**Figure 6 Pharmaceutical expenditure in the public health sector as a percentage of total public spending on health, and per capita pharmaceutical expenditures**

<!-- Start of picture text --> 30 70<br>25 60<br>50<br>20<br>40<br>15<br>30<br>10<br>20<br>5 10<br>0 0<br>Kosovo Albania Macedonia, Bosnia and Serbia Montenegro<br>FYR Herzegovina<br>% public spending on pharmaceuticals Per capita spending (US$)<br>% public spending Per capita spending<br><!-- End of picture text --> Source: World Bank estimates (for expenditure as a percentage of GDP) and discussions with stakeholders (for per capita figures, see Policy Note on the Pharmaceutical Sector in the Western Balkans) Note: For expenditure as a percentage of GDP: Data are for most recent year available, usually 2004 or 2005; data for Bosnia and Herzegovina reflect total pharmaceutical expenditure as a percentage of _total_ health expenditure; part of the variation in expenditure levels across countries may be attributable to difference in definitions of pharmaceuticals; data refer to “prescription drugs” in Albania and Serbia, and only to outpatient pharmaceuticals and devices in Macedonia and Bosnia and Herzegovina, excluding drugs used in inpatient care. For per capita expenditure: the Bosnia and Herzegovina provided by stakeholders is “less than 50” rather than an actual number.

The drug pricing and procurement system not only has implications for the share of pharmaceuticals in health insurance fund expenditures (i.e. for public expenditure) but also for household out-of-pocket expenditure on health. Pharmaceutical expenditures account for a large share of households’ private expenditure on health. According to the FYR of Macedonia’s 2005 Household Budget Survey, for example, pharmaceuticals are the largest component of household expenditure on health (followed by spending on medical services), accounting for three-quarters of the health expenditures of the lower 4 quintiles. Poor supply management in pharmaceuticals in the public health system can aggravate the situation when it results in drug shortages in the public sector and drugs have to be purchased at private pharmacies. In Kosovo, for example, households spend an average of 65% of their out-of-pocket health expenditure on purchasing drugs that are supposed to be provided free under Kosovo’s essential drug program, but are not available in public health centers or hospital pharmacies.

There are many measures that countries in the Western Balkans could consider to improve the efficiency of their pharmaceutical sectors. These include both supply-side mechanisms (e.g. price controls, positive lists, pre-approval for expensive drugs, competitive procurement and volume controls) and demand-side mechanisms (e.g. co-payment for prescription drugs, and budget or quota restrictions for physicians) for improving efficiency.

If efficiency gains are to be realized and expenditure contained, an important starting point is to ensure that positive lists of the drugs that are covered by health insurance funds have been developed. The decision to include new drugs on positive lists should only be taken after careful economic analysis of the cost-effectiveness of those medications. Guidelines to help providers prescribe drugs on the positive list should be laid down and pharmacists could be encouraged to substitute prescribed drugs for generic equivalents included on the list. Where higher cost brands (of non-innovative drugs) are preferred by the consumer or provider, health insurance funds 22