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Table of Contents X. Government cost intervention in healthcare	3 X. Effects of cost intervention in healthcare	3 1. Supply Side Cost Containment	4 1.1 Reference pricing	4 1.2 Physician spending caps	5 1.3 Pharmacy rebates for sickness funds	6 1.4 A negative list	6 2.0 Demand Side Cost Containment	7 2.1 Co-payments for physician visits	7 2.2 The co-payments for drugs	8 2.3 Auti dem prescriptions	8 3. Discussion and Analysis	9 4. Conclusion	10 5. Recommendation on What the Government Can Do	11 6. References	14

X. Government cost intervention in healthcare Germany has been experiencing increased healthcare costs that have majorly been attributed to increasing number of old people in the population. However, old age is not the only factor that has led to the increased cost of healthcare in the country. Other factors such as technological advanced, poor regulation and increased population, all play a major role in the increasing cost of healthcare. Although the per capita healthcare cost in Germany is not the highest among the developed nations, it is one of the fastest growing, thus leading to increased concern among policy makers. This has led to many regulations, most of which are not necessarily effective. The many regulations and reforms in German healthcare can be classified as either supply side controls such as reference pricing, pharmacy rebates for sickness funds, auti dem, a negative list, price reductions, and directives. On the other hand, the demand side regulations and controls include increasing co-payments for both physician visits and drugs. Some of these controls are not as effective as others are and it is necessary for the government to be able to know which work effectively and which do not. X. Effects of cost intervention in healthcare Evidence seem to suggest that supply side cost controls are more effective than the demand side cont controls in healthcare. For instance, the use of reference pricing seems to be more effective not only in bringing the cost of healthcare down, but also in maintaining these cost savings in the long term. Some factors also need to be considered in order to make sure that the interventions are not only effective, but also do not lead to unintended negative outcomes. This is more so with regard to the issue of quality due to reducing the cost. Although high costs do not necessarily mean better quality, the relationship between the two is clear and evident. It is therefore necessary for the government be careful with these interventions. In the following report, the different types of interventions are discussed in detail with an aim of establishing which is the most effective one and why. The conclusions section is drawn from the analysis and the recommendations indicate what methods the government should use for managing costs, based on the analysis and consecutions. 1. Supply Side Cost Containment 1.1 Reference pricing Reference pricing is geared towards managing the costs by encouraging the patients, and specifically, insured people to only visit health providers who offer the best prices. The government, or the healthcare insurance providers does an analysis of the market and seeks to make sure that it is able to know the average, or better still, the optimal payment for certain healthcare services. Once this has been identified, the healthcare providers’ places a cap on how much they can insure for a certain healthcare service. This means that the consumers will have to seek those providers who are able to provide the best service. The long-term effect is that the other providers who were charging higher prices for the same services will have to lower their service costs, thus leading to a situation where the entire cost is brought down in the overall healthcare market. According to Busse, Schreyo, and Henke (2005), this seems to be the most effective form of cost control in healthcare, not only due to its ability to actually bring down costs, but also due to its ability to have long term effects in doing so. In other words, when the government uses this method, there will not only be positive impact, these impacts will also be felt in the long term. However, there is a problem with this strategy of managing costs in healthcare. First, if not well managed, it can lead to low quality of healthcare, which is probably worse than the high costs. Germany is one of the few countries where healthcare delivery has always emphasized on high quality, probably when the costs have been escalating. Using price referencing, this could be a negative incentive which in the long run lead to low quality. As a result, even as this is the most effective cost control factor, it is necessary for the policy makers to be aware of the fact that it can lead to low quality of healthcare in the long run. It is therefore necessary for this method to be considered with ultimate care, while placing mechanisms for sustaining the high quality of German healthcare system. 1.2 Physician spending caps Physician spending caps is another way to manage costs in healthcare. As Milbank (1993) says, it’s another effective way of managing cost because it helps in bringing the costs of healthcare down, as well as, long terms effects. Germany can use this strategy to manage its costs in healhtcare. However, just like price referencing, it has its weakneses in that if not well managed, it can lead to reduced quality fo healthcare delivery. As a result, it is necessary for all the stakeholders to be invested in this in order to make it a success. In this regard, this cost manangent strategy would be most effective if stakeholders such as physians and hosptials providers are able to cooperate. As Milbank (1993) says, price caps are only succesful when implemented as a negotiaiton process, when the main stakeholders are able to reach an agreement. At the same time, the government has to be careful in making sure htat this does not spirl into system of low quality healhtcare. 1.3 Pharmacy rebates for sickness funds This is also another way to manage healthcare costs. Pharmacy rebates for sickness funds, while not as effective as the price capping and the reference pricing, is also another effective way to manage cost of healthcare. Pharmacy rebates refers to the coordination and corporation with pharmacy and drugs companies to manage cost of drugs. There are two elements to this form of cost management in healthcare. First, it is necessary to note that while it can be used to manage costs, it only manages costs on the pharmacy side. In this regard, it does not provide a fully-fledged way of managing healthcare costs. However, given the fact that drugs have become an important cost factor in healthcare in the last few years, due to pharmaceutical companies hiking their prices, it would be a formidable way to make sure that such issues do not affect the overall cost of healthcare in a country like Germany (Henschke, Sundmacher, & Busse, 2013). The major problems with this cost management strategy is that it requires massive negotiations with the stakeholders, which are always many. This means that it is difficult to be able to reach to a situation where an amicable solution can be reached. Furthermore, market forces that are necessary in setting the prices also affect it. The important thing with this method of cost control is the fact that there is a rise in the cost of drugs and the rise is mainly based on the profit seeking nature of these firms. 1.4 A negative list This strategy works very similarly to the price referencing strategy and depends on the ability to affect the players in the healthcare sector to be able to be compliant in the way they address the cost issue. A negative list is used to identify the least reliable providers based on cost and sometimes efficiency and quality. With this, it is possible for the government to be able to reduce costs while at the same time maintaining high quality. However, this method of managing costs also has its own problems in that it may not work as expected. Even in cases where the government maintains a negative list as a way to manage the costs in the healthcare sector, this does not always work in reducing cost while maintaining high quality of healthcare service. The negative list only works as a strategy to manage costs when the government can work closely with the private sector. 2.0 Demand Side Cost Containment 2.1 Co-payments for physician visits Co-payments for physician visits is a demand side cost control strategy that is geared towards making sure that healthcare users are more careful in the way they regard healthcare. According to Winkelmann (2004), this is not usually effective in that it does not have an influence in the way people visit the physician. Co-payments for physician visits is a strategy that is geared towards minimizing the number of unnecessary times a patient visits the physician. As some scholars have been able to identify, due to lack of planning, most patients end up visiting the physician too many times. With better planning, the patients can visit the physician fewer times and at the same time get the same quality of healthcare they need. The government, when using co-payments for physician visits as a strategy to minimize the costs for healthcare seeks to reduce the cost by reducing the number of times that a patient needs to visit the physician. However, as Herr and Suppliety (2012) has found out, the co-payments for physician visits are not effective in managing the costs and therefore do not deliver the intended results. The major reason is that this does not deter the patients from the unnecessary excessive visits to the physician. As a result, even though this strategy has the potential to minimize costs in healthcare, it is not effective and therefore needs more work. 2.2 The co-payments for drugs The co-payments for drugs as a strategy is another demand side strategy that the government can use to deter the hiking prices in healthcare. It is very similar to the Co-payments for physician visit. However, this is geared towards management of costs associated with drugs. This method also has its own challenges and therefore not as effective as it should. Just like the Co-payments for physician visits, it has potential, but has problems in that the targeted audience does not necessarily conform. Using this strategy therefore needs to have proper mechanisms that will guarantee that the patients will conform to what is being implanted. At the same time, it is necessary to note that even if the co-payments for drugs was to be effective, the cost reductions would be minimal and therefore have a less impact to help in bringing the national health costs down. 2.3 Auti dem prescriptions The auti dem prescription is a strategy of cost management that is used all over the world, but which is very popular in Germany. Recently, German doctors are required to provide auti dem prescription when prescribing drugs to a patient. The rationale is that some prescriptions have cheaper alternatives which can reduce the cost for the patient and even for the government. In Germany, like in most developed counties such as the United States the issue of generic drugs is important. Most patient are critical of the generic medications. However, some generic medications, as much as they are effective as the branded drugs are not as costly as the branded ones. In most cases, the cost of medication can be reduced to as much as 90% if the patient is wiling to replace the generic medication with branded drugs. With the auti dem prescription, the customer is given the opportunity to use alternative prescription that is cheaper but just as effective as the main prescriptions that the physician gives to the patient. However, the main problems is that most patient, because they are averse to the non-mainstream drugs, are not willing to use the alternative drugs. As a result, it is necessary to note that this is not the most effective way to mange costs. 3. Discussion and Analysis It is very clear that some of the cost control that are geared towards cost control in healthcare are not effective. In particular, the demand side cost controls are not effective in that they are not able to reach the desired results. However, the supply side cost control strategies are more effective than the demand side cost controls. One more issue that came up is the fact that the reason why most of the demand side supply is not effective is the fact that there are negative attitudes towards these the elements of these controls. For instance, the auti dem cost control is not effective because the patients are averse to the use of alternative medicine. The implications of this is that since most people are averse to these alternative medications that are cheaper but just as effective as the mainstream prescriptions, the government should do an awareness campaign that is geared towards making sure that people are well educated with regard to which generic drugs are good and which are not good. For the government to use the demand side control, it has to be able to use various forms of awareness in order to help the public to have a better attitude towards generic medicine. With regard to the contention between generic and branded medicine, two issues need to be addressed. First, there is the issue of the fact that some generic medicine as just as effective as the branded medicine, but the patients do not trust this medicine but trust these medicine. Secondly, there is the issue that the reason why most patients do not trust this generic medicine is the fact that some of them are not very good and can in fact affect the health of the users in a negative way. 4. Conclusion It is very clear that that some cost interventions are more effective than others are. However, even among the successful ones, they also have their own issues. A common issue that emerged is the fact that supply side interventions are more likely to be more effective than the demand side interventions for cost control in healthcare. It was also very clear that the reason why the demand side cost interventions are less likely to be successful is due to the fact that they are more likely to be affected by patients negative attitudes. A good example was the auti dem, which is affected by the fact that most patients are likely to distrust the alternative prescriptions that the doctors give. This means that the demand side interventions, while they high potential for cost control, need more work to be effective. The auti dem, co-payments for physician visits, and the co-payments for drugs are not effective in managing healthcare cost, not because they do not have potentials to do so, but because the public attitudes are not right. This can be addressed by making sure that the public is sensitized with regard to these issues. For example, the auti dem method is not effective in cost management in healthcare ins that most people are not very comfortable wit the use of alternative prescriptions. Even in cases where the patient can access alternative medicine that is just as effective as the main prescription that the physician gives, it is always hard for the physician to be able to convince the patient to be able to use the alternative prescription. This means that the government, when using this strategy as a way to manage costs in the healthcare is supposed to be able to carry out campaigns that will sensitize the employees with regard to the use of prescription drugs, especially the generic ones. However, there is a need to make sure that the patients are protected from the less effective generic drugs. One of the main problems that have led to most of the public being averse to the generic or alternative drugs is the fact that some of them are not as effective as the branded ones. As a result, for the auti dem strategy of cost management in the healthcare sector to work, the users to drugs need to be able to be protected from the less effective generic or alternative medicine. It is also necessary to note that the main issue is not high costs, but the rate at which the costs are growing. For instance, although German’s per capita cost for healthcare is higher than that of some developed countries, it is not necessarily the highest. For instance, the per capita healthcare cost for United States is roughly twice that of German. This is even after consideration hat the quality in the German healthcare system is much higher than that of the United States. In this regard, the cost interventions strategies would most be most effective if they are geared towards managing the growth of the costs rather than in trying to pushing the costs down than they already are. 5. Recommendation on What the Government Can Do From the analysis and the conclusions, it is necessary to note that some of the interventions that are more effective than others are. In this regard, it was very clear that supply side cost interventions are more effective than the demand side cost interventions. As a result, it would be necessary to make sure that the government focuses on the supply side cost interventions. The supply side interventions are effective because they have the ability to not only reduce the costs but also to do that in the short term as well as the long term. Two major supply-side interventions seem to be the most effective than any other interventions, and this should be the focus on the government if it intends to bring down the high costs of healthcare. The first one is the reference pricing which refers to controlling the market elements that determine demand and supply. Reference marketing can be used to curb artificial demand hikes especially for healthcare services. Reference pricing and capped pricing should be the primary strategy that the government should use to curb costs in healthcare. The second one is the physician spending caps. This method is also very effective in helping the government to control and to curb costs from hiking. Like the reference pricing, this works by placing proper mechanisms that will prevent costs from hiking, such as from the artificially related demand. The two can be used together in order to get the best results. In using these two cost interventions strategies, the government should be wary of negative unintended impacts that may arise. For instance, as it was identified, the German healthcare is one of the very few in the developed worlds that focuses on quality delivery of healthcare. Since quality and cost are tied together, the chance that reducing one will reduce or increase the other is high. For instance, if the costs are reduced, this has the potential to diminish the quality. This means that there is a chance that as the government seeks to reduce the costs, especially through the reference pricing and cost caps, the quality may end up going down and this could even be worse than high costs. The cost of low quality healthcare is very high and this should not be the result of any cost control strategy of any kind. At the same time, the need to reduce the cost, and especially to curb the high rates of growth for health costs is high. What the government should do is to make sure that all stakeholders, including private insurers, pharmaceutical companies, and even health care providers. The government should be very concerned in making sure that these stakeholders are on board in order to ensure t that these types of cost interventions are effective and will not lead to unintended negative results. The government should also consider demand side interventions in the long term. Although it is clear that these are not effective in the past, the government can do a few things to make then effective in the future. For instance, one of the issues that came up clearly was he fact that the reason they are not effective is that the public has a negative attitude towards most of them. However, with the use if awareness campaigns to overcome the barriers that avoid the demand side cost interventions from working, it is possible to make the demand side cost interventions to be effective albeit in the long run. This means that for the short term (next 5 to 10 years), the focus of the government with regard to cost intervention should be based on the demand side cost interventions strategies while at the same time trying to address the issues that make it difficult for the demand side cost interventions to be effective. In the long run, and after addressing the barriers affecting, the demand side cost interventions, it would be necessary to use demand side interventions as a way to save on costs.

6. References Busse, R., Schreyo, J., & Henke, D. (2005). Regulation of pharmaceutical markets in Germany: improving efficiency and controlling expenditures? international journal of health planning and management, 20, PP. 329–349. Henschke∗, C., Sundmacher, L., & Busse, R. (2013). Structural changes in the German pharmaceutical market: Price setting mechanisms based on the early benefit evaluation. Health Policy, 109, PP. 263– 269. Herr, A., & Suppliety, M. (2012). Pharmaceutical Prices under Regulation: Tiered Co-payments and Reference Pricing in Germany. DICE Discussion Paper, No. 48, PP. 2-37. Milbank, Q. (1993). How expenditure caps and expenditure targets really work. Health Care Finance Review, 1, 5, pp. 89-94. Winkelmann, R. (2004). Co-payments for prescription drugs and the demand for doctor visits ^ Evidence froma natural experiment. Health Economics, 13, PP. 1081–1089.