The Cochrane Collaboration Milbank Memorial Fund



Informing Judgment:

Case Studies of Health Policy and Research in Six Countries

September 2001


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Table of Contents


Foreword

Introduction

Daniel M. Fox and Andrew D. Oxman

The Use of Evidence in Drug Selection: The Australian Pharmaceutical

Benefits Scheme
Suzanne Hill, David Henry, and Alan Stevens

Update to the Australian Case Study

Ray Moynihan

Applying Research to the Policy Cycle: Implementing and Evaluating

Evidence-Based Drug Policies in British Columbia
Malcolm Maclure, Robert S. Nakagawa, and Bruce C. Carleton

Kaiser Permanente's National Integrated Diabetes Care Management

Program
Matt Stiefel, Kendra Rothert, Robert Crane, William Caplan,
and Helen Pettay

Blue Prescriptions: A Program in Transition

Mari Trommald, Einar Skancke, Arild Bjørndal, Audun Hågå,
and Andrew D. Oxman

The National Institute for Clinical Excellence and Coverage of

Relenza by the NHS
Andrew Dillon, Trevor G. Gibbs, Tim Riley, and
Trevor A. Sheldon

Reducing Mother-to-Child Transmission of HIV Infection in

South Africa
Jimmy Volmink, Patrice Matchaba, and Merrick Zwarenstein

The Authors





FOREWORD

The authors of the case studies in this report describe and assess collaborative efforts using evidence from research to guide policymaking for health care. Each case study is itself collaborative. Researchers and public-sector policymakers are co-authors of three cases (Australia, British Columbia, Norway); executives of pharmaceutical firms joined in writing two cases (South Africa, United Kingdom); one case is the work of a policymaker and researchers at a large nonprofit health care organization in the United States (Kaiser Permanente); and in one instance public officials helped to prepare the case but declined co-authorship (South Africa).

At an editorial meeting in October 2000 the authors agreed on one overriding generalization about collaboration to use research in policymaking: The proper purpose of collaboration between researchers and policymakers is to use evidence from research to inform judgments for which policymakers are accountable. The Introduction describes the implications of this generalization for researchers and policymakers, implications that are practical and often painful. For example, setbacks in implementing policies described in the case studies have occurred in four of the six countries since the authors met.

Andrew D. Oxman, then Chair of the Cochrane Collaboration Steering Group, and Daniel M. Fox, President of the Milbank Memorial Fund, organized the project that led to this report. The Cochrane Collaboration is a nonprofit international organization, founded in 1993, that aims to help people make well-informed decisions about health care by preparing, maintaining, and promoting the accessibility of systematic reviews of the effects of health care interventions. The Milbank Memorial Fund is an endowed foundation, founded in 1905, that works with decision makers and researchers on significant issues in health policy. The Fund participated in some of the activities that led to the creation of the Cochrane Collaboration and has helped to bring systematic reviews to the attention of the people responsible for health care policy, particularly in the United States.

We thank Andy Oxman and the authors for persisting in this project despite the distraction of their other obligations. We also thank two staff members of the Fund who have considerable experience in research and policymaking for reviewing the next-to-final drafts of the Introduction and the cases: Paul Cleary, Editorial Director and Professor of Health Care Policy at Harvard Medical School; and John Colmers, Program Officer and former Executive Director of the Maryland Health Care Commission.

Mike Clarke
Deputy Chair
Cochrane Collaboration Steering Group

Daniel M. Fox
President
Milbank Memorial Fund

Peter Langhorne
Chair
Cochrane Collaboration Steering Group





INTRODUCTION: LESSONS FROM SIX CASE STUDIES

Daniel M. Fox and Andrew D. Oxman

Three Types of Politics

Each of these cases is a story about three types of politics in a particular country. First, each case is about the politics of research; that is, the judgments of and relationships among the health care scientists who plan, conduct, assess, synthesize, and communicate findings based on evidence. Second, each is about the politics of health policy: who does what to, for, and with whom in particular jurisdictions in order to decide what clinical interventions will be considered appropriate and, hence, paid for. Finally, each is about the politics of collaboration between researchers and policymakers: how the evidence and findings produced by the former informs the judgments of the latter.

The context and content of each case is different. For example, some of them describe long-standing, relatively well-financed collaboration between researchers and policymakers. Other collaborations began more recently. Despite these and other differences, the authors of the case studies reported here found that there were many similarities in their experiences and much to learn from one another. At least for those involved in preparing these studies, the stories that were told resonated across widely divergent political environments.

The authors are also the actors in each case; researchers and policymakers describe and assess work they did together. Each author has strong feelings about what was proper and prudent in every incident described in a case. Moreover, the researchers and policymakers often have well-informed opinions about one another's work. Policymakers often know a great deal about the theory and methods of research disciplines. Similarly, researchers frequently have opinions about policies chosen and alternatives that were rejected.

Informing Judgment: The Overriding Lesson

The foreword to the report tells the story of the project that yielded these cases. The note on the authors identifies the authors. The authors of each case acknowledge persons who materially assisted them in their work, including several who, for good reasons, chose to remain anonymous. We report below the results of an intense meeting at which the authors criticized and clarified one another's work and tested generalizations that seemed applicable to all or at least most of the cases.

The discussion of the six cases led to an overriding generalization: The proper purpose of collaboration between researchers and policymakers is to use evidence from research to inform judgments for which policymakers are accountable.

This generalization has three implications for people in every country who do or aspire to do research that informs policy, to translate research so that it is most useful to policymakers, as well as to make policy that is grounded in the best available evidence.

The first implication is that policymakers alone are accountable for decisions about policy. The persons to whom they are accountable include more senior officials, voters, and the media. They are also accountable to their own sense of right and wrong. Policymakers, moreover, make judgments using a variety of information, of which scientific evidence is just one type. This other information includes evidence, for example, about financial feasibility and voters' preferences, as well as information about things such as political culture, interest groups, advocates and opinion makers, and the media. It is important that policymakers and researchers have a common appreciation of these different types of evidence and the role each plays in informing judgments about health policies.

The second implication is that researchers are accountable in different ways than policymakers. Researchers are accountable both to their scientific colleagues and to their policymaking collaborators. They are accountable for providing the best available evidence they derive from the theory and methods they use in their work.

Third, researchers can help inform the judgments of policymakers. Researchers and policymakers can sustain a mutually productive relationship if they are explicit about how each of them will carry out their distinct roles. Most important, it is useful to regulate the process by formal and informal contracts. These contracts should, for instance, describe mutually agreed-upon rules about such matters as confidentiality, communication, and the practice of collegiality. As one policymaker put it, "The clearer the rules the better." Decision-making processes should be transparent to others, as well as those involved in them. At the same time, the policymakers and researchers agreed that it is frequently important to have "windows of opportunity" during which they can reflect candidly without risking premature public disclosures.

Other Significant Lessons

The researchers and policymakers who wrote the cases agreed on other generalizations that elaborate on the overriding lesson that the purpose of their collaboration is to inform policymakers' judgment.

Arraying the Cases: The Table of Contents

We arrayed the cases according to the length and strength of the collaborations they describe. The cases from Australia and British Columbia discuss longstanding relationships between researchers and policymakers. The United States case is about Kaiser Permanente, an integrated health system serving nine million people in which policy and research have been linked for many years by formal relationships and institutional culture. The cases from Norway and the United Kingdom describe relatively new relationships and institutional arrangements. The South African case documents the extraordinary difficulty of using research to inform policy in a poorer country.

What This Project Hopes to Achieve

All six cases are rich descriptions and analyses of the complexity of the ways research informs policy. All six demonstrate that collaboration between policymakers and researchers is about context—about history, culture, beliefs, and interests—as well as about interpreting and applying evidence. At the same time, because health policymakers confront similar decisions internationally—for example, about what health technologies to fund—a great deal can be gained by sharing reviews of evidence across contexts, while making judgments within specific contexts and taking into account other evidence that is context specific. The Cochrane Collaboration is an example of the potential for international collaboration of this kind.

As one of the authors said, "we should celebrate success and share good examples." Many more cases can be written and read with profit by researchers and policymakers. The Milbank Memorial Fund would be pleased to commission and publish additional cases about the collaboration of researchers and health policymakers and, when appropriate, to convene their authors across national boundaries. Interested persons may contact either of us for information about the criteria for commissioning cases and the process for reviewing and accepting them for publication. We would also be interested in building upon the experience reported here through developing and supporting an international network with the aim of promoting the exchange of information about ways success might be achieved, and mistakes avoided, in promoting the use of evidence from research to inform judgments for which policymakers are accountable.

Subsequent Events

Another reason for exchanging information is that the politics of policymaking are volatile. As the authors and editors prepared these cases for publication, significant events occurred in several countries. In Australia and the United Kingdom, there were indications that progress in the use of evidence to guide policy on prescription drugs had, for the moment, been reversed. In Canada and Norway, prospects for continuing some of the work reported in the case studies appeared to diminish. In contrast, changes in South African policy on treatment to reduce transmission of HIV from mothers to their babies suggested that research findings had been more influential than the authors had concluded in their earlier drafts. The authors of several cases added information about these events. Events in Australia were so dramatic, however, that we commissioned a journalist to describe them. To emphasize that it does not necessarily represent the views of the authors of the case, this account is a separate chapter of the report.

Recent events and comments by some of the authors raise some questions about these cases and what we can learn from them. First, there was undoubtedly some degree of self-censorship in all of the case reports. This is not surprising given that the authors were deeply involved in each case. However, it may be that the case reports paint a picture that is overly optimistic.

Second, recent events in Australia and British Columbia suggest that even institutionalized decision-making processes that are established by legislation can be threatened, and potentially dismantled, by groups with vested interests or by changes in government. This can occur despite a great deal of public scrutiny, as may be happening in Australia, or quietly, as may be happening in British Columbia, where the Reference Drug Program's Expert Advisory Committee, which meets at the calling of the director of Pharmacare, has faded almost unnoticed into nonuse, at least for the time being.

Third, it is easier to say yes than no. This is illustrated by the decision of the National Institute for Clinical Excellence (NICE) in the UK to reverse its guidance regarding zanamivir for treating flu. Likewise, when NICE decided against beta interferon for multiple sclerosis, it quickly found itself facing hostile publicity and an appeal from patients' groups and specialists, as well as the manufacturers. Similar reactions occurred in Norway in response to advice not to include montelukast for asthma on the list of drugs covered by the National Insurance Administration. Pharmaceutical manufacturers have more resources than patients or physicians to promote their interests, but they are not the only group with a stake in drug policies. Moreover, the pharmaceutical industry will often ally itself with physician and patient organizations to further its interests, as has occurred in most of the cases reported here. When these interests are consistent with the public's, this is not a problem. However, there is often a conflict between the commercial interests of the pharmaceutical industry and the interests of those who fund and benefit from health services.

Fourth, senior policymakers are rarely in place for prolonged periods of time. As a corollary to the Peter Principle (that in a hierarchically structured administration, people tend to be promoted up to their "level of incompetence"), policymakers who are good and strive actively to promote better decision making, including better use of research evidence, are more likely to move on sooner rather than later. "Policymakers" in this context includes both senior civil servants and elected officials. In addition, elections, the propensity to frequently reorganize government, and the natural tendency of public officials to protect their turf all add to the challenge of establishing and maintaining long-term collaboration between policymakers and researchers. Researchers, of course, also frequently move on.

Despite these constraints and setbacks in four of the six cases, we choose to remain optimistic. The path toward improving the use of research evidence to inform policymakers' judgments is not straightforward and the lessons learned from these six cases do not offer any simple solutions. They are, nonetheless, valuable lessons, and the six cases offer insights, inspiration, and an opportunity to "celebrate success," even if those successes do not last forever. The final lesson that can be drawn from these cases and more recent events is that both policymakers and researchers must continue struggling to help ensure that judgments about health policies are well informed by research evidence. The alternative is to acquiesce to poorly informed health policies.



The Use of Evidence in Drug Selection: The Australian Pharmaceutical Benefits Scheme

Suzanne Hill, David Henry, and Alan Stevens

EXECUTIVE SUMMARY

The Pharmaceutical Benefits Scheme is the national drug subsidization/reimbursement plan in Australia. It ensures that the population has access to important products in the community and is the system by which prices of prescription products are set. Effectively, if a licensed prescription drug is not in the plan, it will have a very small market in Australia.

Since 1992, the selection of drugs for inclusion on the PBS has been based on the use of comparative cost-effectiveness analyses. This approach has required the explicit use of clinical and economic evidence in decision making about drug subsidization and has also required ongoing collaboration between academics and policymakers. Over the past eight years, the policy has been extensively reviewed, challenged, and kept under scrutiny, but despite these factors it has remained in operation. The system is now seen as a model for other countries seeking to develop mechanisms for making rational choices about drug subsidization. The focus of this case study is the selection process. The study summarizes the history of the program and some of the reviews that have taken place, and explores some of the reasons for the strength of the system and the utility of the approach.

Barriers

Collaboration

  • Limited technical capacity in health economics in both government staff and academia at the start of the evolution of the process in 1991; not necessarily a barrier, but delayed development of the process
  • The need to identify groups in academia that did not have conflicts of interest in relation to pharmaceutical/drug companies, and who were therefore able to carry out the technical work need to ensure the system was effective
  • The need to provide sufficient financial incentives to enable academic groups to work with government rather than with industry

Use of Research Evidence in Policymaking

  • Especially at the beginning of the system's implementation, the lack of appropriate evidence (particularly in terms of costs) to support cost-effectiveness analyses of new pharmaceuticals
  • Initially, lack of expertise in assessing evidence, and uncertainty about methods for applying it to relevant populations
  • The insistence on confidentiality of evidence

Facilitators

  • A legislative framework that provided the basis for the committee to make its recommendations to the minister for health and was explicit regarding the criteria to be used to make the decisions
  • Development and dissemination of guidelines for the submission of applications, based on evidence
  • In the early stages (1991–1995), cooperation between stakeholders (government and industry) in guideline development
  • Commitment to developing technical capacity in academia and government to support the decision-making process
  • Explicit and consistent processes for decision making
  • Efficient administrative structure to support processes required for implementing policy
  • Inclusion of experts (i.e., clinicians and academics) on the expert advisory committee and appropriate technical committees
  • Personal relationships between policymakers and academics

Lessons Learned

  • Bipartisan political commitment is essential, manifested by strong legislation.
  • A robust and defensible process is also essential.
  • There is inevitably a degree of adversity in relation to economic (buying/selling) decisions; any system should be able to withstand this and use it to its advantage.
  • Freedom from conflicts of interest by those involved in the decision-making process must be real and perceived to be so.
INTRODUCTION

Australia is a developed country with a population of approximately 19 million people. As a market for pharmaceuticals, the Australian population represents approximately 1 percent of the total world market, although strategically many multinational pharmaceutical manufacturers see it as a gateway to the Southeast Asian market because it has a competent drug regulatory authority.

Politically, Australia is a federation of eight states and territories. The government is a parliamentary multiparty democracy, based on the Westminster model. Each of the states has a state or territorial government. In broad terms, the federal government is responsible for community services, whereas state governments are generally responsible for state issues including infrastructures such as public hospitals, roads, and primary and secondary education. The political environment is basically extremely stable. The main political parties are the conservatives (Liberal/National) currently in government and the socialists (Labor).

The Health Care System

Australia has a comprehensive social security system, including universal health insurance. The provision of health care is a joint state/federal responsibility. In general terms, the Commonwealth is responsible for health care services provided in the community, and states are responsible for services provided by hospitals; increasingly, these boundaries are becoming blurred. The states are provided with block grants for health by the Commonwealth and then have discretion to spend these according to individual state needs and policies. Australia has a comprehensive public health insurance system and a high standard of public health care. The public sector provides care for most of the population, with 30–45 percent of the population electing to purchase private health insurance in addition to the public insurance. The private hospital sector tends to provide mostly elective surgery, but other services covered by the private insurance industry include allied health care services and, increasingly, alternative and complementary health care services such as naturopathy.

The National Health Act (1953) provides part of the legislative framework for the national health insurance program, which was introduced in 1983. The program is known as Medicare and provides for reimbursement to the patient for health care professional fees, investigations, and procedures (e.g., surgical operations) that are listed on the Medicare Benefits Schedule (MBS). Items are included on the MBS following approval by the Commonwealth minister for health, after review of applications and expert advice from an independent advisory committee and consultation with the profession.

The state and Commonwealth governments develop an annual agreement about what will be covered by Medicare (and therefore paid for by the Commonwealth), and what will be covered by the states under their block grants. Needless to say, in the current environment of resource constraints and economic rationalism, the annual agreement can be very difficult to negotiate. However, there is generally a trend toward supplying services in the community rather than in hospitals or health care institutions.

Community access to pharmaceuticals (because of subsidization/reimbursement) is ensured by the Pharmaceutical Benefits Scheme (PBS), which also operates under the National Health Act. This program provides access to drugs in the community as well as access to some drugs provided by hospitals. This will be described in more detail below.

The Pharmaceutical Sector

The pharmaceutical industry in Australia consists of subsidiaries of multinational companies, generic manufacturers, and recently, a very small number of local companies that are developing new chemical entities. There is an increasing export industry in pharmaceuticals, primarily to the expanding Southeast Asian market. The pharmaceutical sector and associated professionals are extensively regulated in Australia, primarily as a result of the universal health insurance and pharmaceutical benefits programs.

Wholesale and retail supply of medicinal products is overseen by a national drug regulatory authority, the Therapeutic Goods Administration (TGA), under the powers of the Therapeutic Goods Act.

The state and territory governments are responsible for the professional and commercial practice of pharmacy, while the Commonwealth government has a regulatory interest through the National Health Act in the administration of the PBS. The number and location of pharmacies that may supply pharmaceutical benefits in Australia are controlled by the Commonwealth by an independent statutory authority, the Australian Community Pharmacy Authority. This was established under section 99J of the National Health Act in 1995. The remuneration paid to pharmacists for dispensing pharmaceutical benefits is also controlled by the Pharmaceutical Benefits Remuneration Tribunal, established in 1981 under section 98A of the National Health Act.

There is tight regulation of who can sell which types of pharmaceuticals. All chemical products are classified according to a Drugs and Poisons Schedule, and sale is restricted according to the classification. The classification of new chemical entities occurs at the time of registration/licensing. In general, prescription drugs are classified as Schedule 4 or Schedule 8 (drugs of potential dependence), and over-the-counter products are unscheduled or classified as Schedule 2 or 3. Schedule 3 products may be sold only at pharmacies, and it is required that a pharmacist supply them. Schedule 2 products may be sold only at pharmacies, but no pharmacist supply is required. Unscheduled products may be sold by supermarkets and require no professional input into their sale.1

The schedule status of a substance also determines how it can be advertised: Schedule 4 products may not be advertised directly to the public, although consideration is being given to industry requests to change this and allow direct-to-consumer advertising. There have been recent changes to the Therapeutic Goods Act and regulations that permit limited advertising of Schedule 2 and 3 products directly to the public.

The Pharmaceutical Benefits Scheme is the national drug subsidization/reimbursement plan. It is the system by which prices of prescription products are set, and it provides access to pharmaceuticals for the Australian public in the community. Effectively, if a licensed prescription drug is not on the plan, it will, in the great majority of cases, have a relatively small market. The private market for prescription drugs is estimated to be approximately 6 percent of the total market in Australia (Drug Utilization Subcommittee 1998). However, recent changes have seen a number of pharmacists enter into agreements with specific companies to dispense certain items at lower markups, and this is resulting in a growth in the private prescription market.

The PBS: General Description

Currently (as of February 2001), the PBS covers approximately 650 drugs, available in approximately 1,500 forms and strengths (items) and marketed as approximately 2,000 different drug products (brands). Different levels of usage restriction apply to these products. The list of benefits is comprehensive and covers drugs that are (1) prescribed by a registered medical practitioner or, for some drugs, by a registered dental practitioner, and (2) dispensed by an approved pharmacist. Drugs that are included in the plan are listed in the Schedule of Pharmaceutical Benefits, published quarterly.

The Government reduces the cost of pharmaceutical benefits to patients by

  1. Negotiating an agreed wholesale price with the supplier of a product;
  2. Remunerating dispensers an amount determined by the independent Pharmaceutical Benefits Remuneration Tribunal (much lower than private dispensing rates);
  3. Subsidizing the cost of the product to patients above a specified prescription charge or co-payment.

The key features of the plan are these:

  • Most necessary pharmaceutical needs are subsidized by government.
  • It is a universal plan covering Australian residents in the community.
  • It gives priority to the treatment of medical conditions that are not amenable to self-diagnosis and self-treatment.
  • Patients may select any general practitioner and have PBS prescriptions dispensed by the pharmacist of their choice.
  • Patients make co-payments as a prescription charge per PBS item based on the patient's welfare situation, not the therapeutic importance of the medicine.
  • There are two levels of co-payment, one for general patients (currently A$20.60) and a lower one for "concessional" patients—that is, those with social security cards (currently A$3.30). There is also a "safety net" to limit the patient's annual expenditure on prescriptions. Once this is reached, further prescriptions are supplied at reduced charges (free for concessional patients and at concessional rates for general patients).

New products cannot be added to the Schedule of Benefits made available under the PBS unless there is satisfactory evidence of comparative clinical effectiveness, safety, and cost-effectiveness. Once this is established, use may be restricted to certain therapeutic areas. The restriction on use is determined via a centralized, pre-use authorization process for some products (those requiring "Authority Approval") or by specification of indications and patient populations ("Restricted Benefit"). Products that are not restricted are available as "general benefits"—that is, for any indication.

Price controls are also applied. These are based on benchmark pricing within pharmacological groups, certain therapeutic groups, or on economic analyses evaluated by the Pharmaceutical Benefits Advisory Committee (PBAC). There is control over retail markups and dispensing fees for pharmaceutical benefits. Nonbenefit products do not have controls imposed on prices. Special arrangements apply to the supply of certain highly specialized and other drugs available for patient treatment groups with special needs or for people in isolated areas. The costs of the PBS over the last 20 years are shown in Figure 1.


History of the Development of the PBS

In line with the international move toward nationalized health systems in the period following World War II, the Australian government in place at the time introduced a system to ensure the population's access to essential pharmaceuticals. The program was controversial from the beginning. The first act passed to establish the scheme (1944) was successfully challenged in the High Court as not in accord with the Australian Constitution. The main opponent was the medical profession.

After changes to the Constitution, a second act was passed (the Pharmaceutical Benefits Act, 1947). The Pharmaceutical Benefits Advisory Committee (PBAC) was established to oversee development of the list of drugs to be supplied as benefits. The committee of six consisted of members of the pharmacists' professional association and the medical professional association. This committee provided expert advice to the minister for health about which drugs should be included on the schedule. The minister would then make the final decision. 2

The first benefits were made available in 1948. The grounds for inclusion of a drug on the schedule were that "it should contribute to the medical efficiency of the formulary."

Over the next 20 years, the composition of the PBAC was modified slightly by the addition of two additional members who were nominees of the Australian Medical Association. The membership was kept secret until 1970, and reasons for its recommendations about items added or not added to the schedule were not publicized. In 1973 the PBAC started to provide information to doctors and pharmacists about its activities, but did not provide formal reasons for recommendations.

Although the PBAC made recommendations to the minister about drugs to include in the schedule, it did not consider costs. Prices for pharmaceuticals provided on the PBS were initially negotiated between the manufacturer and the Department of Health. Because at the time most pharmaceuticals were supplied by UK manufacturers, the prices were initially based on UK prices.

In 1963, after concern was expressed about the increasing prices in Australia relative to those in the United Kingdom, a separate body, the Pharmaceutical Benefits Pricing Bureau (PBPB), was established. This bureau initially was made up of departmental officers who started to collect information systematically about pharmaceutical prices that could be used in price negotiation. Over the next 20 years, a system was established that led to Australia's having some of the lowest prices for drugs in the developed world (Industry Commission 1996).

At the same time, other changes were taking place in the pharmaceutical sector. By the mid-1980s a number of multinational pharmaceutical companies had established bases in Australia, and the local manufacturing industry was developing. Another key development was the rise in the consumer activist movement, associated particularly with the identification and outbreak of HIV. Attention became focused on the drug regulatory authority, as it was seen to be limiting access to potentially life-saving new drugs because of its slow registration/licensing processes. A need to introduce new Commonwealth legislation to take better control of the regulation of therapeutic goods became apparent.

The industry was expressing concerns about prices and the effect of the various pricing policies on the industry's viability. There was also a concern about the overall rising costs of the PBS. As a result, between 1987 and 1992, a number of key changes were made to the pharmaceutical sector:

  • An amendment to the National Health Act to require the PBAC to consider costs and effectiveness in its recommendations to the minister about the addition of new drugs to the schedule
  • With regard to PBAC membership, additional ministerial appointees who did not come from the representative bodies, and the appointment of a number of key academics interested in the use of cost-effectiveness analysis (terms of membership for the PBAC were not specified at that time)
  • Provision for the PBAC to appoint technical subcommittees to assist it in its deliberations
  • Establishment of the Pharmaceutical Benefits Pricing Authority, replacing the PBPB, to take into consideration a pharmaceutical company's contribution to the Australian economy when negotiating prices of pharmaceuticals
  • New legislation covering all products rather than only imported ones with respect to the regulation of pharmaceuticals; consolidation of drug regulatory activities into one division of the Commonwealth Department of Health; and establishment of a national register of therapeutic goods

RATIONALE FOR THE POLICY

The rationale for introducing assessment of drug costs and effectiveness as part of the PBAC's deliberations has been outlined above. There was a basic tension between the community's health services needs and the needs of the economy in terms of industrial development. This tension still exists today. PBAC costs were rising, there was an increasing number of new and expensive products being developed, and the government of the day was also trying to implement a national medicinal drugs policy that required a viable pharmaceutical industry. There was a perceived need for a rational and defensible decision-making process that could provide a way of managing the addition of new drugs to the schedule.

The key stakeholders were the pharmaceutical industry, the government, consumer groups, pharmacists, and the medical profession. At the time legislation for cost-effectiveness analyses was introduced, the government saw it as a means to reduce escalating PBS costs. There was opposition from the industry to such legislation, which was seen as a way of lowering prices of products further and containing overall costs.

At that time health care consumers were not involved in the decision-making processes. The main consumer concerns apparently were to ensure continuing access to new medicines, but this view does not appear to have been expressed in any major public arena.

Academic groups were extensively involved in developing guidelines for implementing the policy. There is no record of either the medical profession's or the pharmacy profession's views.

The main justification for the policy was the rising cost of drugs on the PBS. In the process of developing guidelines, comprehensive reviews of current economic methodology and theory were carried out (Evans, Freund, Dittus, et al. 1990) and presented as reports to the Department of Health. These reports also considered the role of economic analyses in decision making, and drew extensively from the experience of health technology assessment.

History of Implementing the Policy: Problems and Resistance

The Initial Phase: 1989–1994

The first step in implementing the policy was the legislative amendment passed in 1987. The second step was the development of a set of technical guidelines that could provide a framework for the methods used in assessing cost-effectiveness. The guidelines were drafted by external consultants, with some input from the pharmaceutical industry. The draft was issued in 1991, and over the next 12 months, the industry started to lodge submissions for inclusion of new drugs on the PBS according to the guidelines.

In 1993 the PBAC appointed its second technical subcommittee to assist in reviewing and assessing the cost-effectiveness data. The Economics Subcommittee (ESC) members were (are) clinicians, epidemiologists, and health economists. The pharmaceutical industry also had (has) a representative on the committee. At the same time, the process of PBAC application assessment began to undergo revision to accommodate the more technical evaluation that was now needed.

The guidelines were formalized in 1992, and beginning in January 1993 the pharmaceutical industry was required to submit applications for drugs to be listed on the PBS according to these guidelines. This precipitated a number of problems and started a degree of confrontation that persists.

The first problem was the industry's limited technical capacity to produce applications that contained the necessary information. The guidelines specified a combination of clinical and epidemiological data based on requirements of drug regulatory authorities, but extended them to include data on comparative effectiveness of the new product with the currently available therapy. Assembling and interpreting the clinical data required epidemiological expertise as well as access to relevant trials—neither of which were common. The epidemiological basis of the guidelines did not accord with industry expectations of cost-effectiveness analysis; pharmaceutical companies were anticipating an approach that emphasized the use of outcome data and economic modeling. The philosophy adopted by the ESC and the PBAC reinforced the emphasis on clinical assessment as the first step in evaluating a cost-effectiveness analysis.

The second problem was lack of cost information relevant to the Australian setting that could be used to construct an economic argument for listing a new drug. This was resolved by the development of a local Manual of Costs as part of the guidelines.

The third problem was lack of expertise in health economics within the pharmaceutical companies. Clearly, as this expertise had not been a regulatory or marketing requirement previously, there was a lag while the technical capacity was developed. The Department of Health at this stage was also in the process of developing expertise in the same area.

Consolidation and New Guidelines: 1995

Between 1992 and 1995, both the Department of Health and the pharmaceutical industry became more experienced in constructing and assessing economic evaluations. The relationship between the two groups at this time was more antagonistic, but there was no systematic attempt to undermine the process that was being established. The guidelines were reviewed as experience highlighting their deficiencies was accumulated, and a second edition was published in 1995. However, although developed in consultation with the industry, this edition of the guidelines was seen as much more proscriptive and rigorous than the first.

The change was based very much on the experience of the PBAC, ESC, and departmental staff, particularly in regard to the use of clinical evidence. The second edition of the Australian guidelines effectively requires a company to undertake a systematic review of the relevant biomedical literature, identify the best randomized controlled trials, formally assess the quality of the trials, and, where appropriate, pool the data. At the time (1994), the Cochrane Collaboration, an international nonprofit data-analysis collaborative, and others were only beginning to establish standardized methods for collating and assessing clinical evidence, so the guidelines were in advance of what are now reasonably well accepted approaches in this area.

The methods for economic evaluation were less clearly prescribed in the 1995 guidelines. This resulted from the decision-making group's experience, which strongly suggested that clinical assessment was the key aspect of many decisions. This emphasis was in contrast to that presented in other pharmacoeconomic guidelines at the time, in particular the revised Canadian guidelines, and it prompted a volley of criticism from the industry. In some ways, the criticism can be seen as a philosophical debate about whether the guidelines emphasized economic evaluation techniques, such as cost-utility analysis, or reflected the experience and preference of the committee for making its decisions on trial-based economic evaluations.

A trial-based economic evaluation is one in which the outcomes used are those measured in comparative clinical trials, such as changes in blood pressure or in a symptom score, or, when measured directly, survival. The key advantage of such an approach is that it reduces uncertainty about the estimate of benefit, and thus uncertainty about the estimated incremental cost-effectiveness ratios. The disadvantage of this approach is that it is limited to the outcomes measured in the clinical trials and the duration of those trials. This means that, for example, a trial-based economic evaluation of a new antihypertensive drug might provide information only about the "incremental cost per millimeter mercury change in blood pressure over 12 weeks," if that was the key result measured in the trial. The question is then how best to extrapolate the results of clinical trials to develop economic evaluations that are cost-utility evaluations—cost per life year gained or per quality-adjusted life year (QALY) or per disability-adjusted life year (DALY), metrics more familiar to health economists for decision-making purposes. The problems with pharmacoeconomic analyses using these outcomes (or trial-based outcomes) have been discussed in detail by Hill, Mitchell, and Henry (2000).

In 1995 a further difficulty arose. The assessment of the economic evaluations submitted by industry was at that time being handled by a small group of staff (four) within the Department of Health. The workload at each meeting was increasing, as was the complexity of the applications. In the middle of that year the situation became critical when, at one meeting, it was made apparent that the committee had not been able to appraise all of the applications submitted by the industry because there were too few evaluators in the department to handle the volume of work. This problem prompted the establishment of the first external evaluation group, the Newcastle Evaluation Group (NEG), based at an academic institution. Although most of the NEG members were university staff, the external evaluation contract was the first formal link between the Department of Health and an academic center and, in some ways, represented the beginning of an academic discipline of pharmacoeconomics in Australia. The unit was gradually established at the University of Newcastle, initially consisting of a multidisciplinary team with expertise in clinical pharmacology, pharmacy, epidemiology, and biostatistics.

Challenge and Review: 1996–Present

The publication and implementation of the 1995 guidelines in many ways marked the beginning of a period of evaluation and review of the system that had been established so far, as well as the beginning of legal challenges to the system by the pharmaceutical industry. The first environmental shift was a change in government in 1996, from the Labor party, which had been in power for 13 years, to the more conservative Liberal/National party. The main change was in the government's attitude toward industry; the Liberal/National party has always been much more supportive of private industry than the Labor party.

From 1996 to the present, there have been a number of reviews and evaluations of the PBS listing process. These are discussed in detail below.

Other changes over this period include the consolidation of links with the academic center, resulting in academic review and evaluation of various aspects of the system, including technical and process issues. As part of this, the guidelines (1995 edition) have undergone review, particularly with regard to the methods to be used for economic modeling. A revision of the guidelines has commenced, with minor changes conveyed to the industry on an ongoing basis. Some major issues are yet to be addressed.

Evaluating the Policy as Implemented

The policy of using economic evaluation as a key component of decision making about pharmaceuticals in Australia has not been evaluated in the academic sense, although this type of evaluation has been considered from time to time. Instead, the program and policy have been the subject of numerous reviews and evaluations by internal groups within the Department of Health (such as the department's internal auditors), external groups, such as the Australian Industry Assistance Commission, and also legal challenge. The key reviews are considered below.

Industry Commission Report, 1996

This review was commissioned in 1995 by the Australian Industry Assistance Commission, with terms of reference that included the aim of improving the pharmaceutical industry's economic performance. The commission was required to consider how the PBS affected the economic viability and prospects of the Australian industry, and also the effects of the pharmaceutical industry assistance plan. Although at the outset this review was not a detailed evaluation of the PBS, consideration of the listing process became an important part of the commission's review of the pharmaceutical industry.

The report from the review was published in May 1996. It was very critical of the PBS's assessment and selection process and recommended major changes to it. The findings were that

  • the PBS was the most important impediment to industry growth in Australia;
  • the PBS produced low prices, volume constraints, and listing delays and thus was a significant factor in influencing company investment decisions in Australia;
  • the listing process should be reformed as a matter of urgency;
  • the welfare of the community was enhanced by the plan but that the PBS was threatened by growing pressure on it;
  • there was a risk that the community's future access to some drugs might be adversely affected;
  • it was therefore necessary to review the social and economic policy underpinnings of the PBS.

The key recommendations of the review in relation to the PBS were that

  • companies should have the opportunity of delaying cost-effectiveness analysis for two years (after the drug is listed) to allow for the collection of costing data based on actual use;
  • the PBS listing processes be subject to a review.

Other recommendations in the review concerned the regulatory authority, the industry assistance program, and the classification or scheduling of pharmaceuticals.

The government did not accept the commission's recommendations regarding the PBS. In part this may have been due to the change of government that had occurred between the commissioning of the review in 1995 and the publication of the report in 1996. However, the new government was (and is) generally more sympathetic toward the industry view, which was undoubtedly the major emphasis in the report.

It is interesting to speculate about the reasons for the rejection. The main problem identified was the practicality of allowing a drug to be listed without qualification for two years, prior to undertaking any economic evaluation. The implementation of this approach would have required a major shift in policy, from the "holding the gate shut" approach that had been in place to the development of a "negative list" along the lines of the UK's National Health Service. Withdrawing a drug from practice because of economic arguments would be extremely difficult, if not impossible; it had been tried by the PBAC on previous occasions and invariably provoked a negative public response, as well as in some cases, genuine hardship for patients.

Australian National Audit Office Review, 1997

The Australian National Audit Office (ANAO) began a two-part review of the Department of Health's programs for marketing approval and listing of pharmaceuticals in 1995. Following the release of the Industry Commission report in 1996, the ANAO was asked to incorporate a review of the listing process in its planned audit. The review was carried out over 1996–1997 and published in November 1997.

The objective of the PBS audit was to evaluate the Department of Health's performance in pursuit of selected PBS program objectives and outcomes. This included investigation and evaluation of the efficiency, administrative effectiveness, and accountability of the management of the listing process.

The review was extensive and included the establishment of a database of major applications for PBS listing, a technical consultancy to assess the guidelines and the use of economic analysis, and an analysis of the selection process for pharmaceuticals, including the operation of the PBAC and its subcommittees. The main findings of the review were presented in terms of the system's efficiency, administrative effectiveness, and accountability. These are summarized below.

Efficiency

  • The running costs for administration of the PBS in 1996–1997 were A$10.1 million to support management of the expenditure of A$2.5 billion on pharmaceuticals.
  • The time taken to list products was a major indicator of efficiency; the time had fallen since 1991, despite a significant increase in the number of applications being considered and a decrease in the number of staff.
  • The proportion of major applications that were approved for listing declined after the requirements for economic analysis were introduced.

Administrative Effectiveness

  • The progressive introduction of the evidence-based approach to assessing applications, requiring companies to submit data from clinical trials and an economic analysis, has been a major contributor to the administrative effectiveness of the listing process.
  • The guidelines for the industry were soundly based, providing a suitable foundation for provision by the industry of sufficient evidence to facilitate solid decision making.
  • Departmental processes, including the advisory committees' processes, worked effectively.
  • The selection processes were rigorous and allowed high levels of clinical experience and judgment to be applied to the selection of drugs.

Accountability

The Department of Health was found to have followed the government guidelines for reporting to Parliament on its performance, but the ANAO believed that the reporting process could be improved to facilitate understanding of the reasons for selection of drugs, thus enabling the development of more reasonable expectations of the PBS listing and selection process among the various stakeholders.

The report also noted that the quality of information varied considerably among applications and suggested that there was room for improvement in the industry's compliance with the guidelines. The majority of industry representatives interviewed during the audit accepted the evidence?based approach and the use of economic analysis, although many of them had reservations about the listing process, including the complexity of the guidelines and the overall transparency of the process, as all decisions and data were considered to be "commercial in confidence" information.

The ANAO report made 15 recommendations aimed at improving the listing process. These included emendations to the technical approach used in the guidelines and measures to improve the transparency. Some of the recommendations required an increase in the resources available for the evaluation process undertaken by the Department of Health, including the establishment of links with other academic centers. The recommendations have been gradually implemented by the department over the past three years.

Tambling Review, 1999–2000

The Tambling Review was undertaken in late 1999 partially in response to continuing concerns expressed by the industry regarding the PBS processes, and was chaired by Senator Grant Tambling, the parliamentary secretary responsible for the PBS under the minister for health. The review group comprised members of the pharmaceutical industry, a consumer, a general practitioner, a pharmacist, the chair of PBAC, and government representatives. The review was much less extensive than either of those by the Industry Commission or the ANAO, and was conducted much more informally. Most of the recommendations were either an extension of those from the ANAO report or aimed at improving the transparency of the process. There was some initial concern that this review would result in hostile recommendations, but such was not the case. Importantly, however, recommendations about changing the constitution of the committee were implemented 18 months after the review's completion. (See Epilogue.)

Communication and Funding of the Evaluations

Because all of the evaluations to date have been undertaken by either governmental or quasi-governmental groups, all have been communicated to the public and the industry via Parliament and the media. It is debatable how much information these evaluations have provided to the general public, as many of them are highly technical in nature. The industry, on the other hand, has scrutinized the reviews and reports closely, and they have been widely reported in the overseas industry information sources.

Evaluations of the PBS selection process carried out to date have been funded by various parts of the Department of Health or by other government organizations. More recently, the pharmaceutical industry and the Pharmacy Guild have funded a review by an independent consulting group, M-TAG Pty Ltd.

Plans for Ongoing Evaluation

The current government has made it clear that there will be continued scrutiny of the PBS and its functioning. There are two reasons for this: one is the increasing cost of the program, and the other is continuing pressure from the pharmaceutical industry. The latter is reflected in the current legal challenges to the system (see below).

Academic evaluation of the PBS is also increasing. The evaluation contract with the academic center includes a requirement for analysis of the listing process and its possible impact on the public and the industry. To date, the analysis has been based on retrospective review of the applications database, and has focused on the technical aspects of the applications rather than the impact of the PBS on health outcomes. There has also been departmental funding for other projects, including work on consumers' perceptions of PBS spending, and on the impact changing co-payment structures have had on access to medicines for socioeconomically disadvantaged groups within the community. There are no detailed plans for future academic evaluation of the program, as it is likely to be developed by consultation between the department and individual academic groups as questions arise. This approach may not be ideal, but it is a pragmatic option that is feasible at present.

Industry-related organizations, particularly those that provide economic consultancy services to the industry, are also starting to evaluate the program from an academic standpoint. This development may be in response to the increasing interest in the program internationally, and recent developments in other countries to implement similar decision-making systems.

Facilitators and Barriers to the Use of Evidence

The use of evidence in this process has been facilitated by a number of factors. First, the fact that there had been regulatory requirements for clinical trials of pharmaceuticals for many years prior to the introduction of the evidence-based selection process meant that good-quality evidence was available. It may not always have addressed exactly the question being considered by the PBAC, but at least there was a "culture of clinical trials" around the whole area of pharmaceutical development. This is in contrast with other forms of health technology, such as surgical interventions, where it is only recently that randomized clinical trials have begun to be standard. A ministerial advisory committee, the Medicare Services Advisory Committee (MSAC), was established in Australia in 1998 to provide similar advice about health technologies generally as that provided by the PBAC about pharmaceuticals. The MSAC has had much greater difficulty in basing its decisions on clinical evidence because of the relative paucity of relevant clinical trials.

The second key factor in facilitating the use of evidence in drug selection has been the existence of robust legislation underpinning the process. This legislation was recently subjected to legal challenge in federal court, although the ruling has been appealed. The substance of the challenge was to dispute the right of the PBAC to consider total costs of drugs in making its recommendations to the minister, as well as considering "leakage" of a drug's use outside the defined population. In the judgment, Justice Mathews reviewed the development of the legislation and its introduction into Parliament. She expressed the view that the legislation was designed to allow the PBAC to consider "overall effectiveness of a drug (including leakage), together with its overall cost." The judgment is currently being appealed before the full bench of the federal court.

The third factor was the development of technical capacity within, as well as external to, the Department of Health. In the original report on the use of economic analysis for the selection of drugs for the PBS, Evans and colleagues (1990) noted the lack of expertise in health economics in Australia. Three options were suggested for developing the selection process with regard to such technical expertise: that the entire process be handled within the department by staff with the appropriate skills appointed to the task; that it be done by an external group as well as by department staff; or that it be done entirely externally. The report recommended the third option. However, it is the other two methods that have been used; initially all the technical work was done in-house, but since 1995, about 60 percent of it has been done by a group based in an academic institution. In-house expertise has been retained; the staff of the Pharmaceutical Evaluation Section (PES) who carry out the evaluations and oversee those undertaken by the academic group includes a health economist plus three pharmacists who have additional qualifications and training in health economics, biostatistics, and epidemiology.

The importance of having technical expertise within the Department of Health cannot be overemphasized. The department, after all, has to implement and refine the decisions, and this cannot happen unless staff members understand fully the technical reasoning behind them. Moreover, the department has to advise industry on how to develop applications, and this obviously requires technical capacity. Other areas of decision making that require specific technical skill but lack personnel who possess it have been less effective.

The fourth factor contributing to the policy's success has been the administrative processes developed to allow the explicit use of evidence in making recommendations. Recent changes to the system allowing publication of some of the recommendations has enhanced this aspect of the process by making clear the clinical evidence that is used as the basis of the decision.

The key barriers so far have been:

  • the relative lack of health economics expertise in Australia in both the pharmaceutical industry and the government (although this situation is now improving);
  • the industry's opposition to the policy. It needs to be said, however, that the industry is not unanimous in its views, as was made clear in the ANAO report. Some companies see the Australian selection system as an opportunity to obtain higher prices for useful products that represent value for money. The ANAO report noted that industry views were closely related to the level of success that a given company had in its applications resulting in PBS listings;
  • lack of wide public understanding of the drug selection process, which has been exacerbated by the industry's insistence that its data remain confidential, and the secrecy provisions of the National Health Act that have applied in the past to decision making and that only now are beginning to undergo review. In particular, the secrecy surrounding such decisions has resulted in a very limited understanding by the medical profession as a whole of the way the system works, and at times has led to the medical profession's lobbying on behalf of the pharmaceutical industry to have cost-ineffective drugs listed in the PBS.

Current Status

The PBS selection process continues to be used in Australia and is being considered as a model by a number of other countries. There is still a tension between the government and Department of Health's role as purchaser and decision maker with regard to drug selection for listing and the industry's role as seller; this is to be expected and is probably healthy. Technical aspects of the process are being reviewed on a continuing basis; it is likely that a revised edition of the guidelines will be published in the next 12 months. The evaluation capacity is being expanded; the 1999-2000 federal health budget contained provision for the funding of potentially two more external evaluation groups in academic centers. The details of committee membership are also being refined; for example, it has been recommended that a health economist be appointed to the PBAC, rather than having an economist only on the ESC.

It is likely that the industry's challenges to the system will continue in some form or another, as many companies see the system as a threat. In particular, current interest in methods of paying for pharmaceuticals in the United States has prompted concern among some companies about the prospects of America's health care system adopting Australia's drug selection process.

Reflection and Generalization

In many ways the evidence-based selection process for pharmaceuticals has developed very much as it was outlined in the Evans report (Evans et al. 1990). This is due in part to the continuing involvement in the process of some of the people involved in the original report and guideline development. The process has been modeled on drug regulatory systems to a certain extent, which has probably contributed to its survival and development. Perhaps the only departure from the original plan is the degree to which comparative clinical effectiveness, rather than more economic considerations, seems to influence decisions, although increasingly economic models are informing the decision making. The PBAC has also begun to define other factors that influence its decisions, such as clinical need and the "rule of rescue."

In addition to the reasons discussed above, the development of appropriate methodology for assessing clinical and economic evidence should be considered as a factor contributing to the success, as well as continuing political support, of the drug selection process.

Epilogue

In December 2000 the government decided to implement the recommendations of the Tambling Review regarding changes to the membership of the PBAC: "nominations . . . should be sought from a broader scope of organisations than currently and . . . the National Health Act should be amended accordingly." The necessary legislative amendments were introduced on Parliament's last sitting day for the year and were passed, following amendments by the opposition parties. The main change was to ensure that at least eight of the twelve PBAC members were to be selected from nominations made from representative organizations.

The effect of these amendments was that the PBAC and its subcommittees as they existed in December 2000 ceased to do so at the end of that month. This change was to allow a new committee to be appointed, in line with the new legislation. Considerable controversy arose during the appointments process. Some of the previous committee members were eligible for renomination to the new committee; at the time this study was written, the new PBAC had just been appointed, including only two of the twelve members who had previously served.

Applications for listing on the PBS were due to be assessed by the committee in March 2001. It is likely that the PBAC and its decisions will be closely scrutinized over the coming months.



GLOSSARY

ANAO
Australian National Audit Office

ESC
Economics Sub-Committee: Subcommittee of the PBAC, comprising health economists and clinical epidemiologists, who provide expert technical advice on economic evaluations to the PBAC.

HIV
Human immunodeficiency virus

MBS
Medicare Benefits Schedule: List of medical services covered by Medicare program.

Medicare
National health insurance program

MSAC
Medicare Services Advisory Committee: Committee of external clinical experts who provide advice to the minister of health regarding the addition of new medical services to the MBS.

NEG
Newcastle Evaluation Group

NHS
National Health Service (UK)

PBAC
Pharmaceutical Benefits Advisory Committee: Committee of external clinical experts who provided advice to the minister of health regarding the approval of drugs for inclusion on the PBS.

PBB
Pharmaceutical Benefits Branch: Division of the Department of Health responsible for the administration of services that relate to the supply of pharmaceuticals, including the PBS, pharmacy registration, and the PBPA.

PBPA
Pharmaceutical Benefits Pricing Authority: Board or committee appointed by the minister for health responsible for negotiating the final price of a pharmaceutical that is to be included in the Schedule of Pharmaceutical Benefits.

PBPB
Pharmaceutical Benefits Pricing Bureau: First authority established to negotiate prices of pharmaceuticals in Australia.

PBS
Pharmaceutical Benefits Scheme

Pharmaceutical Evaluation Section
Staff within the PBB who are responsible for the technical evaluation of applications for listing of drugs on the PBS.

TGA
Therapeutic Goods Administration: Australian national drug regulatory authority.



REFERENCES

Australian National Audit Office, Commonwealth of Australia. 1997–1998. Pharmaceutical Benefits Scheme. Audit Report 12. Web site: www.anao.gov.au

Drug Utilization Subcommittee. 1998. Personal communication from Secretary Peter McManus (October).

Evans D., D. Freund, R. Dittus, J. Robertson, and D. Henry. 1990. The Use of Economic Analysis As a Basis for Inclusion of Pharmaceutical Products on the Pharmaceutical Benefits Scheme. Canberra: Department of Health, Housing and Community Services.

Guidelines for the Pharmaceutical Industry on Preparation of Submissions to the Pharmaceutical Benefits Advisory Committee. 1995 (November). Department of Health and Aged Care. Canberra: Australian Government Publishing Service.

Henry, D. 1992. Economic Analysis As an Aid to Subsidisation Decisions: The Development of the Australian Guidelines for Pharmaceuticals. Pharmacoeconomics 1:54–67.

Hill, S.R., A.S. Mitchell, and D.A. Henry. 2000. Problems with the Interpretation of Pharmacoeconomic Analyses: A Review of Submissions to the Australian Pharmaceutical Benefits Scheme. Journal of the American Medical Association 283(16): 2116–21.

Industry Commission. 1996. The Pharmaceutical Industry. Report 51. Canberra: Australian Government Publishing Service.

Sloan, C. 1995. A History of the Pharmaceutical Benefits Scheme 1947–1992. Canberra: Australian Government Publishing Service.



Update to the Australian Case Study

Ray Moynihan

Summary

As this report goes to press, Australia's Pharmaceutical Benefits Advisory Committee (PBAC) has been almost totally reconstituted, with only two of the previous 12 members present on the new committee, and the unprecedented inclusion of a drug industry figure as a full voting member. In a lengthy public debate in the media and Parliament, a range of informed observers and the federal opposition have accused the Australian government of bowing to a pharmaceutical industry campaign to undermine the independence and rigor of the nation's pioneering method of cost-effectiveness assessment. Strongly rejecting those accusations, the federal government has justified its shake-up by arguing that the old PBAC was too antagonistic to industry, and that the new committee will continue the important cost-effectiveness analysis central to the efficient functioning of the Pharmaceutical Benefits Scheme.

Phamaceutical Board Shake-Up

During the last weeks of the final session of the Australian Parliament in December 2000, the government announced its intention to rush through new laws to change the membership rules of the PBAC. According to government spokespeople, the new rules were designed to broaden the range of groups nominating members to the PBAC, and to introduce time limits on membership ensuring turnover of talent and opportunities for fresh blood. While those changes were uncontentious, and had been suggested previously by a government review, the rushed nature of their implementation provoked widespread community suspicion.

Most importantly, the proposed new laws had no provision for a "transitional period" from the old committee to the new one, and it included strict time limits on membership, which were to be applied retroactively. This would have resulted in the immediate loss of key members, their expertise, and corporate memory. A range of groups expressed concern that the rushed implementation of the changes could produce a weakened committee.

The Australian Medical Association warned that "the pharmaceutical companies may want to increase their influence on this committee" (Moynihan 2000). The former secretary of the Health Department suggested that if the committee was undermined, the future of the Pharmaceutical Benefits Scheme would itself be in doubt. "If drugs go on the list which don't give value for money, costs will further increase, which means Treasury will try and abolish the Scheme" he said (Moynihan 2000).

The Australasian Society of Clinical and Experimental Pharmacologists and Toxicologists (ASCEPT) sent an urgent message to the health minister saying its members viewed "with grave concern the current threat to the independent functioning of PBAC . . . which has the potential to compromise seriously the integrity of the drug regulatory processes to the detriment of the Australian people. . . . Unmodified, the current proposals will result in a loss of trust in well-established regulatory processes that have served the Australian people well and are widely recognised as international benchmarks" (ASCEPT 2000).

For its part the pharmaceutical industry appeared to welcome the government's proposed changes to the PBAC, with one company spokesperson saying the proposed reforms would "improve access and availability of new medicines" (Moynihan 2000).

Following public debate of these issues in the media, the federal opposition parties negotiated a compromise with the government, enabling amended legislation to be passed before the close of Parliament in 2000. The strictly retroactive nature of the time limits on membership was changed, and it was expected by the opposition parties that a substantial number of the old committee members would continue on the new PBAC, guaranteeing a smooth transition in this complex area of technical decision making.

Following the passing of the amended legislation in December 2000, the old PBAC was effectively dissolved and construction of the new PBAC began immediately. Under the new rules an expanded list of medical, economic, and consumer groups nominated potential appointees, and the health minister began inviting people to join the 12-person committee from among that list. The minister was also able to appoint a small number of experts from outside the nominated pool, whom he deemed would bring the necessary skills and expertise to the committee's deliberations.

Early in 2001, before the new PBAC was announced, information emerged publicly that the government had decided to appoint an industry figure as a full voting member of the PBAC, the panel empowered with assessing the value of new medicines and making recommendations that have a direct impact on almost A$4 billion of annual taxpayer subsidy of company sales. The new appointee was a former long-time drug company executive and until 2000 had been chief executive of the industry's primary lobby, the Australian Pharmaceutical Manufacturer's Association, for almost five years.

That revelation led no less than five proposed new appointees to decline invitations from the government to join the reconstituted committee. It also generated public outcry from professional and consumer groups, health experts, scientific opinion leaders in Australia and internationally, medical journal editors, newspaper editorialists, and the federal opposition. Some pharmacy groups, pharmaceutical company spokespeople, the federal government, and newly appointed PBAC members defended the appointment of the industry figure.

Defenders of the appointment argued that the industry figure brought important knowledge, that he no longer had any connections to any pharmaceutical companies, and that one person could not exert undue influence among a board of 12. Critics argued that by definition an industry seat was inappropriate, that it might inhibit frank discussion among members, and that PBAC votes were often close enough for one vote to matter.

The idea of an industry seat at the PBAC table had been explicitly sought by companies previously, and specifically rejected by the government's own Tambling Review in 2000, which did not recommend it because it "could result in an untenable conflict of interest with industry involved in decisions in which individual companies have a strong financial interest" (Senator Tambling Review Group 2000).

By the second week of February 2001, the government publicized details of the new board's membership, including the former industry lobbyist and, due to the refusal of several experts to rejoin, only two members of the old PBAC. Through February, the changes to the PBAC were vigorously debated in both houses of the Australian Parliament. The opposition alleged that the government was doing the bidding of the pharmaceutical industry. During one debate the federal opposition leader cited a critique of the changes from the deputy editor of the Journal of the American Medical Association, who said, "This is a victory for a super-rich industry that will become even richer at public expense. It is shameful that the politicians have allowed this to happen" (Commonwealth of Australia 2001).

Strongly defending its changes as being in the best interests of the Phamaceutical Benefits Scheme, the government repeatedly blamed disgruntled former members of the old PBAC for creating damaging public controversy. Singling out certain individuals, the health minister accused them of having "spat the dummy" (Commonwealth of Australia 2001).

As part of the parliamentary debate, the opposition then revealed that the new industry appointee to the PBAC remained a current director of a small, research-based biopharmaceutical company, despite public assurances from the health minister that the former lobbyist was "no longer involved with industry" (Commonwealth of Australia 2001). Rejecting the criticisms of a potential conflict of interest, the government continued to stand by the appointment.

The Pharmaceutical Industry's Campaign

The government's latest actions have taken place within the context of a pharmaceutical industry campaign in Australia over recent years targeting the operations of the PBAC. While the full details of the campaign strategy have not yet been made public, informed observers, including a senior industry figure, suggest there have been at least two main aims: to win industry representation on government committees like the PBAC, and to have drugs listed more easily in the national Pharmaceutical Benefits Scheme.

The long-time managing director of Roche in Australia told a number of national media outlets of the existence of what he called an industry campaign. In December 2000 he said, "There is an industry campaign and it's led by Pfizer. It is a campaign to try and force government to list drugs more easily" (Moynihan 2000). In February he was quoted as saying that Roche had been approached to join a campaign to have industry representatives appointed to government boards, but had declined to join (Ferguson 2001). This informal campaign has operated in addition to the more formal cooperation among the pharmaceutical industry, the PBAC, and the federal Health Department that has occurred over many years through annual meetings and various joint committee structures.

Most visible within the industry has been the U.S.-based corporation Pfizer, which took legal action against individual PBAC members in 1999 over their previous rejection of public subsidy for Viagra. Pfizer executives were particularly concerned that the PBAC had overstepped its powers in rejecting Viagra by considering the total budgetary impact of a successful listing on the national pharmaceutical scheme.

In a judgment handed down in 2000 a federal court judge resoundingly rejected Pfizer's case on all grounds (Pfizer v. Birkett 2000), though a decision on a subsequent appeal is pending. Documents revealed during the court case indicate that if Viagra had been listed on the Pharmaceutical Benefits Scheme, it could have cost the Australian taxpayer more than A$50 million a year (Pfizer v. Birkett 2000).

Over the past two years Pfizer has also engaged the services, either directly or indirectly, of at least three former senior staff from the Office of the Minister for Health and Aged Care. Those staff include a long-time media adviser to the minister, and a chief of staff who provided consultancy services to Pfizer soon after leaving the minister's office in mid-2000. While their activities are not known, Pfizer has publicly confirmed that all three former government staffers were engaged at some point in the company's work for reform of PBAC processes.

Concurrent with Pfizer's political and legal activities has been the work of the Australian Pharmaceutical Manufacturer's Association (APMA). That organization's new chief executive, who came to the association from the federal Department of Industry, declared in February 2000 that reform of drug subsidy listing processes was one of his key tasks for the forthcoming year. A confidential internal APMA document from October 2000, later published in the national media, revealed that the industry was "greatly concerned" about what was described as a hostile attitude among members and staff of the old PBAC (Australian Broadcasting Corp. 2001b).

Another important forum has been the Pharmaceutical Industry Working Group, a powerful panel comprising key government ministers of both the health and industry portfolios and a number of drug company executives, including a senior Pfizer executive. The PBAC has had no representation at that panel's meeting and its deliberations were conducted in secret (though some minutes were later released after Freedom of Information actions).

Responding to opposition questions in Parliament, the government also confirmed the existence of an informal group known as the "Bennelong Group," a gathering of drug company executives with plants based in the prime minister's Sydney electorate. The most recent meeting between the drug executive group and the prime minister was in November 2000, though all parties state that innovation and investment, rather than the PBAC, were discussed at that meeting.

Conclusion

Throughout the period of turmoil, the Australian government has consistently rejected claims that it has bowed to industry pressure to bring changes to PBAC processes and membership. The health minister has argued that the newly reconstituted committee has the expertise to efficiently manage drug subsidization assessment, and is even better than the old committee. "We still have exactly the same system for listing drugs. We still have the PBAC with its clinical effectiveness and cost-effectiveness" (Commonwealth of Australia 2001).

During a special "Matter of Public Importance" debate in Parliament, the minister justified the shake-up by saying he could no longer rely on advice from the old committee and that there was "an increasingly fractured relationship between the committee and industry" (Commonwealth of Australia 2001). He also cited drug company legal action against the committee as another reason, and argued that he wanted to see PBAC processes become more "collaborative."

For some observers, the integrity and independence of the Australian process of drug subsidization have been threatened by the changes to the PBAC, leaving a cloud over the future of the Pharmaceutical Benefits Scheme and affordable medicines for all. For others, the inclusion of a former industry representative demonstrates a "partnership" approach that may enhance, rather than compromise the process.

Industry's view of the new committee is clearly represented by the current chief executive of the Australian Pharmaceutical Manufacturer's Association, who concluded an interview on national radio in this way: "I'm totally impressed with the new committee. I mean I think the minister has put together a committee which is beyond anyone's comprehension of what would be the top committee" (Australian Broadcasting Corp. 2001a).

Whatever the long-term implications for Australia's system of drug subsidization, the recent changes will likely bring increased and sustained public scrutiny, both domestically and internationally.



References

ASCEPT. 2000. Letter to Health Minister (December 6).

Australian Broadcasting Corporation. 2001a. The A.M. Program (February 16).

Australian Broadcasting Corporation. 2001b. The Four Corners Program (February 19).

Commonwealth of Australia. 2001. Hansard Parliamentary Debates (February 8).

Ferguson, H. 2001. Drug Industry Push to Join Government Bodies. Australian Doctor (February 16):4.

Moynihan, R. 2000. A Dose of Drama in the Debate over Drugs. Australian Financial Review (December 8):64.

Pfizer Pty Ltd v. Birkett. 2000. FCA 303 Judgment from Justice Mathews (March 20).

Senator Tambling Review Group. 2000. Final Report of the Review of PBS Listing Arrangements.



Applying Research to the Policy Cycle: Implementing and Evaluating Evidence-Based Drug Policies in British Columbia

Malcolm Maclure, Robert S. Nakagawa, and Bruce C. Carleton

EXECUTIVE SUMMARY

Since 1995, the province of British Columbia (BC) in Canada has had a Reference Drug Program (RDP) and several related policies that have attracted both praise and criticism as a strategy for cost containment (Woollard 1996; McLaughlin 1997; Brunt, Chappell, Maclure, et al. 1998; Bourgault, Elstein, Le Lorier, et al. 1999; Narine, Senathirajah, and Smith 1999). The policies were introduced by Pharmacare, the publicly funded drug insurance program operated by the provincial Ministry of Health, which covers all its citizens to varying degrees depending on their age, health, and economic status. Pharmacare had been struggling for years with double-digit growth in annual drug costs. The aim of RDP was to provide similar insurance coverage for similar drugs without increasing other health service costs or incurring adverse health events. RDP was challenged by the pharmaceutical industry as being hazardous to patients but was defended by the Ministry of Health as being evidence based. The degree to which RDP achieved its goals is being evaluated by independent researchers at Harvard (Schneeweiss, Sourmerai, Glynn, et al. 2000), McMaster University (Grootendorst, Dolovich, Holbrook, et al. 1999), the University of Washington (Hazlet and Blough 2000), and by one of us (B.C.C.) at the University of British Columbia (Carleton, Maclure, Dormuth, et al. 1999).

This paper summarizes the social and political context of RDP, its rationale and implementation, and lessons we learned about how researchers and decision makers can collaborate during drug policy design, implementation, and evaluation. Collaboration was marked by researchers participating in policy implementation committees and subsequently initiating policy evaluations. Policymakers responded by encouraging evaluations and monitoring their progress. As a result, policy was more firmly grounded in scientific evidence.

Researchers needed to adapt to the policymakers' context, which includes competing definitions of medical necessity and a policy cycle that accelerates and decelerates like a roller coaster. The type of evidence and manner of its input into policy decisions varied from slow, thorough analyses of drug cost growth and alternative policy interventions, to short briefings on policy choices and timely sound bites on urgent details of implementation. External funding of researchers and ongoing forums for expert participation in assembling the evidence base were key to bridging the gap between the different cultures of researchers and policymakers. Sustained involvement of researchers in an advisory committee on policy implementation built mutual respect and understanding between researchers and decision makers, leading to the smooth implementation of a randomized controlled policy trial. However, the personal collaborative relationships established between the policymakers and researchers were not easily transferable to new staff who did not share the history.

INTRODUCTION

The Health Care System

British Columbia is the third-largest province (population: 4,023,100) (BC Stats 2000) among ten provinces and three territories in Canada (population: 30,491,300) (Statistics Canada 2000). The federal government built the foundation of the Canadian health care system by providing indirect funding via a large transfer of moneys to provincial governments for health insurance, on the condition that the provincial insurance plans comply with the Medical Care Act of 1966 and its successor, the Canada Health Act. The Act requires

  1. Public administration. The health care insurance plan must be administered and operated on a nonprofit basis by a public authority, responsible to the provincial government.
  2. Comprehensiveness. The plan must insure all health services that were formerly privately insured provided by hospitals, medical practitioners, or dentists, and, where permitted, services rendered by other health care practitioners.
  3. Universality. One hundred percent of the insured persons of a province must be entitled to the insured health services provided for by the plan on uniform terms and conditions.
  4. Portability. Residents moving to another province must continue to be covered for insured health services by the home province.
  5. Accessibility. The health care insurance plan of a province must provide for:
     a. insured health services and reasonable access to insured health services;
     b. reasonable compensation to physicians and dentists for all insured health
         services rendered;
     c. payments to hospitals with respect to the cost of insured health services.

The federal government retains the ability to withhold some or all of the transferred amount if the provinces do not comply with the Act. However, the federal government's influence declined in the mid-1990s when, coping with the large national debt, it began drastically reducing its transfer payments to the provinces.

Variation among Provincial Drug Plans

As the Canada Health Act does not encompass drug therapy outside hospitals, each province has developed its own plan for prescription drug insurance. The result is wide variation in the administrative structures, parameters of coverage, and drug formularies of the provincial plans. Some provinces have established their own legislation that guarantees them the lowest drug prices offered anywhere in Canada.

The BC Ministry of Health provides its citizens with seven drug plans available through Pharmacare. These plans provide coverage to specific groups of individuals based on demographics, location, or financial means. Within each of the plans there are varying co-payments and deductibles. For those who do not qualify for one of the six specialized plans, there is a universal plan. The plans are

Plan A:      for seniors age 65 or greater
Plan B:      for residents of long-term care facilities
Plan C:      for Social Services clients
Plan D:      for cystic fibrosis patients
Plan E:      universal coverage
Plan F:      children-at-home program
Plan G:      for mental health center clients

Insurance coverage for prescription drugs is also provided by private sources. Approximately 55 percent of prescription drugs in Canada are funded by private insurers, compared with 45 percent funded by provincial and federal governments (Lewis, Blundell, Cashin, et al. 1997). Private insurers often emulate the provincial drug plans' formularies and drug programs for their beneficiaries. Private insurance coverage for pharmaceuticals in BC may include those individuals who have not yet reached their deductibles in the universal plan. Most of these plans are employer sponsored.

During the 1990s, all drug programs in Canada were struggling in different ways with major cost escalation. Economists at the University of British Columbia (UBC) (Morgan 2001) have recently confirmed what has been long suspected: the largest cause of cost growth has been increased prices of new drugs that replace older, less costly drugs. The common belief that rising drug prices are not the major cost drivers is based on an unrealistic interpretation of the standard method of calculating inflation: the change in price of goods and services that were available last year. By considering a new drug as a totally new product unavailable last year, such a calculation can be performed so that it always omits expensive new drugs. The UBC economists performed the calculation with a more realistic assumption; for example, a new drug for hypertension is a form of blood pressure treatment, and blood pressure treatment was available last year. Given that price growth is the major cost driver, reference pricing—similar insurance coverage for similar treatments—is a logical policy to consider.

National Drug Licensing and Price Control

The authority to sell a drug in Canada is regulated by the federal government. The Therapeutic Products Programme of Health Canada reviews the manufacturer's submissions to determine whether a drug is safe and effective for use in Canada. The information reviewed is provided by the manufacturer, who also identifies the desired indication for the drug. The review gives no consideration to the price of the drug, or to its relative place among existing drug therapies.

Until 1987, drug prices in Canada were determined entirely by the drug manufacturers. The Patent Medicines Prices Review Board (PMPRB) was established in 1987 under the Patent Act to protect consumer interests while increasing the years of patent protection for pharmaceuticals (Patent Act 1987). The PMPRB is an independent, quasi-judicial body created to monitor both introductory drug prices and any price increases during the period of patent protection. Its mandate is threefold:

  • to ensure that the prices charged by manufacturers of patented medicines in Canada are not excessive;
  • to report annually to Parliament on the price trends of all medicines in Canada;
  • to report annually to Parliament on the ratio of research and development expenditures to sales by patentees.

Although the PMPRB is funded by the federal government, it is an independent organization reporting directly to Parliament. In performing its function, the PMPRB establishes maximal, nonexcessive prices for all new chemical entities. The PMPRB has a limited jurisdiction and does not have the mandate to control or influence drug prices for any unpatented drugs. Although there may be some relationship between price and the cost of research, development, and production of drugs, the primary determinant of price in Canada is still what the international market will bear (Angell 2000).

Policy Overview

BC Pharmacare introduced a Reference Drug Program (RDP) in October 1995. RDP established a means of drug insurance coverage based on the principle that society should pay for an evidence-based standard of drug therapy. If there is no evidence that a higher price buys better effectiveness or fewer toxicities, then the extra cost should not be covered in a publicly funded insurance program.

RDP was modeled on the reference pricing systems implemented in New Zealand and in Germany and other European countries in the 1980s and early 1990s (Lopez-Casasnovas and Puig-Junoy 2000; PHARMAC 1999; Selke 1994; Schneeweiss, Schoffski, and Selke 1998). Under RDP, one or more drugs of proven clinical effectiveness with better prices than their competitors in the same class are identified as the "reference drug(s)," and their price is fully covered.

A key feature of RDP in British Columbia is its flexibility to allow full funding of non-reference drugs if a physician reports that the patient has a specific clinical need or if the central computer of the provincial pharmacy prescription network (PharmaNet) has flagged the patient as an exception by virtue of his or her use of certain other drugs. If a physician reports by fax or telephone that a patient is unable to tolerate the reference drug or does not show a therapeutic benefit, then Pharmacare grants a "Special Authority," usually within 48 hours, for another drug in the class to be fully funded. When a physician prescribes a non-reference drug without a Special Authority, the PharmaNet computer alerts the dispensing pharmacist, who informs the patient and/or physician of the policy and suggests the following options: (1) if there is a patient-specific reason for the use of a non-reference drug, the physician requests and is granted a Special Authority by Pharmacare; (2) if there is no patient-specific reason for the use of a non-reference drug, the physician changes the prescription to a reference drug; or (3) the patient pays the difference in price between the prescribed drug and the reference drug.

Thus, RDP can be viewed as a funding mechanism that incorporates varying levels of evidence from clinical advisers, researchers, physicians, and pharmacists in determining which medicines it is medically necessary to cover.

Medical Necessity

The term "medical necessity" is frequently used to justify health care funding. Much of the debate about drug policy can be traced to disagreements about the interpretation of this term. A Canadian study (Charles, Lomas, and Giacomini 1997) of the meanings of medical necessity identified four definitions, described below, that have been applied at different times in order to achieve different policy objectives.

1. What Physicians and Hospitals Do

This first definition prevailed in the 1960s and 1970s, when public funding of health insurance was expanding. In the area of drug therapy, there were few prescription drugs available, in comparison with the large therapeutic armamentarium of today. In addition, there was little therapeutic duplication of drugs available. For these reasons, virtually all prescription drugs were paid for under the Pharmacare program. Pharmacare had no formal review process for drugs, unlike hospitals, which had established Pharmacy and Therapeutics committees that developed and administered their formularies on behalf of medical staff. The idea behind this first definition is favored by proponents of unrestricted formularies. It is the belief that an individual physician's clinical experience and judgment cannot be improved upon by an expert committee because a patient's individual circumstances are crucial to the selection of an appropriate drug. This view assumes that physicians prescribe drugs appropriately in most instances, an assumption that conflicts with numerous studies (Lexchin 1998; Straand and Rokstad 1999; Anderson, Beers, and Kerluke 1997; Buetow, Sibbald, Cantrill, et al. 1996; Chin, Wang, Jin et al. 1999). This view is also naive with respect to the realities of modern medical practice, in which physicians preferentially cite commercial rather than scientific sources of drug information when making prescribing decisions (Avorn 1982; Lexchin 1993). It also ignores the ongoing use of hospital formulary committees in the institutional setting.

2. The Maximum We Can Afford

The second definition became popular in the mid-1980s as conservative fiscal policies took hold. By 1977 Pharmacare had expanded coverage to include the entire population of 2.6 million British Columbians (BC Stats, 2000); when a family's annual prescription drug costs exceeded Can$100, Pharmacare covered 80 percent of drug costs over that amount. But it was financially imprudent to extend coverage to all prescription drugs for all people. In other words, most prescriptions to the majority of the population—the relatively young and healthy—were not considered by the government to be medically necessary for Pharmacare to cover (definition 2) because these patients already paid for the drugs. If Pharmacare were to have covered those drugs, drug use would change little and no improvement of health was expected. This is a financial definition, and would likely be favored by ministries of finance.

3. What Is Publicly Funded across All Provinces

The third definition emerged as inequalities of coverage among provinces became apparent. Definition 3 is circular as a result of the 1984 Canada Health Act (see under "The Health Care System," above). The Act states that "the health care insurance plan of a province must insure all insured health services . . ." (Canada Health Act 1984), which it defines as services that are medically necessary, without defining what medically necessary means. The drug industry and patient advocacy groups use definition 3 when they tell BC Pharmacare, "You should cover drug X because another provincial drug plan covers it." Sometimes they imply that the other provincial program found the drug scientifically justifiable (definition 4, below). Often, however, they argue that, although there is not yet direct evidence of the superiority of drug X, its mechanism means it is theoretically likely to be demonstrated as superior in trials that are underway, and other provinces (definition 3) have decided that patients should be given that hope. Since the Canada Health Act does not apply to drugs prescribed outside hospitals, there is no parity among provincial drug plans. Furthermore, each province has its own independent review and approval process for insurance coverage of new drugs.

4. What Is Scientifically Justified

The fourth definition was embraced by policymakers in the 1990s as the concept of evidence-based medicine spread. It is attractive to drug benefits programs worldwide because growing numbers of expensive new drugs have no demonstrated superiority over existing drugs. By the same token, medications with the most evidence of effectiveness and safety are often the least expensive because their patent protection ceased many years ago. For example, evidence shows that high blood pressure is usually treated best with either a low-dose thiazide diuretic or a beta blocker, at minimal cost (National Institutes of Health et al. 1997). Although this was well established in 1995, about 20 percent of seniors initiated on a blood pressure-lowering drug in British Columbia were prescribed, contrary to guidelines, calcium channel blockers costing more than Can$1.00 per day (Maclure, Dormuth, Naumann, et al. 1998). From 1994, Pharmacare gradually began to apply this definition to requests for new drugs to be added to the formulary. The result was RDP and several related policies.

The Policy Cycle

To understand how research evidence and definition 4 influenced the making of Pharmacare policy, we first present a brief synopsis of the "policy cycle" (Spasoff 1999, p. 16) and the political context in British Columbia. Spasoff used the concept of a policy cycle to explain how different types of research evidence are needed at different points in the policymaking process (Figure 1). We find the model fits with our experience of the planning, implementation, and evaluation of RDP, and use it as our outline for the remainder of this paper.



An important fact that Spasoff does not emphasize is the dynamics of the cycle. In our experience, a major influence on how researchers collaborated with policymakers was the stop-and-go motion of the process. RDP required approval at various levels of government as well as support from the communications branch of the Ministry of Health. This often entailed delaying the next stage of RDP in a queue of other policy priorities. Once the drug class for the next stage was chosen and the implementation approved, the pace of activity was frenetic for Pharmacare's small staff. A recovery period followed, during which less hurried evaluation and assessment of other interventions took place.

The stop-and-go motion was also influenced by political opposition and election timing. The brand-name Pharmaceutical Manufacturers Association of Canada (PMAC) advertised against RDP before the details of the policy were announced, and later challenged Pharmacare in the courts for allegedly overstepping its authority. The suit was rejected by the Supreme Court of British Columbia. PMAC appealed to the Supreme Court of Canada, which refused to hear it.

RDP was introduced by a social democratic party, the New Democratic Party, within one year before an election. The minister of health described RDP as "praised across the country and internationally. The only adverse impact is on the profit margins of the brand-name drug industry" (Government of British Columbia News Release 1998). The introduction of RDP in British Columbia was politically possible because pharmaceutical manufacturing is located primarily in the two largest provinces, Ontario and Quebec. The lack of significant drug manufacturing in British Columbia gives Pharmacare greater autonomy to introduce evidence-based policy. Still, threats from the drug industry concerning research funds spent in the province occasionally succeeded in slowing RDP implementation.

Complicating the politics of RDP is the perception by many individual physicians that RDP challenges their prescribing autonomy. Focus groups with physicians showed that many of them viewed RDP as further proof that the ministry was concerned more about costs than quality of care.

THE RATIONALE FOR RDP

Assessment of Drug Utilization and Costs

The number of new drugs introduced each year to diagnose, treat, and prevent disease and discomfort has been steadily growing, and their introductory prices have risen dramatically. In 1986–1987, the Pharmacare budget was only Can$165 million. By 1995–1996, it was Can$406.6 million, amounting to 6 percent of the Can$6.6 billion budget for the Ministry of Health (Figure 2). Thus, in the space of nine years there was an increase of almost 250 percent. This does not include the expense of hospital drugs or those paid for directly by consumers.



In the period 1990–1994, immediately prior to the establishment of RDP, Pharmacare's drug costs were growing at an unsustainable rate of about 15 percent per year. This growth rate was significantly greater than other indicators (Figure 3). In addition, there was a looming threat of reduced transfer payments from the federal government. Innovative approaches were needed to balance the budget.

Pharmacare aimed to prioritize its expenditures so as to continue providing comprehensive drug coverage. Until 1994, Pharmacare's drug benefit list included most drugs licensed for sale in Canada. A more rigorous process of drug review was initiated in that year. The goal of this review process was to determine whether a drug should be included for coverage by the Pharmacare program for eligible beneficiaries.

During this period an independent research paper on the determinants of growth in the Pharmacare budget (Anderson, Kerluke, Pulcins, et al. 1993) was very influential because it addressed Pharmacare's main problem rigorously and favored Pharmacare's perspective. It concluded that 34 percent of the cost increase was due to new drugs or increased prices of old drugs, and that population aging had almost nothing to do with increased drug use. This pointed to a general strategy of avoiding the extra prices of new formulations and drugs that were therapeutic duplicates of existing drugs, which was contrary to the interests of the pharmaceutical manufacturers.

The main lesson of this assessment is that studies of the causes of drug cost increases that go beyond descriptive statistics on drug utilization and cost trends and that allow for informed predictions are valuable for policy strategy.

Assessment of Potential Interventions

A review of the Pharmacare benefit program was conducted in 1993, involving provincewide public consultations by an independent panel. The panel concluded that patients with the financial means should contribute to their drug costs, regardless of their age. It recommended replacing the separate plans for seniors, long-term care patients, people receiving social assistance, and families with excessive drug costs with a single universal drug benefit plan, based on ability to pay. Political hesitation to implement this was later reinforced when a visiting scholar, Stephen Soumerai, was invited in 1994 to present to Pharmacare his research on impacts of drug cost control programs (Soumerai, Ross-Degnan, Fortress, et al. 1993). He emphasized that very small co-payments can cause some patients to stop taking essential medications (Soumerai, McLauglin, Ross-Degnan, et al. 1994).



Rather than across-the-board co-payments, Pharmacare took the approach that it would fully cover at least one drug in each class of essential drugs, but the nonessential component of drug costs—the extra cost of higher priced drugs in a class of therapeutically equivalent drugs—would require co-payments. The first initiative in this direction was called the Low Cost Alternative Program (LCA), analogous to "generic substitution" (known in Germany as Stage I of Reference Pricing; see Selke 1994). Under LCA, when chemically identical drugs are supplied by different companies, Pharmacare pays only the price of the least expensive alternative. Prior to the implementation of this payment policy, community pharmacists routinely dispensed generic drugs to those patients who paid their drug expenses directly. Provincial legislation permits generic substitution of chemically identical drug products. The LCA program extended this practice to those patients whose drug costs were paid for by Pharmacare. Patients have the option of paying the extra price for other alternatives. LCA saved about Can$20 million during the first year, an annual rate of saving that has probably continued or grown as additional drugs reached the end of patent protection. No review of literature was required to support LCA because it was standard practice in both community and hospital pharmacies. Likewise, no health outcome evaluations of the policy were deemed necessary.

The second initiative was to create the Therapeutics Initiative (TI) to review published evidence of comparative clinical effectiveness of new drugs (Therapeutics Initiative 2000). The TI provides its evaluation of the therapeutic effectiveness of new agents to Pharmacare's Drug Benefit Committee for consideration in making recommendations for drug listings. The TI was also funded by Pharmacare to educate physicians in more evidence-based prescribing, although an evaluation showed that its impact was insufficient to be a major cost-saving strategy (Maclure et al. 1998). The TI disseminated to all BC physicians reviews of the comparative effectiveness of existing drugs.

In 1995 Pharmacare began applying the logic of LCA to chemically distinct entities within single drug classes (e.g., histamine-2 receptor antagonists) that, according to published evidence, are therapeutically equivalent (known in Germany as Stage II of Reference Pricing; see Selke 1994). By 1995 this type of reference pricing had been used in the Netherlands, Denmark, and New Zealand, and Italy had announced plans to adopt it. Each country used a different approach, but reportedly succeeded in producing price reductions (PHARMAC 1999; Selke 1994; Jacobzone 2000). The pharmaceutical industry countered that the policy had not worked in Europe, because overall drug costs continued to grow. However, there was not enough published evidence to support industry's claim. Personal connections provided access to supportive unpublished evidence. The deputy minister of health in New Zealand in the mid-1990s had been a senior official in the BC Ministry of Health earlier in the decade, and made occasional return visits to British Columbia. Thus, Pharmacare learned how New Zealand had saved Can$30 million in its first year of reference pricing (PHARMAC 1995).

Although the direct evidence supporting RDP was largely unpublished, there was abundant, evidence by analogy with formulary management as practiced in hospitals for decades. A hospital formulary is a list of drugs deemed by the hospital's medical staff, through its Pharmacy and Therapeutics Committee, to be sufficient to provide a contemporary standard of drug therapy for inpatients. Often, drugs commonly used in the community are not included in a hospital's formulary. When an individual patient cannot tolerate any of the formulary drugs, or does not obtain the desired therapeutic effect, a non-formulary agent may be prescribed. This is exactly analogous to RDP in British Columbia, with its Special Authority. Formularies are considered to be a standard of practice in hospitals to ensure rational, cost-effective drug therapy. Likewise, RDP has the potential to be a standard of practice for drug plans.

The lessons learned from this assessment of potential interventions is that although studies of drug efficacy and effectiveness are voluminous, studies of the impacts of drug policies are few. More are needed if policymaking is to become more evidence-based.

Policy Choices

Having decided on RDP as a strategy, major tactical decisions had to be made. Which classes of drugs should be tackled first? And what was the likely choice of reference drug within each class?

The criteria for the selection of RDP therapeutic areas were that they must

  1. Have a positive or neutral therapeutic effect on patient care
  2. Be easy for the Pharmacare staff to make operational efficiently
  3. Have a well-defined and feasible Special Authority process
  4. Have the potiential to significantly reduce drug expenses for the province
  5. Be based on sound scientific evidence

In addition to meeting the criteria, the first three drug classes under consideration were seen as relatively straightforward and easy to implement: gastric acid suppression drugs (H2RAs), nitrates for heart pain, and the nonsteroidal anti-inflammatory drugs (NSAIDs) used mainly for arthritis. There was much published evidence comparing the clinical effectiveness of H2RAs and NSAIDs. Although there were no published comparative trials of different forms of nitrates, it was presumed that this was because clinicians and pharmaceutical companies believed there was little or no difference among them in efficacy. Estimates of potential savings of Can$30 million in the first year also influenced these choices.

Another tactical decision, based on clinical experience of hospital formularies, was to permit rapid individual exemptions (via Special Authority) based on a patient's nonresponse or adverse reactions. This would make RDP more flexible than reference pricing in other countries. Long before RDP was contemplated, Pharmacare had sponsored the building of PharmaNet, a computer system linking all pharmacies in British Columbia to a central computer with an online record of each patient's prescription drugs. By law, all prescriptions filled by community pharmacies in the province must be entered into PharmaNet. The first wave of RDP took effect on October 1, 1995, two weeks after PharmaNet was fully functional in all pharmacies. The PharmaNet system helped RDP implementation by enabling instantaneous adjudication of patients' benefit status and calculation of their co-payment and current deductible accumulation. It permitted use of a variety of exemptions and more complicated rules that would have been too confusing for clinicians or patients to remember. For example, PharmaNet was used to generate automatic exemptions for patients already taking medications that had known interactions with reference drugs, or were markers of illnesses that qualified the patients for exemptions.

The lessons learned from these decisions were that although published research helped policymakers choose which drug classes to start with, research was not relevant to many questions about tactics and timing of policy choices and how PharmaNet could be used in policy implementation. To some extent, this lack of relevance inhibited collaboration with researchers, who felt that their expertise was not needed for such administrative decisions.

IMPLEMENTATION

After the broad policy choices had been approved by the minister of health and the cabinet, the rush to implement the details began. An expert committee was brought together to advise the executive director of Pharmacare on implementation. The RDP Expert Advisory Committee (RDPEAC) consisted of physicians, pharmacists, economists, and pharmacologists and was chaired by one of us (R.S.N.), a hospital pharmacist with expertise in the implementation of therapeutic cost-containment programs in the institutional setting. The RDPEAC was asked to provide expert advice on how best to implement RDP for the identified classes of drugs. The committee's first recommendation was that RDP be implemented in stages. Thus, RDP was applied to the first three categories of drugs over a period of months rather than simultaneously. The latter approach would have been too difficult for the committee and for Pharmacare because many smaller policy choices remained in each drug category: Which should be the final choice of reference drug? Should any drugs be excluded from partial payment because of toxicity or ineffectiveness? What criteria should be stated for individual patient exemptions? Which medical specialties, if any, would be exempt? What ancillary policies would be needed to ensure RDP's success?

As each new drug class was identified and researched, the RDPEAC assembled the evidence base for inclusion in RDP. Each subsequent implementation phase built on the previous one, such that barriers encountered or successful strategies were incorporated.

The First Plunge

The RDPEAC joined the policy cycle at its fastest stage. Figure 4 illustrates the roller-coaster dynamics of the policy cycle—slow in steps 1 and 2, accelerating in step 3, hurried in step 4, decelerating in step 5. This dynamic was acutely evident every time a new class of drugs was considered for inclusion in RDP.



Evidence

RDP began with the histamine-2 receptor antagonists (H2RA). These drugs are used in the management of a variety of gastrointestinal conditions, including peptic ulcer disease and gastroesophageal reflux. In British Columbia at the time, there were four H2RAs available, with markedly different prices: cimetidine (Can$4.20 for a monthly maintenance dose), ranitidine (Can$13.20/month), famotidine (Can$22.50/month), and nizatidine (Can$28.20/month) (Therapeutics Initiative 1995). The RDPEAC judged all four to be equivalent in effectiveness and safety, based on critical reviews of the current medical and pharmacological literature (Feldman and Burton 1990; Cantu and Korek 1994; Rodriguez and Jick 1994; Carmichael and Zell 1987). This evidence was cited in Pharmacare's letter to clinicians announcing the policy. Cimetidine, having the lowest price, became the reference drug. Omeprazole (Can$69/month) is in a different class—proton-pump inhibitors—which are known to be more effective suppressors of gastric acid but, at the time, were thought to have unproven long-term safety. Omeprazole was therefore not subject to referencing with the H2RAs, but became part of the policy package.

What Was the Policy?

The policy specified that "all new and repeat prescriptions for an H2RA were to be funded at the level of cimetidine." An additional clause to the policy was introduced after concern arose that the restriction of H2RAs might cause some physicians to use omeprazole instead. All new prescriptions for omeprazole would require either a prescription from a gastroenterologist or evidence of therapy failure after a six- to eight-week trial on an H2RA. Specifically, prescriptions written by gastroenterologists were fully reimbursed for omeprazole, but were not exempt from the H2RA restrictions, as relatively few clinical circumstances could justify the use of one H2RA over another. There was no exemption for those patients already taking omeprazole or H2RAs, but they were given an eight-week grace period to continue unrestricted use of these medications before the policy took effect.

This delay for current users was a direct result of researchers' being involved i