft.

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Panos Kanavos: Conceptualisation, Methodology, Supervision, Writing - Reviewing and Editing Declarations of interest: none

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This research did not receive any specific grant from funding agencies in the public,

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commercial, or not-for-profit sectors.

Acknowledgements

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stages of this research.

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We are grateful to Ms. Jane Cheatley for her contributions in data collection during the initial

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[37] Department of Health. The Pharmaceutical Price Regulation Scheme 2014. Available from: https://www.gov.uk/government/publications/pharmaceutical-price-regulationscheme-2014 [38] NHS England. 2019/20 General Medical Services (GMS) contract: Quality and Outcomes Framework (QOF). 2019. Available from: https://www.england.nhs.uk/publication/2019-20-general-medical-services-gms-contractquality-and-outcomes-framework-qof/ [39] Roland M, Guthrie B. Quality and Outcomes Framework: what have we learnt? Bmj 2016; 354:i4060. [40] Stadhouders N, Kruse F, Tanke M, Koolman X, Jeurissen P. Effective healthcare costcontainment policies: A systematic review. Health Policy 2018. [41] Kanavos P. Measuring performance in off-patent drug markets: a methodological framework and empirical evidence from twelve EU Member States. Health Policy 2014; 118:229-41. [42] Nanavaty M, Gala S, Nyandege A, Ramesh V, Mwamburi M. Understanding Health Technology Assessment (HTA) Bodies in Major European Markets: Systematic Evaluation in 10 EU Countries. Value in Health 2016; 19:A488. [43] Godman B, Malmström RE, Diogene E, Gray A, Jayathissa S, Timoney A, Acurcio F, Alkan A, Brzezinska A, Bucsics A. Are new models needed to optimize the utilization of new medicines to sustain healthcare systems? Expert review of clinical pharmacology 2015; 8:7794.

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Figure 1 – Results of comprehensive literature review for pharmaceutical budgets. Overview of literature review identification, screening and elimination process.

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Figure 2 – A Taxonomy of Pharmaceutical Budgets. Overview of pharmaceutical budget modalities, implementation and policy objectives. Source: the authors from the literature and

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expert stakeholders

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Figure 3 – Trade-off between macroeconomic efficiency and microeconomic efficiency in the use of pharmaceutical budgets. Subjective interpretation informed by literature and by primary

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data collection. The extent to which countries prioritise macroeconomic efficiency or microeconomic efficiency classified on a scale of low, medium or high. Low - no evidence of prioritizing an objective or a negative effect. Medium - at least one positive effect on an

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objective or a net positive effect. High - multiple positive effects or a substantial positive effect

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on an objective. Source: the authors based on interpretation of primary and secondary evidence

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Table 1 – Examples of Budgets and Payback Mechanisms in the Pharmaceutical Sector. Country Description

Mechanism for setting budget

Payback Mechanism

Exemptions Source

Initial target of 1.0% of GDP in 2012.

Full payback on No a quarterly basis exemptions based on market share.

Global Budgets Annual budget for outpatient pharmaceutical expenditure linked to GDP (Implemented as part of Economic Adjustment Programme in 2011)

Later revised to 1.3% in 2012, and 1.0% in 2014.

Pharmaceutical expenditure capped at 1.25% of GDP in 2012 and 1.0% of GDP in 2013.

Spain

Growth in Monetary pharmaceutical compensation expenditure linked (not explicitly to growth in GDP defined)

France

[8]

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No exemptions

[2,8,14]

[2,8,14]

Global pharmaceutical expenditure budget linked to health expenditure (Implemented in 2002)

Budget set at 13% of total health expenditure (changed to 13.1% in 2012 and 11.4% in 2013)

60% of excess No by Industry, exemptions pharmacists and wholesalers 40% of excess by regions

Annual budget for pharmaceuticals set prospectively by French Parliament (Implemented in 2002).

Set by parliament based on GDP growth, public sector deficits, and other macro criteria.

3 different thresholds based on level of excess expenditure ranging from 5070%. Based on market share and

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Italy

Unclear, for No current period. exemptions Historically, a partial payback of 69.9% of excess expenditure based on market share has applied (2006-2007)

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Portugal Annual budget for all pharmaceutical expenditure linked to GDP (Implemented as part of Economic Adjustment Programme in 2011)

Farmaindustria Protocolo (Implemented in 2015)

[18]

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Greece

Innovative [2,8,14] medicines, generics and orphan products

31

contribution to growth

Regional Budgets Italy Regional budgets within the national budget framework. (from 1990 onwards)

Products [2,8,14,20] introduced after December 31st 2013. Small and medium enterprises (sales under £5 million) 2019-2023: 36 months exemption for new active substances and improved exemption for smaller companies

Regions No responsible for information 40% of national expenditure excess. Regions exceeding target budgets liable. Spain Regional budgets Adjusted based on No information No within the national historical information budget framework spending and (1999 onwards). demographic differences Therapeutic Area Budgets England England Cancer Fixed annual No payback N/A Drugs Fund (2010- budget (Increasing mechanism 2016). For each year from (2010-2016 oncology products £50 million in receiving a 2010 to £340 negative million in 2016). Full payback by recommendation manufacturers in from NICE on the Fixed annual CDF based on basis of costbudget (£340 market share effectiveness. million annually) (2016-2019) England Cancer Drugs Fund (20162019) For managed

[8,15,22]

[8,14]

[23, 27, 28]

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Complex calculation taking into account historical spending on drugs.

Full payback according to market share (both schemes)

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UK Voluntary 2014-2018: fixed Scheme for annual growth in Branded Medicines expenditure (0% Pricing and Access in 2015, 1.8% in (VPAS), previously 2016 and 2017 known as and 1.9% in 2018) Pharmaceutical 2019-2023: fixed Pricing Regulation annual growth in Scheme (PPRS) expenditure (2.0% (5 year agreement annually) from 2014-2018) New VPAS scheme agreed for 20192023

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UK

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access of oncology products as part of NICE process N/A

[24]

Negotiated between Comité Economique Des Produits De Santé (CEPS) and pharmaceutical manufacturer

Price cuts at N/A certain expenditure thresholds, followed by full payback after maximum budget ceiling Full or partial N/A payback of excess expenditure.

[18]

Negotiated between reimbursement committee and pharmaceutical manufacturer

[18]

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Lithuania Price-Volume Agreements

No payback mechanism

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Product-specific budgets France Price-Volume Agreements

Fixed annual budget (£20 million for 2013/2014, £40 million for 2014/2015, £80 million for 2015/2016).

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Scotland Scotland New Medicines Fund (2013-2016). For orphan, ultraorphan, or end-oflife products.

Prescribing budgets Germany Ex-ante physician Set based on drug budget (2002 historical onwards) spending

[10]

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10% of N/A physicians selected annually for an audit. No penalty for 0% to 115% overspend. Increased audits for overspending between 115125% and payback mechanisms for greater than 125% overspending Fixed payment per Lower profit N/A patient to GP margin for GP, payback comes straight out of GP salary.

UK

GP Fundholding (1995 onwards). Capitation payments for GP services

[10]

33

Quality of care incentivized through financial rewards based on Quality and Outcomes Framework (QOF)

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Source: The authors, developed from literature and expert stakeholder feedback

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Table 2 – Advantages and Disadvantages of Pharmaceutical Budget Caps

✓

✓

✗2

Global budgets linked to health expenditure

✓

✓

✓

Global budgets with fixed annual growth

✓

~

Global budgets set based on macro criteria

✓

Regional Budgets4

✓

Avoids spillover effects (e.g. price cuts)

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✓

Promotes microeconomic efficiency / rational use

Promotes access to innovative medicines

Promotes equitable access to medicines

Promotes quality of medicines

✓

~

✗3

~

~

✓

~

✗3

~

~

✓

~

✓

~

~

✗

✓

~

~

~

~

✓

✗

~

✓

~

✓

~

ur n

✓

✗

✗

~

~

✗

✓

✗

~

✓

✓

~

✓

~

✓

~

~

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Product specific PVAs

Straightforward to implement

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Global Budgets linked to GDP

Disease-specific budgets5

Minimizes financial risk

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Promotes macroeconomic efficiency1

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Type of Scheme

Product specific fixed-cost per patient6

✓

✓

✗

✓

✓

✓

~

~

Prescribing budgets annual ex-ante cap

✓

✓

✓

~

✓

✗

✗

~

✓ Positive effect

✗Negative effect

~ No direct impact

35

✓

✓

~

✓

of

~

✗

✗

~

ro

Prescribing budget capitation

Jo

ur n

al P

re

Source: The authors from the literature and expert stakeholders

-p

1 Considered in the context of cost-containment and maintaining long-term financial sustainability 2 Due to difficulties in forecasting GDP accurately 3 Due to focus on sustainability rather than growth. Negative effects can be mitigated with appropriate payback exemptions 4 Requires health system to be organized in a way that facilitates regional budgets. Can co-promote objectives by operating within national budget framework. 5 Disease specific budgets are predominantly indicative and used to fund products unavailable through routine funding 6 Requires patient level data

36