London 2001 Conference Abstracts: P.R. Biel etal

Pedro Rey Biel* & Javier Rey del Castillo**

New policies in health research: a need for maintaining publich health systems

*Department of Economics. UCL. London.
Contactl: P.R. Biel
**Ministerio de Sanidad y Consumo. Madrid. Spain. Contact:J.Rey de Castillio

I.- Increasing health expenditure is a key element for sustainability of Public Health Systems, in a context in which Public Expenditure is being broadly questioned.

II.- Most studies, both at a National level (Spain, Fuentes and Barea, 1998; UK, Harrison, 1997; USA, Iglehart, 2000) and at an international level (OECD, 1995) point at technological innovation as the main factor causing increasing health expenditure. Although a higher proportion of older people in developed societies has been named as an important factor of this increase, its effect is due mainly to new therapeutical options to treat old dying patients than to a extension in life expectancy (Thomson and Mossialos, 2000).

III.- Technological evolution intensity has been related to health coverage (Weisbrod, 1991). Some facts have been named:
III.1 Firstly, following Second World War, accelerated technological innovation and extension of health coverage have appeared jointly.
In most developed countries, extension of health coverage occurred in Public Health Systems, both Social Security ones (separating coverage and provision of health services) and National Health Services (without this separation). But technological innovation and extension of health coverage also appeared jointly in the US, where most health coverage is private (despite the limited public systems of Medicare for the elderly, and Medicaid for the poor population) and related to professional activities. In the US, at the same time as technological innovation was accelerated from 1950 to 1987, health expenditure multiplied by almost three, from 4% to 11% as percentage of GNP. At the same time, health coverage increased from 19% in 1940 to 82% in 1980. The proportion of expenditure covered by insurance companies increased from 12% in 1950 to 41% in 1973 (it multiplied by 6 for private companies while it did by 14 for public ones).
Increasing health coverage seems to act guaranteeing the absorption of innovation thanks to collective protection mechanisms of insurance. (This proposition shows some limits: in the US, health expenditure has risen to more than 14% of GNP, while coverage has not increased any more from the proportion described before. On the other hand, demands for public coverage to include more services in Medicare, such as helps for pharmaceuticals for the elderly, has risen).
III.2 Both Social Security Systems and Private Health Insurance Systems have evolved to prospective payment (oposite to retrospective payment, which is a characteristic of the phases where expenditure is increasing faster) as a mechanism to defend themselves against increasing expenditure. This evolution has been possible due to the already addressed separation of coverage and provision of services functions.
This evolution shows its own problems (related to the role asked for doctors to deal with limited services and expenditure control) but it is a instrument of compensation and control.
III.3 National Health Services, due to the integration of health insurance and service provision under the same responsibility, do not have this instrument to control expenditure. The lack of incentive mechanisms to control expenditure when deciding over new technologies, constitute a bigger problem for these systems in their aim to maintain universal coverage and free access to health services. It also weakens them when controlling the introduction of new technologies from other countries which do have mechanisms to control their own expenditure. An additional problem is that these inducing countries are at the same time the more innovative ones.

IV.- As it is the main factor causing increasing health expenditure we now study the main characteristics of technological innovation:

IV.1 Increasing concentration of R&D firms, leaving almost monopolistic power in most of these markets, both at an international and at a national level. This power over nations´ governments also allows firms to set different strategies for different countries, such as price discrimination. Decentralization of health responsibilities inside some countries (Canada, Spain) also contributes to price discrimination.
Price discrimination has been discussed in recent debates concerning cheaper drugs against AIDS in developing countries, where firms have announced lower prices for these countries to avoid loosing their power over patents and monopolistic production.

IV.2 Firms´ capability to orientate research for their own profit, leading to biases in the development of new products.
In developing countries, debates on AIDS drugs access have shown the difficulties that these countries face to be able to buy already patented treatments but also the lack of incentives to develop preventive drugs such as vaccines, which are more important for them to prevent the extension of the illness. Only 8% of AIDS research is devoted to finding a vaccine. No research is being carried out against malaria and tuberculosis, the two main causes of mortality in these countries.
In developed countries most research is carried out to increase the quality of already discovered lines of production, which do not introduce substantial changes in patients´ health but, on the other hand, increase costs, both because of the higher price of new products and because they do not substitute but add to other treatments for the same patient. An example of the distortions which appear in these markets is that even though there exists more than 80 drugs against hyperthension or more than 200 pain relievers, private research still focuses mainly in these diseases.

IV.3 Economic incentives to develop new products. As we have already argued, the main incentive is to guarantee the demand for new products from Countries´ Health Services.
On the other hand, it is widely agreed (Thomas, 1975) that the relationship between health technological progress and the cost of new products shows an inverse U-shaped function. In a first level of research, not specific cares are provided at a low cost , which do not improve the attention´s prognosis. In an intermediate level of research, complete solutions are not provided but they reduce the disease (as an example, we name retrovirals or resources used to diagnose and treat chronic diseases) but at a higher cost, due partially to the extension in life expectancy they allow. In the last (third) level of research, diseases can dissapear (such as with vaccines, specific retrovirals or with prevention of the risk factors of certain diseases). In this last phase, the dissapearance of the disease contributes to lower costs.
As we have shown in previous works for AIDS (Rey, 2000) , the important policy decision to take is the initial one. Once the kind of treatment the policy maker is going to incentive has been decided, firms lack incentives to change from one phase of research to another. An important example is the case of AIDS; where, at a first step, governments subsidized treatment products, but, once discovered, this treatments have lowered the incentives for private firms to invest in a vaccine, which could make disappear both the market for treatment (infected patients) and the potential market for the vaccine, one the disease disappears.

IV.4 Firms capability to induce demand. It affects both diagnosis and therapy through mechanisms previously described (medical congresses; payments proportional to prescription). In countries where these incentives have not been controlled, such as Spain, perversion of incentive mechanisms of public professionals has been huge, as public institutions can not compete with private firms offering these incentive without control. It also affects to consumption of without-prescription products, as advertising is becoming more broadly used.
In some countries, such as Spain, even the professional mechanisms to orientate medical activity with efficiency and efficacy (such as Evidence Based Medicine, or post-specialized formation proceedings) are controlled by private firms, which orientate them under their own criteria.
Finally, private firms subsidize scientific journals and, by these procedure they can decide over science and their applications, giving more scope to knowledge subsidizers are interested in.

V. In this section , we analyze how Public Health Systems warranting universal health coverage have reacted to these pressures. It is assumed that in other countries, specially in the US, the main objective is the extension of new health products´ consumption. This is due to the power that R&D firms show, because of other mechanisms they use to promote their interests (like giving economic support to parties defending their interests in political campaigns) (BMJ, 2001).

V.1 The most extended mechanisms to control technological innovation are Evidence Based Medicine and Technology Evaluation Agencies. The problem is that they act over already discovered products and mostly over already �in the market� products, losing their capability to really control innovation.
Different mechanisms to spread pharmaceutical products and new diagnostic and therapeutic procedures have been described (Thi D. Dao and Thierry, 2000). Highest benefits for firms concentrate in the first year of patent for pharmaceutical products, new products being liable for increasing expenditure without increased volume of products being consumed. Other diagnostic or therapeutic technologies are spread with a more difused trend, a distribution previous to evaluation that guarantees future acquisition by health services included.
Additionally, separation between authorizing and buying institutions makes the problem to worsen. Cost-benefit analysis is not broadly used when authorizing new products in most countries. Once the product is legal, Health Systems do not have successful defense mechanisms against the inducing demand mechanisms already mentioned.

V.2 Failure to control increasing expenditure has motivated some reactions in Public Health Systems:
- Fragmentation of health insurance in different systems. An example is the processes of decentralization of health responsibilities which can imply different levels of insurance for different territorial or professional groups, and dispersion of expenditure under different budgets. At the same time that this fragmentation helps central government to achieve their budget objectives, it can put the new responsible institutions under budgetary problems, creating inequity between regions and groups and threatening universal health care coverage.
- Search for new (private) sources of funding. As this measure is not very popular, it provides an additional reason for decentralization of health services, with the effects already mentioned.
- Rationing of health services, under different types. None of them have proved to both limit expenditure and being accepted by populations.

VI. The ways by which Public Health Systems have reacted against these pressures, previously named, act against their universal character and attempt against their own nature as instruments for social cohesion. This is a reason to search better control mechanisms, which can be used in a joined or separated form. Some of the proposals already discussed in the literature are the following:

  • Cost-benefit public innovation lines of �third level�, preferably at an international level. The idea is that whether private companies do not have incentives to invest, public research could be justified by health (not economic) interest.
  • Cost-benefit analysis (nationally and internationally, such as in the European Union) applied in the authorizing institutions. On the other hand, positive lists of product (opposite to negative lists or to limiting services) may offer some advantages for Public Health Systems, allowing them to control the authorizing process.
  • Effective control of both direct and indirect demand inducing mechanisms.
  • Incorporating consumers and politicians to decision-taking of public expenditure rationing debates, as a way to compensate demand inducing mechanisms with the aim of discussing the effects and perspectives of innovation.

In any case, all these measures do not threaten monopolistic firms´ capability to orientate research. That is why new mechanisms are needed to give back to Public Institutions the ability to priorize health needs.

As an example of these mechanisms, we propose tax incentives for companies carrying out research in areas proposed by international health institutions. The call for an international level comes from the fact that companies also act at an international level. These incentives could be used both in a positive (inducing the production of interesting new products) or negative (disappointing research in over-investigated areas for not advantageous new products) way.

We do not ignore that this proposal could be against the objectives of some countries, or even against some governments more worried in defending their industries than protecting public systems, and we just want to address the issue for public discussion.

Defense of Public Health Systems as important social cohession tools and recent results obtained in the debate to facilitate drugs at a low price to developing countries (offered by firms after government pressured for it, making the position and acting of R&D firms in the global market to be known) can act encouraging this new debate.