The use of prescription charges

Health Policy 27 (1994) 53-73

Review

The use of prescription charges Christine Business Policy

Department,

Faculty

Huttin

of Economics,

(Accepted

University

19 October

of Paris X. Paris.

France

1993)

Abstract This paper makes a contribution concerning the effectiveness of the direct payment for drugs by the patient through a review of the most important empirical US and UK contributions. It confirms that the demand for prescription drugs, and even the demand for OTC to a lesser extent, is reduced by a direct contribution from the patient. The price elasticities which measure the scope of the decrease of drug consumption, range however at low levels from -0. I/ or -0.2 to -0.6 [ 11. In order to be able to draw some policy conclusions from these stud-

ies, the health analyst will also want to have clinical or quality assessments of the changes of consumption or the health conditions of the patient. Some of the works reviewed offer some preliminary answers, but on a limited share of the population (the Medicaid population in the USA). Applied to some non-essential medications, however, this type of work highlights the phenomena of substitution between drugs, lack of change in overall drug use and uncertain changes in the quality of prescribing. This review paper will allow the policy makers to discuss some areas of change for various types of direct payments of the patient, and the use of unique versus selective schemes. Prescription Key words: Pharmaceuticals; policy; Pricing policy; Reimbursment

charge;

Co-payment;

Insurance

coverage;

Drug

1. The role of patients in paying for medicines The patient’s role in contributing to the direct costs of health care is a key issue in most European countries, as increasing expenditure is putting pressure on policy makers to reconsider the distribution of costs borne for the provision of services. In * Corresponding

author,

Residence

Mazeleyre

Bat. Bl.

18 Bd de la Rtpublique,

France. 0168-8510/94/$07.00 0 1994 Elsevier Science Ireland SSDI 0168-8510(93)00597-T

Ltd. All rights reserved.

92 420 Vaucresson,

54

C. Huttin / Health Policy 27 (1994) 53-73

particular, pharmaceutical services, though they represent what may seem like a relatively small share of the overall cost of services, are particularly suitable for review. Direct payment for medicines by the patient is a highly controversial issue: employees and employers already indirectly contribute considerable amounts to the financing of health care, through the National Insurance scheme. Therefore, any increase in prescription charges in order to make consumers sensitive to the price of medicines places additional financial burdens on the patient. The question of direct financial involvement by the patient arises because the pharmaceutical market is partly influenced by the rules governing the insurance market. Paying through insurance removes the price barrier to consumption. Direct payment by the patient aims to correct the imbalance caused by indirect payment, Participants in the debate fall largely into two camps. There are those who claim that prescription charges help to control total pharmaceutical expenditure by giving the consumer the initiative to pay for service: this is usually measured by the concept of price elasticity. Others claim that a direct payment from the patient is irrelevant, because it is the doctor who makes the decision about which medicines are prescribed. This paper therefore aims to make a contribution to this debate by reviewing major US and UK empirical research which has analysed the relation between direct payment from the patient and the use and cost of medicines. In introducing a policy which makes the patient pay directly for medicines, national authorities or insurance funds managers face a number of choices, which raise an issue of equity: - for which medicines should direct payment be imposed? - on which groups in the population? - which form of direct payment should be chosen? It is hoped that this evaluation of certain existing or past policies will help us to assess the advantages and drawbacks of each of the different alternatives. One difficulty in devising a direct payment policy in Europe or in the USA is that there are several institutions who would be involved in selecting a single policy option. This could be still further complicated by the consumer, who could still choose to take out additional cover. In the USA, competitive insurance companies will always be willing to supply supplementary insurance coverage for patients [2,3]. In Europe, supplementary health policies exist and complement the main National Insurance schemes. This paper will not address this issue, because the studies evaluated here only cover cases where a single policy exists, designed either by the Medicaid administration or an insurance company in the US or the National Health Service in the case of the UK. There are essentially four types of direct financial contribution by the patient: (i) fixed charge, usually called a prescription charge; (ii) prepayment system; (iii) copayment system; (iv) the deductible system. A prescription charge is a fixed contribution per item of prescription. It is used in the UK, but some categories and groups of the population are exempt [4]. The amount paid by the patient has regularly increased over time. It was also the form of direct payment chosen by Germany until 1992. With a prepayment system [S], the patient pays an access fee, after which, use of pharmaceutical dispensing services is free at the point of delivery. With the co-payment system, the patient pays a percentage of the cost of

C. Huttin / Health Policy 27 (1994) 53-73

55

medicines. Usually the percentage paid varies according to the category of medicine. The more essential the medicine is considered to be, then the lower the amount paid by the patient, while for non-vital medicines, the rate of co-payment by the patient may reach 60% or 70%. The rates of co-payment may also be assessed, not by classification of medicines, but by type of illnesses. For severe illnesses for instance, the rate of co-payment may be negligible, while for other illnesses it will vary with the types of medicines consumed. Finally, the deductible system makes the consumer pay 100% up to a certain level, and after that the price is subsidised. The method is often combined with another form of direct payment either by a prescription charge or by co-payment for the share of the cost of a medicine over and above a certain level. The introduction of this method changes consumer behaviour. The impact of this form of direct payment on the demand for prescription medicines is more complex to analyse, since the expectations of the patients about the amount of their medicine bill will need to be taken into consideration. If they expect it to exceed the deductible, they will approximate their behaviour as an individual with no deductible. If the consumer is uncertain about exceeding the deductible, the insured consumer will probably consume more services that the uninsured [6]. No study under review here discusses this method of payment. One reason for this is the lack of access to data, since there are no insurance claims submitted until the person begins to pay the excess amount. Therefore this paper will only consider research on prescription charge, co-payment or prepayment systems. For policy purposes, it would be useful to make international comparisons. However, this is difficult, because only major empirical works from the USA and the UK have been found in the health journals reviewed. Moreover, the population samples on which the impact of a direct payment is assessed are not comparable. In order to draw policy conclusions from these studies, it is not sufficient to observe that prescription charges decrease the level of medicine consumption. The more informative studies go one step further and analyse the impact of co-payment or prescription charges on the structure of the medicines consumed. It would also be helpful to see how variations of direct payment by the patient for different health services, and not only for pharmaceutical services, can interact on the use of services. For instance, a direct payment for doctors’ visits will probably reduce the use of prescribed medicines, and not just the number of visits by the doctor. There is a paradox in that most of the evaluative studies in this area are relatively old, while the question of which payment scheme should be introduced is a current issue. The pieces of research reviewed are all retrospective studies (with the exception of the Rand experiment). Therefore, they did not contribute to the policy making process. In the case of the Rand experiment, of which the major results are presented in this paper, the study took 8-10 years, and therefore its impact was not intended to influence the political process. Nonetheless, at present it would be informative to discuss the ways in which these evaluative studies might contribute more to the current redesign of reimbursement policies. However, the major policy changes which are presently taking place nationally are not based upon research findings which would inform the decisionmaking process. For example, Italy has completely revised the criteria of subscrip-

56

C. Huttin /Health

Policy 27 (1994) 53-73

tion to medicines on the positive list of reimbursement and has reduced the categories of population exempted from making a co-payment. Italy also uses ‘level of income’ as a major determinant in deciding the patient’s level of co-payment. Another example is Germany, where a fixed amount per item on a prescription is about to be replaced by more complex forms of direct payment, taking into account the duration of the treatment. The reintroduction of factors like income and new criteria, like the duration of treatment might have benefited from evaluative research before becoming a feature of national policy. These examples show that direct payment by the patient is a crucial issue in the policy debate on medicine cost containment and more up-to-date studies are urgently required to adapt these policies to changing patterns of consumption and new generations of medicines. This paper aims to facilitate discussion on the scope for change by drawing upon conclusions from past experiences, by discussing methodological problems and by evaluating the specifications of current models used to estimate the impact of direct payment on the use of medicines. 2. Basic theoretical framework and models used 2.1. Demand for and price of medicines The basic issue to examine is whether direct payment by the patient influences their pattern of consumption (quantities, types of medicines) for pharmaceutical and possibly other services. Therefore, the models analyse the relation between the demand for medicines and the net price for the consumer [7]. Most models in the literature regard the financial variable represented by the prescription charge as a disincentive which acts as a price barrier on the demand for medicines. The sensitivity of a patient to the level of a prescription charge is usually measured by elasticity, which represents the change in the medicine consumption in relation to the change of prices, or at least to the change of charge paid by the patient. Consumers do not pay the full price of medicines because of the role of health insurance [8]. Insurance coverage has the same effect as a subsidy, in that it lowers the per-unit price of care for the consumer. Thus, the level of prescription charge or co-payment can be represented by the quantity P(1 - k), where P is the market price for a prescription and k is a parameter that specifies the extent of the coverage provided by health insurance plans. There are two factors influencing the level of prescription charges: medicine prices and the level of the insurance coverage. The influence of the prices of medicines on the level of the prescription charge will depend on the type of direct payment: it will affect those in a co-payment scheme, but it does not affect those who pay by a single standard prescription charge, prepayment or by the deductible method. In order to explain the relation between the net price paid by the consumers and their demand for medicines, a more detailed understanding of the medicine market is required, but at this stage this is lacking in the specifications of the models reviewed. Therefore, we will draw attention to several problems which need to be addressed for USto be able to interpret the relation between direct payment by the patient and their level of consumption.

C. Huttin / Health Policy 27 (1994) 53-73

51

A first problem arises with the role of the doctor. A large share of medicine consumption is prescribed medications, as opposed to OTC medicines. In these cases, the demand for medicines is motivated by the doctor rather than by the patient. The decision process between doctor and patient is complicated as the objectives of the doctor who prescribes are independent of the consumers’ choice and their ability to pay. One reason to take into account the role of doctors in a model of demand is that various types of factors may influence their practice and their selection of medicines (e.g. doctors’ personal characteristics such as age, and also payment systems, the types of organisation they belong to, etc.). O’Brien [9] is one of the few researchers to acknowledge the need to take into account the doctor’s demands, alongside the demands of the consumer. However, he does not specify and test empirically the simultaneous behaviour of the doctor and the patient. A second reason justifying the introduction of doctors’ behaviour into the specifications of models of demand for medicines is that doctors may also be influenced by prescription charge policy. Germany provides a good example - since the introduction of the ‘Festbetrager system’, doctors have usually opted to prescribe medicines priced at the level of the Festbetrager (reference price level), to avoid discussing with their patients the need for them to make a co-payment. A second problem, which is also not discussed in the current models, is the role of pharmacists and the implementation of substitution policies. A pharmacist may alter the choice of a doctor by substituting cheaper products than the ones originally prescribed. Thus, the pharmacist may modify the price of the medicine and therefore, in the case of a co-payment, the amount paid by the patient for the medicines. If this impact is not taken into account, the variation in the net price paid by the consumer may not represent the consequence of a new insurance policy, but a different policy i.e. substitution by the pharmacist. A third problem is how do we interpret the relation between a net price for consumers and their level of demand for medicines in the cases where insurance coverage is available? Insurance coverage of medicine costs has a double effect. The first price effect represents the direct relation between the net reduction of a prescription medicine price due to the insurance coverage and the quantity of medicines consumed. Policy makers or insurers who want to modify the level of a prescription charge will be interested in explaining and quantifying this relationship. However, there is a second effect which relates the net price to the consumer and the aggregate level of demand. The level of insurance changes the expectations of consumers. Insurance coverage may cause a positive wealth effect on use, because it increases wealth in situations in which high medical expenses are incurred (especially in the case of unhealthy people). Thus, not only does insurance have a price effect, but also a positive wealth effect on medicine use. In order to control this effect, it would therefore be necessary to control the wealth of the groups of patients. This discussion mainly addresses problems related to the interpretation of the coefficient between the net price paid by the patient and the demand for medicines (elasticity level). Without taking into account doctor and pharmacist behaviour and the selection bias of the insured market, it is difficult to deduce policy implications from the size of the variations between prescription charges and the volume of medication.

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C. Hutiin/Health Policy 27 (1994) 53-73

Although existing models are inadequate, in that they do not explore the role of doctors, pharmacists and the impact of biased selection, they do contribute to the understanding of different levels of medicine use by taking into account the following variables: (1) level of income; (ii) demographic variable (age, gender); (iii) specific regulatory schemes (e.g. the limited list in the UK). 2.2. Level of income Usually most models include an income variable to explain variations in medicine use. Income is then represented as a measure of the purchasing power of a person or a household. In most models, the common hypothesis is to consider medical care as a normal good so that where the income increases, the expenditure on medicine will also increase. This assumed positive relation between income and level of use is, however, not always confirmed in reality. Some researchers assume that family income only has a positive effect on the likelihood of use, and has an overall negative effect on volume of use [lo]. Other researchers confirm this ambiguous relation between income and medical care goods (for both secondary care and primary care). Newhouse [2] and Phelps [3], for instance, have estimated income elasticities related to wage income and non-wage income. They observe positive income elasticities for wage income (expressed in real terms and nominal terms). However, this income elasticity is quite low (O.Ol-0.03), when they consider non-wage income below a certain level (< 3000 dollars). Here the income elasticity becomes negative. The authors, however, do not provide any explanation for these opposite relations according to the nature of their income. This research was not performed specifically on pharmaceutical services, but included an estimation for annual visits to a doctor. This research could contribute to a specification of income variables in a model of demand for medicines. Insurance contracts have a double effect on the level of income. On the one hand, the level of premium will reduce the level of income. On the other hand, it guarantees a level of income for an ill person who would lose out financially if he/she paid for medicines and also could not work. Prescription charges or an increase in payments for co-insurance will reduce the benefits of an insurance contract, without generally affecting the level of premium paid by the consumer. Therefore, it could increase the effect of income on the use of medicines or likelihood of medicine use. At this stage, the existing models usually introduce the level of income as a dummy variable to control its effects on medicine use. The previous discussion shows that more complex interactions exist between the nature of income, the net effect of an insurance contract on the level of income, the relation between health status and the level of income. 2.3. Demographic variables The role of age. In most models, age is introduced as an independent variable and the researchers suppose that there is a linear relation between age and medicine consumption. However, the impact of age on medicine consumption can be explained mainly by medical or clinical factors, rather than economic factors. The effects of medicines change with age. A given concentration of medicines will produce different reactions in an elderly person and in a younger person [ 111.

C. Huttin / Health Policy 27 (1994) 53-73

59

A second change in medicine use due to age is linked to adverse medicine reactions (side effects, hypersensitivity or allergic reactions, toxic reactions). The biological changes accompanying age increase the sensitivity of a patient to medicines. Although it is difficult to model the relation between age and medicine use, existing statistics can, nonetheless, provide interesting variations in the patterns of consumption of different medicine categories by age group. For instance, Table 1 provides a list of medicine categories most frequently prescribed for patients in different age groups [ 111. According to Table 1, the frequency of use does not follow a regular pattern according to the age group and varies considerably according to each therapeutic class. For instance, the consumption of corticoids is quite stable across all age groups, while the consumption of medicines for diabetes declines sharply after the age of 45. This table also allows us to identify the major therapeutic medicine types used by each age group. For instance, for the elderly the most used medicines are diabetic therapy medicines, bronchodilatators, corticoids, and antidepressants. Essential medicines seem therefore to vary by age group and this has important policy implications for implementing prescription charges. It shows that if prescrip-

Table 1 Drug groups

ranked

by frequency

Drug groups (USC category)

of use in age groups Frequency Under 45

Systemic antiarthritics Beta-blockers Thiazide and related diuretics Digitalis preparations Potassium-sparing diuretics Other oral diuretics (e.g. furosemide) Other antihypertensives (e.g., methyldopa) Nitrate/nitrite coronary vasodilators Benzodiazepine tranquilizers Diabetes therapy, oral Codeine and combinations, oral analgesics Plain corticoids. oral Xanthine bronchodilators Diabetes therapy, insulin Tricyclic and related antidepressants

of use in age group 4.5-54

8 20 28

55-64

65-14

75+ 2 6 4

2 1 3

99 49 78

34 5 18

9 4 8

4 5 6

5 3

73

8

5

8

8

a

16

7

I

I

14 100 10

4 17 6

6 II 9

10 9 15

12 9 6

15 18 56 17

12 23 19 7

13 14 12 15

14 11 12 20

15 13 21 27

“Not in top 100. Source: National Disease and Therpeutic Index, IMS America, Ltd. 1982. The National Disease and Therapeutic Index (NDTI) is based on a panel of - 2000 private office-based physicians who report on every contact they have with a patient during a specified 2-day period Source: ‘Kennedy and Forbes, 1985’

60

C. Hurtin / Health Policy 27 (1994) 53-73

tion charges are applied by medicine category, it will affect the population differently according to its age. The role of gender. According to Lipton [ 111,previous studies on the role of gender in explaining differences in medicine use show that women usually have much higher levels of medicine use than males over all ages [ 12- 151. However, the authors so far are unable to explain why there are gender differences in medicine use, especially in the older population. Lipton [l l] advances three hypotheses to account for gender differences in medicine use: (i) it is culturally more acceptable for women to report and medically treat their symptoms; (ii) women spend more time in the home and thus have easier access to doctors, pharmacists, and the medicine cabinet; (iii) women are more likely to have certain types of illnesses, problems and conditions amenable to medicinal therapy (e.g. urinary tract infections, hypertension, menopause, etc.). 2.4. Specific regulatory schemes The prescription charge is not the only way to increase direct payment by the patient. Governments or national agencies can also modify the list of the products which will be reimbursed. Each country therefore draws up a positive list or a negative list which defines the scope of medicines which will be reimbursed. In competitive markets, the use of formularies by providers or insurers play a similar role in selecting which products will be covered. A change in the size of the list can have an effect similar to a change in prescription charge policy, that is, in inducing changes in the levels and types of medicine consumed. For instance, we can assess the limited list policy as implemented in the UK. This policy has affected the following medicine categories: treatments for colds and coughs, analgesics, vitamins, tonics, laxatives, and antacids. That is, the policy aimed at reducing the National Insurance coverage of medicines for minor illnesses. A survey performed one year after the implementationof the limited list suggests that the medicines targetted have recovered their levels of sales, though there was a general decline immediately after the introduction of the limited list [ 161. The UK limited list can in fact be assimilated to a delisting policy and full payment by the patient. 3. Major results The major studies we will refer to in this paper are the following: Rand experiment [ 17,181;Avorn and Soumerai [19,20]; Nelson [23], O’Brien [9]; Ryan and Birch [21];

Phelps and Newhouse [2]; Greenlick [5]; Harris et al. [22]. These studies analyse the effects of changes in the financial participation of the patient for prescription medicines. 3.1. The Rand experiment One of the most comprehensive studies on this topic is the Rand Health Insurance survey. The major objective of this survey was to test the impact on demand for ambulatory services and secondary care services of various cost-sharing combinations. These different combinations were devised from examining different insurance

61

C. Hutiin /Health Policy 27 (1994) 53-73

plans with variable co-insurance rates and various levels of deductible payments. In this paper we are only interested in commenting on the effects on the use of medicines (OTC and prescription medicines), even though (as was discussed in the previous section), cross-price effects are an important factor to be taken into account. One major aspect of this research is its innovative design. There are very few controlled trials examining the effects on medicine use which are brought about by altering the medicine cost paid by the consumer. However, one of the major limitations of this survey is that it excludes elderly people. For medicine consumption, as for many health services, they represent the most important and expensive consumers for the medicine bill. Data was gathered at six sites over a 3-5-year period. The types of payment assessed were different levels of co-insurance with plan rates of 250/u, 50X, 95% and a free scheme. Table 2 [ 171 provides a synthesis of the level of medicine use by each plan for prescription medicines and OTC medicines. We can see from Table 2 that the average expenditure level per capita varies considerably according to the level of insurance coverage (or alternatively, according to the supplementary payment from the patient, if we assume there is no supplementary insurance coverage). The main result drawn from this table is that expenditure per person on the free plan is about 60% higher than with the plan with 95% coinsurance. For the free plan, the per-capita medicine expenditure exceeds 54 dollars, while for the family deductible plan, it is below 34 dollars in 1983. A noteworthy result shows that the variation of expenditure level is far from being proportional to the change in the level of insurance coverage. For instance, the biggest variation occurs when the coverage goes from 25”/;, to 50X, in which case the variation of medicine expenditure decreases by 27%. Another interesting result concerns OTC consumption. The variation in OTC consumption only changes from a mean of 1.82 (for a plan covering 95%) to a mean of 2.80 (for free coverage). So, when the insurance coverage increases, it is not only the consumption of prescription medicines which increases, but also the consump-

Table 2 Medicine Plan free

25% 50% 95%

use by plan for 1983 Mean per capita expenditure prescription medicines ($)

OTC ($)

54.4 I (3.39) 49.9 I (6.53) 36.12 (5.56) 33.95 (4.58)

2.80 (0.33) 2.05 (0.49) 1.15 (0.46) 1.82 (0.46)

Source: from data issued by Leibowitz,

Manning,

Mean per capita

Newhouse,

expenditure

1181 Social science and Medicines,

1985.

62

C. Huttin/Health

Policy 27 (1994) 53-73

tion of OTC medicines. The increase over the range of plans is statistically signiticant. However, the extent of the change is much smaller than that for prescription medicines. An additional result of the survey is to highlight the importance of demographic variables in differentiating the results: annual medicine expenditures varied significantly by age and gender category. Mean expenditures for women exceeded those of men by 54% and expenditure on children is about half of that for men. So age and gender are key variables. Another key result points out the role of regional or local disparities (possibly because of price competition) of the impact of the health insurance on the demand for medicines. For instance, medicine expenditure was 50% higher in Dayton than in Seattle, despite the fact that the average medicine cost was significantly higher in Seattle (even taking into consideration that the proportion of generics was also higher in Seattle). The researchers did not attempt to investigate why two different regional locations could lead to such huge disparities in medicine expenditure. This type of result tends to indicate that important factors are missing which explains the level of demand for medicines. The Rand study controlled the type of insurance coverage, socio-demographic variables, but we might question whether or not other factors could influence the variation, for instance, the distribution structure or the organisation of the medical profession. An important incidental discovery drawn from this experiment is the fact that the proportion of generics dispensed is higher at sites where the average medicine cost is higher. One explanation offered by the Rand study is that higher prices encourage more generic substitution. The Rand study also provides a perspective on cross impact across services, by showing that medicine expenditure is linked in fixed proportions with doctors visits. There is no evidence that patients with less generous plans would try to substitute medicines for doctor visits. Of course, an important issue in discussing prescription charge policy is to assess not only the quantitative effects on the global level of medicine use, but also the clinical consequences of directly changing the cost burden to the consumer. A more detailed analysis on different types of medicines might show how various therapies may be affected by different levels of prescription charges. The Rand experiment analysis does not provide this type of result. But this kind of analysis has been undertaken in two major pieces of research: a study by the Harvard School of Public Health [19,20], and research from Nelson et al. [23] in South Carolina. Both however are limited to a specific category of the US population: the Medicaid population. 3.2. The Avorn-Soumerai

work

The data base used contained patient-level prescription claims that covered individual patients in the New Jersey and New Hampshire Medicaid program. The prescription charge policy under study was set up by the Medicaid New Hampshire administration. It fixed limits on the number of medicine prescriptions reimbursed per month and patients made a co-payment of on dollar per item on prescription. The most interesting result was the differentiated effect of the ‘cap’ policy and the

C. Huttin / Health Policy 27 (1994) 53-73

63

co-payment policy on categories of medicines. Medications were classified according to criteria of efficacy and whether they were considered as essential medicines (e.g. insulin, propanolol). One positive effect of this policy was that reductions in medicine prescriptions was the strongest for the most ineffective medicines (58% reduction) versus a reduction of only 28% for effective, essential medications. However, though not explicit in these percentages, the major result was that the largest reductions were observed for several commonly used essential medications (e.g. 45”/0 for digoxine, 30% for furosemide, 28% for insulin). Another interesting result was that the reduction of prescriptions for essential medications also depended on the cost of these medications. For expensive essential medicines, the reduction in the number of prescriptions is less important than for inexpensive ones. These results show the importance of differentiating the medicines according to their costs and their level of efficacy when designing a prescription charge policy. Two interesting implications of this detailed study are the lack of equity brought about by prescription charge policy and causes for lack of efficiency. The luck of equity. By applying a uniform ‘cap’ or prescription charge per item, the policy penalises the heavy user of health services. Multiple medicine recipients for instance have had to face a reduction of medicine consumption of 46% over the period studied under the implementation of this plan while all other patients had a much smaller decrease of 17% in the average number of Medicaid prescriptions filled. The sources for lack of efficiency. The argument concerning the lack of efficiency of prescription charge policy is that it leads to changes in prescribing practice: for instance, more repeat prescribing or changes in the size of prescriptions. This research does not provide detail concerning the repeat prescribing issue but shows that reductions in Medicaid prescriptions were minimally offset by an increase in the size of prescriptions. During the ‘cap’ period, the average prescription size rose by 13%. On the other hand however, prescription size decreased by 16 units per prescription relative to the pre-‘cap’ level after the switch to a co-payment policy. This result clearly points out that the types of regulatory instrument used are not neutral and particularly affects doctor prescribing behaviour (e.g. in opposing directions for cap and co-payment policies). The response in prescription size will also depend on the capacity of the patient to discuss the level of financial situation with the doctor. However this was not investigated in this research. As discussed, the influence of the type of regulatory instrument used cannot be limited to its effect on the prescription size. In comparing ‘cap’ policy against co-payment policy for instance, the researchers have found that the reduction of medicine consumption is more severe in the case of a ‘cap’ policy and more discriminating against elderly people and disabled persons than the co-payment policy. A notable interesting policy implication of this type of study is to promote the idea of a selective prescription charge policy targeted on just marginally effective or ‘irrational’ medicines. Such an investigation was performed by the same researchers on DES1 medicines (specific classes of non-essential medications) [20].

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C. Huttin /Health Policy 27 (1994) 53-73

In this second study, however, the main finding shows a lack of change in overall medicine use, mainly because of the practice of substitution. There was a widespread increase in the use of replacement therapies. Substitution may also lead to unquantifiable changes in the quality of prescribing like, for instance, the use of benzodiazepines in place of antispasmodic combinations. The worst case is when even therapies unlikely to bring about improvement are substituted for medicines (for instance, the substitution of papaverine and ergoloid mesylate for peripheral vasodilatator). This analysis was also carried out on Medicaid populations, so doctors generally were sensitive to the patient’s ability to pay. Another characteristic of medicine substitution is that very inexpensive medicines, which were no longer covered under the scheme, were replaced by much more expensive medicines still covered. This is a very important lesson, not only for US Medicaid administration, but also for most selective de-listing policies, that are largely implemented in European countries. A better knowledge of unintended substitution effects should be undertaken before implementing major changes in reimbursement policies. This knowledge might for example point out the need to introduce complementary policy measures to facilitate the change in policy for example, an educational programme for doctors. The threat from substituting therapies needs to be carefully assessed since it may not only cancel out the impact of a de-listing policy, but also affect the quality of prescribing. One might argue that doctors would not readily replace an uncovered therapeutic category by other types of treatments. However, the motivations of the doctors are also affected by patients’ satisfaction. Moreover, even if a change in coverage rate is unique and global, it will affect the burden on the consumer differently according to the medicine pricing structure. Therefore, it seems that whatever the options chosen, there is a need to explore how this will affect the doctor-consumer relation, in order to ensure that the quality of care will not be affected.

3.3. The Nelson, Reeder and Dickson paper

Another piece of research was carried out on a different Medicaid population in the US, in the two States of South Carolina and Tennessee. The kind of prescription charge under study was a fixed amount per item of prescription: 50 cent per prescription medicine. The period studied is not recent, covering the period from 1976 to 1979. However the findings are useful to note. They are difficult to generalise since the authors are not sure of the representativeness of the Medicaid population for the two States, the two populations are also not statistically equivalent, so it is hard to compare one State to another. The South Carolina sample was 71% non-white (sample size 17 811) and the Tennessee State sample was 38% non-white (sample size 27 841). Over time, it seems the co-payment system has limited effects, according to the following results from the yearly use rates and expenditures per eligible recipient in the two States (Table 3):

C. HuttinlHealth

65

Policy 27 (1994) 53-73

Table 3 Year

1976 1977 1978 1979

Expenditures

Use rates South Carolina

Tennessee

South Carolina

Tennessee

24.8 23.0 23.6 24. I

32 33.2 35.9 37.7

133 130 133 153

159 174 203 235

Source: A Nelson, J E Reeder,

M Dickson,

Medical care,

1984

In South Carolina only, there was a small negative change in the slope of the use rate of prescription medicines: the decline was 0.2 prescription per eligible recipient per month. There are several plausible reasons for this type of result. One is possibly the level of co-payment was too small to make any significant effect on medicine usage. But according to the researchers, the main reason seems to be that the cost of prescriptions continued to climb regularly (either through an increase of the average prescription quantity or through the inflation in ingredient costs). Both factors have largely offset the impact of the co-payment measure. Since the effect of co-payment had an effect in the State of South Carolina, a complementary work has been performed at a more disaggregated level, and the researchers seem to reach comparable results to those of Soumerai and Avorn [20]. They showed that the change in co-payment mainly had an impact on a limited number of medicine category usage; these were cardiovascular, cholinergic, diuretics and psychotherapeutic agents. Both find that decrease in medicine use is most significant for essential medications, when they divide their analysis according to the nature of the products. Hence, this may lead to an opposite result to the one intended when public policy makers implement a prescription charge policy: namely, failure to take essential medications can lead to a deterioration of health, and possibly to the use of more expensive medical services in the long term. An additional result emerging from this study is the lack of co-payment effect on analgesics. This might be surprising, but a potential explanation is that the lack of impact can be linked to the consumer perception of the benefits of these medicines (relief from the pain is easily observable by the patient). 3.4. Phelps and Newhouse’s

work

The contribution of Phelps and Newhouse [2] is mainly methodological. They do not try to estimate the total demand for prescription medicines, but have mainly measured by a specific arc-price elasticity the response of different medical services to co-insurances levels. If p is the market price per unit of prescription medicines, C is the level of co-insurance, e is the total price elasticity, w is the opportunity cost

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for time and if t is time input they assume that the consumer maximises a utility function in other goods (x) and health status (H). So each medical care input can be purchased. There is a production function for H which uses the medical care commodity and time. The elasticity of demand for health services, say for instance for prescription medicines, is then measured by the following formula [2]: E = (C.plC-p

+ w- t)(x.e)

They make a strong assumption that total price elasticities are equal across the various types of medical services. Their calculation of arc-price elasticities in particular apply to two data sources on prescription medicines: (i) the Windsor, Ontario Medicine Prepayment Plan and (ii) The British National Health Service time series data. For both cases, the estimated arc elasticity of expenditures in the O-25% range is 0.07. This means that for change of co-insurance from 0 to 25%, the reaction of demand to prescription medicines is - 7%. This estimation is significantly inferior to the calculation from the Rand experiment (price elasticities of -0.17 for ambulatory services with co-insurance of O-25%). As we will see also in the UK studies, it is also much smaller that the estimation of the UK researchers. 3.5. Howard, Eun Sulee and Swint

s work

[24]

One of the most representative surveys of the demand for prescription medicines at a national level in the US used the National Medical Care Utilisation and Expenditure Survey (NMCUES). The data was collected on a national sample of 17,123 people, which represented civilian, non-institutionalised residents in the US. In comparison with the previous works, the sample here is quite small for national coverage. (e.g. Soumerai and Avorn on the New Hampshire Medicaid population had reviewed at least 10 000 enrollees). The basic result with regards to co-insurance shows that as co-insurance increased, the amount spent by individuals on prescription medications decreased. The coefficient of the regression is -0.13 between the coinsurance variable and the level of prescription medicine expenditures. The elasticities for co-insurance ranged from -0.174 to -0.108, according to the authors. This low level of elasticity is comparable with the results from Phelps and Newhouse [2,3]. 3.6. Major UK contributions Studies on similar subjects have been performed in the UK, but the main difference is that they have not been undertaken at a disaggregated level according to the nature of the products. As the British system is a National Health Service, the scope of the analysis is also not restricted to those on low incomes and to a limited number of locations (like the Rand experiment). The main advantage is that UK studies can more easily suggest public policy implications since they provide observations on the prescription charge policy throughout the whole country. The major empirical contributions are the works by O’Brien [9], Ryan and Birch

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67

[21]. These papers are worthy of comparison as they have very different results. This shows the resulting sensitivity to methodologies, the type of measurement used and sources of information. Before discussing these results, it is necessary to briefly describe the scheme used in the UK. The Department of Health divides the population into two categories: an exempted population which does not pay prescription charges, and the nonexempted population which has to pay a fixed amount per prescription item. The fixed amount has gradually risen over time. According to Department of Health estimates, the non-exempted population, who therefore pay the charge, constitutes only 35-40X of the total population. The major finding of the O’Brien study is that there is a significant negative relationship between level of the prescription charge and the utilisation of medicines. For the period as a whole (1969-1986), the price elasticity was -0.33. So, a 10% increase in charges would result in a 3.3”/0 fall in the volume of non-exempt items dispensed. There has also been a gradual change over time in elasticities which vary from -0.23 in the period 1969-1977 to an estimate of -0.64 for the later period 1978- 1986. This indicates that use of medicines has become increasingly responsive to charge increases. The estimated charge-volume elasticity of -0.23 for non-exempt prescriptions in the period 1969-1977 is similar to the one found in an earlier study by Lavers [25] of -0.18, on similar data for England in the period 1970- 198 1. However, the estimation of price elasticity by O’Brien is considerably larger than the estimation by Ryan and Birch [21] over the same period: -0.64 for the O’Brien study over the period 1978-1986 vs. an estimation of -0.109 in the short run and -0.09 in the long run for Ryan and Birch [21]. The major difference between the two studies is the treatment of holders of prepayment certificates, and the data used by which the use of medicines by non-exempted people was calculated. Obtaining a prepayment certificate eliminates having to pay a charge at the point of medicine purchase, so the holder is protected from increases in prescription charge. Ryan and Birch have included this group in the non-exempt population: the likely effect of this is probably to underestimate the level of price elasticity for the non-exempted group. The other bias of these two studies is generated by the information they used to estimate a representative sample of non-exempted prescriptions. O’Brien [9] used an administrative data set from the Department of Health, but this data was only based on a 5% sample of pharmacists, which is quite a low percentage to adequately represent the total dispensing figures for the UK. Ryan and Birch [21] only used estimated figures for the exempted and non-exempted populations, using criteria like age and income. Differences like these limit the usefulness of the studies for predicting the likely outcome of a change in prescription charge policy. However, all the studies are consistent in finding negative charge elasticities (the range is between -0.1 and -0.6). At the moment it is difficult to compare the results between US studies and the UK studies, since the UK does not normally charge those on low incomes for prescriptions, (they are regarded as exempt) whereas many of the US studies test the impact of rises in prescription charge on groups of Medicaid patients.

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The US Rand estimate includes additional categories of population that are not covered by Medicaid, but does not include elderly people. To an extent it can be compared with the UK system, where elderly people are automatically exempted from prescription charges. However, the type of control measures used are completely different: in the US, one makes a proportional payment, in addition to an insurance plan; in the case of the UK, one pays a fixed amount per prescription. The possibility of making an interesting international comparison is limited, at least in the area of the charge elasticities measured. Despite these differences of methodological tools, the estimated price elasticities of the Rand research range between -0.1 and -0.2 [4] and are consistent with the estimation of Ryan and Birch [21] Lavers [25] studies. The Rand experiment is recognised as particularly reliable, because it controlled the selection bias problem, through its innovative design (namely patients with a higher rate of illnesses may choose greater levels of insurance in such a system). 3.7, Greenlick’s work and the case of prepayment After reviewing the case of the two major UK studies and the problems of estimation with regards to prepayment certificates, it is interesting to look at some results on the effect of prepayment as compared against out-of pocket payments. Rather than paying out of pocket for delivery of pharmaceutical services, the development of prepayment plans alleviates the problem of paying medicine bills. The effect of this type of programme is examined by Greenlick [5], on the Ontario metropolitan area. Though this is not a recent study, it confirms significant differences in the use of medicines within the community, between those paying out of pocket, and payments made under the prescription prepayment plan. Table 4 provides comparative results: The increase both in the annual number of prescriptions and the annual expenditure per person is approximately double in the case of the prescription prepayment, as compared with out of pocket payment. According to the researchers, medicine prepayments systems are highly inefficient when the system is simply changed from out of pocket to prepayment system as it leads to higher prices. If, on the other hand, a change in the distribution of pharmaceutical services is undertaken at the same time as a prepayment policy is implemented (e.g. use of a formulary system...), the system can become efficient; the purchase of medicines can be concentrated and medicine prices kept low.

Table 4

Annual Annual

number of prescription expenditures per person

Community

Prescription

2.19 8.29

4.08 16.48

Source: ‘A Comparison of general medicine utilisation under a medicine prepayment plan’, American Journal

prepayment

in a Metropolitan Community with utilisation of Hospital Pharmacy, Nov 1968.

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3.8. Managed

care pharmacy

service and prescription

charge

In discussing the results of copayment or prescription charge policies, it is worthwhile investigating whether the organisation of the service itself has an influence on the efficiency of the control measure, and how it influences the relation between medicine consumption and the level of copayment. Particular environments specifically designed to control the total spending of Health services are exemplified in the various experiences of Managed Care organisations in the US, which include the Health Maintenance Organisations (HMO), the Preferred Provider Organizations (PPOs) and the managed fee for services plans [26]. The changes that HMO introduced were notably the method of pricing (prospective pricing or method of reasonable amount) and changes in the decision making process: the doctor of a HMO is advised, reviewed and overseen much more than one in private practice, and this surveillance may influence the doctor’s prescribing practice. In PPOs, the scheme may affect the medicine price, as usually price discounts are negotiated for greater volume. The use of a prescription charge policy (or level of co-insurance) by the Managed Care organisation is not only an incentive for the patient to reduce their consumption, but offers them the choice of reducing doctor services or pharmacy services available to them. (Different levels of co-payments or co-insurance are constructed according to selected or non-selected services.) Insurance coverage can be conditional on choosing restrictive service use. In this case, providers control the types of service delivered. Managed Care organisation seems to have a real impact on the distribution of various services, and in particular on pharmacy services. According to an assessment report on Prospective Payments used in Managed Care organisations, the impact of the Managed Care organisation was to shorten length of hospital stay, and to raise the provision of ancillary services, in particular medicines [29]. One of the reasons for this seems to be that a shorter hospital stay generates a concomitant rise in the complexity of the average illness and the intensity of care. For instance, it may result in some patients not making the transition from parenteral to oral medicine therapies. In addition medicine therapy tends to be more aggressive (e.g. injectable instead of oral dosage forms). These changes have important implications for analysing the effect caused by a change in prescription charge, at a disaggregated level, since it modifies the duration of the treatment, the posologies and the types of prescription themselves. Managed Care organisations also seem to influence the level of price competition at community pharmacy level (competitive bidding in particular favours chains of pharmacies, who sign contractual arrangements with providers). This may bring about lower average ingredient costs, and therefore modify the effects of a copayment policy on the consumer demand for medicines. However, evaluation of the impact of prescription charge policies for Managed Care organisations is not easy since it seems that, within the same contract, for the same product, different medicine prices exist for the patient, according to the types of pharmacies that they are contracted to (e.g. evaluation of the prescription charges in a University HMO in

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Wisconsin, performed by Karls et al. on a population of 10 089 members [27,28]). It is argued also that there are strong adverse selection effects in particular for pharmaceutical services in HMO, namely these types of scheme will attract members who use more Health care services. Direct payment by the patient is particularly important to review in Managed Care organisations, since it is one of the cost management schemes used. For example, a lower co-payment is asked for generic medicines as opposed to branded products. Moreover, the Managed Care organisation has developed medicine use reviews which allow them to obtain information which detects abuse, misuse and to generally audit prescription claims, in order to target their cost sharing policy and contain costs. An empirical contribution to this subject is provided by the results of the study by Harris et al. [22], performed at the Group Health Cooperative of Puget Sound (GHC is a non-profit HMO for a population of - 350 000 people). The scope of their results remains limited since they covered only a one year time span. But they clearly show a net decline in the medicine utilisation which reached 10.7%)for a level of co-payment of 1.50-3.00 dollars. Contrary to the results discussed resulting from categorisation of medicines on samples of Medicaid populations, this study does not show any significant difference between groups who use essential medicines. However, as we have just discussed, we cannot be sure of the consistency of this result, because we do not know how selection bias was controlled in this particular case. 4. Some policy implications The research findings discussed in this paper throw some light on the scope for change when designing policies for direct payment for medicine. Until now the UK has opted for a fixed prescription charge per item of prescription. The evaluations of Ryan [21] and O’Brien [9] confirm that consumers’ medicine use is sensitive to the level of the prescription charge but the variation remains quite low (-0.1). This paper presents alternative systems to the UK model and enables us to draw conclusions about their respective advantages and drawbacks. Different types of payments do not seem to have a much greater impact, however the distribution of the effects is different: the consumer in the current UK prescription charge system is not sensitive to medicine prices, since whatever the product consumed, there is a standard payment from the consumer. Moreover, if the doctor or the manufacturer changes the dosage or the packaging of the medicines, the same payment still applies for the patient. In order to make the patients more sensitive to medicine prices, the co-payment system therefore seems more effective than the prescription charge. The limited results from the co-payment system reported in the US, may be explained by the low co-payment rate. However, the results from the Rand experiment show that higher co-payment rates (when the consumer has to fund between 25% and 50%) lead to very significant reductions in medicine expenditure. A second choice that this review discusses is the decision to apply a unique rate whatever the medicines as opposed to a selective policy. With the unique rate, higher priced medicines will lead to higher co-payment contributions. So, it may penalize the high priced, high quality essential medicines which will be treated the same as

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high priced, non-essential medicines. Moreover, the evaluations of Soumerai et al. [20] show that, even where there is a unique rate, there are differentiated effects according to the type of medications (essential versus less essential, or high consumption versus low consumption medicines). Such results encourage the design of more selective schemes for targeted medicines (of more or less essential medications) and for targeted groups of patients (according to age, gender and income levels). As with this system, there is a risk of substitution by the doctor, the authors recommend that this type of selective policy should be accompanied by an educational programme for doctors to guarantee that the quality of prescribing will not be affected. A third aspect of prescription charge policy should also be discussed, but to date it has not been reviewed with regard to pharmaceutical services: this is the option of designing a global direct payment across a range of services as compared with a specific medicine reimbursement policy. We can assume for instance that a higher co-payment for doctors visits would decrease the demand for other ambulatory care, like prescription medicines since they are complementary to the doctors visits. (i.e. if the doctor visits less often, then less medicines will be prescribed). Finally, as most governments plan changes in their national schemes (for instance, we cited the examples of Italy and Germany) new directions for changes are opened up, like adapting the co-payment rates per category of medicines according to the duration of the treatment. The policy makers therefore would gain from discussing not only the past research findings but current policy experiences and the potential behavioural reaction of both doctors and patients. 5. Conclusions Some claim that prescription charges help to control total pharmaceutical expenditures by sensitizing the consumer to paying for services. Others claim that a prescription charge is irrelevant, because the doctor makes the decision. The evidence drawn from this review of major empirical studies carried out rejects the claim that co-insurance has no effect on choice. It clearly affects the demand for prescription medicines, and even the demand for OTC medicines. Whatever the scheme (fixed fee, co-insurance, prepayment), increase in prescription charges leads to a decrease of consumption. The scope of the change however varies a lot according to the types of medication. The fact that some essential medications may be more affected may lead to clinical consequences which are undesirable, and a change in prescription charge policy in that case may need a complementary education programme directed at doctors. The lack of equity in the policy directed at multirecipients is also a drawback which could be offset by an adaptation of the proposed scheme based on the period of illness. Finally the case of the HMO clearly shows that organisation of services can play a key role in making policies more or less effcient, and without doubt it is necessary to control for that effect before assessing any real impact of the prescription charge on the change in behaviour of the patient. 6. Acknowledgements I am very grateful to Peter Noyce, University of Manchester, for his helpful comments on this paper, to Pete Abel, Pharmacy Practice Research Resource Centre,

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University of Manchester, for his work on the literature review and to Joan Broadhurst, Department of Philosophy, University of Warwick for editing the paper and Richard Schemer, University of Berkeley for his efforts in developing health research. 7. References

6 7 8 9 10

11 12 13 14 15

20

21 22

Smith, D.G. and Kirking, D., Impact of consumer fees on medicine utilisation, Pharmacoeconomics 2(4) (1992) 335-342. Phelps, C.E. and Newhouse, J., Co-insurance, the price of time and the demand for medical services, Review of Economics and Statistics, 56 (1974) 334-342. Newhouse, J.P., Economics of medical care: a policy perspective, The Rand Corporation, Addison Wesley, 1978. Birch, S., Health care charges: lessons from the UK, Health Policy, 13 (1989) 145-157. Greenlick, M.R., A comparison of general medicine utilisation in a metropolitan Community with utilisation under a medicine prepayment plan, American Journal of Hospital Pharmacy, 58 (1968) 2121-2136. Newhouse, J.P. and Rolph, J.E. An estimate of the impact of deductibles on the demand for medical care services R-1661 HEW, Rand documents, October 1978. Grossman, M., The demand for health: a theoretical and impirical investigation, Columbia University Press, New York, 1972. Maynard, A., Pricing, insurance and the National Health Service, Journal Social Policy, 8 (1979) 1577-176. O’Brien, B., The effect of patient charges on the utilisation of prescription medicines, Journal of Health Economics, 8 (1989) 109-132. Howard, J. Eng., Lairson, D.R. and Lee, ES.: Economic analysis of the demand for prescription medicine in the United States, Paper presented at the 113th Annual Meeting of the American Public Health Association, Washington, D.C., November 1985. Lipton, H. and Lee, P., Medicines and the elderly, clinical, social and policy perspectives, Stanford University Press, 1988. Whittington, F.J., et al. Sex differences in prescription drug use of older adults, Drugs, Alcohol and Aging, Kendall/Hunt, 1982. Rabin, D.L. and Bush, P.J. The use of medicines: historical trends and international comparison, International Journal of Health Service, 4 (1974) 61-87. Rowe, I.L., Prescriptions of psychotropic dmgs by general practitioners: two antidepressants, Medical Journal of Australia, 1 (1973) 642-644. Prentice, R., Patterns of psychoactive drug use among the elderly, US Department of Health, Education and Welfare, 1979. Taylor, R.J. and Jepson, H.H., An assessment of the limited test, Document from the Department of Health, UK, 1987. Leibowitz, A., Substitution between prescribed and over the counter medications, Medical Care, 27 (1989) 85-94. Leibowitz, A., Manning, W.G. and Newhouse, J.P., The demand for prescription medicines as a function of cost sharing, Social Science and Medicine, 21 (1985) 1063-1069. Soumerai, S.B., Avorn, J., Ross Degnan, D. and Gortmaker, S., payment restrictions for prescription medicines under Medicaid, effects on therapy, cost and equity, The New England Journal of Medicine, 3 17(9) (1987) 550-556. Soumerai, S.B., Ross Degnan, D., Gortmaker, S. and Avom, J., Withdrawing payments for nonscientific medicine therapy, intended and unexpected effects of a large scale natural experiment, Journal of the American Medical Association, 263 (1990) 831-839. Ryan, M. and Birch, S., Charging for health care: evidence on the utilisation of NHS prescribed medicines, Social Science Medicine, 33 (1991) 681-687. Harris, B.L., Stergachis, A. and Douglas Ried, L., The effects of medicine-copayment on utilisation and cost of pharmaceuticals in a Health Maintenance Organisation, Medical Care, 28 (1990) 907-917.

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25 26 27 28 29

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Nelson, A.A., Reeder, J.C. and Dickson, M., The effects of a Medicaid medicine co-payment programme on the utilisation and cost of prescription services, Medical Care, 22 (1984) 724-736. Eng, H.J., Larson, D.R., Eun Sulee and Swint, M., Economic Analysis of the Demand for Prescription Medicine in the United States, American Public Health Association 113th Annual Meeting, 1985. Lavers, R.J., A demand model for prescriptions, ISER, University of York, (1977). Curtiss, F.R., Managed health care, American Journal of Hospital Pharmacy, 46 (1989) 742-760. Karls, T.A., Peterson, CR. and Thielke, T.S.: Evaluation of prescription charge in a health maintenance organisation, American Journal of Hospital Pharmacy, 46 (1989) 1562-1566. Curtiss, F.R., Managed care, the second generation, American Journal of Hospital Pharmacy, 47 (1990) 2047-2052. Prospective Payment Assessment Commission, Medicare prospective payment and the American health care system, Report to Congress, Medicine and Medicaid Guide no. S60, Chicago: Commerce Clearing House, July 26, 1988.