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Global Budget for Cyprus’ National Health System: The Promised Land or a No Man’s Land?
VALUE IN HEALTH REGIONAL ISSUES 10 (2016) 67–72
Available online at www.sciencedirect.com
journal homepage: www.elsevier.com/locate/vhri
Global Budget for Cyprus’ National Health System: The Promised Land or a No Man’s Land? Panagiotis Petrou, PhD* Health Insurance Organization, Nicosia, Cyprus
AB STR A CT
Background: Soaring health expenditures worldwide call for potent cost-containment approaches. Global budgets have been used by several countries to harness their health expenditures by constraining the total payable amount to a predefined budget threshold. Objectives: Cyprus is vacillating on the use of a global budget for its National Health System; nevertheless, its attributes must be scrutinized to rule out potential adverse effects on quality of care and access of patients. The delegation of budget across providers is a context-sensitive process and as such it must be based on historical data and performance incentives as well. Conclusions: A global budget is not a panacea, and consequently the enhancement of
health system’s performance, appropriateness assessment, and volume and capacity control measures are incumbent. A global budget demonstrates a higher complexity factor for pharmaceuticals, which mandates a thorough assessment of pharmaceuticals before their reimbursement and elaboration of measures to safeguard timely access to innovation. Keywords: Cyprus, efficiency, global budget, health expenditure, health reforms, health system, pharmaceuticals, point value.
Introduction
(a budget that cannot be exceeded) or a soft cap budget (a budget that can be exceeded). A hard cap GB should be explicit and transparent, whereas a soft cap budget should outline how overruns are allocated among patients, providers, and payer(s). In the context of a GB, two health care providers will be positioned in a more advantageous situation if they both concomitantly reduce the volume of their health services, which would lead to a higher point value, that is, if they apply the game theory [3]. Nevertheless, what actually happens is the adoption of a high-service volume strategy as a tool to guarantee market share in the uncertainty context, a much safer option in a strict resource-defined GB system. A high-service pervasive strategy by all providers escalates the reduction of the point value, tumbling the actual reimbursement value, a phenomenon described as the prisoner’s dilemma [4,5]. This intertwines with the theory of common-property resources, which assumes that providers who share a common and limited resource pool try to expand their relative market share and ultimately engage in a “noncooperative competition,” which prioritizes services with a higher price‐cost ratio [6]. Therefore, if prices are high, physicians behave like profit maximizers, whereas when point value plummets, they behave like satisfiers, inducing demand to satisfy their target income [5]. This was substantiated in Taiwan, which experienced an increase in the average length of stay by 7%, in claim-related expenses by 14%, and in out-of-pocket fees per admission by 6% after the introduction of the GB [7].
Health agencies all over the world have been experimenting with several reimbursement systems for harnessing soaring health expenditures. Left unharnessed, they could jeopardize crowding out other publicly funded programs, such as in social and welfare services. In the optimum, yet illusive, health care reimbursement scheme, the attributes of efficiency, quality, managed care, and unobstructed access must be ingrained [1]. In this direction, the global budget (GB) has emerged to be among the most potent cost-containment measures and is defined as the legal obligation of the payer to not to exceed the annually set budget [2].
Global Budget A GB is an array of the information systems and regulatory tools that are utilised to watch over the performance of the health care financing and delivery system, with the ultimate target to control spending. On a theoretical level, GB relinquishes the power of health authorities over expenditure, while it poses an incentive for providers to enhance the efficiency of their medical activities, which could lead to the avoidance of having their activities rationed by the payer. GBs come in many country-specific variations such as with full or partial market coverage. At the same time, the specified budget can be a hard cap budget
Copyright & 2016, International Society for Pharmacoeconomics and Outcomes Research (ISPOR). Published by Elsevier Inc.
Conflicts of interest: The author has indicated that he has no conflicts of interest with regard to the content of this article. * Address correspondence to: Panagiotis Petrou, Health Insurance Organization, 14, Andrea Neokleous, Nicosia 2417, Cyprus. E-mail: [email protected] 2212-1099$36.00 – see front matter & 2016 Published by Elsevier Inc. on behalf of International Society for Pharmacoeconomics and Outcomes Research (ISPOR). http://dx.doi.org/10.1016/j.vhri.2016.07.007
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Despite its logistical value, the GB can inflict significant strikes on health care provision. As the floating point value plummets in response to an activity increase, physicians try to game the system either by postponing interventions or by lowering their costs. Evidence from several countries demonstrated that the reduction in the point value, following an increase in the volume of provided services, escalates the reduction in real services provided by the billable unit. This can lead to shorter visits, fewer visit activities, or even use of lower quality materials [8]. In Germany, the GB hindered the introduction of new technology because the centralized point value setting scheme could not easily adjust to new and changing fees. Several hospitals in Canada offer only essential services in late December as a last option to remain within their budgetary limits, whereas in the Netherlands, hospitals reduce the provision of a service if its corresponding budget is exceeded [9]. These ensue to hidden costs for the patients, in the form of lost time, and also to the loss of well-being and productivity. Moreover, the GB is a major source of uncertainty to providers, who contract ex-ante on the basis of prices that are going to be determined ex-post. This comprises a type of Cournot competition and, consequently, providers try to increase their supply, a situation that leads to a marginal impact on overall price levels [10,11]. Thus, providers in this type of a GB scheme are likely to earn lower profits, particularly as the number of providers increases. To this effect, some providers may exit the market, but the inclusion of new providers in the market must be thoroughly assessed. In the United Kingdom, price competition led to adverse effects on acute myocardial infarction mortality, whereas it demonstrated improvement in waiting times, indicating an overall decline in the efficiency factor of the system.
GB for Pharmaceuticals Germany’s experience with GB constitutes an interesting case study. Germany applied a GB for pharmaceuticals that was applicable only to primary health care doctors. In 1993, a 10.5% reduction in prescription volume was observed compared with 1992 (before the application of the GB) [12]. As expected, overall expenditures were also reduced by 28.8% in January 1993 compared with the previous year, whereas the reduction was 23.4% for February 1993, demonstrating a downward trajectory, as stated by the 16.2% reduction in June 1993 (vs. the previous year) [13]. Nevertheless, an increase of 24.9% in December 1992 accentuated a potential effort by physicians to game the system by technically inducing prescribing to manipulate the forthcoming GB. At the end of 1993, Germany succeeded in terms of the GB, with actual expenditures being lower than the threshold. Several authors speculate that this measure came at the expense of an increase in both direct and indirect costs because physicians referred patients requiring expensive medicines either to hospitals or to specialists, where pharmaceuticals were sheltered outside of the context of the GB. This was substantiated by a 9% increase in referrals to specialists and a 10% increase in referrals to hospitals, resulting in an additional 1.3 billion deutsche marks (DM) in direct expenditures and DM 1.5 billion in indirect expenditures [14]. Among European countries, Italy is legally bound to a GB; this is, however, applicable only for outpatient medicines and not for inpatient medicines, which are the cost drivers. Any deficits can be addressed through the transfer of expenditure from other government sectors, such as public works, thus extenuating the adverse impact on health resources. Hungary also applies a GB in selected pharmaceutical categories, in the form of price-volume agreements, which provide that any spending that exceeds the agreed level will be returned by the industry to the payer, without affecting the price. Nevertheless, this is not applicable to the entire pharmaceutical
sector because other measures, such as the name basis reimbursement, that are not regulated by the GB apply. Consequently, the total pharmaceutical budget usually exceeds the predefined levels. With this backdrop, some authors postulate the exclusion of pharmaceuticals from the GB, which is not a hassle-free approach. GBs are leaky in cases in which only some fragments of the health market are included. This entails the eminent risk for a spill-out effect, as observed in the case of Taiwan. Taiwan introduced a hard cap GB while pharmaceuticals were reimbursed at fixed prices through a “sheltered” pharmaceutical expenditure. This led to the increase in the pharmaceutical expenditure after the GB was imposed and a specific pattern of channelling patients to pharmaceutical care was observed [15]. This effect was more significant for expensive products, whereas no effect was recorded for low-priced products, highlighting a potential lack of incentive to rationalize prescribing. In Taiwan, the introduction of the GB was related to the increase in sheltered drug expenditure, whereas it did not lead to a decrease in nonpharmaceutical expenditure, thus indicating that the cause of pharmaceutical expenditure increase is not a shift from nonpharmaceutical to pharmaceutical intervention. This was substantiated by a 15% increase in the number of prescribed procedures and medications per hospital admission [15].
Cyprus Cyprus is the single European Union (EU) country without a universal coverage health risk-sharing scheme and is actively working towards the introduction of the much anticipated National Health System (NHS) [16]. Out-of-pocket payment (57%) exceeds public funding (43%). Total health expenditure, as a percentage of gross domestic product, is among the lowest in Europe, at 7.4%. But Cyprus performs well with regard to health indicators [17] (Table 1). Financial crisis shifted cost-sensitive patients to the free public health care sector, whose functional capacity was
Table 1 – Health indicators. Life expectancy (y) Women Men Average length of stay in hospitals (d) Health spending per capita Health expenditure as a share of GDP Standardized death rate for cancer Total Men Women Ischemic heart disease mortality rate Men Women Stroke mortality rates Men Women Infant mortality rate Practicing doctors per 1000 population Self-reported health status (%) Very good Fair Bad
83.4 78.9 7.4 1809 (EUR PPP) 7.4% 205.6 277.0 148.5 175* 89* 86* 85* 3.5 3 77 16 7
GDP, gross domestic product; PPP, purchasing power parity. * Age-standardized rates per 100,000 population.
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compromised because of a recruitment freeze and reductions in health expenditure, a repercussion of the fiscal recession. In 2013, two austerity-propelled measures, aiming to strengthen the financial capacity of the Ministry of Health and the efficiency of public health care provision were imposed: a 1.5% annual fee and a co-payment at the point of care. The approved-by-law NHS will be regulated by the GB, which is defined as the legal obligation of the payer not to exceed the annually set budget [2]. The capitation fee will be applied for general practitioners, whereas for the rest of the medical activities the point value will be imposed, which will be set on a monthly basis, contingent to the number of performed medical activities and the monthly allocated budget. As per Equation 1, a floating point value is introduced, indicating whether there was an underutilization (41) or an overutilization of health services (o1). Expenditure ¼ Σ ðService volume Þ Unit prices Floating point value : ð1Þ The implementation of the GB has to be construed in the context of the unification of Cyprus’ two heavily diverging health care sectors, public and private, which raised concerns over its fiscal sustainability. As discussed earlier, Cyprus is the single EU country whose private health expenditure exceeds its public funding. Of particular importance is the fact that in Cyprus the private health care sector has been bereft of any supply-side measures, which has resulted in its inordinate and inequitable expansion, deprived of any long-term strategic planning. The loose regulatory framework cascaded to an excessive number of health providers in the private sector, epitomized by the second highest numbers of magnetic resonance imaging, computed tomography scans, and pharmacists per 100,000 capita among EU countries [16]. This creates high running costs, which constitute a fertile ground for an induced supply of health services. Even in the public health care sector, which was void of supplyside measures, the inefficient use of health services was eminent, as attested by the high percentage of nonemergent emergency room visits, polypharmacy, and inappropriate levels of laboratory ordering, all constituting ramifications of the system’s waste of resources. Consequently, in a GB framework, in which the downside is the potential increase in the volume of medical activities as a response to point value fluctuations, a risk lurks that these inertias of the system may be magnified, unless demand- and supply-side measures are enforced. The principal objective of the NHS should be to efficiently control the volume of provided services. The Cyprus health care sector is particularized by a protracted lack of demand- and supply-side control measures. If this perpetuates, it will be aggravated by the GB, which will correlate with an artificially induced activity volume. Consequently, health agencies must apply therapeutic guidelines, which will regulate the supply of health services. Moreover, demand-side measures that will counteract any potential supply-side driven market forces are imperative. In addition to the inordinate number of providers, Cyprus has a small medical market, and some specialized activity units are highly concentrated, such as cardiac surgery units, intensive care
units, and renal units. These centers enjoy an oligopoly status and they may collude, thus rendering the GB scheme relatively inefficient. Cyprus has a fragmented pharmaceutical market consisting of the public and private sectors, which will be united in the context of the NHS [16] (Table 2). Introducing a points system for a formulary of 2000 products is a dubious and daunting task, given that the monthly adjustment of each product’s price would wreak havoc among patients, disturb the supply chain, and exert a spillover effect in other price-referencing countries. Other options include increase in personal contribution; this is, however, beyond scope during a financial recession, which would impel drastic reductions to household's disposable income and would lead to further privatization of health [18]. Another approach, the reduction of the formulary’s breadth, is incompatible with the inclusive dimension that the government tries to instill into the NHS. At present, the public sector procures medicines through tendering which leads to a closed formulary, an attribute that has sparked long debates and criticism— although not always substantiated. In addition, the increase in annual fees will probably face criticism by social stakeholders, with whom the government strains to reach a consensus regarding the new NHS. In the context of a universal GB, the incentive of using someone else’s budget still exists, an attitude that carries the inherent risk of inefficient services substitution. This was observed during the GB introduction in Germany, which introduced a GB for pharmaceuticals applicable only to primary care physicians. Although this led to a 30% reduction in pharmaceutical expenditure by general practitioners, a collateral referral increase in specialist and hospital admissions occurred. This behavior also infringes one fundamental rule of managed care in health, that assumes an efficient integration of all types of medical activities. Cyprus authorities should note that pricecontrolling mechanisms are blatantly inefficient as standalone measures, and therefore the control of pharmaceutical provision, activity volume through integrated guidelines, and economic and medical monitoring of physicians' activity are incumbent measures.
Recommendations Primarily, it is pivotal to limit the fluctuations of the point value between a specific range to compound uncertainty and avoid outlying medical behavior, both of which could ultimately impair the quality of provided health care. In this direction, it is clamant to couple the adjustment of the point value with other measures. In case a medical activity exceeds its defined budget, without any corresponding decrease in other activities, then a technology assessment of this activity should occur. Moreover, and reflecting on the literature findings, Cyprus health authorities must safeguard a quality versus cost balance. This presupposes the introduction of an efficient and effective review and monitoring system that can alleviate the flaws of the GB system. A step in this direction would be the linkage of payment with the performance of providers, including adherence to the clinical guidelines
Table 2 – Cyprus’ pharmaceutical expenditure (million €). Sector
2004
2005
2006
2007
2008
2009
2010
2011
Public sector (tender prices) Private sector (wholesale prices) Total pharmaceutical expenditure
60.80 65.15 125.95
77.38 61.77* 139.15
75.15 81.32 156.47
84.6 92.29 176.89
90.0 97 206.2
99.7 99 198.7
103.08 103 206.8
104.5 106.8 211.3
* This was the result of a price reduction, implemented by an outgoing Minister of Health in 2005.
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and patiens' satisfaction. The rising volume and the mounting complexity factor of available medical activities hinder good practice, unless a sound decision support system is implemented. In this direction, clinical guidelines have been introduced, which poses a good starting point, albeit most are not user-friendly. This gap can be bridged with the introduction of the appropriateness assessment of medical activities, whether provided services abide by the principles of efficiency, effectiveness, and ethics, along with priority setting. Economic approximations intertwine with the selection of medical activities when: 1. selecting between alternative treatment for a specific health condition or patient type; 2. scrutinizing which not-necessary medical activities are to be excluded, choosing among appropriate treatments for a given condition or patient; 3. fiscal conditions mandate the rationing of certain necessary treatments within the health budget; and 4. health authorities define the actual health expenditure. The development of a capacity control strategy, targeting the unknown operational capacity and the dynamic interdependencies in the health system, can potentially optimize the resource management. In any case, the GB must be supplemented by demand-side measures as well. Apart from the cost-sharing practices, which are endorsed by many authors, benefit packages and patient empowerment, as in the case of shared decision-making, are adequate costcontainment tools. The ushering in of a GB must also be interpreted in the context of an aging population, which exerts pressure on health resources and may potentially vitiate quality of care, acting synergistically with the GB. In Cyprus, the NHS is going to merge two fragmented markets, the volume-driven public sector and the predominantly valuedriven private sector, whose cost and output compositions deviate extensively. Therefore, the delegation of the total health expenditure into separate budgets across providers and different functions of the system is a dubious and complex task. Some authors suggest a combination of historic budgets, whose input should wane gradually, along with capitation scheme and performance-based incentives. This approach assumes that in the long-term, financing will be highly contingent on performance, whereas the use of historic budgets, which may be biased and flawed because of the merging of two sectors, will be used as a waypoint to avoid outliers. The GB is not an omnipotent standalone tool and it must encompass both incentives for good practices and sanctions for underperformers. In this direction, several quasi-market instruments have been introduced contingent on cost structure; nevertheless, recovery and payment at marginal cost can be considered and incorporated into future payments. Budget allocation must be interpreted in the context of cost and benefit decomposition of health interventions. Costs and benefits are only rarely found in the same health segment, whereas in several cases, benefits are expressed in social benefits, an intangible approximation. This was illustrated after the launch of the proton pump inhibitors, HIV and anti–tumor necrosis factor products, which demonstrated a beneficial effect in hospital stay and related surgeries. In this case, the inordinate cost is incurred in the pharmaceutical sector, whereas the benefit is redeemed in other sectors, such as the hospitals, in the form of shorter hospital stays and less need for imaging ordering [19]. These inertias of the market must be addressed through a yearly correction in the budget allocation process, allowing for a transfer of funds across sectors, on the basis of foreseen benefits and the interrelated impact on the utilization rate of relevant resources.
All these cannot be captured in a GB and a thorough assessment of the budget structure is essential. A feasible solution would be the introduction of an adjustment factor. This factor would gauge financial benefits stemming out of the reimbursement of innovative pharmaceutical products that are redeemed in other functions of the health systems, in the form of reduced hospitalization rates, less imaging, and fewer medical procedures. As a result, this adjustment factor would encompass the monetary value of these approximations and facilitate transfer of more resources to the pharmaceutical budget during the budget allocation process. The implementation of a policy for rational selection and use of medicines must be based on a sustainable financing scheme for medicines, coupled with safeguarding their affordability, all highlighting the need for a holistic, comprehensive, and integrated pharmaceutical policy [20]. These are highly pertinent for Cyprus’ small and unattractive pharmaceutical market, and therefore level market power is clearly on the supplier side. This was also verified by the introduction of free pricing of overthe-counter products, which led to an overnight 50% increase in their prices. In this sense, aggressive measures should be avoided because they may impair the availability of products in this small market, which ultimately may transform the small market into an oligopoly and even a monopoly. If this occurs, providers will have no competition-induced incentive to reduce their prices. A hard cap pharmaceutical GB provides limited room for reimbursement of new products. This, coupled with Cyprus’ small and unattractive market [21] cast doubts on whether the industry would be willing to launch innovative products, a decision that would ultimately deprive utility from the population [22]. (Cyprus has a pharmaceutical market totaling to €250 million and is considered to be unattractive because of its size and location.) A feasible solution to this direction would be the creation of an innovation fund that could raise resources from sin-tax, that is, tax from products that are deemed harmful for public health such as tobacco and alcohol. This innovation fund can help in funding innovative products and extenuating the monetary pressures on health resources, enabling a fiscal leeway that is decisive for the reimbursement of expensive products. What seems like a more feasible approach is a pharmaceutical budget with clawback. In line with policies in France, companies should return a certain percentage of the excess, in a progressive manner, to safeguard the clause. Then, the excess should be distributed among companies taking into account the number of products, total sales, and sales growth. This implies that the excessive cost of a single product will be distributed among several companies, incentivizing the specific company to aggressively promote the new innovative product. Consequently, advertising and promotion of pharmaceuticals must be regulated in this direction.
Quality and GB Every contemporary health system should strive for quality of care and ideally a standoff must be reached between cost containment and quality and between desirable and achievable reimbursable health activities [23]. The rationale of the GB is to transfer the responsibility of cost-containment from the macro to the meso level, that is, the providers. At this level, it is possible that other factors, such as competition between hospitals, sideline quality as attested by the compromise in efficiency and quality of health care in UK, underling that competition may impair outcomes, whose indicators are not readily available to purchasers [24]. Findings from Taiwan further substantiated that the introduction of the GB adversely impacted quality of care, in
VALUE IN HEALTH REGIONAL ISSUES 10 (2016) 67–72
contrast to other cost-containment measures. Therefore, a successful GB scheme must [25]: 1. display an intensive and thorough monitoring system, which is a major confounding factor of superior quality; 2. reach a standoff between aggressive cost-containment policies and safeguarding a certain level of quality in health care [26]; and 3. interfere with market forces, apart from regulating the market as such.
Discussion Primarily, any health system must be agile, evolving dynamic and capable of adjusting to the fluctuating financial conditions, while being in sync with the turbulent fiscal setting at that point in time. This was epitomized by the German experience, which underlined the dynamic attribute of the budgeting process, feature that makes the fine-tuning a prerequisite in a short time frame. Although some authors suggest a linkage of health expenditures with the growth, in terms of the gross domestic product, less funds would be available during a recession, which would augment health care needs, because a financial crisis is reckoned to be an independent health risk factor [27–29]. Therefore, the setting of a GB is pertinent to several policy considerations, aiming to evade overt health care rationing. As a general rule of thumb, costs are interwoven with the quality of care, and therefore any GB scheme should embed at least some approximations of quality in its operational framework, in the form of weights. For the hospital sector, these could include reductions in average length of stay and reductions in re-admission after discharge [30]. It is also important that any exemptions from a GB, as in the case of pharmaceuticals, are treated with caution because this may cascade a preferential treatment that may create a spill-out effect and skew the expenses of this market segment [15,31]. Expenditure control does not correspond to volume control in health services and it is not a sufficient measure to address the sustainability concerns of the health system. The need, as a supply concept, is often misused to fabricate need and induce demand, thus exceeding budget in a socially acceptable manner. This implies that the rationalization of the system is spaced out [32]. It is imperative to impose volume controls as well, as was the observation that excessive volume of services can backfire on quality, indirect costs, and transfer of medical costs between health care, segments, downgrading and jeopardizing the evidence-based medicine practice [33]. A potential solution toward this direction could be the definition of a price floor in terms of the point value [5]. In this context, it is important to upgrade the infrastructure so as to target volume control, outcomes research, introduction, dissemination, and adoption of best practice guidelines, as well as monitoring the financial profiles of physicians. A long-term policy should constitute physicians more responsible for the costs and the output of health services. Moreover, auditing bias should be addressed effectively. This infers that an independent audit team is imperative, with clear terms of reference and multidisciplinary technical expertise. To this direction all medically unjust and financially irrational therapeutic approaches should be justified by the physicians on the basis of the individual’s personal needs and patient's medical record. Nevertheless, the interlacing of medical audit with personal data should be clearly outlined to safeguard the confidentiality of a patient’s personal data. In addition, the introduction of expensive new products, as in the case of hepatitis C, will stretch the fiscal capacity of health
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systems worldwide. Therefore, health agencies are tackled in an inextricable situation, further aggravated by the financial recession. The GB will be a frail standalone tool in strengthening the sustainability of the funding structure. It must be coupled with performance incentives along with the incorporation of best practice clinical guidelines, and special provisions must be enforced for the adoption of costlier and innovative pharmaceuticals. A rational health technology assessment should precede the adoption of pharmaceuticals, confirming the innovation status of the products and minimizing uncertainty and, consequently, waste of health resources.
Acknowledgment I am grateful to Constantinos Petrou and Evgenia Petrou-Poiitou for instigating the research, for their omnifarious support, but predominantly for sharpening my discernment and sagacity, which incarnates Odysseas Elytis verses “You can make the truth in the same way you can make the lies”. I am also grateful to Maria Michael, administration officer at the Health Insurance Organization and a precious “co-warrior”, for her vested and benevolent support in my pursuance to fathom out the strange kaleidoscope of Cyprus health care sector, principally by circumventing lurking ignis fatuus, perils and blandishes. “This is to have succeeded”. R EF E R EN C ES
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Available online at www.sciencedirect.com
journal homepage: www.elsevier.com/locate/vhri
Global Budget for Cyprus’ National Health System: The Promised Land or a No Man’s Land? Panagiotis Petrou, PhD* Health Insurance Organization, Nicosia, Cyprus
AB STR A CT
Background: Soaring health expenditures worldwide call for potent cost-containment approaches. Global budgets have been used by several countries to harness their health expenditures by constraining the total payable amount to a predefined budget threshold. Objectives: Cyprus is vacillating on the use of a global budget for its National Health System; nevertheless, its attributes must be scrutinized to rule out potential adverse effects on quality of care and access of patients. The delegation of budget across providers is a context-sensitive process and as such it must be based on historical data and performance incentives as well. Conclusions: A global budget is not a panacea, and consequently the enhancement of
health system’s performance, appropriateness assessment, and volume and capacity control measures are incumbent. A global budget demonstrates a higher complexity factor for pharmaceuticals, which mandates a thorough assessment of pharmaceuticals before their reimbursement and elaboration of measures to safeguard timely access to innovation. Keywords: Cyprus, efficiency, global budget, health expenditure, health reforms, health system, pharmaceuticals, point value.
Introduction
(a budget that cannot be exceeded) or a soft cap budget (a budget that can be exceeded). A hard cap GB should be explicit and transparent, whereas a soft cap budget should outline how overruns are allocated among patients, providers, and payer(s). In the context of a GB, two health care providers will be positioned in a more advantageous situation if they both concomitantly reduce the volume of their health services, which would lead to a higher point value, that is, if they apply the game theory [3]. Nevertheless, what actually happens is the adoption of a high-service volume strategy as a tool to guarantee market share in the uncertainty context, a much safer option in a strict resource-defined GB system. A high-service pervasive strategy by all providers escalates the reduction of the point value, tumbling the actual reimbursement value, a phenomenon described as the prisoner’s dilemma [4,5]. This intertwines with the theory of common-property resources, which assumes that providers who share a common and limited resource pool try to expand their relative market share and ultimately engage in a “noncooperative competition,” which prioritizes services with a higher price‐cost ratio [6]. Therefore, if prices are high, physicians behave like profit maximizers, whereas when point value plummets, they behave like satisfiers, inducing demand to satisfy their target income [5]. This was substantiated in Taiwan, which experienced an increase in the average length of stay by 7%, in claim-related expenses by 14%, and in out-of-pocket fees per admission by 6% after the introduction of the GB [7].
Health agencies all over the world have been experimenting with several reimbursement systems for harnessing soaring health expenditures. Left unharnessed, they could jeopardize crowding out other publicly funded programs, such as in social and welfare services. In the optimum, yet illusive, health care reimbursement scheme, the attributes of efficiency, quality, managed care, and unobstructed access must be ingrained [1]. In this direction, the global budget (GB) has emerged to be among the most potent cost-containment measures and is defined as the legal obligation of the payer to not to exceed the annually set budget [2].
Global Budget A GB is an array of the information systems and regulatory tools that are utilised to watch over the performance of the health care financing and delivery system, with the ultimate target to control spending. On a theoretical level, GB relinquishes the power of health authorities over expenditure, while it poses an incentive for providers to enhance the efficiency of their medical activities, which could lead to the avoidance of having their activities rationed by the payer. GBs come in many country-specific variations such as with full or partial market coverage. At the same time, the specified budget can be a hard cap budget
Copyright & 2016, International Society for Pharmacoeconomics and Outcomes Research (ISPOR). Published by Elsevier Inc.
Conflicts of interest: The author has indicated that he has no conflicts of interest with regard to the content of this article. * Address correspondence to: Panagiotis Petrou, Health Insurance Organization, 14, Andrea Neokleous, Nicosia 2417, Cyprus. E-mail: [email protected] 2212-1099$36.00 – see front matter & 2016 Published by Elsevier Inc. on behalf of International Society for Pharmacoeconomics and Outcomes Research (ISPOR). http://dx.doi.org/10.1016/j.vhri.2016.07.007
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Despite its logistical value, the GB can inflict significant strikes on health care provision. As the floating point value plummets in response to an activity increase, physicians try to game the system either by postponing interventions or by lowering their costs. Evidence from several countries demonstrated that the reduction in the point value, following an increase in the volume of provided services, escalates the reduction in real services provided by the billable unit. This can lead to shorter visits, fewer visit activities, or even use of lower quality materials [8]. In Germany, the GB hindered the introduction of new technology because the centralized point value setting scheme could not easily adjust to new and changing fees. Several hospitals in Canada offer only essential services in late December as a last option to remain within their budgetary limits, whereas in the Netherlands, hospitals reduce the provision of a service if its corresponding budget is exceeded [9]. These ensue to hidden costs for the patients, in the form of lost time, and also to the loss of well-being and productivity. Moreover, the GB is a major source of uncertainty to providers, who contract ex-ante on the basis of prices that are going to be determined ex-post. This comprises a type of Cournot competition and, consequently, providers try to increase their supply, a situation that leads to a marginal impact on overall price levels [10,11]. Thus, providers in this type of a GB scheme are likely to earn lower profits, particularly as the number of providers increases. To this effect, some providers may exit the market, but the inclusion of new providers in the market must be thoroughly assessed. In the United Kingdom, price competition led to adverse effects on acute myocardial infarction mortality, whereas it demonstrated improvement in waiting times, indicating an overall decline in the efficiency factor of the system.
GB for Pharmaceuticals Germany’s experience with GB constitutes an interesting case study. Germany applied a GB for pharmaceuticals that was applicable only to primary health care doctors. In 1993, a 10.5% reduction in prescription volume was observed compared with 1992 (before the application of the GB) [12]. As expected, overall expenditures were also reduced by 28.8% in January 1993 compared with the previous year, whereas the reduction was 23.4% for February 1993, demonstrating a downward trajectory, as stated by the 16.2% reduction in June 1993 (vs. the previous year) [13]. Nevertheless, an increase of 24.9% in December 1992 accentuated a potential effort by physicians to game the system by technically inducing prescribing to manipulate the forthcoming GB. At the end of 1993, Germany succeeded in terms of the GB, with actual expenditures being lower than the threshold. Several authors speculate that this measure came at the expense of an increase in both direct and indirect costs because physicians referred patients requiring expensive medicines either to hospitals or to specialists, where pharmaceuticals were sheltered outside of the context of the GB. This was substantiated by a 9% increase in referrals to specialists and a 10% increase in referrals to hospitals, resulting in an additional 1.3 billion deutsche marks (DM) in direct expenditures and DM 1.5 billion in indirect expenditures [14]. Among European countries, Italy is legally bound to a GB; this is, however, applicable only for outpatient medicines and not for inpatient medicines, which are the cost drivers. Any deficits can be addressed through the transfer of expenditure from other government sectors, such as public works, thus extenuating the adverse impact on health resources. Hungary also applies a GB in selected pharmaceutical categories, in the form of price-volume agreements, which provide that any spending that exceeds the agreed level will be returned by the industry to the payer, without affecting the price. Nevertheless, this is not applicable to the entire pharmaceutical
sector because other measures, such as the name basis reimbursement, that are not regulated by the GB apply. Consequently, the total pharmaceutical budget usually exceeds the predefined levels. With this backdrop, some authors postulate the exclusion of pharmaceuticals from the GB, which is not a hassle-free approach. GBs are leaky in cases in which only some fragments of the health market are included. This entails the eminent risk for a spill-out effect, as observed in the case of Taiwan. Taiwan introduced a hard cap GB while pharmaceuticals were reimbursed at fixed prices through a “sheltered” pharmaceutical expenditure. This led to the increase in the pharmaceutical expenditure after the GB was imposed and a specific pattern of channelling patients to pharmaceutical care was observed [15]. This effect was more significant for expensive products, whereas no effect was recorded for low-priced products, highlighting a potential lack of incentive to rationalize prescribing. In Taiwan, the introduction of the GB was related to the increase in sheltered drug expenditure, whereas it did not lead to a decrease in nonpharmaceutical expenditure, thus indicating that the cause of pharmaceutical expenditure increase is not a shift from nonpharmaceutical to pharmaceutical intervention. This was substantiated by a 15% increase in the number of prescribed procedures and medications per hospital admission [15].
Cyprus Cyprus is the single European Union (EU) country without a universal coverage health risk-sharing scheme and is actively working towards the introduction of the much anticipated National Health System (NHS) [16]. Out-of-pocket payment (57%) exceeds public funding (43%). Total health expenditure, as a percentage of gross domestic product, is among the lowest in Europe, at 7.4%. But Cyprus performs well with regard to health indicators [17] (Table 1). Financial crisis shifted cost-sensitive patients to the free public health care sector, whose functional capacity was
Table 1 – Health indicators. Life expectancy (y) Women Men Average length of stay in hospitals (d) Health spending per capita Health expenditure as a share of GDP Standardized death rate for cancer Total Men Women Ischemic heart disease mortality rate Men Women Stroke mortality rates Men Women Infant mortality rate Practicing doctors per 1000 population Self-reported health status (%) Very good Fair Bad
83.4 78.9 7.4 1809 (EUR PPP) 7.4% 205.6 277.0 148.5 175* 89* 86* 85* 3.5 3 77 16 7
GDP, gross domestic product; PPP, purchasing power parity. * Age-standardized rates per 100,000 population.
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compromised because of a recruitment freeze and reductions in health expenditure, a repercussion of the fiscal recession. In 2013, two austerity-propelled measures, aiming to strengthen the financial capacity of the Ministry of Health and the efficiency of public health care provision were imposed: a 1.5% annual fee and a co-payment at the point of care. The approved-by-law NHS will be regulated by the GB, which is defined as the legal obligation of the payer not to exceed the annually set budget [2]. The capitation fee will be applied for general practitioners, whereas for the rest of the medical activities the point value will be imposed, which will be set on a monthly basis, contingent to the number of performed medical activities and the monthly allocated budget. As per Equation 1, a floating point value is introduced, indicating whether there was an underutilization (41) or an overutilization of health services (o1). Expenditure ¼ Σ ðService volume Þ Unit prices Floating point value : ð1Þ The implementation of the GB has to be construed in the context of the unification of Cyprus’ two heavily diverging health care sectors, public and private, which raised concerns over its fiscal sustainability. As discussed earlier, Cyprus is the single EU country whose private health expenditure exceeds its public funding. Of particular importance is the fact that in Cyprus the private health care sector has been bereft of any supply-side measures, which has resulted in its inordinate and inequitable expansion, deprived of any long-term strategic planning. The loose regulatory framework cascaded to an excessive number of health providers in the private sector, epitomized by the second highest numbers of magnetic resonance imaging, computed tomography scans, and pharmacists per 100,000 capita among EU countries [16]. This creates high running costs, which constitute a fertile ground for an induced supply of health services. Even in the public health care sector, which was void of supplyside measures, the inefficient use of health services was eminent, as attested by the high percentage of nonemergent emergency room visits, polypharmacy, and inappropriate levels of laboratory ordering, all constituting ramifications of the system’s waste of resources. Consequently, in a GB framework, in which the downside is the potential increase in the volume of medical activities as a response to point value fluctuations, a risk lurks that these inertias of the system may be magnified, unless demand- and supply-side measures are enforced. The principal objective of the NHS should be to efficiently control the volume of provided services. The Cyprus health care sector is particularized by a protracted lack of demand- and supply-side control measures. If this perpetuates, it will be aggravated by the GB, which will correlate with an artificially induced activity volume. Consequently, health agencies must apply therapeutic guidelines, which will regulate the supply of health services. Moreover, demand-side measures that will counteract any potential supply-side driven market forces are imperative. In addition to the inordinate number of providers, Cyprus has a small medical market, and some specialized activity units are highly concentrated, such as cardiac surgery units, intensive care
units, and renal units. These centers enjoy an oligopoly status and they may collude, thus rendering the GB scheme relatively inefficient. Cyprus has a fragmented pharmaceutical market consisting of the public and private sectors, which will be united in the context of the NHS [16] (Table 2). Introducing a points system for a formulary of 2000 products is a dubious and daunting task, given that the monthly adjustment of each product’s price would wreak havoc among patients, disturb the supply chain, and exert a spillover effect in other price-referencing countries. Other options include increase in personal contribution; this is, however, beyond scope during a financial recession, which would impel drastic reductions to household's disposable income and would lead to further privatization of health [18]. Another approach, the reduction of the formulary’s breadth, is incompatible with the inclusive dimension that the government tries to instill into the NHS. At present, the public sector procures medicines through tendering which leads to a closed formulary, an attribute that has sparked long debates and criticism— although not always substantiated. In addition, the increase in annual fees will probably face criticism by social stakeholders, with whom the government strains to reach a consensus regarding the new NHS. In the context of a universal GB, the incentive of using someone else’s budget still exists, an attitude that carries the inherent risk of inefficient services substitution. This was observed during the GB introduction in Germany, which introduced a GB for pharmaceuticals applicable only to primary care physicians. Although this led to a 30% reduction in pharmaceutical expenditure by general practitioners, a collateral referral increase in specialist and hospital admissions occurred. This behavior also infringes one fundamental rule of managed care in health, that assumes an efficient integration of all types of medical activities. Cyprus authorities should note that pricecontrolling mechanisms are blatantly inefficient as standalone measures, and therefore the control of pharmaceutical provision, activity volume through integrated guidelines, and economic and medical monitoring of physicians' activity are incumbent measures.
Recommendations Primarily, it is pivotal to limit the fluctuations of the point value between a specific range to compound uncertainty and avoid outlying medical behavior, both of which could ultimately impair the quality of provided health care. In this direction, it is clamant to couple the adjustment of the point value with other measures. In case a medical activity exceeds its defined budget, without any corresponding decrease in other activities, then a technology assessment of this activity should occur. Moreover, and reflecting on the literature findings, Cyprus health authorities must safeguard a quality versus cost balance. This presupposes the introduction of an efficient and effective review and monitoring system that can alleviate the flaws of the GB system. A step in this direction would be the linkage of payment with the performance of providers, including adherence to the clinical guidelines
Table 2 – Cyprus’ pharmaceutical expenditure (million €). Sector
2004
2005
2006
2007
2008
2009
2010
2011
Public sector (tender prices) Private sector (wholesale prices) Total pharmaceutical expenditure
60.80 65.15 125.95
77.38 61.77* 139.15
75.15 81.32 156.47
84.6 92.29 176.89
90.0 97 206.2
99.7 99 198.7
103.08 103 206.8
104.5 106.8 211.3
* This was the result of a price reduction, implemented by an outgoing Minister of Health in 2005.
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and patiens' satisfaction. The rising volume and the mounting complexity factor of available medical activities hinder good practice, unless a sound decision support system is implemented. In this direction, clinical guidelines have been introduced, which poses a good starting point, albeit most are not user-friendly. This gap can be bridged with the introduction of the appropriateness assessment of medical activities, whether provided services abide by the principles of efficiency, effectiveness, and ethics, along with priority setting. Economic approximations intertwine with the selection of medical activities when: 1. selecting between alternative treatment for a specific health condition or patient type; 2. scrutinizing which not-necessary medical activities are to be excluded, choosing among appropriate treatments for a given condition or patient; 3. fiscal conditions mandate the rationing of certain necessary treatments within the health budget; and 4. health authorities define the actual health expenditure. The development of a capacity control strategy, targeting the unknown operational capacity and the dynamic interdependencies in the health system, can potentially optimize the resource management. In any case, the GB must be supplemented by demand-side measures as well. Apart from the cost-sharing practices, which are endorsed by many authors, benefit packages and patient empowerment, as in the case of shared decision-making, are adequate costcontainment tools. The ushering in of a GB must also be interpreted in the context of an aging population, which exerts pressure on health resources and may potentially vitiate quality of care, acting synergistically with the GB. In Cyprus, the NHS is going to merge two fragmented markets, the volume-driven public sector and the predominantly valuedriven private sector, whose cost and output compositions deviate extensively. Therefore, the delegation of the total health expenditure into separate budgets across providers and different functions of the system is a dubious and complex task. Some authors suggest a combination of historic budgets, whose input should wane gradually, along with capitation scheme and performance-based incentives. This approach assumes that in the long-term, financing will be highly contingent on performance, whereas the use of historic budgets, which may be biased and flawed because of the merging of two sectors, will be used as a waypoint to avoid outliers. The GB is not an omnipotent standalone tool and it must encompass both incentives for good practices and sanctions for underperformers. In this direction, several quasi-market instruments have been introduced contingent on cost structure; nevertheless, recovery and payment at marginal cost can be considered and incorporated into future payments. Budget allocation must be interpreted in the context of cost and benefit decomposition of health interventions. Costs and benefits are only rarely found in the same health segment, whereas in several cases, benefits are expressed in social benefits, an intangible approximation. This was illustrated after the launch of the proton pump inhibitors, HIV and anti–tumor necrosis factor products, which demonstrated a beneficial effect in hospital stay and related surgeries. In this case, the inordinate cost is incurred in the pharmaceutical sector, whereas the benefit is redeemed in other sectors, such as the hospitals, in the form of shorter hospital stays and less need for imaging ordering [19]. These inertias of the market must be addressed through a yearly correction in the budget allocation process, allowing for a transfer of funds across sectors, on the basis of foreseen benefits and the interrelated impact on the utilization rate of relevant resources.
All these cannot be captured in a GB and a thorough assessment of the budget structure is essential. A feasible solution would be the introduction of an adjustment factor. This factor would gauge financial benefits stemming out of the reimbursement of innovative pharmaceutical products that are redeemed in other functions of the health systems, in the form of reduced hospitalization rates, less imaging, and fewer medical procedures. As a result, this adjustment factor would encompass the monetary value of these approximations and facilitate transfer of more resources to the pharmaceutical budget during the budget allocation process. The implementation of a policy for rational selection and use of medicines must be based on a sustainable financing scheme for medicines, coupled with safeguarding their affordability, all highlighting the need for a holistic, comprehensive, and integrated pharmaceutical policy [20]. These are highly pertinent for Cyprus’ small and unattractive pharmaceutical market, and therefore level market power is clearly on the supplier side. This was also verified by the introduction of free pricing of overthe-counter products, which led to an overnight 50% increase in their prices. In this sense, aggressive measures should be avoided because they may impair the availability of products in this small market, which ultimately may transform the small market into an oligopoly and even a monopoly. If this occurs, providers will have no competition-induced incentive to reduce their prices. A hard cap pharmaceutical GB provides limited room for reimbursement of new products. This, coupled with Cyprus’ small and unattractive market [21] cast doubts on whether the industry would be willing to launch innovative products, a decision that would ultimately deprive utility from the population [22]. (Cyprus has a pharmaceutical market totaling to €250 million and is considered to be unattractive because of its size and location.) A feasible solution to this direction would be the creation of an innovation fund that could raise resources from sin-tax, that is, tax from products that are deemed harmful for public health such as tobacco and alcohol. This innovation fund can help in funding innovative products and extenuating the monetary pressures on health resources, enabling a fiscal leeway that is decisive for the reimbursement of expensive products. What seems like a more feasible approach is a pharmaceutical budget with clawback. In line with policies in France, companies should return a certain percentage of the excess, in a progressive manner, to safeguard the clause. Then, the excess should be distributed among companies taking into account the number of products, total sales, and sales growth. This implies that the excessive cost of a single product will be distributed among several companies, incentivizing the specific company to aggressively promote the new innovative product. Consequently, advertising and promotion of pharmaceuticals must be regulated in this direction.
Quality and GB Every contemporary health system should strive for quality of care and ideally a standoff must be reached between cost containment and quality and between desirable and achievable reimbursable health activities [23]. The rationale of the GB is to transfer the responsibility of cost-containment from the macro to the meso level, that is, the providers. At this level, it is possible that other factors, such as competition between hospitals, sideline quality as attested by the compromise in efficiency and quality of health care in UK, underling that competition may impair outcomes, whose indicators are not readily available to purchasers [24]. Findings from Taiwan further substantiated that the introduction of the GB adversely impacted quality of care, in
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contrast to other cost-containment measures. Therefore, a successful GB scheme must [25]: 1. display an intensive and thorough monitoring system, which is a major confounding factor of superior quality; 2. reach a standoff between aggressive cost-containment policies and safeguarding a certain level of quality in health care [26]; and 3. interfere with market forces, apart from regulating the market as such.
Discussion Primarily, any health system must be agile, evolving dynamic and capable of adjusting to the fluctuating financial conditions, while being in sync with the turbulent fiscal setting at that point in time. This was epitomized by the German experience, which underlined the dynamic attribute of the budgeting process, feature that makes the fine-tuning a prerequisite in a short time frame. Although some authors suggest a linkage of health expenditures with the growth, in terms of the gross domestic product, less funds would be available during a recession, which would augment health care needs, because a financial crisis is reckoned to be an independent health risk factor [27–29]. Therefore, the setting of a GB is pertinent to several policy considerations, aiming to evade overt health care rationing. As a general rule of thumb, costs are interwoven with the quality of care, and therefore any GB scheme should embed at least some approximations of quality in its operational framework, in the form of weights. For the hospital sector, these could include reductions in average length of stay and reductions in re-admission after discharge [30]. It is also important that any exemptions from a GB, as in the case of pharmaceuticals, are treated with caution because this may cascade a preferential treatment that may create a spill-out effect and skew the expenses of this market segment [15,31]. Expenditure control does not correspond to volume control in health services and it is not a sufficient measure to address the sustainability concerns of the health system. The need, as a supply concept, is often misused to fabricate need and induce demand, thus exceeding budget in a socially acceptable manner. This implies that the rationalization of the system is spaced out [32]. It is imperative to impose volume controls as well, as was the observation that excessive volume of services can backfire on quality, indirect costs, and transfer of medical costs between health care, segments, downgrading and jeopardizing the evidence-based medicine practice [33]. A potential solution toward this direction could be the definition of a price floor in terms of the point value [5]. In this context, it is important to upgrade the infrastructure so as to target volume control, outcomes research, introduction, dissemination, and adoption of best practice guidelines, as well as monitoring the financial profiles of physicians. A long-term policy should constitute physicians more responsible for the costs and the output of health services. Moreover, auditing bias should be addressed effectively. This infers that an independent audit team is imperative, with clear terms of reference and multidisciplinary technical expertise. To this direction all medically unjust and financially irrational therapeutic approaches should be justified by the physicians on the basis of the individual’s personal needs and patient's medical record. Nevertheless, the interlacing of medical audit with personal data should be clearly outlined to safeguard the confidentiality of a patient’s personal data. In addition, the introduction of expensive new products, as in the case of hepatitis C, will stretch the fiscal capacity of health
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systems worldwide. Therefore, health agencies are tackled in an inextricable situation, further aggravated by the financial recession. The GB will be a frail standalone tool in strengthening the sustainability of the funding structure. It must be coupled with performance incentives along with the incorporation of best practice clinical guidelines, and special provisions must be enforced for the adoption of costlier and innovative pharmaceuticals. A rational health technology assessment should precede the adoption of pharmaceuticals, confirming the innovation status of the products and minimizing uncertainty and, consequently, waste of health resources.
Acknowledgment I am grateful to Constantinos Petrou and Evgenia Petrou-Poiitou for instigating the research, for their omnifarious support, but predominantly for sharpening my discernment and sagacity, which incarnates Odysseas Elytis verses “You can make the truth in the same way you can make the lies”. I am also grateful to Maria Michael, administration officer at the Health Insurance Organization and a precious “co-warrior”, for her vested and benevolent support in my pursuance to fathom out the strange kaleidoscope of Cyprus health care sector, principally by circumventing lurking ignis fatuus, perils and blandishes. “This is to have succeeded”. R EF E R EN C ES
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