Reducing health care expenditure or increasing the pain? by Aileen Murphy, UCC Lecturer in Economics
13 Aug 2009
Recommendations from the An Bord Snip report include reducing health expenditure in the form of increasing the drugs payment scheme (DPS) co-payment by 25% and the introduction of a €5 co-payment for general medical services (GMS) patients have come under strong criticism in recent days.
The introduction of co-payments or user charges in health care is not a new phenomenon. User charges and co-payments have been part of health care reforms world wide for the last decade. Such endeavours can serve two purposes, even simultaneously. One purpose is to reduce moral hazard amongst health care users, and the second is increase revenue. Using co-payments to increase revenue, provides an opportunity for the Government to increased funding levels available to the health care system without increasing taxes or reallocating resources. This is particularly suitable for a public health care system such as Irelands’.
The second rationale is that such co-payments may reduce the wasteful use of health care resources incurred by unnecessary prescriptions and/or over prescribing. This relates to the concept of moral hazard which can be used to explain a situation of excess use owing to changes in behaviour.
The DPS and GMS schemes provide lower cost and free prescriptions respectively to those who meet the eligibility criteria. Thus for GMS patients for example, who can visit the GP for free, they will get a prescription from the GP which the pharmacist will dispense. Fundamentally this appears a fair and equitable system, after all eligibility for the GMS system is means tested, and is designed to provide access to health care for persons who without undue hardship could not arrange general practitioner medical and surgical services for themselves and their dependents.
The issue of moral hazard however, arises when this cover for prescriptions changes the economic incentives facing both the patients and the health care providers (GPs and pharmacists). This can result in excess use of services as explained by the Law of Demand: which states that as the price of medicines decreases the quantity of medicines demanded will increase cetris paribus. For such patients the price is considerably lowered, and quantity of prescription drugs demanded has increased disproportionally.
This should not be an issue for lifesaving medicines, where the person would have visited the GP and got a prescription regardless of whether they had to pay for it or not. The concern arises when people alter their behaviour due to changes in price. Evidence of this points in particular to repeat prescriptions which are issued recurrently. Owing to changing economic incentives -due to low/zero prices, behaviours change. Perhaps GPs are less cautious about the quantities of prescriptions they write, and even shy away from generic drugs as seen in recent debates. This can result in the persistent issuing of repeat prescriptions, which can stockpile in peoples drug cabinets. Concerns of this even led to a HSE driven scheme – DUMP (the Dispose of Unused Medicines Properly). The over dispensing of prescription medicine has even given rise to a black-market scenario where those who are entitled to free medications are selling it on those who are not eligible for the GMS scheme and have to pay for GP visits and prescriptions.
Thus co-payments and user charges increase the price of medicines which can have a duel effect: raising much needed funding for Government and reducing excess use because as price increases, quantity demanded decreases.
However, in imposing cost saving measures one must consider that health care is different. In a public health care system such as in Ireland, the Government is a provider and funder of health care. The former of which should not diminish due to economic hardship.
So while user charges or co-payments are a useful tool to increase funds available in a public health care system and avoid excess use, there is an equity issue which must be considered and balance is necessary.
A potential solution is rather than issuing universal user charges and/or co-payments perhaps the list of medicines which come under the GMS and DPS needs to be re-examined. Perchance the DPS scheme could be amalgamated with the Long Term Illness Scheme (this provides necessary drugs/medicines and/or appliances free of charge to persons suffering from one or more of a schedule of illnesses, irrespective of income). This would insure that high-priority medicines are exempt from the co-payment and only on lower-priority medicines are user charges / co-payments levied on. Lower priority medicines could include those required when going to tropical holiday destinations which are currently covered by the current schemes for example – as outlined by one GP , surely those who can afford holidays to tropical destinations can afford the necessary anti-malarias and insect bite cream!
Implementing user charges or co-payments as a method of generating revenue and reducing the excess use of prescription medicine is a viable and reasonable option for the Government if implemented fairly. Achieving this would mean not targeting lower income groups with poor health status for whom the schemes were designed for.
Ms Aileen Murphy is a UCC economics lecturer.
This article appeared in the Irish Times Health supplement 28 July 2009.