The major drivers of cost growth are the MBS and PBS. The federal government regularly considers opportunities to reduce spending growth in the MBS through its annual budget process. To influence PBS costs, the government makes determinations about which pharmaceuticals to list on the scheme and negotiates the price with suppliers. It also provides funds to pharmacies to dispense medicines subsidized through the PBS and to support professional programs and the wholesale supply of medicines. This arrangement is implemented through the current Community Pharmacy Agreements, which are renegotiated every five years. The Sixth Community Pharmacy Agreement, which began in July 2015, supports AUD 6.6 billion (USD 4.6 billion) in savings through supply chain efficiencies.33
Hospital budgets are set by the Local Hospital Networks. Hospitals are funded on the basis of what is determined to be an efficient price for delivering services, as determined by the Independent Hospital Pricing Authority. Through 2020, the Commonwealth will fund 45 percent of the efficient growth in these services, capped at 6.5 percent of total growth.34 States are required to cover the remaining cost of services, providing an incentive to keep costs at the efficient price or lower.
Beyond these measures, health costs are controlled mainly through capacity constraints, such as workforce supply.
A 17 percent increase in the cost of medicines and medical supplies was observed between 2010 and 2014.29 Important efforts have been launched by the federal government to contain these costs, including more-pervasive regulation of new technologies, centralized purchasing of high-cost medicines, and public–private partnerships for the national production of strategic products through technology transfer. In 2012, the National Commission of Technologic Incorporation (CONITEC) was established. The CONITEC approves inclusion, exclusion, and approval guidelines for the use of new and existing health technologies. From 2012 through 2016, 69 health technologies were removed while 132 new health technologies were incorporated (62% of these were medicines and 38% were medical devices, diagnostic products, health products, and procedures).30 In 2018, 84 partnerships for technology transfer were initiated: 67 for medicines, 12 for equipment and medical materials, and five for vaccines, with an estimated savings of BRL 4.68 billion (USD 1.09 billion) in product purchases between 2011 and 2017.31
Costs are controlled principally through single-payer purchasing, and increases in real spending mainly reflect government investment decisions or budgetary overruns. Cost-control measures include:
- Mandatory global budgets for hospitals and regional health authorities
- Negotiated fee schedules for providers
- Drug formularies for provincial drug plans
- Resource restrictions for physicians and nurses (such as provincial quotas for students admitted annually)
- Restrictions on new investment in capital and technology.
The Canadian Agency for Drugs and Technologies in Health oversees the national health technology assessment process, which is one mechanism for containing new technology costs. This agency produces information about t clinical effectiveness, cost-effectiveness, and broader impact of drugs, medical technologies, and health systems. The agency’s Common Drug Review assesses the clinical effectiveness and cost-effectiveness of drugs and provides common, nonbinding formulary recommendations to the publicly funded provincial drug plans (except in Quebec) to support greater consistency in access and evidence-based resource allocation.
The federal Patented Medicine Prices Review Board, an independent, quasi-judicial body, regulates the introductory prices of new patented medications. The board regulates factory gate prices but does not have jurisdiction over wholesale or pharmacy prices, or over pharmacists’ professional fees.
Since 2010, the Pan-Canadian Pharmaceutical Alliance has negotiated lower prices for 95 brand-name medications and has set price limits at 18 percent of equivalent brand-name drug prices for the 15 most common generics.44 Notwithstanding this pan-Canadian collaboration, jurisdiction over prices of generics and control over pricing and purchasing under public drug plans (and, in some cases, pricing under private plans) are held by provinces, leading to some interprovincial variation.
In addition, the Choosing Wisely Canada campaign provides recommendations to governments, providers, and the public on reducing low-value care.45
Health expenditures have risen significantly in recent decades because of health insurance reform, an aging population, economic development, and health technology advances. Health expenditures increased from CNY 584 (USD 164) per capita in 2004 to CNY 4,237 (USD 1,194) in 2018.20
Provider payment reform is one key cost-containment strategy. Prior to the 2009 introduction of DRGs, global budgets, and capitation, fee-for-service was the main payment mechanism, and consumer- and physician-induced demand increased costs significantly. Global budgets have been used in many regions; these are relatively easy for authorities to implement.
As noted above, the government also encourages the use of community and township hospitals over the more expensive care provided in tertiary hospitals. Hospitals compete on quality, level of technology, and copayment rates.
In township, community, and county hospitals, a campaign of “zero markups” for prescription drugs was introduced in 2013 to contain rising drug costs. This program was extended to secondary and tertiary hospitals in many regions.
In addition, the National Development and Reform Commission and National Health Commission place stringent supply constraints on new hospital buildings and hospital beds, and they also control the purchase of high-tech equipment, such as MRI scanners.
The overall framework for controlling health care expenditures is outlined in a budget law, which sets budgets for regions and municipalities and specifies automatic sanctions if budgets are exceeded. The budget law is supplemented by annual agreements between regional, municipal, and state governments to coordinate policy initiatives aimed at limiting spending, including direct controls of supply.
The performance of the regions is monitored in terms of activity and a number of quality measures. The results are published and form a central part of the governance relations between state and regions. As of 2019, part of the regional funding is dependent on the regions addressing specific criteria related to coordination and integration of care. In addition, a minor portion of the funding will be withheld and redistributed to technology development projects. The aim is to pressure the regions to further increase productivity.
At the regional level, hospital cost control includes a combination of global budgets and activity-related incentives (see “ Hospitals”).
Inpatient pharmaceutical expenditures are controlled through national guidelines and clinical monitoring combined with collective purchasing. The purchase of hospital medicines takes place through tendering and price negotiations by the joint regional organization Amgros.
A new regional medicines council was established in 2017 to provide information to Amgros and other decision-makers on the cost-effectiveness of new pharmaceuticals. The council evaluates the clinical effectiveness of new pharmaceuticals and provides input to Amgros, which negotiates prices with providers of pharmaceutical products. The ensuing joint evaluation of effectiveness and costs leads to a decision on whether or not to recommend that regions adopt the drug as standard treatment. The council has finished the evaluation of 41 applications for new drugs or changes in the use of drugs since 2017. In 25 cases, the council recommended the drug as a possible standard treatment in regional hospitals; 13 requests were rejected; and for three drugs, the recommendation was to use the drug as standard treatment for some patient groups but not for others.
In September 2018, the Danish government signed an agreement with the Norwegian government to facilitate joint tenders for hospital drugs and information-sharing about new pharmaceuticals.24 The collaboration with Norway also aims to increase access to generic pharmaceuticals in the two markets.
Finally, in a 2019 legislative proposal, the government has announced plans to introduce a new external reference pricing system for drugs that are outside the agreement with the pharmaceutical companies.28 Reference prices from nine European countries will be used to calculate the maximum list price in Denmark. This scheme supplements the existing agreement with the Danish Association of the Pharmaceutical Industry (Lif), which applies a decrease of 10 percent to the list prices of hospital drugs from 2016 to 2019.25
Policies to control outpatient pharmaceutical expenditures include generic substitution, prescribing guidelines, and assessments by the regions of prescribing behavior deviations. Pharmaceutical companies report a monthly price list to the Danish Health Authority, and pharmacies are obliged to choose the cheapest alternative with the same active ingredient, unless a specific drug is prescribed. Patients may choose more expensive drugs, but they have to pay the difference.
Collective agreements with general practitioners and specialists include various clauses about rate reductions if overall expenditures exceed given levels. Regions also monitor the number and type of consultations and may intervene if levels deviate significantly from the average.
Health technology assessments are developed within European Union networks and at the regional level for hospital-level procedures and technology decisions. These assessments, as well as cost-effectiveness information, guide decision-making on new treatments and guidelines.
Regions may enter into contracts with private providers to deliver diagnostic and curative procedures. Prices for those services are negotiated between regions and private providers and can be lower than rates in the public sector.
Together, these measures have been relatively successful in controlling expenditures and driving up activity levels. The average annual productivity in the hospital sector increased by 2.3 percent from 2003 to 2016. During the same period, standardized hospital mortality rates declined and high patient satisfaction rates were maintained.26,27
Costs in the NHS are constrained by a national health care budget that cannot be exceeded, rather than through patient cost-sharing or direct constraints on supply. NHS budgets are set at the national level, usually on a three-year cycle. CCGs are allocated funds by NHS England, which closely monitors their financial performance to prevent overspending. Both CCGs and NHS providers are expected to achieve a balanced budget each year.
Since 2010, the allocation of funds by the central government has grown much more slowly than the long-term historical rate, which averaged 4 percent in real terms between 1949–1950 and 2010–2011.43 Between 2010–2011 and 2014–2015, average real-term growth in spending on health rose by 1.2 percent and is projected to rise by 2.7 percent in real terms by 2019–2020.44
The mismatch between funding, demand, and the cost of providing services has led to NHS hospitals and other providers accumulating an underlying deficit of GBP 4.3 billion (USD 6.1 billion).45
Although some of the savings targets have been met in the past five years, the financial pressure on the NHS is being associated with some deterioration in the quality of care — notably waiting time targets.46
Cost-containment strategies to date include freezing staff pay increases, supporting the increased use of generic drugs, reducing DRG payments for hospital activity, managing demand, and reducing administration costs. In 2016, NHS Improvement launched a program to help hospital providers generate savings through more efficient use of staff, more cost-effective purchasing of drugs and medical equipment, and better management of estates and facilities. If implemented, the program could save GBP 5.0 billion (USD 7.1 billion) by 2020.47
There are a number of tools provided by the government-funded Rightcare program whereby local purchasers can maximize value by addressing unwarranted variations in utilization and clinical practice. Local purchasers can also run competitive tenders for certain services.
Costs for prescription (branded) drugs are contained through a voluntary agreement between the U.K. government and the pharmaceutical industry. The latest scheme, which came into force in January 2019, is known as the Voluntary Scheme for Branded Medicines Pricing and Access and will run for five years. It caps the growth in the sales of branded medicines at 2 percent per annum.48
This scheme runs parallel with the cost-effectiveness appraisals by the National Institute for Health and Care Excellence , which tends not to recommend new drugs as cost-effective if they exceed GBP 20,000– 30,000 (USD 28,500–42,675) per quality-adjusted life year. For drugs or treatments that have not been appraised by the Institute, the NHS Constitution states that CCGs shall make rational, evidence-based decisions.49,50
SHI has faced large deficits over the past 20 years, but they have fallen from EUR 10–12 billion (USD 12.6 –15.2 billion) in 2003 to EUR 4.1 billion (USD 5.2 billion) in 2016.24 This trend is the result of a range of initiatives, including:
- a reduction in the number of acute-care hospital beds
- the removal of 600 drugs from public reimbursement
- an increase in generic prescribing
- a reduction in the price of generic drugs
- the use of over-the-counter drugs
- a reduction of official fees for self-employed radiologists and biology labs
- the inclusion of central purchasing to better negotiate costs
- an increase in the proportion of outpatient surgery
- the institution of earlier post-surgery and post-delivery discharge
- a reduction in duplicate testing.
Competition is not used as a cost-control mechanism in SHI.
Global budgets are used only in price-volume agreements for drugs or devices. Patient cost-sharing mechanisms include increased copayments for patients who refuse generics or do not use the voluntary gatekeeping system.
The increasing price of drugs is being addressed through an increased use of generic and biosimilars incentivized by the pay-for-performance scheme, price-volume agreements, and undisclosed rebates with manufacturers.
There are also a number of initiatives to reduce low-value care, launched by SHI and the National Health Authority, including25:
- reductions in avoidable hospital admissions for patients with heart failure
- early discharge after orthopedic surgery and normal childbirth
- the use of DRG payments to incentivize shifts to outpatient surgery
- the establishment of guidelines for the number of allowable off-work days according to disease or procedure
- strengthened controls over the prescription of expensive statins and new anticoagulants
- incentives for the use of less-costly biosimilar drugs.
Recently, there has been a shift away from reliance on overall budgets for ambulatory physicians and hospitals and collective regional prescription caps for physicians, toward an emphasis on quality and efficiency. The Hospital Care Structure Reform Act of 2016 aims not only to link hospital payments to good service quality but also to reduce payments for low-value services. Currently, the IQTiG works on preparing appropriate concepts and recommendations for the Federal Joint Committee.
To enhance competition, some purchasing power has been handed over to the individual sickness funds instead of relying on collective contracts with regional associations. For example, the funds can now selectively negotiate integrated-care contracts with providers and negotiate rebates with pharmaceutical companies.
All drugs, both patented and generic, are placed into groups with a reference price serving as a maximum level for reimbursement, unless an added medical benefit can be demonstrated. For new drugs with added benefit (as evaluated by IQWiG and decided on by the Federal Joint Committee), the Federal Association of Sickness Funds negotiates a reimbursement price, based on the manufacturer’s price, that is applied to all patients. In addition, rebates are negotiated between individual sickness funds and pharmaceutical manufacturers to lower prices below the reference price.
Cost-containment mechanisms include annual hospital budgets as well as prices for health care services, drugs, and other consumables set administratively by the central and state governments. Significant shortages in the public sector, however, have led patients to use private services, for which prices are unregulated and set far beyond the procured purchase price.63
The National Pharmaceutical Pricing Authority has made efforts to improve the affordability and accessibility of medicines by setting price ceilings on essential medicines and on selected commonly used medical devices.64,65 In addition, the Department of Pharmaceuticals increased the supply of generic pharmaceuticals through the launch of the Pradhan Mantri Bhartiya Jan Aushadhi Pariyojana Kendra (PMBJP) scheme in 2008. The scheme has resulted in the establishment of kendras, specialized centers that sell brand quality–equivalent generic medicines at affordable prices.66
Given the administrative and technological shortfalls within the Indian health system, other innovative cost-containment mechanisms, such as pay-for-performance and value-based health care, have not been introduced in the public sector.
Among high-income countries, Israel is one of the most successful at containing costs. Strategies include:
- Instituting tight control of resources and expenditures. About half of national health expenditures are channeled through the Ministry of Finance.25 There are rigorous controls on key supply factors, such as hospital beds and expensive medical equipment, as well as physician and nurse positions in hospitals. In addition, the government sets maximum reimbursement rates and global revenue caps for hospitals.
- Using various managed care approaches. The NHI health plans essentially work as managed care organizations, providing care within budgets that are largely determined prospectively by capitation. The plans employ a variety of mechanisms for controlling utilization and costs, such as purchasing pharmaceuticals in bulk and incentivizing the use of generics. Health plans also maintain a well-developed system of prevention and community-based services to reduce reliance on high-cost hospital care.
- Explicitly prioritizing public funding for new technologies included in the NHI benefit package.
- Deploying risk-sharing agreements for certain high-cost drugs. The pharmaceutical companies fund patients’ drugs after a predetermined supply has been depleted.
- Implementing demand-side levers, including cost-sharing for specialist visits and coinsurance for pharmaceuticals, with higher rates for patented medications.
- Aligning organizational and financial incentives between clinicians and the hospitals or health plans for which they work. For example, health plans have various internal processes for discouraging the delivery of care that provides poor value.
Containing health care costs is a core concern of the central government, as Italy’s public debt is among the highest of the industrialized nations. Fiscal capacity varies greatly across regions. To meet cost-containment objectives, the central government can impose recovery plans on regions with health care expenditure deficits. These plans identify the tools and measures needed to achieve economic balance, such as revising hospital and diagnostic fees, reducing the number of beds, increasing copayments for pharmaceuticals, and reducing human resources through limited turnover.
All regions have adopted various tools to contain costs. In most cases, these include global budgets for hospital and outpatient care (limited to public-hospital enterprises and the private sector), bulk purchasing for drugs and medical products, and the procurement of services such as laundry, meals, cleaning, and sterilization. Regional governments periodically sign Pacts for Health with the national government that link additional resources to the achievement of health care planning and expenditure goals.
National contracting for personnel payment can in some ways be considered a cost-containment tool: both salaried workers (nurses, physicians, administrative personnel) and primary care physicians are paid in accordance with a national contract, with employers (local health units and public-hospital trusts) having limited flexibility in raising payment levels.
Few regional health technology assessment agencies currently exist, and their primary function is to evaluate individual technologies. Assessments are not mandatory for innovative procedures and devices. However, reference prices for medical devices and pharmaceuticals are set according to cost-effectiveness studies carried out by the National Committee for Medical Devices and the National Drugs Agency. Prices for reimbursable drugs are set in negotiations between the government and the manufacturer using criteria such as comparative cost-effectiveness. Prices for nonreimbursable drugs are set by the market.
The 30 percent coinsurance in the SHIS does not appear to work well for containing costs. By contrast, price regulation for all services and prescribed drugs seems a critical cost-containment mechanism. The fee schedule is revised every other year by the national government, following formal and informal stakeholder negotiations. The revision involves three levels of decision-making:
- the overall rate of increase or decrease in prices of all benefits covered by SHIH
- revised prices for drugs and devices
- prices of individual services.33
For medical, dental, and pharmacy services, the Central Social Insurance Medical Council revises provider service fees on an item-by-item basis to meet overall spending targets set by the cabinet. Highly profitable categories usually see larger reductions.
Price revisions for pharmaceuticals and medical devices are determined based on a market survey of actual current prices (which are usually less than the listed prices). Drug prices can be revised downward for new drugs selling in greater volume than expected and for brand-name drugs when generic equivalents hit the market. Prices of generic drugs have gradually decreased. Prices of medical devices in the United States, the United Kingdom, Germany, France, and Australia are also considered in the revision.
The fee schedule includes financial incentives to improve clinical decision-making. For example, if a physician prescribes more than six drugs to a patient on a regular basis, the physician receives a reduced fee for writing the prescription. Insurers’ peer-review committees monitor claims and may deny payment for services deemed inappropriate.
Prefectures regulate the number of hospital beds using national guidelines. The number of medical students is also regulated (see “Physician education and workforce” above).
The national Cost-Containment Plan for Health Care, introduced in 2008 and revised every five years, is intended to control costs by promoting healthy behaviors, shortening hospital stays through care coordination and home care development, and promoting the efficient use of pharmaceuticals. Prefectures also set health expenditure targets with planned policy measures, in accordance with national guidelines.
The main approach to controlling costs relies on market forces while regulating competition and improving the efficiency of care. In addition, provider payment reforms, including a shift from a budget-oriented reimbursement system to a performance- and outcome-driven approach, have been implemented. In the wake of the 2008 global financial crisis, additional activities have been undertaken to contain costs. Since 2012, health care spending has declined from 10.9 percent to 10.5 percent of GDP.38
In 2011, an agreement signed by the Ministry of Health, all health care providers, and insurers set a voluntary ceiling for the annual growth of spending on hospital and mental health care. When overall costs exceed that limit, the government has the ability to control spending via generic budget cuts. The agreement included an extra 1 percent spending growth allowance for primary care practices in 2014 and 1.5 percent in 2015–2017, provided they demonstrated that their services were a substitute for hospital care. The agreement was renewed in 2018.39
The pharmaceutical sector is generally considered to have contributed significantly to the decrease in spending growth. Average prices for prescription drugs declined in 2014, although less than in previous years, with reimbursement caps for the lowest-price generic contributing to the decrease in average price. Reimbursement for expensive drugs has to be negotiated between hospitals and insurers. There is some concern, however, that this and other factors may limit access to expensive drugs in the near future.
Health technology assessment is gaining in importance, and is used mainly for decisions concerning the benefit package and the appropriate use of medical devices. The management of the basic benefit package also contributes to cost containment. Based on advice by the National Health Care Institute, the Ministry of Health has negotiated lower prices with manufacturers for a range of expensive drugs. The Dutch health minister has formulated an ambitious policy proposal aimed, in part, at limiting the pharmaceutical industry’s power over drug pricing. During the Dutch presidency of the European Union in 2016, the topic was successfully put on the EU agenda, but the effectiveness of the proposed policies remains to be seen.
The annual deductible, which accounts for the majority of patient cost-sharing, has more than doubled between 2008 and 2018, from EUR 170 (USD 218) to EUR 385 (USD 493).40 There are some worries that this increase has led to greater numbers of people abstaining from or postponing needed medical care.
Cost containment has been most severe in long-term care. Since 2013, people with lower care needs are no longer entitled to residential care. In addition, the devolution of services to the municipalities as a result of the 2015 Long-Term Care Act was accompanied by substantial cuts to the available budgets (by almost 10%, on average).
The Federation of University Medical Centers has recently started a program aimed at reducing lower-value services.41 In addition, the Dutch Federation of Medical Specialists launched the “Dutch Choosing Wisely” campaign, which is also aimed at reducing lower-value services.42
The financial sustainability of publicly funded health care is a top government priority. To support this goal, government has implemented a range of measures, including four-year planning within district health boards to align expenditures with priorities and improve regional collaboration to drive efficiencies. All new proposals must demonstrate their fit with the four-year plan and the strategic direction of the health sector.
Cost control in district health boards is closely monitored by the Ministry of Health. In the early 2000s, the adoption of new service delivery models and other efforts to improve efficiencies helped to decrease district health board deficits. However, budgets have been under constant pressure: a growing population characterized by increasing numbers of older and higher-acuity patients has led to rising deficits since 2015. Because public hospitals are essentially free of charge and funding allocations are fixed, there is no mechanism to shift increasing costs to patients or generate additional income.
The Pharmaceutical Management Agency, which is New Zealand’s centralized drug purchasing entity, considers cost and savings as one criterion for including a drug on the national formulary. (Other factors are health benefit, need, and suitability.) The agency also uses mechanisms such as reference pricing to set prices for publicly subsidized drugs dispensed through community pharmacies and hospitals.13 When patients prefer an unsubsidized drug, they must pay the full cost. Such strategies have helped drive down pharmaceutical costs and kept New Zealand’s drug expenditures per capita among the lowest in the Organisation for Economic Co-operation and Development (OECD).14
The central government sets an overall health budget annually, and the municipalities and RHAs are responsible for maintaining their budgets. About 10 percent of the RHAs’ operating expenses go to buy health services from private providers. Private providers are contracted through tender agreements, for which price of service is one of several criteria.
The RHAs have established a common procurement trust to negotiate volume-based discounts on supplies and drugs and to support environmentally friendly procurement practices. The trust has been especially effective in negotiating drug purchases.
The Norwegian Medicines Agency (NOMA) determines which medications to reimburse for outpatients. For new drugs, the agency determines whether a prescription drug should be covered by evaluating its cost-effectiveness in comparison with that of existing treatments. The agency decides the maximum price of drugs. NOMA’s drug-pricing scheme encourages the use of generic drugs and uses cost-effectiveness as a reimbursement criterion for drugs.
Health technology assessments (HTAs) are used systematically to inform decision-making regarding the adoption of new technologies. The system has two levels: Decisions at the national level are made jointly by the four RHAs and based on HTAs, while decisions at the local hospital level are based on mini-HTAs performed in each hospital. The level of assessment depends on the type of technology and its intended area of use. Certain technologies, such as drugs, are always assessed at a national level. The System for the Introduction of New Health Technologies also addresses cost-effectiveness, as does the national eHealth strategy.
Measures taken to reduce low-value care include clinical guidelines and a surgical atlas that tracks variation in the frequency of some procedures (www.helseatlas.no). Patient out-of-pocket-payments are another measure to contain costs.
An OECD analysis of health spending in Norway suggested that high staffing levels and high salaries could partly explain the higher health care prices in Norway.21 That perspective is also prominent in a report issued by the Directorate of Health.22 However, Norway’s wage negotiation model, which involves tripartite bargaining, has been successful in keeping costs at bay in recent years.23
The hallmark of Singapore’s health care market has been strong government control and oversight.57 Demand- and supply-side controls encourage patients and providers to be judicious and cost-conscious in their use of health care services.58 In addition, the public sector’s role as the dominant health care provider sets the benchmark for the private sector, as well as the entire health system’s ethos of deemphasizing profit maximization.59,60 Private providers need to ensure that they do not price themselves out of a market where public-sector care is available, and therefore offer reasonable prices and quality.
The corporatization of public hospitals has introduced commercial accounting systems, which provide a more accurate picture of operating costs and instill greater financial discipline and accountability. In the costing and funding of hospitals, the depreciation of equipment and other fixed asset costs are registered and factored into annual budgets and, in turn, patient charges and government funding.
The Ministry of Health also closely monitors cost-recovery ratios for different types of services to ensure that public hospitals’ overall revenue is not excessive. Costs and funding rates are set through a detailed costing exercise. Funding amounts are then incremented annually, taking into consideration volume and cost growth, but set deliberately lower than actual trends. This process compels hospitals to be disciplined with their spending, as they have limited ability to charge patients more to recover any shortfalls.61
The Ministry of Health encourages the appropriate use of drugs through the provision of subsidies for essential drugs. Patients pay only a small amount for clinically relevant and cost-effective drugs on the standard drug list. Subsidies are also available for a list of more expensive, nonstandard drugs under the Medication Assistance Fund. Patients receiving these drugs must meet predefined clinical criteria. The Medication Assistance Fund scheme was expanded in 2012 to allow each institution to determine, through a specific set of guidelines and a peer-review mechanism, whether a nonstandard drug should be subsidized by the fund.62
The Ministry of Health publishes public and private hospitals’ history of transacted hospital bill amounts and operation fees to encourage consumers to be price-conscious and to stimulate price competition among providers. In late 2018, the ministry also began setting fee benchmarks for private-sector health professionals, with input from an independent committee that includes representatives from the medical community, providers, patients, and payers. Intended to help the public assess the reasonableness of provider charges, the benchmarks will be reviewed and updated regularly, with reference to historical data. Doctors are not prohibited from charging lower or higher fees.63
Other cost-control initiatives include using technology to improve productivity, and the use of group purchasing procurement to obtain better prices. Supply chain professionals from the three public health care clusters harness their synergies in meeting procurement and supply chain needs. Public hospitals are also evolving their model of care to help Singaporeans receive care in the most appropriate setting.
Regions and municipalities are required by law to set and balance annual budgets for their activities and to consider the cost-effectiveness of different treatment alternatives when organizing care. For prescription drugs, the central government and the regions form agreements, lasting a period of years, on the subsidy levels paid by the government to the councils.
The central government’s Dental and Pharmaceutical Benefits Agency also employs value-based pricing for prescription drugs, determining reimbursement based on an assessment of health needs and cost-effectiveness. Some regions also use value-based pricing models for specialized care, such as knee replacements.
Because regions and municipalities own or finance most health care providers, they can undertake a variety of cost-control measures. For example, contracts between regions and private specialists are usually based on a tendering process in which costs constitute one of the variables used to evaluate providers. The funding of health services through global budgets, volume caps, capitation formulas, and contracts also contributes to cost control, as providers retain responsibility for meeting costs with funds received through those prospective payment mechanisms. In several counties, providers are also financially responsible for prescription costs.
Switzerland’s health care costs are the second-highest in the world. The Swiss Federal Department of Home Affairs postulated in 2013 that the costs of providing mandatory benefits in the health system could be reduced by up to 20 percent.27 The Health2020 strategy lists possible cost-reducing measures, including:
- further flat-rate remuneration mechanisms, such as capitation
- revision of existing fee schedules to eliminate existing incentives for expensive and unnecessary services
- the concentration of highly specialized medicine for greater efficiency
- improvements in quality of treatment through use of more-experienced provider teams.
In 2012, DRGs were introduced to contain hospital inpatient costs. In addition, as of January 2019, certain hospital treatments must be provided in an outpatient setting in cases where patients will not be put at risk.
Inpatient capacity is subject to cantonal planning to prevent overcapacity. To limit the number of new physicians and to control escalating costs, a temporary ban on setting up new outpatient practices has been in place on and off since 2002 and is in force until 2021. But, given concerns over the supply of primary care physicians, particularly in rural areas, the federal government adopted a constitutional article in 2014 aimed at strengthening primary care.
To control pharmaceutical costs, coverage decisions on all new medicines are subject to an evaluation of their effectiveness and cost. Efforts are being made to reassess the prices of one-third of existing drugs every year. Depending on national market volume, generics must be sold for 20 percent to 50 percent less than the original brand. In addition, consumers pay higher coinsurance for brand-name drugs if generics exist. Pharmacists are reimbursed flat amounts for prescriptions, so they have no financial incentive to dispense more-expensive drugs.
In 2018, the Federal Office of Public Health launched a cost-containment program that places responsibility for reducing expenses on all health care actors. The first package of measures, nine in all, was adopted in 2019 and features improved cost-control and tariff schemes and a reference price system for pharmaceuticals. In 2020, a second package of initiatives is anticipated to increase cost transparency and improve coordinated care.
The global NHI budget system is, by far, Taiwan’s most powerful cost-containment tool. After global budgets were introduced, national health expenditures grew by 3.87 percent a year on average between 2004 and 2015. Prior to that period, annual growth rates ranged from 6 percent to 9 percent.
Other cost-containment measures include DRG payments for hospitals and annual drug price adjustments.
Drug expenditures account for 25 percent of total NHI expenditures, higher than the OECD average of 16.2 percent.34 Prices for pharmaceuticals are set by the NHIA with input from stakeholders. The NHIA’s pharmaceutical benefit management initiative considers both clinical effectiveness and cost-effectiveness in coverage decisions. Prices for breakthrough drugs that are under patent protection are set through reference pricing, in accordance with the median price in 10 leading developed countries: the U.S., the U.K., Australia, Belgium, Canada, Germany, France, Japan, Sweden, and Switzerland.35
To control total drug expenditures as a percentage of total NHI expenditures, the NHIA implemented an annual price adjustment mechanism in 2013. When actual drug expenditures (billings) exceed target expenditures in any given year, the automatic price adjustment mechanism kicks in, and prices are revised so that total expenditures do not exceed the predetermined target.36
As noted earlier, the NHIA’s automated claims review checks for the overall appropriateness of claims; in addition, the IT system randomly selects a small percentage of claims for individual professional review by clinical experts. Both measures are aimed at monitoring cost and quality.
Patient cost-sharing has never been a key cost-containment strategy in Taiwan. Overall, government provisions aimed at safeguarding access to care have rendered patient cost-sharing a largely insignificant factor in cost containment.
Political considerations have made eliminating low-value care difficult.37
Annual per capita health expenditures in the United States are the highest in the world (USD $11,172, on average, in 2018), with health care costs growing between 4.2 percent and 5.8 percent annually over the past five years.43
Private insurers have introduced several demand-side levers to control costs, including tiered provider pricing and increased patient cost-sharing (for example, through the recent proliferation of high-deductible health plans). Other levers include price negotiations, selective provider contracting, risk-sharing payments, and utilization controls.
The federal government controls costs by:
setting provider rates for Medicare and the Veterans Health Administration
capitating payments to Medicaid and Medicare managed care organizations
capping annual out-of-pocket fees for beneficiaries enrolled in Medicare Advantage plans and individuals enrolled in marketplace/exchange plans
negotiating drug prices for the Veterans Health Administration.
However, since most Americans have private health insurance, there are limited options available to the federal government. The ACA introduced cost-control levers for private insurers offering marketplace coverage, requiring that insurers planning to significantly increase plan premiums submit their prospective rates to either the state or the federal government for review.
State governments try to control costs by regulating private insurance, setting Medicaid provider fees, developing preferred-drug lists, and negotiating lower drug prices for Medicaid. Maryland and Massachusetts estimate total statewide health expenditures and set annual growth benchmarks for health care costs across payers. In those states, health care entities are required to implement performance improvement plans if they do not meet the benchmark.
Attempts to contain pharmaceutical spending are limited to a few mechanisms:
The prices private health plans pay for prescription drugs are based on formularies.
Pharmacy benefit managers are tasked with negotiating drug prices and rebates with manufacturers on behalf of private insurers.
Volume-based rebates are commonly used by payers and manufacturers to offset the prices of drugs with therapeutic substitutes.
Prior authorizations and step therapy encourage the use of lower-cost alternatives.
Among public payers, the Veterans Health Administration receives the deepest discounts for medicines. The agency is legally entitled to a minimum 24 percent discount from the nonfederal average manufacturer price and can choose to negotiate deeper discounts with manufacturers. Medicaid also is legally entitled to a discounted price and can negotiate further discounts.44 Medicare, the largest buyer of prescription drugs, does not negotiate drug costs with manufacturers.