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Controlling supply

Increasing efficiency of healthcare spend to counter spiralling costs

lightbulb_grass Over the past 15 years, national authorities in Europe have implemented controls and incentives to influence supply and demand of pharmaceuticals. Some countries continue to put greater emphasis on regulating supply, although most now are also increasing their focus on controlling demand. Both measures are needed to counter spiralling healthcare expenditure.

Most European pricing and reimbursement authorities have intensified their efforts to increase the efficiency of healthcare spend through a variety of methods, including using health economic evaluations and even extending responsibilities for health service delivery to the pharma industry.

Supply is easier to control with regulation and pricing measures, such as price-volume agreements – where the higher the volume consumed the lower the price – and risk sharing, in which payment is based on performance or where financial incentives are given – such as introductory offers and cost-capping.

Regulating Supply
Measures to control supply involve regulating the price or the profits that manufacturers make on selling them to health insurance institutions. Price control can be achieved through:

• A cost-based approach – where the reimbursement price for a product is based on company cost data
• Comparisons with price levels in other countries for the same product
• An explicit system of average pricing, where the ex-manufacturer price in a particular country is set at the average of a group of countries (or a wealth-adjusted proportion of it) with similar per capita GDP or prevailing price levels
• An approach negotiated between regulators and manufacturers based on clinical, therapeutic and economic evaluations and budget impact analyses. Patient access schemes, including risk share, are also becoming more common
• A price–volume trade-off, sometimes with payback clauses, where manufacturers or industry associations must return payments that exceed the agreed budget to statutory health insurance institutions
• A reference pricing approach (at the reimbursement level), whereby products are classified into categories based on their molecular or therapeutic similarity.

National policy-makers have also implemented other controls on pharmaceutical spend, including:
• limiting price revisions ie controlling increases
• cutting prices
• freezing prices
• linking increases in pharma budget to gross economic growth
• establishing fixed budgets for expensive products
• establishing me-too pricing (where a product similar to one already marketed receives a lower price)
• defining maximum retail prices as opposed to maximum ex-manufacturer prices.

Positive and negative lists have been established to reflect the reimbursement state. Over-the-counter drugs (OTC) are typically on the negative list.

Supply-side controls are aimed at limiting the cost of reimbursed medicines to authorities, by controlling price and by limiting availability. A summary of measures for selected European countries (2006–2008) is outlined below.

In Austria prices of new products may not exceed the average European price and the country operates price-contracting with price-volume agreements and rebates required on excess sales. Generics are priced significantly below the branded product once its patent expires (–46 per cent) and prices of branded products decline by 30 per cent upon patent expiry.

The country operates a positive list and reimbursement prices are negotiated. Financial implications are considered alongside efficacy and there is a contractual relationship between doctors and health insurance funds regarding prescribing.

Prices are controlled by comparison with the same product in other EU countries and similar products on Belgian market. Generics must be at least 26 per cent cheaper than the branded product to qualify for reimbursement.

The country has a positive list, prescribing controls and a drug budget operating at national level. It operates reference pricing for generics and this is likely to be extended to included branded products. There are also lower co-payments for generics. Less effective products are not reimbursed and there is a 'warning time' period before companies de-list a product (when a committee, such as EMEA, decides to take the drug off the market). Companies must return 65 per cent of any excess on the agreed upon budget, calculated on the basis of each company's sales.

Denmark operates free pricing, but companies need to inform authorities of the pharmacy purchase price, which becomes binding at that point. There is a positive list and, until April 2005, reimbursement was based on the average European price rule. Now the price is set at the cheapest product available within Denmark in a substance or reimbursement group – according to anatomical therapeutic chemical (ATC) classification. For patent-protected substances, reimbursement price is likely to be based on the cheapest original or parallel-imported product. Cost-efficacy studies are a requirement for premium price.

The Pharmaceuticals Pricing Board (PPB) sets what it terms "reasonable" prices based on several criteria, including:
• expected costs and benefits
• budget impact analysis, projecting sales volume
• the product's accepted price and grounds for reimbursement in other European Economic Area (EEA) countries
• other brand names under which the product is marketed in the EEA and their respective prices
• a health-economic report
• the costs associated with therapeutic alternatives
• the prices of parallel-imported pharmaceuticals
• the manufacturing and R&D costs.

A written statement is also issued by the Social Insurance Institution on how reasonable or fair the wholesale price or price increase seems – in terms of the health insurance scheme – and how other costs under the scheme are anticipated to change or be affected.

The Ministry of Social Affairs and Health accepts a reasonable wholesale price as the maximum price for the branded product to be included on the positive list. The same applies for generics. Pharmacoeconomic data are required when companies apply for the reasonable price. All new products remain in basic reimbursement category (at 50 per cent) for two years and prices of existing products should be re-evaluated within two years. Prescribing controls are in place in certain product categories.

France allows free pricing for products that do not seek reimbursement status and conditional free pricing for products with high innovative potential, rated according to medical benefit or Amélioration du Service Médical Rendu (ASMR). Prices are fixed through negotiation with the pricing committee – Comité Economiqué des Produits de Santé (CEPS) on the basis of various criteria – including the product's medical value, prices of comparable medicines, volume sales, conditions used, presence in the country and effect on public health.

The CEPS decides on reimbursable prices, based on :
• ASMR evaluation
• prices of comparable products
• anticipated sales – ie a price-volume agreement
• company reputation, such as history of above predicted sales for existing products
• R&D expenditure
• promotional expenditure plans.

The ASMR rating is calculated by the transparency commission, within the health authority (Haute Autorité de la Santé) based on:
• level of innovation
• therapeutic need and value
• likely increase in medical benefit over existing treatments
• reimbursement status and rate of comparators
• packaging requirements
• impact on health service
• public health impact
• pharmacoeconomic criteria, ie expected budget impact.

Germany allows freedom of pricing for new products according to three reference price categories: generics, brand names and 'jumbo class' – which is a combination of generic and brand names. There is no reference price for innovative drugs. The country's legislation also implements price freezes. Reference prices include branded products and co-payments for patients.

The government also regulates through GP budgets, bonus malus and second opinion. With bonus malus, doctors who underachieve on budget are rewarded with a bonus. However, those who exceed budget must pay out of their own pocket. Should a doctor plan on prescribing a patient an expensive drug, a second opinion from another doctor is required.

The country operates a negative list system and the Institute for Quality and Efficiency of Healthcare in Germany (IQWiG) studies cost, efficacy and effectiveness for the Ministry of Health. Risk share agreements, between health insurance companies and manufacturers, are in place for selected products.

For products established on the market, Italy uses the average price system – referencing all EU countries. Price negotiation, taking into account the cost of the same product in other countries, is used for new and innovative products registered by the EMEA.

The medicines agency – Agenzia Italiana del Farmaco (AIFA) takes into account health economics, budget impact and price comparisons. Proof of cost-effectiveness is required for premium price setting.

The country operates price freedom for non-reimbursable drugs, generics are priced at least 20 per cent below the original patented product and price cuts and freezes are frequently made. There is a positive list system for reimbursement, and reference pricing was established in 2001, which reimburses the average daily cost of treatment in each group as well as the the cheapest generic in a substance-defined class.

Reimbursement negotiation guidelines issued in February 2001 require submission of a cost-effectiveness study and the pricing and reimbursement status in other countries. This means that if a drug is launching in Italy, all decisions from EU countries regarding the drug need to be submitted as well. If launching in Italy first, this is not required. Commitments on volume sales and discounts to hospitals are also needed with payback clauses, price reductions and delisting imposed if sales rise above agreed levels. Data on R&D and manufacturing investment in Italy are also requested. If AIFA approves a drug, each region has the opportunity to decide if they would like to prescribe the drug based on budget.

Maximum price fixing is set twice a year using the average expected price (AEP) arrived at through price comparisons with reference countries – Germany, France, Belgium and UK. Equal weight is given to all alternative products. The Netherlands uses therapeutic reference pricing and a positive list. Dispensing of parallel imports is promoted. Pharmacoeconomic studies are employed to decide on reimbursement and, if drug spending is exceeded by more than 1 per cent, a payback clause ensures that the industry returns 0.6 per cent of all reimbursable product sales over the agreed limit.

Norway allows free pricing unless requesting reimbursement. For products with annual sales of more than NKr100mn, co-payment level is set at 30 per cent of branded product price once there is effective generic competition. Six months later, this falls to 50 per cent and one year later to 70 per cent.

The country operates a positive list and reimbursement is set using EU and EEA price comparisons. R&D costs are taken into account along with the prices of competitor products in the domestic market. New product prices are set by taking the average of the two lowest prices of Sweden, Denmark, Finland, the UK, Ireland, France, Germany, the Netherlands, Belgium and Austria. Prices of new and expensive products need to be ratified by parliament.

Prices are controlled by the Ministry of Health through negotiation on a 'cost-plus' basis. This takes into account expected sales and allows specific margins for profits (12–18 per cent of allowable cost), advertising (12–16 per cent of allowable costs) and for R&D within the country.

There is a positive and negative list and reference pricing compared with selected markets, such as Italy and France. International price comparisons for active ingredients are employed when difficulties arise in assessing the transfer price of a molecule. There is price-volume agreement for expensive products and a pact stability agreement with the government also promoting R&D. If a product is produced in Spain, and not imported from another country, this will be noted as a positive in the assessment process.

Further price cuts have been imposed and the payback clause has been extended to other areas. Prices of generics are set between 30 and 50 per cent below original branded cost.

The 19 regions within the country operate individual HTA assessments.

Sweden operates price control if reimbursement is sought, otherwise there is free pricing. Formal reference pricing was abolished in October 2002, instead reimbursement takes into account the price in 10 European countries with exchange rates used for conversion.

Cost-effectiveness analysis is required for premium price. There is also a price cap for generics and, where reimbursement is sought, this price is also negotiated. Price–volume agreements are used for innovative products and the price is formally set in a unilateral decision by the Pharmaceutical Benefits Board (LFN). For innovative products, health economic evaluation is undertaken if premium price is requested and price-volume agreements are enacted. The country has a positive list and a negative list – for OTC drugs.

Switzerland operates liberal price setting, subject to marketing authorisation, and negotiation based on cost effectiveness, efficacy and prices in neighbouring countries.

There is a positive and a negative list and drugs are assessed in terms of medical need, usefulness, reliability and cost. Efficacy and cost per day or total treatment cost are compared with other medicines in the same therapeutic group. Switzerland often looks at the whole impact of the drug to reflect the cost – such as how the drug is administered.

R&D costs are taken into account as are comparison of ex-manufacturers' prices in the originator country, Germany, Denmark, and the Netherlands. Cost-effectiveness is a requirement for reimbursement.

The UK's Pharmaceutical Price Regulation Scheme (PPRS) was renegotiated in 2009. This is an agreement with the industry on profit control, including flexible pricing, generic substitution and patient access schemes.

Prices were cut by 3.9 per cent in February 2009 and a further price cut of 1.9 per cent will be imposed in January 2010. There are price controls for generics and a contract and payment method is in place for pharmacies. The UK operates a limited negative list.

A homogeneous budget is given to primary care trusts (PCTs). Practice/treatment guidelines are in force and prescribers are expected to follow guidance on cost-effectiveness by the National Institute for Health and Clinical Excellence (NICE).

Tracking Trends
Health economic evaluations continue to play an increasingly critical role in market access assessments. Authorities will place more emphasis on potential cost savings, particularly when genuine clinical benefits and real innovation are perceived to be lacking.

Value-based reimbursement and pricing are becoming more important. This measure, currently applied to targeted therapies, calls for drugs to be reimbursed, if they are proven to be clinically effective in defined patients. It directs a product's supply to its most valuable application and predefines the demand for a new drug.

A multitude of schemes is being put in place to regulate supply and demand, and control growing healthcare costs. Measures vary across countries – making it critical for companies to understand the structures, systems decision maker and decision paths in each market – and develop targeted access strategies that support optimal uptake and success for their brands.

The Author
Susanne Michel is global practice leader, market access, pricing and reimbursement at TNS Healthcare
To comment on the article, email

18th May 2009


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