A System Dynamics Approach for Modelling Interrelationships among Drug Pricing, Production, and Consumption, Considering the Government and Insurance Companies Roles in Price Controlling

Medicine is the most significant tool for completing the treatment cycle while rationalizing the use of medicine is one of the most challenging goals of any country's health system, especially Iran. The influence of the government and the health insurance companies on drug consumption control is highly recommended. By rationalizing the payment subsidy for each type of medicine, the government and the insurance organizations can optimally control medicine consumption by monitoring the doctor's prescription and pharmacy sales and making a rational decision for the reimbursement amount for each medication type. This study aims to investigate the rationalization of drug consumption based on the government subsidies for drugs and the supervisory role that insurance organizations have in the prescription and sale of drug management.

Design/methodology/approach: 

The factors influencing drug consumption have been collected based on a literature review. The cause-and-effect and stock-and-flow diagrams have been drawn considering the concepts of systems thinking and system dynamics. System dynamics is the most appropriate approach to look at the problem of drug consumption systemically so that the role of insurance organizations and the government can be considered simultaneously. For simulating the model, the data related to amoxicillin capsules, which is one of the most widely used antibiotics in Iran, has been used. The validation of the model has been done using the model structure verification test, dimensional consistency test, and limit condition test. Finally, three scenarios have been defined, and the model’s behaviour has been checked based on the scenarios.

Initially, it was assumed that the government allocates subsidies to medicines based on consumer and insurance costs. The government subsidy percentage based on consumer expenditure and insurance expenses is 30% and 20%, respectively, and the insurance reimbursement percentage is 30%. Three scenarios were presented to control drug use. In the first scenario, it was assumed that the insurance reimbursement percentage would reach 15% from 30% (base case). The insurance should pay only 15% of the drug price (Run 1). In the second scenario, it was assumed that the government subsidy percentage based on insurance costs would decrease from 20% to 10% (Run2). In the third scenario, it was assumed that the government subsidy percentage based on consumer spending would decrease from 30% to 20% (Run3). The comparison of the findings of the scenarios indicated that the second scenario was chosen as the best one. By reducing the percentage of government subsidies for medicine based on insurance costs, consumption can be controlled, government costs can be reduced, and insurance and consumer costs will not increase much.

This study used a limited number of variables for each subsystem. Prioritization methods can be used in future studies to consider more significant variables.Practical implications: This study concentrated on the critical roles of the government and insurance organizations in controlling drug consumption. The drug studied in this research was amoxicillin. It is a widely used antibiotic drug in Iran. The use of this drug needs to be managed. Otherwise, due to the drug resistance that it creates, it will bring a high cost to the country's health system. It is recommended that insurance organizations have reasonable supervision over the doctors' prescriptions and over-the-counter sales of medicine by pharmacies. The government should also allocate subsidies to medicine based on availability, price, excessive consumption, etc.

Social implications:

 Health systems, in addition to improving the health of society, are also responsible for maintaining them against the financial costs of receiving health services. This is achieved through government subsidies for drugs as well as insurance reimbursements. Another argument is that the medicine's low price may cause its excessive consumption, society endangering, and increased insurance costs by the government. In the long run, other costs due to excessive medicine consumption are imposed on health systems. For example, reducing the price of antibiotics and their excessive use may cause drug resistance and irreparable consequences. Iran is one of the top 10 countries in the world in terms of drug consumption. Approximately 20% of the total consumption of drugs in Iran is arbitrary, and the average amount of drugs prescribed in the prescription of each Iranian patient is about 4 times the average consumption per capita of developing countries. This amount of excessive drug consumption will not only have harmful effects on society but will also impose high costs on the health system, government, and insurance organizations. The exact allocation of subsidies and the reimbursement of insurance organizations for drugs not only rationalizes the price of drugs but also controls the excessive use of drugs. Also, it enables the government and insurers to allocate subsidies and insurance drug reimbursements for incurable diseases. It is important to note that controlling the excessive use of drugs such as antibiotics will also prevent drug resistance.

Originality/value:

 The value of this research comes from the fact that it considers the factors affecting drug consumption and the cause-and-effect relationships undertaken among these factors. In the previous studies, there was no systematic and comprehensive look (influence of the government and insurance organizations) on the issue of drug consumption.