CAROL BEAVER Senior Research Fellow Centre for Chronic Disease University of Qld, Australia Consultant Health Economis

1. Relevance of undertaking expenditure reviews and cost studies to pharmaceutical decision-making CAROL BEAVERSenior Research Fellow Centre for Chronic Disease University of Qld, Australia Consultant Health Economist MVP/WHO/WPRO Case Studies: Diabetes Expenditure Review and development of National Health Accounts

2. abstract Problem Statement:Supply and access to essential medicines is dependent on a number of interrelated factors as demonstrated by the Pharmaceutical Sustainability Equation. One such factor is financial sustainability. Financial sustainability requires more than concern regarding access to funds – it must also address the three EEEs of provision (Effectiveness, Efficiency and Equity). This requires key decision-makers have a good understanding of the relationship between; 1. what is needed, 2. what is currently available at what cost to those in need, 3. what should be available and at what cost, 4. what the gaps are and 5. how these gaps can be addressed and at what cost. Objective: To present case studies from the Western Pacific Region – expenditure reviews and cost analysis and their relevance to decision-making at the policy and purchasing levels. Design: A review of diabetes related expenditure in Pacific island countries was undertaken Pharmaceutical expenditure reviews have been undertaken in a number of countries within the broader framework of National Health Account (NHA) development. Conclusions: Chronic diseases such as diabetes and hypertension are becoming high-cost issues, and as costs increase, governments are facing shortfalls in funding, which in turn compromise early intervention and clinical care. Expenditure and reference cost data must play a major role in informing policy and purchasing decisions if appropriate and equitable access to essential medicines is to be had. It is suggested that expenditure reviews, undertaken to inform priority setting methodologies such as PBMA, can provide a structured common sense approach to informing decision making in the context of pharmaceutical supply.

3. Background There is increasing recognition that expenditure and cost studies play an important role in informing decision-making in the healthcare sector. To develop an understanding of what is spent where, many countries in the Western Pacific Region are implementing National Health Accounts (NHAs) and undertaking expenditure reviews and cost studies. For instance, many countries are struggling to contain the rising tide of Type 2 diabetes. With severely limited resource in many Pacific island countries, it is an imperative that those resources that are available, are used as efficiently and effectively as possible. An expenditure review was commissioned as a first step in explore what is, and what could be, provided for what cost. Pharmaceutical expenditure was included in the study as access to appropriate pharmaceutical treatment regimes is essential to the management of diabetes and the prevention and management of complications. Relevant expenditure data, in some instances, was obtained from National Health Accounts (NHAs)

4. Setting: Western Pacific Region Diabetes expenditure review • Federated States of Micronesia • Cook Islands • Marshall Islands • Samoa • Fiji • Tonga National Health Accounts • Samoa • Vietnam

5. Study Aims: Diabetes expenditure review • To demonstrate the importance of using utilisation and cost data to inform decision-making • To provide economic justification for policy development and service planning

6. The Approach: Diabetes Expenditure Review • Determine the direct costs of diabetes and diabetes related expenditure to the health sector, and to the individual, • Use the Health Benefit/Healthcare Resource Group (HBG/HRG) as the base classification system (information model) to determine expenditure across the care continuum • Where possible, use currently available reference expenditure and cost data e.g. NHA data

7. Results 1:Pohnpei State FSM HRG 4 represents expenditure of treatment of uncomplicated diabetes – A (blue) represents costs excluding out-of-pocket payments for diabetes medication and B (red) represent expenditure on diabetes medication including out-of-pocket payments

8. Results 2: Cook Islands diabetes related drugs and supplies & anti-hypertensives For the purposes of this study the % share of anti-hypertensives expenditure for persons with a diagnosis of diabetes was assumed to be 30% - 30% of persons attending the diabetes clinic have dual diagnoses of diabetes & hypertension

9. Results 3: % the total pharmaceutical budget (drugs/other) for diabetes and hypertension

10. Results 4: Average per patient/per year diabetes-related medication costs Tonga 2001 N B based on wholesale drug cost

11. What can National Health Accounts tell us? Samoa: • 14% of total health expenditure is on drugs • 16% of expenditure on pharmaceuticals is out-of pocket Compared to: Viet Nam: • 41% of total health expenditure is on drugs – which may reflect misuse and or overuse • 60% of expenditure on pharmaceuticals is out-of-pocket – high cost severely limits access to EDM – means less money that is available for food/education etc Source National Health Accounts Samoa 1998/99 Viet Nam 2000

12. Discussion: expenditure and cost data presented here can be used to inform decision-making • It can help you understand: • what your are doing for what costs • the impact of price and other costs issues on supply • whether out-of-pocket expenditure is a barrier to access • It can • provide important information for informing economic studies: cost minimisation studies, cost-effectiveness analysis, cost-benefit analysis • inform budget/contract negotiations • provide important information for evaluating service delivery

13. Expenditure/cost data can inform priority setting using Program Budgeting and Marginal Analysis (PBMA) The six basic steps of PBMA are: • determine the key supply programs/budgets to review • determine what is currently being done and related expenditure; • determine what should be provided to meet the needs of the population; • determine where supply gaps are and identify areas where changes could be made with regard to current resource allocation (marginal analysis) or new investment; • measure costs and impacts/benefits (if possible) of proposed changes; • undertake a formal Option Appraisal to decide on strategies for implementation.