Approaches to Pharmaceutical Regulation in Europe and the USA

1
Approaches to Pharmaceutical Regulation in Europe
and the USA

• Panos Kanavos
• London School of Economics
• Washington, D.C., 10 June 2003

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Agenda

• Pharmaceutical Regulation in Europe
• Lessons for the US

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Key issues maintain quality of care whilst
containing increasing costs improving
allocation of resources
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Trends in health care expenditure
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Pharmaceutical consumption, 1998/9
Per capita spend, US PPP
Rx spend as of total health
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EU-US differences in Rx Drug policy

• In European Union member states, there is/are
• Limited role of voluntary health insurance
• (Near) universal access to Rx medicines
• A process of frequently regulated or negotiated
  drug prices
• Modest patient co-payments
• Significant co-payment exemptions
• No explicit DTCA, but access to information
• Significant and rising parallel trade

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Bi-lateral comparisons of ex-manufacturer prices
(UK100)
1995 1996 1997 1998 1999 5-yr av
France 106 112 86 85 84 95
Germany 128 124 108 108 97 112
Italy 82 91 82 81 83 92
Netherla 134 112 93 - - -
Spain 87 88 71 71 67 77
USA 170 183 175 174 184 187
Austria - - - 81 83 96
Belgium - - - 86 84 97
Finland - - - 86 85 98
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Rx drug spending increases

• Between 1990 and 2000 spending on prescription
  drugs far outstripped spending for hospital care
  and physician services

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National approaches to the pricing of Rx
medicines

• Rate of Return (RoR) Regulation
• Price Setting
• command control
• Negotiation and agreement

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Pricing Reimbursement Methodologies Managing
the Supply Side

• Free pricing (Germany, Denmark, Hungary, Estonia)
• Profit control (UK)
• Average Pricing (Czech Republic, Ireland, Italy,
  Netherlands, Portugal, Slovenia, Sweden)
• International Price Comparisons (several)
• Cost-Plus Pricing (Spain, Greece, Poland, Czech)
• Reference Pricing (Germany, Netherlands, Sweden,
  Italy, Norway, Spain, Czech)
• Periodic price reductions (France)
• Price Cuts/Freezes (most European)

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Pricing Reimbursement Methodologies
Controlling the Supply Side

• Me-too Pricing (France, Sweden, Hungary)
• Industry paybacks when budgets are exceeded
• Taxes on promotion expenditure (France, Sweden)
• Developing a market for parallel imports (UK,
  Netherlands, Germany, Denmark)
• Developing a market for generics (mainly UK,
  Netherlands, Germany, Denmark)
• Controlling generics prices (France, Greece)
• Fixed or revenue budgets for industry (Spain,
  France)

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Variation in Average European Prices

• Pricing methods at times irrelevant
• Little evidence of price consistency between US
  the EU

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Rate of Return Regulation

• Supply-side
• PPRS, Jul.99-Jul.04
• Price cut _at_4.5 1999 - 2001
• Free price modulation from January 2001
• Price control for generics
• Limited negative list
• PPRS judicial review

• Demand-side
• NICE binding clinical cost-effectiveness
  guidance
• Practice guidelines
• Extensive generic prescribing
• Cost conscious GPs
• Budgets for PCGs
• Prescription audit

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Price Setting Regulation

• Historical PricingJustifiable Cost Increases
• Different variations
• Price comparisons
• Basic cost
• Cost-plus
• RPI-X

• Inevitable, Arbitrary Categorisation often ad hoc
  rules
• Exhaustive Rules Loopholes or Tedious
  Updating Process
• Enforcement is dependent on Resource Potential of
  Agency

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Reference Pricing variations

• Country Year Attributes
• Germany 1989 identical substance
• Denmark 1993 identical substance, exemption
  s
• Netherlands 1991 clusters of interchangeable
  products (incl. patent)
• Sweden 1993 identical substance
• Italy 2001 identical substance
• Spain 2000/1 identical substance
• USA (Medicaid) 2002 identical substance cluster

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Reference pricing policy dilemmas

• Design parameters
• Coverage by reference pricing system
• In-patent drugs
• Setting the reference price

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Reference pricing Impact

• Prices downward pressure
• Prescribing volume unaffected
• Switch effect can be significant
• Quality of care little evidence of impact

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Reference Pricing a Specific Type of
Incentive-based Formulary
Out-of-pocket contribution
Reference price (ACE inhibitors 27 per 30 day
supply)
Total drug price
Paid by drug benefits program
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Economic Effects of Reference Pricing of ACE
Inhibitors in B.C.
(right scale)
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0
Schneeweiss et al, NEJM 2002 346822-9)
-20
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Reference Pricing in the US

• Massachusetts, August 2002 Delaware, April 2002
• Establishment of the Massachusetts Health Drug
  List creating drugs of choice
• Group classes of drugs together (e.g.
  H2-blockers, PPIs, NSAIDs, Cox-II, non-sedative
  antihistamines) and reimburse the lowest in the
  class whether generic or brand
• Deviate from above regime in case of demonstrated
  medical necessity only
• Demonstrated medical necessity means there is no
  other service that would achieve the same outcome
  at minimum cost

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Types of Agreements

• Framework agreements (France, Spain, Denmark)
• Price volume tradeoff
• Price freezes in exchange for modest increases
  later
• Limit pharmaceutical market growth to GDP growth
  (Spain)
• Paybacks if pre-agreed upon budgets are exceeded
  (Belgium, France, Spain, Portugal)
• Faster access to market for speedier subsequent
  price reductions (France)

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Health Economics Official Requirements

• Under preparation or rising in influence
• Italy
• France
• Greece
• Poland
• Hungary
• Slovenia

• Current practice
• Denmark
• Switzerland
• Sweden
• Finland
• The Netherlands
• England Wales NICE
• Portugal
• Norway

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Regulation and acceptance of economic evaluation
High
u
Australia
u
Canada
Regulation
u
Spain
Low
High
Low
Acceptance
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Requirements for economic evaluations

• Pricing and Reimbursement
• Denmark, Sweden, Norway, Finland, Portugal,
  Netherlands, France, Australia, Canada
• Appraisal
• NICE UK
• Not mandatory but considered
• Sweden, Spain, Italy, Germany, Hungary
• Formularies
• UK, USA, Canada, Australia, Denmark
• Used in guidelines
• Denmark, Germany, Netherlands, Sweden, UK

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The economic impact of parallel trade

• Increasing in significance
• Allowed by European jurisprudence
• Encouraged by several EU Member States
• Parallel trade policies in conflict with other
  incentives for industry
• Static v. dynamic effects

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Statins and parallel trade UK
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Overall concluding remarks

• Lessons from EU countries may include
• Using (the right) economic evidence more
  intensively
• Managing price better or differently
• Aggressively managing formularies and bargaining
• Reference pricing
• Physician incentives
• Return on capital formulae for drug procurement
• More aggressive discounts required for early
  launch/use
• Myth interventions have isolated effects
  balloon squeeze
• Appropriateness of care?

• All EU countries continue to be aware of rising
  cost issues and are experimenting with policy
  changes
• Emphasis on value-for-money
• Strong emphasis on the demand-side
• Continued emphasis on the supply-side in some
  cases, increased emphasis on S-S
• Shift towards aggressive bargaining rather than
  command-and-control