The current system and proposalsfor reform
Prepared by
Laurie Brown, Alicia Payne, Binod Nepal,Cathy Gong and Gabrielle Cooper
March 2010
Modelling Options for the Public Funding of Hospital Medicines in Australia
NATSEMMarch 2010
About NATSEM
The National Centre for Social and Economic Modelling was established on 1January 1993, and supports its activities through research grants, commissioned research and longer term contracts for model maintenance and development.
natsem aims to be a key contributor to social and economic policy debate and analysis by developing models of the highest quality, undertaking independent and impartial research, and supplying valued consultancy services.
Policy changes often have to be made without sufficient information about either the current environment or the consequences of change. NATSEM specialises in analysing data and producing models so that decision makers have the best possible quantitative information on which to base their decisions.
NATSEM has an international reputation as a centre of excellence for analysing microdata and constructing microsimulation models. Such data and models commence with the records of real (but unidentifiable) Australians. Analysis typically begins by looking at either the characteristics or the impact of a policy change on an individual household, building up to the bigger picture by looking at many individual cases through the use of large datasets.
It must be emphasised that NATSEM does not have views on policy. All opinions are the authors’ own and are not necessarily shared by NATSEM.
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Author note
Laurie Brown is a Professor and Research Director (Health) at the National Centre for Social and Economic Modelling, University of Canberra.At the time of undertaking this research, Alicia Payne,Binod Nepaland Cathy Gongwere Research Fellows at NATSEM. Gabrielle Cooper is a Professor and Head of the Discipline of Pharmacy, Faculty of Health, at the University of Canberra.
Acknowledgements
The authorswould like tothank the following for their professional contribution to this Report through interviews conducted by Professor Gabrielle Cooper:
Professor Michael Dooley BPharm, Vic.Coll.Pharm., Grad.Dip.Hosp.Pharm., Vic.Coll.Pharm., Professor of Clinical Pharmacy (and Director of Pharmacy, Bayside Health), MonashUniversity, MelbourneVictoria,
Mr Andrew Petrie BPharm FSHP, Director Medicines and Pharmacy Services Unit, Queensland Health,
Mr Neil Keens BPharm MBA, Director of Pharmacy, The Canberra Hospital and current President Society of Hospital Pharmacists of Australia
and we acknowledge the assistance provided and the time given to answering our questions and queries by other individuals from Government, AIHW, ABS, the Pharmaceutical Industry and Hospital Pharmacy in Australia.
This project was supported through an untied research grant from Pfizer Australia.
General Caveat
NATSEM research findings are generally based on estimated characteristics of the population. Such estimates are usually derived from the application of microsimulation modelling techniques to microdata based on sample surveys.
These estimates may be different from the actual characteristics of the population because of sampling and non-sampling errors in the microdata and because of the assumptions underlying the modelling techniques.
The microdata do not contain any information that enables identification of the individuals or families to which they refer.
Abbreviations
ABSAustralian Bureau of Statistics
ACHSAustralian Council on Health Care Standards
ACSQHCAustralian Commission for Safety and Quality in Health Care
AHCA Australian Health Care Agreements
AIHWAustralian Institute of Health and Welfare
ALOSAverage length of stay
AR-DRGAustralian Refined Diagnosis Related Groups
ATC Anatomical Therapeutic Chemical classification
COAG Council of Australian Governments
CURFConfidentialised unit record file
DoHADepartment of Health and Ageing
ICD-10-AMInternational Statistical Classification of Diseases and Related Health Problems, 10th Revision, Australian Modification
IPA Individual Patient Approval
JATAG Joint Australian Therapeutics Advisory Groups
MSAPs Medical Superintendant Signed Authority Protocols
NHCDC NationalHospital Cost Data Collection
NHHRCNational Health and Hospitals Reform Commission
NHMDNationalHospital Morbidity Database
NPHENationalPublicHospital Establishments
PBSPharmaceutical Benefits Scheme
PBACPharmaceutical Benefits Advisory Committee
PHECPrivateHospital Establishment Collection
SDL Standard Drug List (for Queensland Hospitals)
SHPASociety of Hospital Pharmacists of Australia
TGA Therapeutic Goods Administration
Contents
About NATSEM
Acknowledgements
General Caveat
Abbreviations
Executive Summary
Executive Summary
1Introduction
1.1Methods
2Background
2.1Public and Private Hospitals in Australia
2.1.1Public hospitals
2.1.2Private hospitals
2.2Overview of Hospital Medicines in Australia
2.2.1Structures of funding for the use of prescribed medicines in Australia
2.2.2The Pharmaceutical Benefits Scheme and its use in hospitals
2.2.3Hospital formularies
2.2.4Drug Committees
2.2.5The influence of PBS listing on the hospital formulary
2.2.6Off Label- non-TGA approved therapies
2.2.7Ability of Industry to influence formulary applications
2.3Policy Context - National Health and Hospitals Reform Commission
3Identified Issues with the Current System and Opportunities for Reform
3.1Continuity of Care and Health Outcomes
3.2Cost Shifting
3.3Inequities of Access and Funding
3.4Value for Money
3.5Duplication of Work
4Proposals for Reform
4.1Society of Hospital Pharmacists of Australia (SHPA)
4.2Joint Australian Therapeutics Advisory Groups (JATAG)
4.3Pfizer Australia
5Constructing a System Dynamics Model of the Hospital Medicines System
5.1Modelling Approach
5.2Data Sources
5.2.1National Hospital Cost Data Collection
5.2.2National Public Hospital Establishments Data Collection
5.2.3National Hospital Morbidity Database
5.2.4Private Hospital Establishment Collection
5.2.5IMS Health Pharmaceutical Sales Data
5.2.6Quality and Safety of Hospital Care – Adverse Drug Events
5.3Causal Loop Diagram of the Hospital Medicines System
6General Findings
6.1Use of Medicines in Australia’s Hospitals
6.2Hospital Medicines by Therapeutic Class
6.3Adverse Drug Events
6.4Possible Impacts of the Reform Options
7Conclusions
References
APPENDIX 1 Terms of Reference for the National Health & Hospitals Reform Commission
APPENDIX 2 Decision Algorithms on the Evaluation of Medicines
APPENDIX 3 Public and Private Hospital Activity and Cost of Pharmacy by Selected DRG and by State
Boxes, figures and tables
Figure 1 Typology of Australian Hospitals
Figure 2 Causal Loop Diagram of the Hospital Medicines System
Figure 3Share of separations by public hospital peer group, 2006-07
Figure 4Average length of stay by public hospital peer group, 2006-07
Figure 5 Average cost of per separation by public hospital peer group, 2006-07
Figure 6 Average cost of pharmaceuticals per separation by public hospital peer group, 2006-07
Figure 7 Average cost of pharmaceuticals per separation as a proportion of total cost by public hospital peer group, 2006-07
Table 1Australian public hospital peer groups
Table 2Number of hospitals and hospital beds by broad public hospital peer group, 2007-08
Table 3 Number of public and private hospitals and number of beds per 1,000 weighted population by state and territory, 2007-08
Table 4 Selected recommendations by the NHHRC and their implications for hospital medicines.
Table 5 Percentage of total costs by component, and cost ratio by component, Public & Private Sector, Round 11
Table 6 Components of system dynamics model
Table 7Cost of hospital medicines by therapeutic class, 2007-08
Table 8Separations with adverse events
Table 9Likely impact for public hospitals of select reform option in addressing key issues
Executive Summary
The National Health and Hospital Reform Commission (NHHRC) was charged with developing a long term reform plan for the Australian health care system. One area where the funding and regulation is complex and which gives rise to a number of medical and financial problems and concerns is hospital pharmacy. Despite various proposals for change in the public funding of hospital medicines, this has attracted little attention in the reform agenda.This Report seeks to:
- review hospital pharmacy in Australiaand the current system for the public funding of hospital medicines in Australia;
- identify the key issues and problems that exist with the current funding and bureaucratic arrangements;
- develop a system dynamics model to estimate the clinical, economic and organisational consequences of proposals forreform; and
- identify possible options for reform and evaluate the likely impact of a select few within the policy context of NHHRC deliberations and recommendations.
In undertaking this research, we found that there were many challenges to building a system dynamics model, especially related to the availability of detailed data on the use and cost of medicines;on clinical pharmacy, distributionandmanagement processes that take place within hospitals; and patient outcomes, at the level of individual hospitals. Hence, this Report examines only the nature of the modelling task, scopes the available data upon which the model could be constructed, and details the structure of a system dynamics model through a causal loop diagram.
Hospital Pharmacy in Australia
Prescription medicines are funded and subsidised differently depending on whether they are sold in the ‘community’ or administered in hospital, whether it is a private or public hospital, whether the patient receiving the drugs in hospital is an ‘in’ or ‘out’ patient and the type of drug itself. As of 2007-08, there were 762 public and 552 private hospitals in Australia. There is significant variation between these hospitals, the services they provide, their size and the number of patients they treat. In 2007-08, over $2bn of public funds were spent on covering the cost of medicines in Australian hospitals – medicines in public hospitals costing $1.4bn and in private hospitals around $0.6bn, noting that many medicines dispensed in private hospitals are funded via the PBS. The provision and funding of pharmaceuticals in Australia, both in the community and hospital, is regulated by two main policies: the National Medicines Policy- including its third pillar ‘Quality Use of Medicines’ - which sets out the aims and principles for the supply and use of medicines in Australia; and the Australian Health Care Agreements (AHCA), which are bilateral five year agreements between the Commonwealth and each State/Territory Government.
Medications approved for use in a public hospital are listed in a formulary. Formularies identify to prescribers what medications can be used in a public hospital and for what indications. Unlike the PBS for which a list of subsidised drugs is agreed on at the national level, hospitals are generally responsible for selecting their own individual formularies, with some exceptions such as in Queensland and Western Australian where State-wide formularies operate. The complex area of cost effectiveness evaluation requires skills that are often not available in each individual hospital. As a result, there has been the development of specialised therapeutic advisory groups in most States to provide State governments and hospital Drug Committees evidence and cost-effectiveness data with which to make informed decisions on medications availability and indications. Public hospitals will develop policies to refuse direct representation to Drug Committees from pharmaceutical company ‘reps’ to make sure that the decision of inclusion is made on clinical grounds and not as a marketing exercise for industry. One particularly challenging area for public hospitals is the area of use of medications for non-approved (not approved by TGA) uses of medications.Clinicians are keen to provide the best care to patients particularly when few alternatives may be available or the patient has limited time for treatment, and hence public hospitals will developprocesses to enable patients to be availed of ‘off-label’ treatment for which there is limited evidence.
Identified Issues with the Current System and Opportunities for Reform
The system of funding and regulation of hospital medicines is complex and fragmented. This has a number of implications. The following were identified as major issues of concern:
- Lack of continuity of care and poor health outcomes - a substantial number of adverse drug events and admissions to hospital are attributable to confusion surrounding the overlap of or gaps between community and hospital care;
- System incentives for cost shifting e.g. between in- and out-patients, and between State and Commonwealth Governments;
- Inequities of access to and funding of medicines - individual formularies in most hospitals mean that the same drugs, or at least, the same brands of drugs are not available across all public hospitals, and many patients in private hospitals are able to access the PBS to cover drugs administered while they are in hospital;
- Value for money – the current emphasis is on evaluating the efficacy of drugs and drug committees and TAGs do not necessarily have the expertise to undertake appropriate cost-effectiveness evaluations to ensure ‘value for money’;
- Duplication of work and bureaucratic workloads required to maintain the system - the management of a formulary for each individual public hospital represents duplication of work, and State and Commonwealth administrative procedures and requirements impose an unnecessary workload, duplication and waste of resources.
Proposals for Reform
A number of reform options have been proposed. The following three were investigated in this Report:
- The Australian government provides funding for all pharmacy services (clinical distribution and management) including all medicines used in hospitals (this is the Society of Hospital Pharmacists of Australia’s (SHPA) Option 5);
- The extension of the PBS to cover all hospital medicines (this is SHPA’s Option on 2); and
- A national hospital formulary is established with a national committee to administer it and the Commonwealth Government funding the cost of all pharmaceuticals in hospitals (as proposed by the Joint Australian Therapeutics Advisory Groups).
These reflect the broad interest by key stakeholders.
A System Dynamics Model of the Hospital Medicines System
Hospital medicines are funded, acquired, prescribed and consumed within a system driven by cause and effect, and is characterised by complex ideas and information.The ‘hospital medicines system’ is a complex system in that it is highly coupled with dynamic processes that play out over time, has feedback effects and many outcomes resulting from the interactions that occur between its many parts. System dynamics is a method to enhance the understanding of the functioning and to analyse the behaviour of complex systems over time, with the help of computer simulation. This approach involves system variables, the interactions between them through feedback loops, and the study of the effects of these interactions over time.The utility or power of system dynamics modelling is its simulation capabilities for testing what if scenarios.
There is a broad range of data that ideally is required to populate a system dynamics model of hospital medicines. Most of the publicly available statistical collections do not routinely report data at the fine level – e.g. at the level of an individual hospital - required for the modelling but review of the possible data sources suggest that such information may be made available on request. A combination of datasets would need be used to build the model equations and populate the different stages of the model. Likely sources of data include:
- The Commonwealth Department of Health and AgeingNationalHospital Cost Data Collection (NHCDC);
- The Australian Institute of Health and Welfare (AIHW)NationalPublicHospital Establishments (NPHE);
- AIHW’s National Hospital Morbidity Database (NHMD);
- Australian Bureau of Statistics PrivateHospital Establishment Collection; and
- IMS Health Pharmaceutical Sales Data.
Information on adverse drug events can be obtained from AIHW’s NHMD using ICD-10-AM codes Y40-Y59 which identify separations with an external cause coded as an adverse effect caused by ‘drugs, medicaments or biological substances in therapeutic use’.
The causal loop diagram (CLD) (visual representation of the system dynamics model) developed for the hospital medicines system is provided in the figure below. The model is based on four interacting parts: the industry characteristics and business activities of pharmaceutical companies manufacturing and supplying hospital based medicines; the characteristics of the hospital as an organisational entity; features related to hospital pharmacy based around the purchasing, acquisition, prescribing and dispensing of medicines in hospital; and patient-related characteristics and behaviour. Some of the relationships shown in the CLD will be able to be quantified while others will be of a more qualitative nature. The model primary outcome measures (system key performance indicators) are: the cost of hospital medicines (drug expenditure by $ amount and proportion of a hospital budget); expenditure by different funding sources; number of adverse drug events and continuity in medication post-discharge as measures of quality and safety. The model is designed to allow users to answer the basic question of:
How do changes in the characteristics and behaviour of pharmaceutical suppliers, hospitals, hospital pharmacy and/or patients affect the expenditure on hospital medicines, adverse drug events, continuity of care on discharge, and source of funding?
In modelling terms, if we change system parameters or re-define the processes and interactions operating within the system then how will this impact on system outcomes?
The Hospital Medicines System in Australia
Findings
There is substantial variation in the cost of pharmaceuticals between public sector hospital peer groups, reflecting case mix and scale, and different pharmacy services. The pharmaceutical and pharmacy component of the average total cost per separation increases with the size of the hospital. In 2007-08, the proportion of the total cost of a separation attributable to the costs of pharmaceuticals and pharmacy services varies from 2.5 percent in small regional acute (D1) hospitals to 5.1 per cent in major city and regional hospitals. Two ATC categories account for nearly half of all pharmaceutical sales in public and private hospitals - cancer and immunosuppressant therapies (ATC Category L) make up nearly 30 percent of all hospital expenditure on drugs and systemic anti-infection drugs (ATC – J) contribute to a further 20 percent. The number of pharmaceutical companies selling products in the different ATC classes varies considerably - in general, the more companies selling products within a therapeutic class, the lower was the annual growth rate in the cost of drug purchase. By 2007-08, the total number of separations to Australian public and private hospitals had increased to 7.9 million, but a staggering 106,012 separations were reported as having an adverse drug event in hospital i.e. over one in every 75 hospital stays had an adverse drug event that was sufficiently severe that it was reported on the patient’s medical file and coded into official hospital statistics.