Tag Archives: cost

Continuing with my thoughts today on excess costs (last post was on medicines waste), I thought I think about excess hospitalisation, another type of waste.

Excess risk of hospitalisation is calculated as the difference between observed hospitalisation (for a condition) and expected population rates.

What are the determinants of excess hospitalisation?

  • Excess hospitalisation can be driven by factors which increase population risk, such as influenza/epidemics, and seasonal and weather variation (e.g. respiratory/COPD, asthma, stroke).
  • Readmissions are viewed as excess hospitalisation.
  • There is some research, in the US, showing ethnic and gender variation in hospitalisation.
  • Complex conditions indicate potential for excess admission with failed primary care but that is a design feature of the health system. Complex/high risk patients disproportionately account for hospital activity. Depending on the other co-morbid conditions, some conditions signal excess costs some of which translate into (excess?) hospitalisation (e.g. Alzheimers), depending on how care is managed.
  • Not having a primary care doctor is a factor in excess use of emergency services and hospital emergency departments, and in turn to excess hospitalisation. On average, perhaps 10% of excess (inappropriate) emergency visits convert into admissions.
  • There is also misdiagnosis and excess length of stay caused by adverse hospital events (such as hospital acquired infection, accidents, patients falls, dropping patients, medicine errors).
  • Excess capacity (where utilisation is less than about 70%) leads to over-provision of care and obviously excess hospital admission. Incentives in reimbursement systems can drive hospitalisation.

Just so you don’t think I’m making this up, consider:

  1. US data show 17.6% of all Medicare hospital admissions were readmissions costing $15 billion annually, of which $12 billion was deemed preventable admission.
  2. The number of BSIs caused by MRSA and G3CREC was extrapolated from EARSS prevalence data and national health care statistics. Prospective cohort studies, carried out in hospitals participating in EARSS in 2007, provided the parameters for estimating the excess 30-day mortality and hospital stay associated with BSIs caused by either MRSA or G3CREC. Hospital expenditure was derived from a publicly available cost model. Trends established by EARSS were used to determine the trajectories for MRSA and G3CREC prevalence until 2015. In 2007, 27,711 episodes of MRSA BSIs were associated with 5,503 excess deaths and 255,683 excess hospital days in the participating countries, whereas 15,183 episodes of G3CREC BSIs were associated with 2,712 excess deaths and 120,065 extra hospital days. The total costs attributable to excess hospital stays for MRSA and G3CREC BSIs were 44.0 and 18.1 million Euros (63.1 and 29.7 million international dollars), respectively. Based on prevailing trends, the number of BSIs caused by G3CREC is likely to rapidly increase, outnumbering the number of MRSA BSIs in the near future. [de Kraker M, et al. Mortality and Hospital Stay Associated with Resistant Staphylococcus aureus and Escherichia coli Bacteremia: Estimating the Burden of Antibiotic Resistance in Europe, PLOS Medicine, October 2011]
  3. A total of 538,580 admissions generated 4,310,654 hospital bed-days and total costs of €940,026,949. People with diabetes accounted for 9.7% of all hospital discharges, 13.8% of total stays, and 14.1% of the total cost. Of the total cost for individuals with diabetes (€132,509,217), 58.3% were excess costs, of which 47% was attributable to cardiovascular complications and 43% to admissions for comorbid diseases. Individuals 45–75 years of age accounted for 75% of the excess costs. The rate of admissions during the study year was 145 per 1,000 inhabitants for individuals with diabetes compared with 70 admissions per 1,000 inhabitants for individuals without diabetes. [Oveira-Fuster G, et al. Excess Hospitalizations, Hospital Days, and Inpatient Costs Among People With Diabetes in Andalusia, Spain,Diabetes Care, August 2004]
  4. Schwartzberg studied health literacy among patients, and noted that patients with low literacy skills were twice as likely to be hospitalised and twice as likely to report poor health. She argues that low health literacy may cost $73 billion [US figures] annually in excess hospitalisation days alone. Much depends on improving the ability of patients (with help from their families) to carry out complex health instructions on their own. [Schwartzberg J. Patient safety. Low health literacy: what do your patients really understand? Nursing Economics, 20(3-2002), 145-147]

Want to know more?

As you local hospital to tell you what they do.



In these days of trying to better understand the determinants of rising healthcare expenditure, it is productive to look in the waste bin, to see what is being thrown away. Let’s look in the waste bin and see what medicines we find.

Medicines waste is medicines given to patients that they do not take. But this needs to distinguish between actions taken by the patient, and other factors since not all wastage is patient non-adherence.

The costs include the cost of the medicine itself, but also the changed procedures in pharmacies to reduce patient-related waste (procedural costs drive duplicate medicines ordering on hospital wards, for instance). There is also the costs associated with safe disposal of the medicine waste itself and how patients dispose of unwanted/unused medicines. Environmental contamination by pharmaceuticals is of rising concern. [Pharmaceuticals in the Environment, European Environment Agency, 2010].

Considerable medicines waste arises because the patient has died and correlates with condition: 100% return for anaesthetic drugs, 60% for drugs used in immunosuppression/malignant disease, 26% for cardiovascular conditions, 19% for drugs used for infections. This suggests that gross wastage data needs to be viewed with some care.

Reducing the stock held by patients in the home shifts the stocking costs to pharmacies. UK evidence suggests that “if all repeat prescriptions in 2008 had been issued at just 28 days, then total pharmacy costs would have been even higher – around £2.3 billion, or 28% of the net cost of medicines dispensed.” [Gilmour review on prescription charges, “Medicines Wastage” Prescription charges review: implementing exemption from prescription charges for people with long term conditions, May 2010] This suggests that included in wastage costs are pharmacy dispensing charges.

As in all cases of healthcare expenditure, the challenge involves a complex mix of activities and stakeholders. We need much better tracking of waste, if only to ensure we do not inappropriately target expenditure of medicines without first ensuring that medicines that are being bought are properly used. Industry, healthcare and regulators can usefully work together here.

I haven’t mentioned the environmental impact of flushing unused medicines down the toilet. I’ll let your imagination go to work on that one.

Want to know more?

Evaluation of the Scale, Causes and Costs of Waste Medicines, Final Report, York Health Economics Consortium/School of Pharmacy, London, 2010. This has a good international literature review of costs, but caution is needed in the context of the comments below.

Kummerer K, Hempel M (eds) Green and Sustainable Pharmacy, Springer 2010. See page 170 in for a table of waste by country, but not costed.

One of the real issues facing EU members, particularly those that are having trouble paying their healthcare bills from suppliers, is the way that medicines are priced. The issue of drug pricing is likely to become even more important internationally as the UK pricing system will move to ‘value-based pricing’ in a year when the current arrangement expires. Other EU countries, and elsewhere, all grapple with medicines: whether it is their price, their use, effectiveness, or whether they are not used by the patient. All this adds costs to the system, and particularly in countries where drug prescribing by doctors is not well scrutinised, so that irrational prescribing can occur, influenced more by the reimbursement system, than what is right for the patient. “Big pharma”s’ door-to-door 1950s approach to promoting medicines is well-past its sell-by date.

What is often forgotten in all this is that despite the general view of big pharma, it is not really in their interests (corporate, and profits) for

Development of a rational scale to assess the ...

Evidence of Misuse, from The Lancet, 2007 (Photo credit: Wikipedia)

their drugs to be misused; similarly, it is in their interests, though they seem not to grasp this, and blame sits at in the C-Suite of corporate leadership where they can be disconnected from the real world. Indeed, big pharmaceutical companies are learning, mainly from their own ill-thought out actions, that taking pricing and access to medicines disputes into the courts is, if nothing else, a public relations disaster. [See this item from the LA Times from 2001 on the legal dispute between big pharma and South Africa and this item from the UK’s Independent on protestors outside GSK’s offices]

This week’s British Medical Journal reports on Germany’s Fresenius Kabi’s decision not to supply the drug propofol to the United States if it is to be used for lethal injections for executions within the criminal justice system. The company makes the point that suppling drugs to kill people is inconsistent with their corporate purpose. Similar value language is usually found somewhere in all pharmaceutical companies’ mission statements.

What is interesting here is that the company has indicated what use the drug may be put to and has instructed its wholesalers and distributors to ensure that the product does not end up in the hands of prison officials. This is an important way of thinking and reveals, that when it is necessary, the manufacturer of a drug can stipulate its use and by whom. Granted, the company noted that the use in executions is not part of the product’s licensed use, but doctors can, if they wish, ignore the licensed requirements for medications.

How might this relate to drug pricing?  What we start with is the legitimate corporate (and one hopes healthcare system) concern that medicines should not be misused, or abused. In the case of propofol, we see that a manufacturers could stipulate use and user as a requirement of supply.

What we want is a system that would obligate purchasers (such as healthcare systems) as a condition of supply to ensure proper end use of the medicine. Such conditions might include ensuring that the medicine is not used ‘off label’, ensure that patients are enrolled in medicines management programmes to ensure that the medicines are properly taken, that waste is avoided, that prescribing is rational and follows guidelines, medicines-use audits are conducted, the medicine is appropriately part of care protocols, and so on.

What would it take to do this? Something like the arrangement we should all be familar with when we ‘buy’ software, the End-user Licence Agreement, so-called EULA. With a EULA, we don’t actually own the software, but are licensed to use it. Medicines could also be licensed, and the advantage of such a license-based pricing system would its transparency around proper use. There is some irony in the public perception of the pharmaceutical industry as greedy for money, little thought is given the misuse of medicines by doctors and patients, and that are purchased within the healthcare system. For example, perhaps up to 30% of medicines prescribed and paid for are not used properly or thrown away (disposal of prescription medicines down the toilet of course contaminates water supplies). For country like France, UK or Germany, we are talking in the €/£multi-billions of wasted public expenditure

Licensing has the additional benefit of shifting pricing considerations toward the real value of the product-as-used. The UK’s introduction of value-based pricing will need to develop a view on how to quantify the value of the product-as-used. However, drug pricing and reimbursement arrangements in most countries seem to view medicines a bit like FMCG (fast-moving consumer goods) products, such as cosmetics and candy bars. (While a medicine costs upwards of $1 billion dollars to bring to market, composed of research costs and costs associated with clinical trials and testing, I’m not sure how much it costs to invent a new face cream, but the advertising of such a product seems only to require that 15 of 25 women surveyed agreed that it made their skin appear more youthful, hardly the same standards that apply in clinical trials — accepting of course that clinical trials are not all created equal — see Goldacre’s new book.)

An additional benefit is to show how unhelpful comparative drug pricing (call international reference pricing) is. This approach ignores the innovation value of the product-as-used, in favour of what other countries have got the drug price to be — not much different from comparison shopping on the web.

Licensing would also enable the separation of the innovation value of the product-as-used (the research and development costs), from its production and ingredient costs as it would the innovation value that is licensed, and the drug itself as a product sold (licensing the computer software, but paying for the DVD it comes on). This twin pricing makes it possible to recognise the legitimate costs of production.

Wider benefits are realised in two directions:

  1. the pharmaceutical companies to focus on product development that is truly innovative (and not me-toos or reformulations to extend patent periods);
  2. the healthcare systems to ensure that the medicines they do buy are properly used.