h i l i i i bPharmaceutical pricing, reimbursement, HTA and cost containment measures inHTA and cost containment measures in

Europe: an overview (I)

Elias Mossialos and Reinhard Busse

Policy issues in pharmaceutical marketsPolicy issues in pharmaceutical markets

Structure of the pharmaceutical market (i.e. product life-cycle, market segments, therapeutic markets)e cyc e, a et seg e ts, t e apeut c a ets)

Characteristics of the health care environment and pharmaceuticals (financing, coverage, rising costspharmaceuticals (financing, coverage, rising costs and reforms)

Supply-side failure (patents)Supply side failure (patents) Demand-side failure (three-tired demand, third party

payers)payers) Objectives of pharmaceutical policy (public health,

health care policy industrial policy objectives)health care policy, industrial policy objectives)

What are the policy goals?What are the policy goals?M i dit t l ti l l• Macroeconomic expenditure control, particularly during periods of stagnation or recession. This policy goal may be related to the size of thepolicy goal may be related to the size of the pharmaceutical market.

• Micro economic efficiency and quality• Micro economic efficiency and quality.• Equity of access. Significant social inequalities in

the take up of proven technologies (e g antithe take-up of proven technologies (e.g. anti-hypertension treatment) offers a challenge for government. Such technologies (e.g. beta blockers)government. Such technologies (e.g. beta blockers) may be cheap and out of patent but give high levels of population benefit at low cost to the taxpayer. p p p y

Regulation

1. What is the objective of regulation?f2. What forms do the regulatory intervention

take?3. What are the theoretical expectations of the

regulatory interventions?4. What evidence is there of the impact of the

regulatory interventions with a particular g y pemphasis on cost-control, efficiency, quality and equity of access?q y

5. How can the regulatory environment be improved?improved?

OECD (2012), “Pharmaceutical expenditure”, in Health at a Glance: Europe 2012, OECD Publishing

Organisation for Economic Co‐operation and Development (OECD). “OECD Work on Health 2013‐14”. 

What decision‐makers want

Safety and Efficacy are first steps to provide evidence for a d Eff ti d Effi i d t bnew drug; Effectiveness and Efficiency need to be proven

EffectivenessEfficacy EfficiencySafety

Measure of effect under

y

Measure of effect under

y

Relationships between

y

Measure of d effect under

“real life” conditions

effect under ideal

conditions

between costs and benefits

adverse effects

• Efficacy does not imply effectiveness and effectiveness does not imply efficiency

S f t d ffi th t f l t• Safety and efficacy are the competence of regulators, effectiveness and efficiency are the competence of payers/insurers

• Use of Health Technology Assessment to assess valuegy

Regulatory Frameworks for Pharmaceutical Markets

DEMAND-SIDE REGULATION AND INCENTIVES

Physicians * Financial incentives

* Drug budgets * Prescribing guidance data

Pharmacists * Generic substitution

* Profit margins

Prescribing guidance, data and information

Patients * Fixed copayments

* Differential copayments

g

= x Expenditure Price Volume

S li

Suppliers* Free Pricing

* Price regulation * Fixed reimbursement levels

* Profit regulation

Suppliers * Lower barriers to entry

SUPPLY-SIDE REGULATION AND INCENTIVES

Policies to influence patient demand

User charges: Does this policy reduce ‘waste’ or is waste the product of poorwaste , or is waste the product of poor decision-making by physicians?

Are there co-payments and if so how much are the co payments what are the conditionsare the co-payments, what are the conditions of the co-payments and are there exemptions?exemptions?

Differential co paymentsDifferential co-payments

Protection from user charges in selected countries 2012selected countries, 2012

Primary care annual cap

OP prescription annual cap

Inpatient annual cap (daily charge)( y g )

AT €10 (poor free) 2% 28 days (10%)BE €450-1,800 depending on incomeDK FREE €480 (chronic only) FREEDE 2% (1% for chronically ill) FI €630 (minors x 7 days (minors only) (€32)

FREE (since 2013)FI €630 (minors

free)x 7 days (minors only) (€32)

FR x (chronic free, minors free primary care) 31 days (€18 + 20%)IR x (poor free) €120-€1,440 (chronic

free, low for poor)€750 (poor free) (€75)

NL FREE €220NL FREE €220NO €250SE €105 €205 x (€10)UK FREE €130 FREE

Value-based user charges gfor outpatient drugs

Th l b d h i t !Source: Thomson, Schang and Chernew, Health Affairs 2013

The value-based approach is not a panacea!

Policies to influence patient demand

• Developing a market for OTC products:• Developing a market for OTC products: Are OTCs reimbursed? How is OTC t t d fi d?status defined?

• What is the impact of patient education p pon patient demand?

• Direct to consumer advertising forDirect to consumer advertising for prescription-only-medicines

European variation in OTC availabilityp yBelgium Portugal UK

Chloramphenicol

Codeine

Fl cona ole Fluconazole

Levonorgestrel g

Naproxen

Simvastatin

Policies to influence providers

Guidelines protocols and utilisationGuidelines, protocols and utilisation reviews. Is there an economic component i h id li d if h t fin such guidelines and, if so, what form does it take?

Provider compliance

Policies to influence providers

• Monitoring prescribing practice;Monitoring prescribing practice;

• Computer assisted prescribing support systems;Computer assisted prescribing support systems;

• Disseminating knowledge and evidence onDisseminating knowledge and evidence on prescribing;

• Risk management;

Policies to influence providers

• Educational outreach programmes to encourage cooperation between doctors and pharmacists.p p

• Financial incentives. Payment methods for ydoctors, soft budgets for pharmaceutical expenditure, fixed and indicative budgets for p , gdoctors.

Key Issues Regarding PhysiciansKey Issues Regarding Physicians• Monitoring of physician behaviorg p y

– 22 EU Member States monitor prescription behaviors• Clinical practices/prescription guidelines

– States (most in EU) may apply indicative non‐binding guidelines– States (most in EU) may apply indicative, non‐binding guidelines regarding drug prescription

• Pharmaceutical budgetsBudget limits may be applied to pharmaceutical expenditures (used in– Budget limits may be applied to pharmaceutical expenditures (used in at least 9 EU Member States)

• Prescription quotasMa set targets on t pes (e g generics) or a erage costs of– May set targets on types (e.g., generics) or average costs of prescriptions made by physicians

• Financial incentivesFi i l h i d i h h i i h d t– Financial mechanisms may reward or punish physicians who do not follow guidelines, budgets, or quotas

• Education and information– Physicians may be given access to prescribing advice, e.g., through 

electronic resources (applied in most of EU)

Policies Targeting Physicians in EU

Adapted from: Carone, G, et al. “Cost‐containment policies in public pharmaceutical spending in the EU”. European Commission. September 2012.

Policies to influence providers

• Organisation of the pharmacy sector and the method of distribution of pharmaceuticals to the publicdistribution of pharmaceuticals to the public.

• Regulation of the distribution chain, including payment g , g p ymethods for pharmacists (i.e. digressive margins, flat rates) and wholesalers, pharmacy monopoly rights, substitution rights and e-pharmacy.

• Number of pharmacies and pharmacists? Are pharmacists• Number of pharmacies and pharmacists? Are pharmacists involved in prescribing or advising patients?

Policies to influence providers

• Is there generic substitution and is the use ofIs there generic substitution and is the use of generics promoted?

• Are there limited lists and, if so, what is the criteria for entry?for entry?

• Regulations regarding pharmaceutical expenditureRegulations regarding pharmaceutical expenditure in hospitals (including procurement policies and formularies).formularies).

Carone, G, et al. “Cost‐containment policies in public pharmaceutical spending in the EU”. European Commission. September 2012.

Rickwood, S (6 Mar 2013). “ A robust generic market: difficulties and complexities”. IMS Health.

Rickwood, S (6 Mar 2013). “ A robust generic market: difficulties and complexities”. IMS Health.

Policies to influence thePolicies to influence the industryindustry

• Reimbursement controls (including the fourth hurdle)fourth hurdle).

Wh t f t d t i h th d t• What factors determine whether a product will be reimbursed and the price that is set?

Policies to influence thePolicies to influence the industryindustry

• Price and profit controls (on patents, OTCs and generics).a d ge e cs)

• Price-volume trade-offs• Price-volume trade-offs.

Li it ti ti l di• Limitations on promotional spending.

Price and Volume (Budget) Agreements

A lt i f h d i h ti• A penalty is foreseen when a new drug is overshooting a pre-set budget (PxQ)

• Penalty can take the form ofPenalty can take the form of– Rebate or payback– Lower price for volume above agreed limit– Lower future price

• Variety of payback clausesSupplier is fully accountable– Supplier is fully accountable

– Prescriber and supplier are jointly accountable– Rebate/Payback to be shared among suppliers

• Examples: Australia, France, Italy, Portugal

PricingA regulator’s perspective• Economic criteriaEconomic criteria

– budgets– assessment of cost effectiveness

• Scientific criteria & assessment of therapeutic pbenefit– what is innovation?

• Industrial policy (good citizenship approach)– R&D– Employment– Exports

Industrial Policyy

• US: little or no regulation on supply side (price)US: little or no regulation on supply side (price) BUT “lists” in place >> more laissez faire

• UK perspective: RoR regulation applied flexibly• UK perspective: RoR regulation, applied flexibly and defining the rules of the gameF h ti f d d t l• French perspective: from command and control towards “agreements” and good citizenship

happroach• Spanish perspective: price regulation with some

incentives for R&D

Pricing & Reimbursement Methodologies: Controlling the Supply Side

F i i• Free pricing

A P i i• Average Pricing

I t ti l P i C i• International Price Comparisons Cost-Plus PricingCost-Plus Pricing

• Reference Pricingg• Price Cuts/Freezes

Reference Price SystemsReference Price Systems

V i tiVariations

• External referencingExternal referencing– International Price Comparisons

A P i i– Average Pricing

Cl t i (I t l f i i )• Clustering (Internal reference pricing)- Different types of clustering- Clustering with wealth adjustments

International Price ComparisonsInternational Price Comparisons

• Take into account in price negotiations

• Little knowledge by regulators• Little knowledge by regulators

• What countries to reference? (similar income? Where product has beenincome? Where product has been launched?)

Why international comparisonsWhy international comparisons

• Real cost data very difficult to get

• Transfer price?

Preference-Based Policies and Tendering: underlying economic theory

• Reverse Auction• A reverse auction is a type of auction in which

the roles of buyers and sellers are reversed. In an ordinary auction (also known as a forward auction), buyers compete to obtain a good or service, and the price typically increases over time. In a reverse auction, sellers compete to obtain business, and prices typically decreaseover time.

Key Issues in PricingKey Issues in Pricing• External reference pricing 

– cross‐country referencing, international price comparison– Applied in 24 EU Member States (except Denmark, Sweden, and UK)

• Internal reference pricing– 20 EU Member States compare new medications internally with drugs 

already marketed in similar chemical pharmacological or therapeuticalready marketed in similar chemical, pharmacological, or therapeutic groups

• Price updates• Price updates– Prices may be updated depending on pricing regulations

• Value Added Tax (VAT)– VAT may apply to medicines; VAT rates on drugs may be standard (e.g., 

Germany), reduced (e.g., Switzerland) or eliminated (e.g., Sweden, UK).

Key Issues in Expenditure ControlKey Issues in Expenditure Control• Discounts/rebatesDiscounts/rebates

– May be applied onto manufacturers and pharmacists as part of a strategy of price controls

• ClawbackClawback– Policy type that may be applied onto pharmacies, forcing them to 

return a portion of revenues to third‐party payers• Payback• Payback

– Policy type that forces manufacturers to return some portion of their pharmaceutical revenues if budget ceilings are surpassed

• Risk sharing arrangements• Risk‐sharing arrangements– Financial‐ or performance‐based scheme; trigger price reductions or 

refunds from manufacturers if certain targets are not metP i f d t• Price freezes and cuts– May be legislated or may result through negotiations between parties

• Public tendering– Suppliers produce closed bids to try to win a contract from purchasers

HTA, Positive/Negative Lists, Expenditure Controls

Adapted from: Carone, G, et al. “Cost‐containment policies in public pharmaceutical spending in the EU”. European Commission. September 2012.

Netherlands 2008-2012: Impact on price of genericsItem PRICE CHANGE IN PRICE

May‐08 Jun‐08 Sep‐11 Feb‐12 May‐June 08

May 2008 ‐Sept 2011

May 2008 ‐ Feb 2012

p p g

Omeprazole tab/cap, 20mg € 0.36 € 0.05 € 0.02 € 0.02 ‐88% ‐94% ‐94%

Alendroninezuurtab 70mg € 4.99 € 0.36 € 0.07 € 0.04 ‐93% ‐99% ‐99%tab, 70mgOmeprazole tab/cap, 40mg € 0.65 € 0.09 € 0.04 € 0.03 ‐86% ‐94% ‐95%

Paroxetine tab, 20mg € 0.37 € 0.07 € 0.03 € 0.03 ‐82% ‐92% ‐92%20mgSimvastatin tab, 40mg € 0.27 € 0.04 € 0.02 € 0.01 ‐84% ‐93% ‐96%

Pravastatin tab, 40mg € 0.54 € 0.13 € 0.05 € 0.03 ‐76% ‐91% ‐94%40mgSimvastatin tab, 20mg € 0.17 € 0.03 € 0.01 € 0.01 ‐85% ‐94% ‐94%

Tamsulosinetab/cap 0 4mg € 0.34 € 0.07 € 0.03 € 0.03 ‐80% ‐91% ‐91%tab/cap, 0.4mgAmlodipine tab, 5mg € 0.19 € 0.03 € 0.01 € 0.01 ‐85% ‐95% ‐95%

Citalopram tab, 20mg € 0.34 € 0.04 € 0.02 € 0.02 ‐88% ‐94% ‐94%20mg

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Introduction to the healthcare ecosystem