Published on Investing in Health

How can universal health coverage address out-of–pocket payments for medicines?

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Malaria medication

As we know from many health financing studies, drug expenditure typically ranks first or second among out-of-pocket expenses. In fact, it is often the cause of catastrophic expenditure, driving people from lower middle class into poverty once a severe or chronic disease affects a family member.

Recently, I traveled to two very different countries—Ghana and Kosovo — trying their hand at  pharmaceutical benefits under universal health coverage (UHC).  This means that patients get their drugs for free, or for a limited co-pay, at the pharmacy, while a third party, for example a health insurer, reimburses the pharmacy at a pre-defined price.

Most developed countries have such a benefit, substantially reducing out-of-pocket payments for patients. Another effect of introducing a third party payer is that it creates purchasing power. Manufacturers need to be on the reimbursement list in order to have meaningful sales, and are willing to make concessions on price. If patients come to the pharmacy as individual buyers, all the power is on the supply side, with pharmacist, distributor and manufacturers having an incentive to maximize their income from each patient.

Ghana introduced health insurance about 10 years ago, and since has been spending in the range of 50% of all claims value for reimbursement of drugs at the facility or pharmacy level. This may look like a lot, but as health facilities still get budget support for investments and salaries, the insurance has to cover only variable costs.

Did the drug benefit in Ghana reduce out-of-pocket expenses? Some studies say it did, at least in the initial years. Between 2005 and 2007, demand for medicines went up by a factor of two-to-three as patients signed up for insurance and got treatment that they were not able to afford before. Later, problems set in with the flow of funds, arrears, or cheating (facilities submitting claims for medicines that were not needed or never actually given to the patient). Facilities experiencing late payments from the insurance provider stopped honoring their obligations, askin patients with valid insurance cards to pay anyway.

One interesting observation:  the insurance fund has not been able, due to political resistance, to flex its purchasing power muscle and negotiate framework contracts with suppliers to drive prices down.

Where does the resistance come from? What we see as market fragmentation, lack of transparency and waste of money translates into regular streams of income on the side of those who benefit from the inefficiency and allows them to buy political influence.

One problem in Ghana and elsewhere is that public health facilities have always relied on drug sales to generate revenue and fill gaps left by the low, formal budget allocation. With health insurance, the drug business became even more lucrative, and the pressure to increase budget allocations went down.

In 2008, the World Bank found that malaria drugs (ACTs), despite being distributed for free by the Global Fund and the U.S. President’s Malaria Initiative, were still reimbursed at full price by health insurance. Even when the issue was pointed out, there was no outcry.  The question, instead, was how facilities would be compensated for the loss of income once the insurance lowered the reimbursement price for ACTs!

The Ghana example points out how a pharmaceutical benefit can lead to moral hazard and almost turn into an entitlement for facilities and service providers to write checks for themselves. Yes, out-of-pocket expenses may go down, at least for specific patient groups, but at what cost? Can better controls prevent such an outcome?

Some countries have shown that with electronic transaction monitoring systems, intelligent software picking up signals of fraud and abuse, and clear rules and sanctions for those who break them, abuse can be controlled to some extent. With a paper-based system that requires after-the-fact audits and imposes sanctions only after the damage is done, effective management is simply not possible or would require so much investment in the bureaucracy that no money would be left to pay for the benefit.

At the other end of the spectrum, the small country of Kosovo in the Western Balkans is now trying, cautiously, to introduce a pharmaceutical benefit, transitioning from a tax-financed public health system to a Euro-style health insurance fund that will soon start collecting premiums. Aware of the budget risks of switching from a rationed system of public supply of drugs in facilities (most patients are sent outside to buy their medicines for cash) to one where supply limits are no longer an issue policymakers want to set up an electronic transaction control system first, and limit the benefit initially to antidiabetic drugs only, with the option of including other medicines once funds are available.

This measure and cautious approach, supported by the World Bank in a new health project in Kosovo, is not without risk. Currently, all insulin-dependent patients get their required insulin, at least according to the Ministry of Health. Therefore, starting the pharmaceutical benefit with insulin can be expected to be budget-neutral (assuming prices remain the same and operating costs of the system are moderate). Out-of-pocket expenses for insulin should already be zero and cannot be lowered any more. By including oral antidiabetics, a first real benefit will be granted and out-of-pocket expenses positively affected for patients in need of these drugs. There is a budget, but it can be calculated and covered by the incoming funds from premium collection.

The real question is how the population will react if premiums are deducted, but benefits are offered only for a small group of patients. Other countries have seen erosion of public confidence and support for a health insurance system that is seen as overly stingy and bureaucratic. Bulgaria comes to mind as an example – successful in holding drug expenditure down through all sorts of rationing, but with the result that most patients bypass the system and buy their drugs in private pharmacies.  The combination of waiting time plus transport costs and co-pay to see the doctor more than cancels out the savings from a meager 50% reimbursement for most drugs.

In summary, while a pharmaceutical benefit looks like a no-brainer on the way to UHC, and the reduction of out-of-pocket expenses is the main argument to support it, the reality of introducing this benefit is complicated. How can this issue be attacked in innovative ways, using technology to save costs and target limited benefits to those who need them most?  I plan to tackle that in a forthcoming blog post.
Follow the World Bank health team on Twitter: @WBG_Health 


Andreas Seiter

Global Lead of the World Bank’s Health, Nutrition and Population Global Practice

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