OHE Develops New, Bottom-Up Model for Forecasting UK Medicines Expenditure
Medicines account for less than 10% of total NHS expenditure in the UK. Because spending on medicines is easy to separate out, however, this sector continues to come under particular scrutiny in efforts to manage costs. Forecasting spending on medicines…
Medicines account for less than 10% of total NHS expenditure in the UK. Because spending on medicines is easy to separate out, however, this sector continues to come under particular scrutiny in efforts to manage costs. Forecasting spending on medicines can be useful in planning NHS resource allocation.
Medicines account for less than 10% of total NHS expenditure in the UK. Because spending on medicines is easy to separate out, however, this sector continues to come under particular scrutiny in efforts to manage costs. Forecasting spending on medicines can be useful in planning NHS resource allocation. Simple extrapolations of past trends in medicines expenditure, however, are insufficient because they cannot account for shifts in the mix of medicines available on the market or the appearance of generics.
Most projections of medicines spending are rooted in the past and are “top-down”, macro-based approaches. Such models are based on econometric analyses of past spending trends, actuarial estimates of future population changes, assumptions about growth in GDP, projected changes in prescribing trends, and estimates of the impact of any major changes in the legal or regulatory environment that will affect health care services. These models cannot anticipate changes in the mix of medicines available.
OHE has just completed a new study that projects medicines expenditure in the UK to 2015 using a product-level, or “bottom-up”, approach. This makes it possible to base forecasts on what is most likely to change in the medicines market, e.g. the appearance of new products and the debut of new generics and biosimilars. With that objective in mind, the OHE sought input from a number of experts, primarily from pharmaceutical companies, to better understand trends in the evolution of therapeutic areas that account for about 80 percent of spending. This also allowed us to understand whether and how well historic trends approximate future trends.
The calculations in this study also differ from other estimates by using regression analyses of data drawn directly from experience to date in the UK—for example in estimating changes caused by the appearance of generic versions of prescription medicines and the rate of uptake of new medicines. The model developed in this study can be used to gauge the effects of any number of potential scenarios, providing another tool for forecasters.
The study compares the results for forecasting medicine expenditures using a top-down analysis and OHE’s bottom-up approach. This shows that the bottom-up approach provides richer detail about causes and distribution of costs, i.e. which therapeutic areas may consume the greater resources. Such detail offers an opportunity, in theory at least, for policy makers to make better-informed decisions—both about allocating resources and about policies that can influence the factors that, in turn, determine medicines expenditures.
The table below shows our top-line results, as ranges, for the total market and the branded segment.
Compound Annual Growth Rates
2011 – 2015e
3.1% – 4.1%
Total branded segment
0.5% – 1.8%
As the paper was being finalised, data for 2012 became available from IMS, which allowed us to compare the study’s projected growth rates for 2012 with actual rates. These were within the ranges shown above.
Download O'Neill, P., Mestre-Ferrandiz, J., Puig-Peiro, R. and Sussex, J. Projecting Expenditure on Medicines in the NHS. Research Paper 13/02. London: Office of Health Economics. Editor's notes: This study has been published as O’Neill, P., Mestre-Ferrandiz, J., Puig-Peiro, R. and Sussex, J. (2013) Projecting expenditures on medicines in the UK NHS. PharmacoEconomics. 31(10), 933-957. An expanded version of this study, with analyses through the end of 2018, was completed by OHE in 2014 and isavailable for download.
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