Innovation cost containment

Constraints on Innovation Cost Containment - Public Health and Public Benefits Collide... 

This book consists of a series of works that evaluate various aspects related to the public financing of pharmaceuticals. In all health systems with majority public funding, the financing of pharmaceuticals constitutes one of the key factors in reform policies and health cost containment measures. This importance of pharmaceutical spending can be explained by both its relative size (its share within health expenditure as a whole), and its rapid growth, which is closely related to the constant incorporation of therapeutic innovations. 

In a recent assessment of various pricing and profit cost containment schemes Scherer(2004) makes the point that most such schemes are a dis- incentives for innovation his view of the PPRS is less unfavourable less impairment of such incentives would be expected with a system such as that used in Great Britain under which... 

More generally, any public policy that affects use of pharmaceutical products in the short run should affect innovation in the longer run. As discussed above, countries differ in their relative emphasis on cost containment by the public sector versus reliance on market forces to achieve socially desirable outcomes. A method for achieving cost containment and static efficiency in some countries has been public evaluation of the costs and benefits of new technologies. 

We are convinced that the innovation and cost-containment trends described are lasting ones and will impact the healthcare landscape for the next decades. To adapt the portfoHo to the challenges and subsequent major changes in the healthcare environment, we suggest the foUowing actions. 

Many member states have over the years approached the World Health Organization for advice or information on the feasibility of measures to controi the growth of expenditure on medicines. Such calls for help led the Oi anization as early as 1983 to undertake a study under the title Dmgs and Money it cutminated in a deliberately concise report, providing a criticai overview of the effectiveness of older cost-containment schemes white atso paying attention to innovative ventures. The report was widely used and repeatedly updated, and this is now its seventh edition. 

However, the cost of simple substitution and shallow innovation can be substantial. The new EU regulations on Registration, Evaluation and Authorisation of Chemicals (REACH) are expected to result in a large number of chemicals that are currently freely available to vanish from the market. Formulated commercial products such as inks, adhesives and paints can contain up to 60 individual chemicals in one formulation. If one of these is withdrawn as a result of REACH, the potential costs of reformulation can be very high. 

Since the characteristics of vaccines can be well specihed, quality can be (and is) monitored, and the potential for quality improvement is high, their model implies that private enterprise is likely to be more efficient in the vaccine industry too. Indeed, in a later paper, Shleifer (1998) concluded that private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong— A good government that wants to further social goals would rarely own producers to meet its objectives. ... 

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