Prescription charges are a tax on sickness but we’d need to find £500m to scrap them

Sign of the times. Benwerd, CC BY-NC

Experts in a leading journal have called for the abolition of prescription charges in England, adding to numerous similar calls since the contentious introduction of charges in 1951. While prescription charges have already been scrapped in Scotland, Wales and Northern Ireland, other commentators have suggested increasing the charge from a flat fee of £8.05 to £10 per item on the prescription, and removing some groups who are exempt from the charge “to bridge the funding gap”.

The current £8.05 charge is similar in magnitude to the average net ingredient cost per item, which in 2013 was £8.37. But this average masks a huge amount of variation. The most frequently prescribed drugs, simvastatin and aspirin, cost far less than the prescription charge. But the cost of individual pharmaceutical products can reach eye-watering levels, as illustrated in April by NHS watchdog NICE’s appraisal of ado-trastuzumab emtansine (Kadcyla®) – a breast cancer drug reported to cost £90,000 per patient per year. NICE recommended against reimbursement of this product by the NHS, largely because of its unreasonable price, but the Cancer Drugs Fund, which provides additional government funding for patients to access drugs not usually available on the NHS, could feasibly pay for this in future for some individuals.

Health policy changes are usually motivated by one of three overarching objectives: cost containment, efficiency and equity. Charging for prescriptions clearly has the potential to contain costs and raise revenue, and this is the primary reason for the introduction of the charge and its retention in England for over 60 years.

In economic terms, this is a simple argument – demand curves slope downwards to the right: higher prices create lower demand. This applies to prescriptions and other health care services just as it applies to other goods and services. But it does not, as some politicians and others seem to think, just dissuade “unnecessary” or “frivolous” use of pharmaceuticals. It dissuades people, particularly vulnerable people, from taking drugs that they need, sometimes drugs that are essential for their health. This has been demonstrated repeatedly in numerous settings, from the RAND health insurance experiment (a randomised trial evaluating the effect of different levels of co-payments in the US) in the 1970s, and with remarkable consistency since.

A systematic review in 2004 of the effects of prescription charges particularly on the poor and those with chronic illnesses found that “virtually every article reviewed supported the view that cost sharing decreases the use of prescription drugs in these populations”. Charges can also have unintended consequences: an experiment with capping prescription reimbursement in patients with schizophrenia memorably cost 17 times more than it saved, largely due to increased hospital admissions. “Frivolous” or “unnecessary” prescriptions are not the fault of the patient – they should simply not be written, and charging patients does not prevent this.

Equity concerns around user charges mean that 90% of NHS prescriptions in England are dispensed for free – elderly people, children, those on means-tested benefits and those with some chronic diseases are exempt from charge. This substantially reduces the revenue raised from charges, to less than £500m, from a total cost of pharmaceuticals that exceeds £8.5 billion. The cost of collecting the charge, checking exemptions and managing and monitoring prepayment certificates all reduces the real revenue from the system of charges.

So, the economic case for prescription charges is weak. They can be used to discourage over-use of medications, but they also reduce appropriate use and remove primary responsibility from the prescriber, where it properly belongs. They raise revenue, but not very much, due to extensive and necessary exemptions.

The fact remains, however, that their abolition would create a further NHS funding gap. What could we do (within the current NHS budget) to fill that gap? There are a few possible targets that even focus on pharmaceuticals. The Cancer Drugs Fund allows access to products that have not been appraised by NICE or have been judged by NICE to be inappropriate for NHS reimbursement due to lack of effectiveness or prices that are too high. Scrapping this questionable scheme could save £200m each year.

The way NICE itself operates can be viewed as a target for savings. Recent research demonstrated that the current threshold of the “cost per QALY” (or quality-adjusted life years, a measure used to compare different drugs and their clinical effectiveness) which guides NICE is too high, relative to other services that the NHS provides. Reducing the threshold (from the current level of £20,000-£30,000 per QALY) to, the researchers suggest, an appropriate level of around £13,000, could potentially create substantial savings in the pharmaceutical budget, although this would be at the political cost of refusing reimbursement to more new products.

Prescription charges in the NHS in England are unarguably a tax on sickness. Research evidence has shown repeatedly that there is no real economic case for user charges in health care. I support the recent call for abolition of the prescription charge, but suspect that in practice this will be politically difficult to implement.