The drug budget silo mentality in Europe: an overview.

This supplement engages some of the leading health economists in Europe to analyze how the policies in their respective health-care systems to control and influence pharmaceutical spending are likely to influence the overall performance of their systems, with respect to both cost control and the production of population health. Six countries were selected to provide a representative mix of public systems: France, Germany, Italy, the Netherlands, Spain, and the United Kingdom. All of their public health-care systems, whether taxor social insurance-based, have limited resources, determined in part by their per-capita income, in part by the financing mechanism, and in part by social preferences. Each uses a unique mix of taxes, premiums, and out-of-pocket payments to fund the amount that can be spent on health care. Each is unique in how funds raised are allocated to the different types of “services”— hospitals, physicians, and drugs—used in the delivery of health care. These budgetary allocation systems can be an extremely complex mixture of mechanisms such as regional population-adjusted budgets, payments per unit of service provided, and paybacks of expenditure above preset targets. Pharmaceutical spending seems to be a highly visible target for cost controls. The act of treating pharmaceuticals as a separate expenditure category creates incentives for cost-containment measures that may reduce the overall efficiency of the health-care system. The articles in this issue aim to identify the incentive properties of budgetary control mechanisms, analyze their likely impacts, and discuss options for integrating pharmaceutical budgets into overall health-care spending budgets to enhance the efficiency with which pharmaceuticals are used to improve overall health-care system performance. From an economic perspective, drugs, physician services, and hospital services are intermediate inputs, which together with patient’s time, are combined to produce the final output “health.” These intermediate inputs can be both complements and substitutes in this production. Treating any one of them as a single category for control runs the risk of perversely affecting production and distorting output in, perhaps, unintended ways. In particular, reducing use of one input (such as pharmaceuticals) to stay within the budget for pharmaceuticals may lead to greater expenditure on other inputs, such as hospital care, that are less efficient at improving the health of the patient, thereby reducing the overall efficiency of the health-care system. In the United States, the term “silo mentality” is often ascribed to this approach, and we adopt it here. Health systems and health providers seem to have a tendency to categorize spending by type of intermediate input, grouping expenditures into identifiable “silos” for budgetary control based on type of service input, rather than final output. These controls may mean that the most efficient mix of services to treat a disease is not used. It should be much more efficient for expenditure control to be exercised at the level of disease category or therapeutic area allowing the most efficient mix of services to be used to achieve the desired health outcome. Some of the six systems do monitor spending and performance in this manner at certain organizational levels. However, silo budget systems exist and persist in all of these countries. This summary article provides a comparative overview of the broad, qualitative, and quantitative features of the systems in these six European countries. We then provide an overview and commentary on the six articles.