Please login to the form below

Not currently logged in

Making savings from European drugs budgets

National programmes of cuts are the order of the day

Co-ordinated cuts

The question surrounding the affordability of medicines has become a major talking point for the industry and payers over the past 12 months as governments struggle to meet the rising prices of new drugs.

For its part, the industry is having to pay more in research and development and take on greater risk, but is faced with fewer drugs reaching the market and making less money than it was during the 'golden age' of the 1990s and early 2000s.

Added to this was the major economic recession of 2007, which crippled all of the major economies in the West and saw Europe particularly hard hit. In fact the continent struggled for years to regain the financial strength it had prior to the crash.

Many European countries, such as Spain, Italy and Greece, are still teetering on the edge, with all three at risk of defaulting on their debt payments. Wedded to this are growing political tensions that could see some countries - most notably the UK - leave the European Union.

All of this has meant that Europe as a whole and the individual Member States within it have had to severely tighten their belts, with major cuts being made across public services.

One of the hardest hit has been healthcare budgets, the cost of which is a major source of public funding for all European countries, typically taking up 10-15% of a country's total GDP spending.

It is difficult in political terms to justify cutting medical staff - the largest segment of cost from any healthcare budget - so short-term cost savings have become the weapon of choice against ballooning costs - and it has been medicines that have borne the brunt of these cuts.

But simply not paying for drugs is also not a politically justifiable decision, so payers have come up with cuts by policy at a national level.

At the beginning of the year we agreed a 7.5% price cut - Sweden's Sofia Wollstrom

Assessing value in Sweden, Germany and the UK
Sofia Wollstrom, director-general of the Dental and Pharmaceutical Benefits Agency (which decides on drug pricing and reimbursement in Sweden), told PME that Sweden has its own way of addressing the affordability challenge.

She said: “At the beginning of this year, we agreed a 7.5% price cut on new medicines with the industry and on top of this, we have an open and transparent system where any secret clawbacks [rebates] are highly unusual.”

This comes as data shows that Sweden spends more on medicines that its closest neighbours, and has slightly higher prices for drugs than other European countries.

This is a similar situation to Germany and UK, the two largest pharma markets in Europe, who have also recently enacted price cuts to curb the rise of the medicines bill, although in slightly different ways.

In the UK, a new drug-pricing scheme known as the PPRS was enacted at the start of 2014. This didn't set price cuts per se, but instead asked the industry to pay a rebate every quarter, which in 2014 was worth £300m. This is set to be worth around £4bn by the end of the five-year life of the scheme.

A partial offset however has been made in the form of the Cancer Drugs Fund, which will inject around £1.2bn extra into the NHS to pay for new cancer medicines that have been rejected by NICE, the country's health technology assessor.

Eleven times last year companies took their drugs out of the German reimbursement process - Stefan Kapferer, OECD

Germany is the largest pharma market in Europe and one of the strongest economies in the Eurozone, but it too has had to make deep cuts into its medicines bill. But once again it has done this through policy and legal changes, rather than just crude price cuts.

This has been done through the 2011 law known as AMNOG, which changed the way Germany's insurance system pays for new medicines by refusing to pay full price for a drug that cannot prove it is better than a comparator product.

Speaking at the recent ABPI conference Stefan Kapferer, deputy secretary-general of the OECD - and the former health minister for Germany - explained the process.

“Since 2011, pharma has come into Germany with its drug and it sets the price - but what has changed with AMNOG is that you have to deliver a dossier to the GBA [which has the final say on drug reimbursement]. After this, the [health technology assessor] IQWiG will assess its cost-effectiveness, and then begins the negotiations for reimbursement.

“Throughout this process, there are two targets aimed at achieving value: the first is to ensure only the best and most effective drugs are on the market; and the second is to achieve more cost efficiency.”

In all, this process takes around six months, and Kapferer says that the burden of proof for creating added benefits is on the company, not the GBA or IQWiG.

He says there is often not an agreement between IQWiG, the GBA and pharma on what the reimbursement should be.

“Eleven times last year pharmaceutical companies took their drugs out of the reimbursement process - and the German market - because the price recommended was too low.”

This has a damaging effect on market access for patients in the country, and made Germany something of bête noir when it comes to marketing new medicines.

New ways of saving
Some countries also looks at other ways of making savings. Wollstrom explains that Sweden has one of the most efficient systems when it comes to automatic generic substitution - a system that replaces branded medicines with generics as soon as a patent has expired - in order to keep medicine spend down. 
The advent of generic medicines for more complex biologic drugs for cancer and autoimmune diseases - known as biosimilars - is also allowing for “more headroom for savings”.

In England, the NHS is also looking at new ways of making savings, although this has not always found favour with the industry.

Earlier this year NICE recommended that Gilead's new hepatitis C pill Sovaldi be paid for by the state, but in a first for the country, NHS England has put a three-month block on payment for the drug, which costs around £35,000 per patient.

The body, which is responsible for much of the prescribing budget in England, said that paying full price for the drug would cost around £1bn - money the country simply doesn't have, even though the long-term savings are set to be greater.

Cuts in all but name?
There will likely never be a European-wide pricing system - each Member State has the ability to control its health budgets as it sees fit, and can be as liberal or restrictive as its economic environment allows.

But the problems across the continent are all similar, and the reaction to them one of sustained planned cuts in all but name.

This has irked pharma and patient groups who see these new policies as simply cuts by policy, rather than direct cuts. The end result for pharma remains the same however - less money for their products, and patients have restricted access to new treatments.

But this is becoming the new reality for pharma - it now has to work with payers more closely than ever before to achieve a price that is value for money for both sides.

National initiatives such as AMNOG, the PPRS and Sweden's industry price cut deal all form part of this new reality - it is no longer a case of whether pharma should cut its prices, but now a case of by how much. 

Article by
Ben Adams

is PMGroup editor

13th July 2015

Article by
Ben Adams

is PMGroup editor

13th July 2015

From: Sales



Career advice

No results were found

Subscribe to our email news alerts


Add my company
Research Partnership

Research Partnership, an Inizio Advisory Company, is a world-leading custom and syndicated global insights partner for health and life science...