The economic crisis in Europe has shifted gears since our first article in May ("Turbulent times for the Pharma industry"); from tough talk of austerity and solidarity, we are now on the brink of a Grexit (departure from the euro) and populist pressures have forced politicians to talk of growth stimulus, or forced the departure of those who failed to understand the sentiments of an electorate tired from three years of belt-tightening.
Unfortunately for politicians and populations across Europe, government spending cuts will continue, and for the healthcare industry, this means further cuts targeting the pharma industry.
Turbulent Times looked at country clusters to understand how different markets were undertaking reform. Here, we turn our attention to reform mechanics to understand the choices that payers have, and the reasons they may favour one approach versus another.
In the absence of a coherent strategy for healthcare provision, with clear priorities about who should be funded, how and how much, cost containment will remain the norm. Approaches that seem reactionary now may be forgotten as payer efforts increasingly resemble those of a drowning man, clutching at each passing plank from the shipwreck.
Consider the 2011 report from Janssen and Economist Intelligence Unit on the Future of Healthcare in Europe.
This report outlines five 'extreme' scenarios for future care provision; most are relentlessly optimistic and only one accepts a real reduction or collapse of the role of the state. Yet this optimism is hard to justify and we see state funding receding already in Greece and Portugal; their crises are only accelerated versions of the general European crisis, driven by the same fundamental factors of an ageing population, cost increases that outstrip income increases and ongoing poor economic performance. Given this, will we see the end of socialised medicine, at least among the markets that can no longer afford it? And by declaration or neglect?
European healthcare reform landscape
A few countries are pursuing real reforms intended to improve care, such as the comprehensive reforms in Poland, or the introduction of SwissDRG for the hospital sector of Switzerland, both implemented in 2012. But these are exceptions in relatively healthy economies.
Over the last three years, healthcare reform has become synonymous with cost containment and this is likely to continue. For most governments, the objective for healthcare is either no growth or spending cuts. For example, Hungary, at the extreme, is cutting drug spend through a succession of measures, by more than 40 per cent.
While the primary focus across Europe is on reining in overall costs to the health system, countries are implementing two strategies with concomitant measures and tools, as shown below.
The first set of reform efforts concentrates on rationalising expenditure by re-allocating resources from low-value to higher-value treatments. The second consists of implementing measures or tools with the objective purely to cut costs.
Some countries are focusing on efficiency to enable them to invest in value selectively. This first type of reform is largely seen in countries we have labelled as 'proactive' ("Turbulent times for the Pharma industry"), as they are undertaking deep reform without necessarily being in crisis.
These include Germany, Netherlands, Poland, Sweden and UK (where crisis has given urgency to long-planned reforms). These countries rely primarily on measures that reward a product according to the incremental value it brings based on some kind of health technology assessment.
While Germany rewards products that provide additional clinical benefit with a premium price, it reimburses products with several existing competitors at a price that is referenced to its class of competitors, which can also include generics.
The UK and Sweden already price products based on cost-effectiveness assessments, but the use of these assessments is becoming more widespread and stringent. For example, the proposed value-based pricing reforms in the UK are likely to be more restrictive than the current QALY based assessments for most products, while also rewarding innovation in a very small number of circumstances where there is high unmet need.
In addition, these reforms include the demand for real-world evidence, which can be used either to alter price over time or to re-position the use of a product in the treatment pathway.
Companies must now support an ongoing plan of evidence generation, with the consequences of this effort sometimes being loss of market share or reimbursement, if evidence is unfavourable. The associated expense and risk is not always appreciated or incorporated into planning and decision-making.
An example of the real-world evidence to revise reimbursement decisions exists in Sweden. It is worth watching for its impact there and potentially similar impacts in other markets that use such evidence, but this type of sophisticated management will spread only to markets capable of implementing the registries and reviews that this entails.
In addition, some countries are reforming pharmacy margins and incentives to encourage rational prescribing and generic use, along with an increased role of the pharmacist as a healthcare adviser.
This reinvention of the pharmacy will add a new pool of stakeholders to the commercial strategy. While the impact of this change will mostly fall on established products, generics and OTC medicines, it is an important trend to follow.
Countries such as Greece, Italy, Portugal and Spain, who are facing immediate economic crises, are 'reacting' with measures that are increasingly restrictive and focused on rapid cost containment measures. These include moratoriums on new drug reimbursement, dramatic across-the-board price cuts, de-reimbursement of drugs and even whole categories, forced generic prescribing beyond just first-line use, and the use of broad indication tendering for the provision of treatments.
Some key measures have been as follows:
The use of tendering as a 'fifth hurdle' to market access will create true winners and losers, while adding an additional price negotiation step to the commercial process. In Portugal we have seen hospital tendering with exclusive provision and full substitution for pharmaceuticals, while in the Netherlands a shift of high-cost drugs to the hospital setting has been accompanied by automatic cuts to funding to encourage price negotiations.
Greece too has established tenders to decide which drugs will be included in the new positive reimbursement list.
We are also seeing a rise in out-of-pocket payments for healthcare, leading in some cases to growth in the market for private insurance. Traditionally a 'no-go' area for European citizens and their governments, the economic crisis has revealed that in some countries, the state truly cannot foot the bill for all healthcare needs. Spain has already introduced means-tested co-pays for seniors and doubled the co-pay for chronically ill patients; other countries will likely follow suit.
Implications for European pharma
In these turbulent times, pharma companies must differentiate 'game changing' reforms from the cuts and tweaks to existing systems. European governments watch each others' efforts and move rapidly to adopt measures that seem adaptable and effective in controlling expenditure. While increasingly it seems like 'everyone does everything', some measures may profoundly impact how the industry does business, and industry should have a voice in this evolution.
Companies should segment European markets based on their cost containment and value investment behaviour. For those focused on cost containment, companies should engage with payers on channelling and improving cost containment measures to where they will be most effective, and least harmful to patient access to innovative medicines.
For example, there is wide variation in generic prices and use across Europe. Countries can capture significant savings from speeding generic entry post loss of exclusivity (LoE), increasing generic penetration and removing regulations that keep generic prices high. These savings can then be reinvested in innovative higher value treatments.
In countries investing in healthcare, companies need to demonstrate value through appropriate evidence generation and through investment in products or services that offer additional value over standard of care, especially in high unmet need areas.
In the next article, find out what pragmatic steps companies can take in engaging with both types of markets.
Steven Flostrand and Raja Shankar are principals at IMS Consulting Group