Prescribing Cost-effective Treatments under Financial Constraints in the English National Health Service

Abstract: Financial constraints of public sector institutions may impact the delivery of public services. We assess whether hospital trusts running budget deficits prescribe differently cost-effective but expensive new treatments for Hepatitis C. This is of particular interest, as Hepatitis C is a communicative disease whose treatment generates long-term benefits. We assemble a novel panel dataset of hospital trusts providing acute care in England, linking detailed information on financial statements, workforce statistics, prescribing volumes, hospital activity and quality of care. We use two complementary identification strategies: two-way fixed effects and an instrumental variables approach, where we instrument current financial positions with historical deficits and hospital activity in large disease groups. We find evidence of lower prescribing in hospitals in worse financial positions: a 10\% of a standard deviation increase in the trust’s surplus (£2 million) increases prescribing of new medicines for Hepatitis C treatments by 1.7-2.7\%. We rule out several mediating mechanisms including staff mix, drug cost and quality of care.