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Sascha G. Wolf, Financing Pharmaceutical Expenditure by means of Medical Savings Accounts in:

Sascha G. Wolf

Pharmaceutical Expenditure in Germany, page 87 - 89

Future Development, Political Influence and Economic Impact

1. Edition 2009, ISBN print: 978-3-8329-4164-2, ISBN online: 978-3-8452-2005-5 https://doi.org/10.5771/9783845220055

Series: Neue Studien zur Politischen Ökonomie, vol. 6

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87 in the reference price scheme does G’s quantity vary slightly between 0.37 if ? = 0 and 0.3 if ? = 1. Consequently, ? rms’ pro? ts develop analogically to prices. Especially under an MSA regime, surpluses constantly decrease, which indicates more competition; this is opposed to RP, which only results in more competition as long as ? does not become too big (? gure 4.8). Figure 4.8: Pro? ts as a Function of ?, ? and ?. 0 0,5 1 1,5 2 2,5 0, 0/ 1 0.1, 0.1/0. 9 0.2, 0.2/0. 8 0.3, 0.3/0. 7 0.4, 0.4/0. 6 0.5, 0.5/0. 5 0.6, 0.6/0. 4 0.7, 0.7/0. 3 0.8, 0.8/0. 2 0.9, 0.9/0. 1 1, 1/ 0 Profit s ?, ? / ? Profits Co-Payment Profits MSA Profits RPS Notes: ?B = 1. 4.7. Financing Pharmaceutical Expenditure by means of Medical Savings Accounts Compared to coinsurance and RP, ? nancing drug provision via MSAs delivers more ef? cient results: increasing price competition forces manufacturers to lower prices without a deterioration in quality and without endangering comprehensive medical care. MSAs improve the cost consciousness of consumers and suppliers and reduce moral hazard welfare losses. But how far a system of MSAs can be used as a suitable option to ? nance pharmaceutical expenditure in the SHI depends on a wider set of arguments. There exist three fundamental criteria: (a) degree of coverage, (b) social security and (c) information. (a) Degree of coverage: The most important advantage of MSAs compared to RP is obvious: MSAs enable real price competition, whereas RP is only a market surrogate with an arti? cial price mechanism. Under an MSA regime, patients are obliged to pay the whole drug price themselves as long as their MSA is not empty. But when the MSA is exhausted, public subsidies are required and the control instrument loses its compe- 88 tition increasing effect. Thus crucial for the impact of MSAs is the height of ?, i.e. the quota of people that stay below their MSA limit. In the case of ? = 1, total drug costs of the society are covered and in principle the MSA system is compatible with an individual saving scheme without any income redistribution or collective risk-pooling.79 Considering the corporatistic negotiation and decision making process in German health politics (see chapter 3) and the strong redistribution role of the SHI (see FN 64), the exclusion of redistribution in the ? nancing of drug provision is highly unrealistic and unlikely politically foreseeable.80 Therefore, the height of ? is a political decision. The higher ? is, the stronger price competition becomes and the smaller the redistribution of income becomes. The most simple and, even in the short-run, realizable way to introduce MSAs into the SHI would be to exclude pharmaceuticals from reimbursement and to impose obligatory MSA deposits e.g. to the amount of average actual annual per capita expenditure. But the choice of ? is not the only central decision which concerns the degree of coverage: the functionality of MSAs is based on generic competition. Only if interchangeable drugs are available, can MSAs execute their competition strengthening impact. From this follows that the effect of MSAs on prices of innovative patent-protected drugs which cannot be substituted by other products is very limited. In addition, the inclusion of expensive patented drugs reduces the height of ? and thus exerts a competition decreasing effect. Consequently, it seems to be appropriate to use MSAs only for those parts of the pharmaceutical sector in which generic competition is possible, i.e. pharmaceuticals which are included in the reference price scheme. (b) Social security: Introducing MSAs into a social security system like the SHI necessitates the existence of two types of redistribution mechanisms: ? rstly, those people that would become impoverished due to the health care premiums need public subsidies. Secondly, it must be ensured that people get suf? cient medical care, even if their MSAs have been emptied. The former case is a typical problem in every kind of social health care system and independent of the introduction of MSAs.81 The latter one, on the other hand, is a more MSA-speci? c problem. Under RP it is guaranteed that at least one drug in each reference group is available almost free of charge;82 under an MSA regime, people always have to pay market prices. That is why mechanisms must be 79 This is referred to as Self-Insurance (Brunner 1999). 80 The absence of redistribution within the health care system must not be confused with the absence of redistribution in health care provision. Most market oriented reform proposals for the SHI recommend no redistribution within the SHI, but public monetary transfers for those people who cannot afford health care contributions or deductibles via the tax system. See e.g. Zweifel and Breuer (2002). 81 In Germany health care contributions are considered within the social bene? t system. 82 Apart from proportional co-payments (5 to 10 % in the SHI). Additionally patients can be exempted from co-payments as soon as they have paid more than 2 % of gross income in the calendar year. 89 found which ensure medicine is provided even if individual accounts are exhausted. This could be done by complete or partial exemptions from co-payments.83 c) Information: Another signi? cant advantage of MSAs compared to RP is that it is not necessary to classify pharmaceuticals into reference groups, which is always to some extent arbitrarily and discretionary. Nevertheless, grouping implies at least general information about the exchangeability of medicaments. Against the background of more than 40.000 approved drugs in Germany, it is almost impossible for physicians and chemists, never mind patients, to judge the equality of drugs in each particular case. Therefore, purely informative group-building could improve the information base and increase the decision sovereignty of consumers and suppliers. 4.8. Conclusion The pharmaceutical sector operates under very special circumstances. The cost-driving concurrence of supply-side price setting power and price-inelastic demand due to a comprehensive social health care provision is the optimal breeding ground for disproportionately increasing expenditure and has provoked policy makers throughout the industrialised world to establish complex regulatory frameworks to achieve costcontainment. Two types of control instruments in particular have attracted attention in the last few years: on the one hand, as the pioneer of these measures, Germany introduced RP in 1989. On the other hand, e.g. Singapore has gradually established a system of MSAs starting in 1984. Both control instruments have the common aim of strengthening price competition and reducing moral hazard welfare losses. The main purpose of this chapter was to compare the impact of RP and MSAs on competition and the price-setting strategies of pharmaceutical manufacturers. By means of a vertical product differentiation model with two ? rms, one brand-name drug producer whose patent has already expired and one generic competitor, it showed that ? nancing drug provision via MSAs delivers more ef? cient results: in comparison with RP, a system of MSAs results in lower prices without a deterioration of quality and without endangering comprehensive medical provision. The concept of MSAs seems to be appropriate to strengthen competition in the SHI’s pharmaceutical sector. 83 See Schreyögg (2003) for an international overview of different MSA arrangements.

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Zusammenfassung

Der Arzneimittelsektor der Gesetzlichen Krankenversicherung stand wiederholt im Fokus zahlreicher Gesundheitsreformen. Dennoch ist es bislang nicht gelungen, den Trend steigender Ausgaben nachhaltig zu bremsen. Die vorliegende Untersuchung leistet einen Beitrag dazu, die Ursachen dieser Entwicklung zu erklären und Lösungsansätze aufzuzeigen. Mittels Hauptkomponenten- und Cluster-Analyse wurden Gruppen von Arzneimitteln mit vergleichbaren Konsumeigenschaften gebildet. Jede Gruppe wurde auf den Einfluss der Altersabhängigkeit und des technologischen Fortschritts hin analysiert. Aufbauend auf diesen Ergebnissen wurde eine Prognose der zukünftigen Ausgabenentwicklung bis zum Jahr 2050 erstellt. Obwohl die Hauptkostenfaktoren exogen sind, steht der Gesetzgeber dem vorhergesagten ansteigenden Kostenpfad nicht hilflos gegenüber. Im Gegenteil: Anhand ökonometrischer Tests wird gezeigt, dass die Gesundheitspolitik in der Vergangenheit durch wahl- und klientelorientierte Interessendurchsetzung geprägt war. Mehr Effizienz in der Arzneimittelversorgung könnte durch die Einführung individueller Gesundheitssparkonten erzielt werden. Dies bestätigen die Resultate eines vertikal differenzierten Wettbewerbsmodells.