The pricing of medicines in Europe

1
The pricing of medicines in Europe

• Suzanne Wait
• Nuffield Trust Research Fellow
• CUH 11 Feb 03

2
Pharmaceutical spending as a proportion of total
healthcare expenditure ()
Source OECD HealthData 2001, A comparative
analysis of 30 countries.
3
Why is drug expenditure increasing?

• Ageing population ?
• More chronic illnesses ??
• Introduction of expensive new chemical entities
  ??
• Overall increase in individual drug prices X
• Overall increase in volume ?
• Increased number of prescriptions per patient
  X
• Increased overall volume of prescriptions ?
• Other factors packaging, new formulations, ??
• Sources Jonnson et al, 1996 Abel-Smith et al
  1994 Lopez-Bastida and Mossialos 1997

4
European environment for pricing and reimbursement

• One Europe for registration, countries autonomous
  for market access decisions
• Reimbursement and pricing separate although
  related hurdles in each country
• State-funded health care systems -- significant
  regulation
• Considerable cost containment mechanisms in all
  countries
• Increasing data requirements to demonstrate
  added value of new treatments
• Accountability for drugs budgets increasingly
  falling on physicians and local decision-makers

5
Two broad PR systems within Europe
France, Spain, Italy
UK, Germany

• Immediate launch following marketing approval
• Free pricing for new products
• Automatic reimbursement for all drugs except
  those on negative list
• Prescribers working within local budgets
• High drug prices
• High cost sensitivity at prescriber level

• The pricing and reimbursement process can take
  from 3 to 18 months
• Applications and negotiations required for
  pricing and reimbursement
• National pricing and reimbursement decisions
  through designated agencies
• Low drug prices
• Low cost sensitivity at prescriber level

6
Launching new products in Europe
Centralized approval process (EMEA) or Mutual
recognition process
Launch in free-pricing countries (Ger, UK) Set
highest European price
Set EU price band Interdependent drug
prices Parallel imports/distribution
Pricing reimbursement negotiations in
individual countries
7
Interdependence of European drug prices
Reference to other EU prices
Average of 3 lowest prices in basket of 9 (Swe,
Fin, DK, Ger, BE, Aus)
No reference
Weighted EU average
Average BE, FR, GER, UK
EU median
Minimum price UK or maximum DK, FR, GER, NL, UK
EU average
Average DK, FIN, FR, GER, NL, NOR, SWE, UK
EU average
All EU prices
Minimum FR, IT, SP
Lowest EU price
Average FR, IT
8
Regulation of medicines so far

• Demand-side measures
• on the patient (eg. co-pay)
• make the patient more cost-sensitive
• make the patient less demanding of ineffective
  treatments
• on providers (eg. fixed drugs budgets)
• make providers most cost-effective
• reduce potential for patient-induced demand
• Supply-side measures
• on the pharmaceutical industry (eg. price
  controls)
• decrease potential for monopolistic behaviour
• mitigate pharmaceutical industrys influence on
  providers.

9
Drug expenditure regulatory measuresTried and
tested

• Patient-level measures
• Demand for drugs is relatively inelastic
• Co-payments have limited impact if significant
  levels of supplementary insurance
• Equity concerns
• Provider-level measures
• Guidelines have variable impact, depending on how
  binding they are
• Payment/budget caps may work but shifts to other
  silos of care widespread.

10
Supply-side regulation

• Often short-lived measures -- too early/difficult
  to isolate effects
• Reference pricing effective within classes
  targeted, however prices and volumes of drugs
  that fall outside basket have risen rapidly
• Generics impact still tbd
• Positive/negative lists risk of switching up
• Price controls fail to contain drug expenditure
  -- prescribers are very price-insensitive.

11
Case study France 1992-2002

• Price regulation achieved
• Relative price index fell 1970 274
• 1990 100
• 1997 86
• Practice guidelines/prescription monitoring
• References medicales opposales (RMOs) impacted 2
  of all prescriptions
• Increase in patient co-pay from 61 (1985) to 67
  (67)
• Liquidity trap patients pay drugs
  out-of-pocket, then get reimbursed
• Price-volume relationship brokered with industry
  since 1994 (review in 2002)
• Plan Guigou (Jul 01) mandatory price cuts on
  products with low clinical benefits.
• Butoverall drug expenditure has increased.

12
World Market for Pharmaceuticals and Price Index
- 2000
ex factory prices
Source IMS Health and EFPIA, 2000
13
EU versus USA
Source Pammolli et al.
14
(No Transcript)
15
(No Transcript)
16
(No Transcript)
17
(No Transcript)
18
(No Transcript)
19
G10 High Level Group on innovation and provision
of medicines report May 2002

• Benchmarking Competitiveness and Performance
  Indicators
• Access to innovative medicines improve the
  competitiveness of industry
• Competition, Regulation, Access and Availability
  in Markets
• Timing of Reimbursement and Pricing Negotiations
• Competitive Generic Market
• Competitive non-prescription Market
• Full competition for private market medicines
• Relative effectiveness
• Stimulating Innovation
• Patient involvement
• EU enlargement

20
Timing of Reimbursement and Pricing Negotiations

• Respecting national competence, Member States
  should examine the scope for improving time taken
  between the granting of a marketing authorisation
  and pricing and reimbursement decisions in full
  consistency with Community legislation.
• To do this with a view to securing greater
  uniformity and transparency between markets and
  rapid access of patients to medicines.

21
Competitive generics market

• the European Institutions agree a way forward on
  intellectual property rights issues covered in
  the Commissions proposed legislation.
• Member States explore ways of increasing generic
  penetration in individual markets (including
  generic prescribing and dispensing).

22

Competitive non-prescription market

• (for indications currently under prescription)
• To secure the development of a competitive
  nonprescription medicines market in the EU
  (respecting that the reimbursement of medicines
  remains in the Member States' competence) by
• reviewing, with full respect to health criteria,
  and, if appropriate, amending mechanisms and
  concepts for moving medicines from prescription
  to non-prescription status
• and allowing the use of the same trademark for
  products moved to non-prescription status.

23
Full competition for non-reimbursed medicines

• Full competition should be allowed for medicines
  not reimbursed by State systems or medicines sold
  into private markets.

24
Generics

• 13 of the leading 35 molecules worldwide will
  lose patents by 2005
• Major patent expiries during the period in all
  major therapy classes
• Definition A product, which is a copy of an
  original product whose patent has expired, and
  may be marketed either as a brand or using the
  generic name.
• Branded vs. unbranded generics
• Retail Market only

25
Penetration of Generics in EU
Source A. Kay, European Generics Association,
2001
26
The generics market in Europe

• Legislation
• Unified European legislation on generics since
  1978, with allowance for Supplementary Patent
  Certificates (SPC) since 1995 (max. 5-year)
• Rapid approval process at EMEA
• Measures
• Pharmacist incentives -- flat fee per
  perscription (UK), profit sharing
• Automatic listing/reimbursement for generics if
  price differential is gt20 with specialty (F, I,
  UK)
• Black list for specialty if generic exists (UK)
• Generic substitution allowed for prescriptions
  written with INN (UK, NL, D, I, DK, F)
• Reference pricing encourages generic use (NL, DK,
  D, I)
• High consumer awareness (DK, D, NL) co-payments
  (DK)
• Source Garattini and Tediosi, Health Affairs 2000

27
USA v Europe

• Free price (generics have competitive role)
• Substitution Laws (major stimulant to demand)
• Single INN market, simplified registration
  simplified (reduced cost to entry)

• Mixed and independent pricing systems
• Limited substitution laws, some generic
  prescribing
• 15 individual markets with different market
  access rules.

Adapted from A. Kay, European Generics
Association, 2001
28
A single market for medicines?

• THE EUROPEAN PARLIAMENT RESOLUTION MAY 1999
• Called for an end to government controls on
  over-the-counter products prices,
• the development of budgetary capacities to pay
  for innovative medicines,
• action to address the problem of parallel trade.
• Requested concrete proposals from the Commission
  to complete the internal market in this sector.

29
Parallel trade

• the purchase of medicines at low prices in one
  country and their subsequent resale at higher
  prices in another country

30
(No Transcript)
31
Impact of the Euro

• Increased transparency of prices between
  countries -- but no convergence as of yet
• Growing use of reference price comparisons
• Facilitates parallel importation profitability as
  currency fluctuations are eliminated.
• Single Euro-price of drugs unlikely, although
  narrowing of EU price band necessary.
• Health policy and provision remain dictated by
  national, not regional, imperatives, values and
  willingness-to-pay.

32
Parallel trade in the EU

• Legislation
• EU policy encourages the free movement of goods
  within EU (Treaty of Rome)
• EMEA centralised approval procedure
• Transparency Directive aimed to stop companies
  getting better prices in countries in which they
  have local investment in RD --gt objective
  rationalisation of EU production facilities
• Parallel distribution
• For products approved centrally, there is no
  legal boundary to entering EU market X from a
  lower-priced market Y -- all you need is an
  intermediary
• Minimum price difference needed for profitable
  PI/PD business 10
• Usual import countries UK, Germany, Scandinavia
• Usual export countries Greece, France, Italy,
  Spain
• Several countries encourage/mandate a given
  percentage of product prescriptions to come from
  PI/PD.

33
Opposing views

• Industrys position
• Huge losses of potential revenue through parallel
  trade
• Parallel trade undermines the intellectual
  property rights that are essential to continued
  RD
• No increase in European welfare
• Only profits the parallel importers and not the
  actual consumer or health care payers
• Risks detracting from the industrys already
  lagging competitiveness in Europe in favour of
  other markets (Gambardella et al, 2000).
• Safety concerns as parallel imports complicate
  recall of faulty or unsafe pharmaceutical
  products
• Commissions view
• Governments may favour parallel trade as a means
  to contain health care costs, on the assumption
  that the average retail price to consumers for
  pharmaceuticals will fall.

34
Evidence ambiguous

• Differences between the local high-price market
  retail prices and the resale price of parallel
  imports from low-priced countries are narrowing
  (VFA) and do not exceed 10
• Parallel trade, coupled with limited local price
  competition, has negative bearing on the overall
  competitiveness of industry in the EU
  (Gambardella et al, 2000)
• Most of the difference between the exporter and
  importer country drug prices captured as a margin
  to the parallel importer
• Thus only limited financial benefits conferred to
  the importer country market (Gandslandt and
  Daskus, 2001).

35
Gandslandt and Daskus, 2001

• Model to try to predict pharmaceutical firm
  behaviour in the presence of parallel importers
  in Sweden
• Two possible scenarios explored accommodation
  and deterrence.
• Drug price and sales data from Sweden, 1995-1998.
  
• Findings
• The prices of drugs subject to parallel imports
  increased less than those of other drugs,
• 3/4 of this effect may be attributed to the lower
  prices of parallel imports.
• However, rents to parallel importers are greater
  than the gains to consumers from lower priced
  drugs.
• No evidence to support overall price convergence
  within Europe as a result of parallel trade.

36
Remaining research questions

• Significance of parallel trade in Europe
• Parallel trade and firm behaviour
• Does parallel trade lead to price convergence
  within the European Union?
• What is the impact of parallel trade on overall
  welfare?
• Risks to public health posed by parallel trade in
  terms of product safety?
• Impact of parallel trade on all relevant
  stakeholders within Europe
• consumers, national health care budgets in
  exporter and importer countries, pharma firms,
  pharmacists, wholesalers, parallel importers.
• Has parallel trade led to price decreases within
  importer countries?
• Equitable access to medicines across Europe?
• Will parallel trade threaten the viability of the
  pharma industry in Europe?

37
The future?

• Pharmaceutical industry will continue to try to
  identify optimal EU pricing strategy
• Risks of limiting access to medicines in
  low-price markets
• Increased EU pressure on national health care
  systems to converge
• Increased scrutiny over drug prices, value added
  and supporting data allowing reimbursement at
  local level.