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How are costs contained?

  • Australia

    The major drivers of cost growth are the Medicare Benefits Scheme (MBS) and Pharmaceutical Benefits Scheme (PBS). The federal government regularly considers opportunities to reduce spending growth in the MBS through its annual budget process and has established an expert panel to undertake a review of the entire schedule and to report by the end of 2016.

    The federal government influences the cost of the PBS by making determinations about which pharmaceuticals to list on the scheme and by negotiating the price with suppliers. It also provides funds to pharmacies to dispense medicines subsidized through the PBS and to support professional programs and the wholesale supply of medicines. This arrangement is implemented through the current Community Pharmacy Agreement (the Community Pharmacy Agreements were instituted in 1991 and are subject to renegotiation every five years). The Sixth Community Pharmacy Agreement, which began in July 2015, supports AUD6.6 billion (USD4.29 billion) in savings through supply chain efficiencies.

    Hospital funding is set through policy decisions by the federal government, with states required to manage funding within their budgets. Beyond these measures, the major control is through the capacity constraints of the health system, such as workforce supply.

  • Canada

    Costs are controlled principally through single-payer purchasing, and increases in real spending mainly reflect government investment decisions or budgetary overruns. Cost-control measures include mandatory global budgets for hospitals and regional health authorities, negotiated fee schedules for providers, drug formularies, and resource restrictions vis-à-vis physicians and nurses (e.g., provincial quotas for students admitted annually), as well as restrictions on new investment in capital and technology. The national health technology assessment process is one of the mechanisms for containing the costs of new technologies.

    The federal Patented Medicine Prices Review Board, an independent, quasi-judicial body, regulates the introductory prices of new patented medications. The board regulates “ex-factory” prices but does not have jurisdiction over wholesale or pharmacy prices, or over pharmacists’ professional fees. Since 2010, the Pan-Canadian Pharmaceutical Alliance has negotiated lower prices for 95 brand-name medications and has set price limits at 18 percent of equivalent brand-name drugs for the 15 most common generics. Notwithstanding this pan-Canadian collaboration, jurisdiction over prices of generics and control over pricing and purchasing under public drug plans (and, in some cases, pricing under private plans) are held by provinces, leading to some interprovincial variation. The “Choosing Wisely Canada” campaign provides recommendations to governments, providers, and the public on reducing low-value care.

  • Switzerland

    Switzerland’s health care costs are among the highest in the world. In 2014, total health expenditure represented 11.1 percent of gross domestic product. “Regulated competition” among nonprofit health insurers and among service providers is aimed at containing costs and guaranteeing high-quality health care and at establishing solidarity among the insured. Such were the objectives of mandatory health insurance (MHI), introduced in 1996. While most of these objectives were achieved, there has been criticism of competition’s capacity to control health care costs. A global budget, however, has never been regarded as a possible remedy for this problem. Failures are ascribed largely to inadequate risk equalization, the dual funding of hospitals, and pressure on insurers to contract with all certified providers. In 2013, the Federal Department of Home Affairs (FDHA) postulated that the costs of providing mandatory benefits in the health system could be reduced by up to 20 percent.

    An overview of possible cost-reducing measures is part of the Health2020 strategy. The strategy outlines a need for further flat-rate remuneration mechanisms and revision of existing fee schedules to limit incentives for service providers. Also mentioned is the need to concentrate highly specialized medicine in fewer sites to eliminate inefficiency and duplicated infrastructure and to increase the quality of treatments through more-experienced teams of providers. A national diagnosis-related group, SwissDRG AG, was introduced to contain hospital costs. Inpatient capacity is subject to cantonal planning requirements, and there is a “necessity clause” for outpatient providers.

    To control pharmaceutical costs, coverage decisions on all new medicines are subject to evaluation of their effectiveness (by Swissmedic) and cost (by the Federal Office of Public Health (FOPH)). Efforts are being made to reassess the prices of one-third of existing drugs every year. Depending on national market volume, generics must be sold for 20 percent to 50 percent less than the original brand. In addition to the aforementioned 20 percent coinsurance consumers pay for brand-name drugs, pharmacists are reimbursed flat amounts for prescriptions, so they have no financial incentive to dispense more-expensive drugs.

  • China

    Health expenditures have risen significantly in recent decades because of health insurance reform, an aging population, economic development, and health technology advances. Health expenditures increased from CNY584 (USD164) per capita in 2004 to CNY2,582 (USD725) in 2014. The key cost-containment strategy is reform of provider payment. Prior to the introduction in 2009 of DRGs, global budgets, and capitation, fee-for-service was the main provider payment mechanism, and consumer- and physician-induced demand increased costs significantly. Global budgets have been used in many regions, since these are relatively easy for authorities to implement. As noted above, government encourages the use of community and township hospitals over the more expensive care provided in tertiary hospitals. Hospitals compete on quality, level of technology, and copayment rates.

    In township, community, and county hospitals, a campaign of “zero markups” for prescription drugs was introduced in 2013 to contain the rising drug costs. The National Development and Reform Commission places stringent supply constraints on new hospital buildings and hospital beds, and the National Health and Family Planning Commission controls the purchase of high-tech equipment such as MRI scanners.

  • Denmark

    The overall framework for controlling health care expenditures is outlined in a “budget law,” which sets budgets for regions and municipalities and specifies automatic sanctions if they are exceeded. The budget law is supplemented by annual agreements among regions, municipalities, and government to coordinate policy initiatives aimed at limiting spending, including direct controls of supply.

    Block grants to the regions are conditional on annual increases in productivity of 2 percent on the basis of diagnosis-related groups and are withheld if productivity falls short of targets. Even though the activity-based portion is small, it makes up regions’ marginal income and presents a strong incentive. Furthermore, regions are under pressure to deliver good performance, as they can be reformed if they do not deliver.

    At the regional level, hospital cost control includes a combination of global budgets and activity-related incentives.

    Inpatient pharmaceutical expenditure is controlled through national guidelines and clinical monitoring combined with collective purchasing. The purchase of medicine takes place through tendering by the joint regional organization Amgros. A new regional “medicines council” will be established in 2017 to provide information to Amgros and other decision-makers on the cost-effectiveness of new pharmaceuticals.

    Policies to control outpatient pharmaceutical expenditure include generic substitution, prescribing guidelines, and assessment by the regions of deviations in prescribing behavior. Pharmaceutical companies report a monthly price list to the Danish Health Authority, and pharmacies are obliged to choose the cheapest alternative with the same active ingredient, unless a specific drug is prescribed. Patients may choose more expensive drugs, but they have to pay the difference.

    Collective agreements with general practitioners and specialists include various clauses about rate reductions if overall expenditures exceed given levels. Regions also monitor the activity level of individual practices and may intervene if they deviate significantly from the average.

    Health technology assessment and cost-effectiveness information provide input to decision-making on new treatments and guidelines.

    Regions may enter into contracts with private providers to deliver diagnostic and curative procedures. Prices for those services are negotiated among regions and private providers and can be lower than rates in the public sector.

    Together, these measures have been relatively successful in controlling expenditures and driving up activity levels. General productivity in the hospital sector increased almost 20 percent from 2008 to 2012, while maintaining high patient satisfaction and reducing standardized hospital mortality rates.

  • Germany

    Recently, there has been a shift away from reliance on overall budgets for ambulatory physicians and hospitals and on collective regional prescription caps for physicians toward an emphasis on quality and efficiency. The Hospital Care Structure Reform Act aims not only to link hospital payments to good service quality but also to reduce payments for “low-value” services.

    To enhance competition, some purchasing power has been handed over to the sickness funds. For example, the funds can now selectively negotiate integrated care contracts with providers and negotiate rebates with pharmaceutical companies.

    All drugs, both patented and generic, are placed into groups with a reference price serving as a maximum level for reimbursement, unless they can demonstrate added medical benefit. For drugs with added benefit (evaluated by Institute for Quality and Transparency [IQWiG] but decided on by the Federal Joint Committee), the Federal Association of Sickness Funds negotiates a rebate on the manufacturer’s price that is applied to all patients. In addition, rebates are negotiated between individual sickness funds and pharmaceutical manufacturers to lower prices below the reference price.

  • France

    Statutory health insurance (SHI) has faced large deficits over the past 20 years, but they have fallen from EUR10.0 billion–EUR12.0 billion (USD12.1 billion–USD14.5 billion) in 2003 to EUR4.6 billion (USD5.5 billion) in 2015. This trend is the result of a range of initiatives, including a reduction in the number of acute-care hospital beds; the removal of 600 drugs from public reimbursement; an increase in generic prescribing and the use of over-the-counter drugs; a reduction in the price of generic drugs; and a reduction of the official fees for self-employed radiologists and biology labs. Other measures include central purchasing to better negotiate costs, increasing the share of outpatient surgery, instituting earlier post-surgery and post-delivery discharge, and reducing duplicate testing. Competition is not used as a cost-control mechanism. Global budgets are used only in price–volume agreements for drugs or devices. Patient cost-sharing mechanisms include increased copayments for patients who refuse generics or do not use the gatekeeping system. The increasing price of drugs is addressed in two ways: 1) by using earmarked funds and capping the total cost of treatments at EUR700 million (USD843 million) in 2015, thus providing treatment to successive waves of patients by decreasing severity; and 2) by negotiating price-volume agreements and undisclosed rebates with manufacturers.

    A number of initiatives to reduce “low-value” care, launched by SHI and the National Health Authority (HAS), include pay-for-performance to reduce prescription of benzodiazepines for elderly persons; reductions in avoidable hospital admissions for patients with heart failure; early discharge after orthopedic surgery and normal childbirth; information on the absence of benefit of prostate cancer screening; using diagnosis-related group (DRG) payments to incentivize shifts to outpatient surgery; establishing guidelines for the number of allowable off-work days according to disease or procedure; strengthening controls for the prescription of expensive statins and new anticoagulants; encouraging the use of Avastin over Lucentis, and of other less costly biosimilar drugs; and testing the use of taxi vouchers, instead of ambulances, for chronically ill patients.

  • England

    Costs in the National Health Service (NHS) are constrained by a global budget that cannot be exceeded, rather than through patient cost-sharing or direct constraints on supply. NHS budgets are set at the national level, usually on a three-year cycle. Clinical Commissioning Groups (CCGs) are allocated funds by NHS England, which closely monitors their financial performance to prevent overspending. They are expected to achieve a balanced budget each year.

    Since 2010, the allocation of funds by the central government has grown much more slowly than the long-term historical rate, which averaged 4 percent in real terms between 1949–1950 and 2010–2011. Between 2010–2011 and 2014–2015, average real-term growth in spending on health rose by 1.2 percent and is projected to rise by 1.1 percent between 2015–2016 and 2020–2021.

    The mismatch between funding, demand, and the cost of providing services has led to NHS hospitals and other providers recording a deficit of GBP3.7 billion (USD5.3 billion) for 2015–2016 and a projected gap of GBP6.0 billion (USD8.7 billion) by 2020–2021, even if hospitals can continue to create efficiencies of 2 percent a year.

    Although some of the savings targets have been met in the past five years, the financial pressure on the NHS is being associated with some deterioration in the quality of care—notably waiting time targets.

    Cost-containment strategies to date include freezing staff pay increases, supporting the increased use of generic drugs, reducing diagnosis-related group (DRG) payments for hospital activity, managing demand, and reducing administration costs. In 2016, NHS Improvement launched a program to help hospital providers generate savings through more efficient use of staff, more cost-effective purchasing of drugs and medical equipment, and better management of estates and facilities, which, if implemented, could save GBP5.0 billion (USD7.2 billion) by 2020. There are a number of tools whereby local purchasers can maximize value by addressing unwarranted variations in utilization and clinical practice, provided by the government-funded Rightcare program. Local purchasers can also run competitive tenders for certain services.

    The costs of prescription (branded) drugs are contained by the Pharmaceutical Price Regulation Scheme. The latest scheme, lasting five years through 2018, regulates the profits that drug companies can make selling drugs to the NHS. It is a voluntary scheme, negotiated between the U.K. government and the pharmaceutical industry, with new medicines to be introduced to the NHS at prices set by the manufacturer as long as they remain within the profit cap. This scheme runs parallel with the cost-effectiveness appraisals by NICE, which tends not to recommend new drugs as cost-effective if they exceed GBP20,000–GBP30,000 (USD28,900–USD43,350) per Quality Adjusted Life Year (QALY).

  • India

    The Indian health system does not promote efficiencies or control costs. Studies have found that most hospital systems across states are inefficient. Lack of competition has made the public health infrastructure costly.

    Some state governments have been able to control costs, especially for drugs. Tamil Nadu, for example, has a drug procurement system that relies on a centralized process that lowers prices and makes a wider range of drugs available. Since 2011, Rajasthan has provided essential medicines free of cost to patients visiting public facilities. Evidence indicates that this initiative has resulted in increased financial protection of households and better health outcomes.

    There also have been efforts to make medicines more affordable and accessible by increasing the supply of generic pharmaceuticals. Launched in 2008 by the Department of Pharmaceuticals, the Jan Aushadhi scheme has opened stores to sell high-quality generic medicines at low prices. And recently, the National Pharmaceutical Pricing Authority has reduced the allowable prices of certain drugs, which could help reduce costs for consumers.

  • Israel

    Among high-income countries, Israel is one of the most successful at containing costs, with health expenditures remaining below 8 percent of GDP. Strategies include:

    • Channeling the bulk of funding through a single, tightly controlled government source.
    • Maintaining tight controls on key supply factors, such as hospital beds and expensive medical equipment.
    • Requiring the health plans—which function as the building blocks of the health system—to provide care competitively, within budgets that are largely determined prospectively.
    • Maintaining a well-developed system of community-based services to reduce reliance on high-cost hospital care.
    • Using electronic health records effectively, particularly in the community.
    • Purchasing pharmaceuticals in bulk and relying heavily on generics.
    • Setting maximum hospital reimbursement rates (government), negotiating discounts (health plans), and instituting global revenue caps for hospitals.
    • Explicitly prioritizing public funding for new technologies included in the NHI benefit package.
    • Aligning organizational and financial incentives between clinicians and the hospitals or health plans for which they work (see below).

    Although clinicians are rarely given explicit financial incentives to contain costs, reliance on salary and capitation (rather than fee-for-service) may reduce incentives to overtreat. Moreover, the health plans have various internal processes for discouraging care that provides poor value.

    Of concern to some experts, however, is the recent growth of private medical care and private financing, which is seen as potentially jeopardizing Israel’s success in containing cost growth.

    Other growing concerns are the rapid increase in expenditures on pharmaceuticals, particularly those related to cancer care, and the future cost impact of the expanding field of biologic therapies and personalized medicines.

  • Italy

    Containing health care costs is a core concern of the central government, as Italy’s public debt is among the highest of the industrialized nations. Fiscal capacity varies greatly across regions. To meet cost-containment objectives, the central government can impose recovery plans on regions with health care expenditure deficits. These identify tools and measures needed to achieve economic balance: revision of hospital and diagnostic fees, reduction of the number of beds, increased copayments for pharmaceuticals, and reduction of human resources through limited turnover.

    The Agency for Regional Health Services, in collaboration with the Ministry of Health, has the authority to conduct health technology assessments and apply its findings at the regional level, but the assessments are not yet formalized or undertaken systematically. Few regional health technology assessment agencies currently exist, and their primary function is to evaluate individual technologies. Assessments are not mandatory for innovative procedures and devices. However, reference prices for medical devices and pharmaceuticals are set according to cost-effectiveness studies carried out by the National Committee for Medical Devices and the National Drugs Agency. Furthermore, the National Pharmaceutical Formulary bases coverage decisions in part on clinical effectiveness and cost-effectiveness. Prices for reimbursable drugs are set in negotiations between government and the manufacturer according to the following criteria: cost-effectiveness where no effective alternative therapies exist; comparison of prices of alternative therapies for the same condition; costs per day compared with those of products of the same effectiveness; financial impact on the health system; estimated market share of the new drug; and average prices and consumption data from other European countries. Prices for nonreimbursable drugs are set by the market.

  • Japan

    Patients pay 30 percent for most services, as described above. But price regulation for all services under the Statutory Health Insurance System (SHIS) is a critical cost-containment mechanism. The fee schedule is revised every other year by the government, following formal and informal stakeholder negotiations. The revision involves three levels of decision-making: the overall rate of increase or decrease of benefit prices, drug and device prices, and prices of services on an item-by-item basis.

    For medical, dental, and pharmacy services, the Central Social Insurance Medical Council revises fees on an item-by-item basis to meet overall spending targets set by the cabinet. Highly profitable categories usually see larger reductions.

    The revisions of prices of pharmaceuticals and medical devices are determined based on a market survey of actual current prices (which are usually less than the listed prices). Drug prices can be revised downward for new drugs selling in greater volume than expected and for brand-name drugs when generic equivalents hit the market. Prices of medical devices in other countries are also considered in the revision. Prices of generic drugs have been gradually decreased.

    A trial cost-effectiveness evaluation for coverage of selected pharmaceuticals and medical devices was conducted in fiscal year 2016. Price reduction for highly expensive pharmaceuticals with large markets has been discussed.

    The fee schedule includes financial incentives to improve clinical decision-making. For example, if a physician prescribes more than six drugs to a patient on a regular basis, fees for writing the prescription are reduced. Insurers’ peer review committees monitor claims and may deny payment for services deemed inappropriate.

    Prefectures develop their strategic plans and health care delivery plans for regulating the number of hospital beds with consideration to national guidelines. The national medical student capacity, which has been increasing since 2007 owing to physician shortages, is also regulated by the government.

    The government’s Cost-Containment Plan for Health Care is intended to control costs by promoting healthy behavior, shortening hospital stays through care coordination and home care development, and prevailing efficient usage of pharmaceuticals. Prefectures also make middle-term cost containment plans, including health expenditure targets in coming years with planned policy measures in accordance with national guidelines.

  • Netherlands

    The main approach to controlling costs relies on market forces while regulating competition and improving efficiency of care. In addition, provider payment reforms, including a shift from a budget-oriented reimbursement system to a performance- and outcome-driven approach, have been implemented.

    Cost containment was one of the most significant subjects of public debate surrounding the 2012 elections. The most recent figures indicate that expenditure growth has fallen significantly, to 0.8 percent as of 2015.

    The pharmaceutical sector is generally considered to have contributed significantly to the decrease in spending growth. Average prices for prescription drugs declined in 2014, although less than in previous years, with reimbursement caps for the lowest-price generic contributing to the decrease in average price. Reimbursement for expensive drugs has to be negotiated between hospital and insurer; there is some concern, however, that this and other factors may limit access to expensive drugs in the near future.

    Health technology assessment is gaining in importance and is used mainly for decisions concerning the benefit package and the appropriate use of medical devices. The Dutch health minister has formulated an ambitious policy proposal aiming in part to limit the pharmaceutical industry’s power over drug pricing. During the Dutch European Union presidency, the topic was successfully put on the European Union agenda but the effectiveness of the proposed policies remains to be seen.

    The annual deductible, which accounts for the majority of patient cost-sharing, more than doubled between 2008 and 2016, from EUR170 (USD206) to EUR385 (USD465). There are some worries that this increase has led to greater numbers of people abstaining from or postponing needed medical care.

    In 2013, an agreement signed by the minister of health, all health care providers, and insurers set a voluntary ceiling for the annual growth of spending on hospital and mental care. When overall costs exceed that limit, the government has the ability to control spending via generic budget cuts. The agreement included an extra 1 percent spending growth allowance for primary care practices in 2014 and 1.5 percent in 2015–2017, provided they demonstrate that their services are a substitute for hospital care. These agreements will expire at the end of 2017, and it is unclear what future cost containment policies will replace them.

    Cost containment is most severe in long-term care. People with lower care needs are no longer entitled to residential care. In addition, the devolution of services to the municipalities was accompanied by substantial cuts to the available budgets (on average almost 10%).

    The Federation of University Medical Centers has recently started a program aimed at reducing lower-value services. In addition, the Dutch Federation of Medical Specialists launched the “Dutch Choosing Wisely” campaign, which is also aimed at reducing lower-value services.

  • Norway

    Central government sets an overall health budget annually, and municipalities and the four regional health care authorities (RHAs) are responsible for maintaining their budgets. The drug pricing scheme aims to encourage the use of generic drugs. Cost-effectiveness is a criterion for getting on the blue list of drugs eligible for reimbursement, and there is a defined maximum price for drugs, linked to reference prices set at the average of the three lowest market prices for the drug in a defined group of Scandinavian and Western European countries. The Drug Procurement Cooperation has been effective in negotiating drug purchases and delivery jointly for the four RHAs.

    Gatekeeping by general practitioners (GPs) for specialized services helps contain costs. There is very little competition regarding pricing within the health services. A small proportion of specialized care is privately provided by RHAs and contracted through tenders, for which price is one of several criteria.

    The National System for the Introduction of New Health Technologies, established in 2014, makes decisions on whether to approve new, costly drugs or treatments, mainly on the basis of health technology assessments that address cost-effectiveness.

    Norway’s number of hospital beds—four per 1,000 inhabitants in 2012—is low by comparison with the Organisation for Economic Co-operation and Development (OECD)–Europe mean of five. The low number can be attributed to policy: efforts to drive services toward outpatient and daycare settings and to make municipalities accountable for reducing the need for specialized hospital care. There is an ongoing debate about overdiagnosing and the use of procedures that are not evidence-based. Clinical guidelines and a published atlas of variation in frequency of some daytime surgical procedures ( are the only measures taken to date to reduce “low-value” care. Although the Council on Priorities in Health Care has debated, for instance, about levels of end-of-life care and the use of intensive-care beds, no focused initiatives have resulted from the debates.

  • New Zealand

    The financial sustainability of publicly funded health care is a top government priority. To support this goal, government has implemented a range of measures, including four-year planning to align expenditure with priorities over a longer period and improving regional collaboration to drive efficiencies. All new proposals must be integral to a four-year plan and demonstrate their fit with the strategic direction of the health sector.

    Cost control in district health boards (DHBs) has been closely monitored by the Ministry of Health, with a significant reduction in deficits over the last six years, from NZD154.8 million (USD105.3 million) in 2008–2009 to NZD65.8 million (USD44.8 million) in 2014–2015. These reductions are achieved largely through efficiency gains and cuts in spending on staff, services, and equipment. As public hospitals are essentially free of charge, there is no mechanism to shift costs to patients.

    The Ministry of Health has recently taken on the functions of the former National Health Committee. To assist with implementing the New Zealand Health Strategy, it is developing an integrated approach to prioritizing health technologies.

    The Pharmaceutical Management Agency (PHARMAC) uses mechanisms such as reference pricing and tendering to set prices for publicly subsidized drugs dispensed through community pharmacies and hospitals. If a patient prefers an unsubsidized drug, they must pay the full cost. Such strategies have helped to drive down pharmaceutical costs and to keep drug expenditure per capita the fourth-lowest in the Organisation for Economic Co-operation and Development (OECD) in 2012.

  • Singapore

    Singapore spends 4.7 percent of its gross domestic product on health care.9 Costs are controlled first and foremost by fostering and controlling market competition: the government directly regulates the market when it fails to keep costs down. It also can regulate prices for services provided in the public hospitals, as well as the number of public hospitals and beds. Within this environment, private-sector providers must be careful not to price themselves out of the market.

    At the same time, the government sets subsidy and cost-recovery targets for each hospital ward class, thereby indirectly keeping public-sector hospitals from producing “excess profits.” Hospitals are also given annual budgets for patient subsidies, so they know in advance the level of reimbursement they will receive for patient care. They are required to break even within this budget.

    The government has numerous ways of keeping the health care “demand” in check, including copayments, deductibles, and restrictions on the uses of Medisave and MediShield for consultations, treatments, and procedures. These controls discourage unnecessary doctor visits, tests, and treatments.

    The Ministry of Health makes available on its website hospitals’ bills for common illnesses, treatments, and ward classes. Patients can look up the costs of specific surgeries and tests, the number of cases treated in each hospital, and more.

    The Group Purchasing Office consolidates drug purchases at the national level. One goal of this system is to keep drug prices affordable by containing the costs of pharmaceutical-related expenditure. The Group Purchasing Office also purchases medical supplies, equipment, and informational technology services for the health care system.

  • Sweden

    County councils and municipalities are required by law to set and balance annual budgets for their activities. For prescription drugs, the central government and the county councils form agreements, lasting a period of years, on the levels of subsidy paid by the government to the councils. The central government’s Dental and Pharmaceutical Benefits Agency also employs value-based pricing for prescription drugs, determining reimbursement based on an assessment of health needs and cost-effectiveness. In some county councils, there are local models for value-based pricing for specialized care such as knee replacements.

    Because county councils and municipalities own or finance most health care providers, they can undertake a variety of cost-control measures. For example, contracts between county councils and private specialists are usually based on a tendering process in which costs constitute one of the variables used to evaluate providers. The funding of health services through global budgets, volume caps, capitation formulas, and contracts also contributes to cost control, as providers retain responsibility for meeting costs with funds received through those prospective payment mechanisms. In several counties, providers are also financially responsible for prescription costs.

  • Taiwan

    Health spending in Taiwan as a percentage of GDP or per capita GDP has been consistently low compared to Organisation for Economic Co-operation and Development (OECD) countries, even though Taiwan’s per capita GDP is higher than that of many OECD countries. Total national health expenditures in 2013 represented 5.9 percent of GDP (and 6.2% in 2014), compared to the OECD median of 8.8 percent (2013). Per capita health spending in Taiwan in 2015 was USD2,595, considerably lower than OECD countries with comparable per capita GDP.

    Cost containment had been a major policy goal of Taiwan’s government since the late 1980s, when rates of annual health spending growth were in the double digits. Since the inception of the National Health Insurance program (NHI) in 1995, the National Health Insurance Administration (NHIA) has introduced a number of cost-containment strategies on both the supply and demand sides.

    On the supply side, the NHI’s global budget system has been the most powerful tool for cost containment. NHI expenditure growth rates in the early years following the NHI’s implementation had been between 6 percent and 9 percent, significantly higher than NHI revenue growth rates. Between 1998 through 2003, the government phased in five sectoral global budgets: dental (1998), Chinese medicine (2000), primary care clinics (2001), hospitals (2002), and dialysis (2003).

    Global budgets have had a significant impact on health spending growth. In the 2004–2015 period, national health expenditure growth was between 2.9 percent and 4.4 percent, or an annual average of 3.87 percent. Meanwhile, GDP growth during this same period ranged between ?1.4 percent and 8.9 percent, for an annual average of 3.61 percent.

    Other supply constraints included diagnosis-related group (DRG) payment for hospitals and annual drug price adjustments. The latter are based on comparing the actual transaction prices of drugs procured by providers, which providers must report to the NHIA in the fourth quarter of each year, to the NHI fee for the drug. Fee adjustments are made in the first quarter of the following year, according to a formula bringing the NHIA fee closer to the actual transaction prices of drugs.

    Capacity constraints in the delivery system also play a role in cost containment in Taiwan. The physician–population ratio in Taiwan was 1.8 per 1,000 population in 2012, lower than the OECD median of 3.1 per 1,000 population. The ratio of computed tomography (CT) scanners per million population in Taiwan is lower than that in many OECD countries; comparable to Canada and France and higher than that in the Netherlands. Taiwan also has fewer magnetic resonance imaging (MRI) machines than many other OECD nations, including Australia, the U.S., Japan, and Korea. On the other hand, the acute-bed-to-population ratio in Taiwan, at 3.2 per 1,000 population, was somewhat higher than the OECD median of 3.0 and higher than the US (2.5), the U.K. (2.3), and Canada (1.7).

    The NHIA’s pharmaceutical benefit management initiative considers both clinical effectiveness and cost-effectiveness in coverage decisions. The initiative is in the process of building capacity for health technology assessment to evaluate medical services to help the NHIA make coverage decisions and improve quality.

    The NHIA’s automated information technology (IT)–supported claims review checks for the overall appropriateness of claims. In addition, it randomly selects a small percentage of claims for individual professional review by clinical experts. These measures help the NHIA monitor utilization and costs on a real-time basis (providers are required to report to the NHIA all services delivered daily, by patient), detect fraud and abuse, and safeguard quality.

    There are fewer demand-side constraints in Taiwan’s NHI. They include graduated copayment and coinsurance schemes, whereby patients accessing tertiary care without referral pay higher copayment and coinsurance, and utilization monitoring. Ceilings and exemptions from copayments and coinsurance, however, protect access to care. Overall, government provisions to safeguard access to care has rendered patient cost-sharing largely an insignificant factor in cost-containment in Taiwan.

    In the long run, however, NHI’s generous copayment policy may prove to be unsustainable. Going forward, it may be necessary to institute means-testing for copayment exemptions, both as a cost-containment measure and “to prevent reverse income distribution from the middle class to the rich.”

    Administrative costs in Taiwan are very low, as alluded to earlier in this profile. Its information technology (IT)–driven single-payer system has been characterized by administrative simplicity and low overhead costs, ranging from 1.5 percent in 2005 to 1.07 percent in 2014.

    Eliminating low-value services from the benefit package (delisting), however, has been difficult, owing to political considerations.

  • United States

    Annual per capita health expenditures in the United States are the highest in the world (USD9,364 in 2014), despite a recent slowdown in spending from 2008 to the present. Payers have attempted to control cost growth through a combination of selective provider contracting, price negotiations and controls, utilization control practices, risk-sharing payment methods, and managed care. Recently, both public and private payers have focused more attention on value-based purchasing and other models that reward effective and efficient health care delivery. Patent expirations and a movement toward favoring generic drugs over brand-name drugs, meanwhile, have led to a slowdown in pharmaceutical spending in recent years, although growth rebounded in 2014 with the market entry of expensive biologics for conditions such as hepatitis C. Another growing trend is the increase in private insurance plans with high deductibles.

    A number of reforms included in the Affordable Care Act (ACA) attempt to develop payment methods in the Medicare and Medicaid programs that reward high-quality, efficient care. Some of these use pay-for-performance mechanisms, whereas others rely on bundled payments, shared savings, or global budgets to incentivize integration and coordination among health care providers.

    Despite a recent slowdown in health care spending, the latest data, through July 2016, showed that spending had grown 4.9 percent over the previous year.