Finance Committee, 08 Nov 2005

Meeting date: Tuesday, November 8, 2005

Official Report 223KB pdf

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Abolition of NHS Prescription Charges (Scotland) Bill: Financial Memorandum

Agenda item 2 is scrutiny of the financial memorandum to the Abolition of NHS Prescription Charges (Scotland) Bill, which is a member's bill that was introduced by Colin Fox MSP, whom I am pleased to welcome to the committee. With Colin is David Cullum, who is head of the non-Executive bills unit. I ask Colin Fox to make an opening statement, although he has circulated a paper to us, after which we will move to questions from members.

I will be brief, convener. I will take two minutes to introduce the paper that I have circulated.

The bill is an attempt to ensure that everybody gets the medical treatment that they need. I believe that prescription charges undermine the founding principle on which the national health service is built; namely, that a person gets treatment if they are ill, not if they are ill and can afford £6.50. The bill would lead to a dramatic improvement in the health of many Scots and would be a significant boost towards eradicating many of the health inequalities that disfigure Scottish life. The evidence that is before this committee and the Health Committee shows that charges deter access to the health service.

A second point to stress is that the measure would result in savings for the national health service through significant improvements to the health of patients who access preventive medicines before they need more expensive interventions later. I appreciate fully that the committee is interested primarily in the financial memorandum. The figures that are before the committee have been gleaned largely from correspondence with the Scottish Executive. The financial memorandum shows the considerable savings that can be accrued through health improvements.

Nobody in the debate, including the Executive, defends the status quo. To use the words of the legendary Bob Dylan, "A Change is Gonna Come". The question is whether the change is to extend a discredited exemption system and try to make a silk purse out of a sow's ear or to grasp the nettle and follow the Welsh example by abolishing prescription charges completely.

I look forward to answering members' questions.

You have assumed that the cost of abolishing prescription charges would be £45.4 million, which is the current amount that is raised by charging. However, following the logic of your argument, there is an assumption that the removal of charging might result in an increased uptake of prescriptions and therefore to increased cost. Do you have any notion of what the actual cost might be, rather than the savings?

The first point to stress is that the figure of £45.4 million comes from the Executive. It is important to bear it in mind that the Executive has stated that 92 per cent of prescriptions that are written currently go to people who are exempted from paying the charge, so the £45 million comes from the remaining 8 per cent.

The second important point is that we must consider that £45.4 million in the context of the whole national health service spend in Scotland. Currently, prescription charges contribute less than half of 1 per cent of annual NHS income in Scotland. The fact that only 8 per cent of people pay for prescriptions indicates the extent of the extra demand that would be put on the health service.

So you are saying that removing prescription charges from the 8 per cent of people who are currently eligible to pay would include people who are better off and that that is good expenditure of NHS money.

That takes us into important territory. When we look at who pays prescription charges, it is largely wrong to suggest that the money comes from better-off people. As I say in my submission, other submissions have made it clear that the people who are most penalised by having to pay are those who are just above the low-income threshold. People on incapacity benefit, for example, do not qualify for free prescriptions and neither do people on disability living allowance. People whose incomes are over £8,000 or who have savings or mortgages are above the low-income threshold and also find themselves subject to charges.

The exemptions are completely illogical and inconsistent because the exemption categories contradict one another. For example, irrespective of their income, everybody over 60 gets free prescriptions. Pregnant women and mums of new-borns also qualify. I understand that a member of the Finance Committee who is not here today is pregnant and will qualify for free prescriptions. I respectfully suggest that it is not the case that the well-off are asked to pay and the less well-off are always exempt.

Is your argument that the current system of deciding who pays for prescriptions does not target sufficiently the people who are well-off?

No, my argument is that prescription charges fly in the face of the principle on which the health service is based—that everybody should get free access to medicine.

It is clear from the evidence that the people who are most penalised are just on the borderline of the current exemptions criteria. That is where prescription charges do most damage. The abolition of prescription charges would help those people more than anybody else. As the convener knows, that is in line with a major thrust of the Kerr report—which was promoted by the Minister for Health and Community Care—which was that we want to introduce preventive measures so that we do not have to make greater interventions later on.

Assuming that £45.4 million would be the cost of abolishing prescription charges—that is the current amount that is raised by prescription charges, although the real cost would be the cost of the drugs—how would you address the shortfall in the NHS budget as a result of scrapping prescription charges?

The actual cost of abolishing prescription charges would be substantially less than £45.4 million. As you can see from the Executive's figures in the financial memorandum, the health service would accrue savings from the administration of the current system of £1.54 million. There would also be additional savings from advertising, pre-payment certificates and exemptions categories of £73,000 and there would be more savings from the current anti-fraud measures of another quarter of a million pounds. Those figures are supplied by the Executive.

I contend that on top of that, and perhaps much more significant, would be the saving to the health service because patients who currently go without prescriptions, whose conditions deteriorate and who then present themselves to other parts of the health service for treatment would not do that. At present, the cost of looking after somebody in a general ward in our hospitals, where such people would be likely to turn, is £1,875 a week. The cost of looking after somebody who suffers from one of Scotland's two biggest killer diseases—heart disease and strokes—in intensive care or high dependency units is about £7,000 a week.

When one considers the widespread evidence about people who are forced to go without prescriptions because they cannot afford £6.50, £13 or, should they need four items, £26, we can see that the consequent cost to the health service begins to escalate when we are forced to treat them elsewhere. It is therefore my contention that the cost of abolishing prescription charges would be substantially less than the £44 million that the Executive has put in front of us.

Even if you take off the savings that you have identified in budgetary terms, as opposed to how things might go forward, you still have to identify where £40 million could be saved in order to release the £40-million plus that would need to be found to reduce prescription charges. We operate within a budget, so from our point of view you must say where that cash would come from.

I am happy to do that, convener. I take issue with your reference to £44 million because, as I said previously, the cost would be substantially less than that. I hesitate to move into territory that is essentially a policy matter for the Executive, which is consideration of where the cost of abolition would come from. First, as I suggest in my paper, the Executive might want to consider the fact that prescription charges form half of 1 per cent of the NHS's income in Scotland. I question the Executive's contention that the charges are a vital source of income.

Secondly, the committee will know that the underspend in previous years' health budgets would allow us to absorb the cost of abolition. Thirdly, we heard the minister announce £660 million extra expenditure for the health service in his most recent statement to Parliament. Fourthly, you should consider that this time last year the then Secretary of State for Health, John Reid, announced the renegotiation of the pharmaceutical contract between the Government and the drugs companies, which was to the benefit of the Government in the form of a 7 per cent reduction in costs. Over the next five years, that will amount to £1.8 billion of savings. Admittedly, that total will be to the UK Government, but it will proportionately be worth £180 million a year over the next five years to the Scottish Government.

I hesitate to enter the policy debate here, but I venture humbly to suggest that there are probably more than four options in front of the Executive for absorbing the cost of the abolition of prescription charges without its resulting in cuts elsewhere in the health service.

I want to go back to the assumptions about the likely savings, principally the £45.4 million figure. The Finance Committee's responsibility is to test the bill's financial assumptions and the £45.4 million is obviously the central assumption of the potential cost saving, call it what you will.

I listened to what you said to the convener, but I am not persuaded that there is a cast-iron case that shows that abolishing prescription charges will not cause an increase in the prescription bill. If people do not have to pay for prescriptions, their use of the service may increase. There does not seem to be a financial strain—if I can call it that—in the proposal that you have outlined to us so far. You have rejected what the convener said about there perhaps being an upturn in use of prescriptions if people do not have to pay. You are also saying that the real cost of abolition would be substantially lower than the financial memorandum suggests. I cannot see how those two lines of argument are consistent.

I do not reject out of hand the idea that there may be increased uptake of the service; to say otherwise would not be a fair reflection of my point of view. Given that charges deter access, I would expect access to increase if the charges were abolished.

So, you accept that the cost is likely to be higher than £45.4 million.

I will come to that. First, I want to establish that prescription charges deter people from accessing the health service. That is repeatedly backed up by studies not just in this country but throughout the world. That is a role that prescription charges play. Thereafter, we have to identify whether that is a good thing or a bad thing. In the context of trying to encourage more people—particularly men—to see their general practitioners, it is surely a good thing for people to feel that they can access the medicines that they need.

It is important to recognise that the percentage of the drugs bill that we recover from prescription charges is falling—it is now less than 4.7 per cent. The overall drugs bill is increasing but the income from prescription charges is flatlining despite the increase in the prescription charge of 10p per year. In the past three years the percentage of the drugs bill that we recover has fallen from nearly 7 per cent to nearly 4.5 per cent.

We also have to weigh up the relative costs of treating someone with a prescription and treating them in other ways. An example is given in a study by the Scottish Association for Mental Health. At present, people do not get free prescriptions for mental health conditions. SAMH's evidence shows that it is 17 times more costly to the health service to treat somebody in a hospital or clinic than it is to give them free prescriptions. We are in danger of missing the fact that the abolition of prescription charges is a preventive measure. Stepping in early will save us money in the long term.

That leads to another aspect of the debate. I will move on to it in a moment, but I want to close down the issue of the likely total cost. I do not want to get into the policy argument, but in relation to the cost, do you accept that abolition of prescription charges could lead to a higher cost than is set out in the financial memorandum to the bill? That might be a hypothetical question, but higher costs are a possible outcome.

There is something in that, provided that we understand that we are talking about the 8 per cent of people who are currently not exempt from charges.

Yes.

An increase in costs is possible, but it is likely to be marginal.

The next point is the one that you explored with the evidence from the Scottish Association for Mental Health. It relates to the wider debate about the incidence of people going into acute or community hospitals and the associated cost to the taxpayer. Have you any evidence that shows that if people had access to free prescriptions, X fewer people would go into hospital? Are there any such comparative studies?

The financial memorandum contains figures on that. Evidence has come to us from a variety of sources, including Citizens Advice Scotland, which published a study called "Unhealthy Charges: CAB evidence on the impact of health charges". It found that as many as 37 per cent of the people from low-income groups who go to citizens advice bureaux for advice have difficulties with prescription charges or even go without their medicines. When Citizens Advice Scotland made calculations based on that percentage and the cost of looking after people in hospital or other parts of the health service, it found that the cost to the health service amounts to £6.2 million or £6.3 million. I believe that that information is in the financial memorandum. Those figures are in Citizens Advice Scotland's report but the experience is backed up in studies and submissions by Asthma UK, Macmillan Cancer Relief and various other charities.

Going on the costs that you have put in front of us, to achieve a saving of £45.4 million, which you say would be the cost of abolishing prescription charges, you would need to save something like 25,000 weeks of in-patient care. So far, I have not seen a figure that comes remotely close to that in the evidence.

As I said, the evidence from Citizens Advice Scotland and others is based, as far as is possible, on calculations and assumptions relating to the money that would be saved. I have not put in front of the committee, and have not seen, evidence that is categorised in terms of numbers of patient beds and weeks of in-patient care.

The wider question is to do with the consequent cost to the health service and the country at large of a deterioration in the condition of those people, which has an impact not only in terms of admissions to hospital but in terms of days lost at work and so on. I would say that the figure is hard to quantify or put a value on.

I want to pursue the issue further because you seem to be relying on the CAB as your primary source of arguments in relation to the medical consequences of the release of prescription charges. Is there no health-based source of information?

Indeed there is. Considerable evidence is available to the committee to support the contention that denying access to medicines at earlier stages simply brings about greater costs to the health service later. I concentrated on the CAB's evidence because I thought that it provided the answer to Mr Swinney's question. However, considerable numbers of studies in America, Canada and Scotland have examined cost sharing—systems in which patients picked up some of the costs to the health service—and have concluded that cost sharing has a negative impact on patients' access to health services, which I suggest would be likely to lead to a greater health service bill. I would not like to give the committee the impression that I am talking only about the CAB. It simply produced a study that homed in on the amount of people—750,000 in Britain, according to it—who are going without their medicines. However, 22 different pieces of research are available to us, which formed the basis that the Executive is using in its consultation on prescription charges. Those studies are currently with the minister.

The problem is that the financial memorandum cites no evidence from any medical source. According to the footnotes, your quotations are from "Unhealthy charges: CAB evidence on the impact of health charges" and an article in the Journal of Health Economics.

That is because the other evidence is contained in the policy memorandum.

But it is not in the financial memorandum.

It is in the policy memorandum, which also circulates with the bill.

The CAB findings indicate that 750,000 people are going without their medicines, which means—if you accept a 10:1 ratio—that 75,000 people in Scotland are going without their medicines. Currently, 8 per cent of the population is liable to pay prescription charges. If we pursue the line that the convener and John Swinney have taken, is not it fair to say that the number of people in receipt of free prescriptions will increase from 400,000 to 475,000 and that therefore the costs will increase from £45 million to something like £60 million?

As I said to Mr Swinney, there will be a marginal increase. The figures that you—

In that case, will you point out the flaw in the figures that I have quoted? After all, they are your figures. [Interruption.]

I had to hesitate for a moment there.

The Executive says that, at the moment, 92 per cent of prescriptions are free. However, my point is that, based on the current criteria, 50 per cent of the population are not exempt from charges, so the 92 per cent comes from the other 50 per cent of the population, if you follow me. We should also remember that three quarters of all prescriptions are repeat prescriptions, which creates repeat costs, and that the bulk of prescriptions are for people over 60. It is important that we compare like with like. I hope that that answers your question.

Thank you.

I understand that your proposal is similar to a scheme that is being phased in in Wales. Do you have any estimates for the Welsh Assembly's budget for abolition of prescription charges? Does it cover any potential increase in uptake of prescriptions? Moreover, given that the population of Wales is about two thirds that of Scotland, could the Welsh figures be used to guide our discussions on the potential cost of abolishing prescription charges here?

I will give you the Welsh figures in a moment, but I point out that the Welsh Government originally took the same approach as the Scottish Executive and sought to extend exemptions instead of to abolish charges. However, when it began to extend exemptions to students in full-time education and training and to people with certain chronic conditions—which is the Executive's approach—the Welsh Government found that the difference between extending exemptions and abolition was marginal and decided that abolition was the better route.

The National Assembly for Wales has voted to abolish prescription charges by reducing them by a pound each year, which means that they will be completely abolished by 2007. The budget for each phase of abolition is £5.4 million in 2004; £10.7 million in 2005; £16.1 million in 2006; and £32.2 million in 2007, the year of abolition.

Has the figure for complete abolition been based on the revenue that the Welsh Government would have received from charges?

Yes, the figure is based on lost revenue. In connection with an earlier question, the Welsh Government has not factored in any extra costs for increased uptake in drugs or any savings that it might make. The figures are based on the revenue that it would have accrued from continuing to charge £6.50 for prescriptions.

So the figures that you have used in the financial memorandum to calculate the potential cost of the bill's proposals are the same as the figures that the Welsh Government has used in its budget documents to calculate the total cost of its policy on prescription charges.

Indeed. In the next fortnight the Health Committee will visit Wales to meet the Health Minister there and see up close the situation there. I look forward to its bringing back the figures when it returns.

The figure for Wales is £32.3 million and the figure for Scotland is £45 million, which does not seem to me to suggest a population-equivalent amount. Do people in Wales have higher levels of prescriptions than do people in Scotland? The figures do not seem to equate. I acknowledge that £45 million is the figure that you got from the Executive, but there seems to be an anomaly.

Two things strike me. First, the population of Wales is slightly lower than that of Scotland.

It is significantly lower.

The factor on which we must focus is that the socioeconomic conditions are similar in the Welsh valleys and the central belt of Scotland and people in those areas suffer from chronic conditions that are caused by their similar backgrounds. The figures are comparable.

I thank Colin Fox and David Cullum. We will prepare our report for the Health Committee, which is the lead committee.