Approaches to Pharmaceutical Approaches to Pharmaceutical Regulation in Europe and the USARegulation in Europe and the USA

Panos KanavosLondon School of Economics

Washington, D.C., 10 June 2003

AgendaAgenda

Pharmaceutical Regulation in Europe

Lessons for the US

Key issueKey issuess: maintain quality : maintain quality of care whilst containing of care whilst containing

increasing costsincreasing costs & & improving allocation of improving allocation of

resourcesresources

Trends in health care expenditureTrends in health care expenditure

Health care expenditure as % of GDP

0

2

4

6

8

10

12

1960 1970 1980 1990 2001

Aus

Bel

Den

Fil

Fr

Ger

Gr

Ice

Ire

It

Lux

Neth

Nor

Por

Sp

Sw d

Sw s

Uk

Average

Pharmaceutical consumption, 1998/9Pharmaceutical consumption, 1998/9

0

50

100

150

200

250

300

350

400

450

Per capita spend, US$ PPP

0

5

10

15

20

25

Rx spend as % of total health

EU-US differences in Rx Drug policyEU-US differences in Rx Drug policy

In European Union member states, there is/are …Limited role of voluntary health insurance(Near) universal access to Rx medicinesA process of frequently regulated or

negotiated drug pricesModest patient co-paymentsSignificant co-payment exemptionsNo explicit DTCA, but access to informationSignificant and rising parallel trade

Bi-lateral comparisons of ex-manufacturer Bi-lateral comparisons of ex-manufacturer prices (UK=100)prices (UK=100)

1995 1996 1997 1998 1999 5-yr avFrance 106 112 86 85 84 95Germany 128 124 108 108 97 112Italy 82 91 82 81 83 92Netherla 134 112 93 - - -Spain 87 88 71 71 67 77USA 170 183 175 174 184 187Austria - - - 81 83 96Belgium - - - 86 84 97Finland - - - 86 85 98

Rx drug spending increasesRx drug spending increases

“… Between 1990 and 2000 spending on prescription drugs far outstripped spending for hospital care and physician services …”

49.657.5

139.5

0

20

40

60

80

100

120

140

Hospital Care Physicianservices

Prescriptionmedicines

% ofincrease inspending

National approaches to the pricing National approaches to the pricing of Rx medicinesof Rx medicines

– Rate of Return (RoR) Regulation

– Price Settingcommand & controlNegotiation and agreement

Pricing & Reimbursement Methodologies: Pricing & Reimbursement Methodologies: Managing the Supply SideManaging the Supply Side

Free pricing (Germany, Denmark, Hungary, Estonia)

Profit control (UK) Average Pricing (Czech Republic, Ireland, Italy,

Netherlands, Portugal, Slovenia, Sweden) International Price Comparisons (several)

Cost-Plus Pricing (Spain, Greece, Poland, Czech)

Reference Pricing (Germany, Netherlands, Sweden, Italy, Norway, Spain, Czech)

Periodic price reductions (France)

Price Cuts/Freezes (most European)

Pricing & Reimbursement Methodologies: Pricing & Reimbursement Methodologies: Controlling the Supply SideControlling the Supply Side

Me-too Pricing (France, Sweden, Hungary)

Industry paybacks when budgets are exceeded

Taxes on promotion expenditure (France, Sweden)

Developing a market for parallel imports (UK,

Netherlands, Germany, Denmark)

Developing a market for generics (mainly UK,

Netherlands, Germany, Denmark)

Controlling generics prices (France, Greece)

Fixed or revenue budgets for industry (Spain, France)

Variation in Average European PricesVariation in Average European Prices

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Pricing methods at times irrelevant

Little evidence of price consistency between US the EU

Rate of Return RegulationRate of Return Regulation

Supply-side PPRS, Jul.’99-Jul.’04 Price cut @4.5%: 1999 -

2001 Free price modulation

from January 2001 Price control for

generics Limited negative list PPRS judicial review

Demand-side NICE: binding clinical

cost-effectiveness guidance

Practice guidelines Extensive generic

prescribing Cost conscious GPs Budgets for PCGs Prescription audit

Price SettingPrice Setting Regulation Regulation

Historical Pricing+Justifiable Cost Increases

Different variations Price comparisons Basic cost Cost-plus RPI-X

Inevitable, Arbitrary Categorisation often ad hoc rules

Exhaustive Rules Loopholes or Tedious Updating Process

Enforcement is dependent on Resource Potential of Agency

Reference Pricing variationsReference Pricing variationsCountry Year Attributes

Germany 1989 identical substance

Denmark 1993 identical substance,exemptions

Netherlands 1991 clusters of interchangeable products (incl. patent)

Sweden 1993 identical substance

Italy 2001 identical substance

Spain 2000/1 identical substance

USA (Medicaid) 2002 identical substance; cluster

Reference pricing: policy dilemmas Reference pricing: policy dilemmas

Design parameters

Coverage by reference pricing system

In-patent drugs

Setting the reference price

Reference pricing: ImpactReference pricing: Impact

Prices: downward pressure

Prescribing volume: unaffected

Switch effect: can be significant

Quality of care: little evidence of impact

Reference Pricing: a Specific Type Reference Pricing: a Specific Type of Incentive-based Formularyof Incentive-based Formulary

Reference price

(ACE inhibitors: $27 per 30 day supply)

Paid by drug benefits program

Out-of-pocket contribution

Total drug price

0

10

20

30

40

50

60

Jan-96 Jul-96 Jan-97 Jul-97 Jan-98

D

rug

ex

pe

nd

itu

res

pe

r p

ati

en

t ($

)

Ex

tra

MD

vis

its

pe

r p

ati

en

t ($

)

observed BP drug expenditures

Drug expenditures for extra visits in drug switchers

Extra visits: 0.7 mill in 1 yr

Drug savings: 6.7 mill in 1 yr

Economic Effects of Reference Economic Effects of Reference Pricing of ACE Inhibitors in B.C.Pricing of ACE Inhibitors in B.C.

0

-20

20

(right scale)

Schneeweiss et al, NEJM 2002; 346:822-9)

““Reference” Pricing in the USReference” Pricing in the US Massachusetts, August 2002; Delaware, April 2002 Establishment of the Massachusetts Health Drug List:

creating drugs of choice Group classes of drugs together (e.g. H2-blockers,

PPIs, NSAIDs, Cox-II, non-sedative antihistamines) and reimburse the lowest in the class [whether generic or brand]

Deviate from above regime in case of demonstrated medical necessity only

Demonstrated medical necessity means: there is no other service that would achieve the same outcome at minimum cost

Types of “Agreements”Types of “Agreements”

Framework agreements (France, Spain, Denmark) Price – volume tradeoff Price freezes in exchange for modest increases later Limit pharmaceutical market growth to GDP growth

(Spain) Paybacks if pre-agreed upon budgets are exceeded

(Belgium, France, Spain, Portugal) Faster access to market for speedier subsequent price

reductions (France)

Current practice Denmark Switzerland Sweden Finland The Netherlands England & Wales [NICE] Portugal Norway

Under preparation or rising in influence

Italy France Greece Poland Hungary Slovenia

Health Economics: Official Health Economics: Official RequirementsRequirements

Regulation and acceptance of economic evaluationRegulation and acceptance of economic evaluation

Acceptance

Regulation

High

LowHighLow

UK

Australia

Canada

France

HollandHolland

ItalyItaly

USAUSAGermanyGermanySpainSpain

JapanJapan

Requirements for economic Requirements for economic evaluationsevaluations

Pricing and Reimbursement Denmark, Sweden, Norway, Finland, Portugal,

Netherlands, France, Australia, Canada Appraisal

NICE UK Not mandatory but considered

Sweden, Spain, Italy, Germany, Hungary Formularies

UK, USA, Canada, Australia, Denmark Used in guidelines

Denmark, Germany, Netherlands, Sweden, UK

The economic impact of parallel tradeThe economic impact of parallel trade

Increasing in significanceAllowed by European jurisprudenceEncouraged by several EU Member StatesParallel trade policies in conflict with other

incentives for industryStatic v. dynamic effects

CBT versus Total Sales Key Products EUROPE

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

LIPITOR NORVASC ZOCOR ZYPREXA CAPOTEN

(000

) L

CD

MAT Q2 2001 sales (MNF) CBT import MAT Q2 2001 (MNF)

StatinsStatins and parallel trade and parallel trade:: UK UK

0%10%20%30%40%50%60%70%80%90%

100%

CBT

STATIN

Overall concluding remarksOverall concluding remarks

All EU countries continue to be aware of rising cost issues and are experimenting with policy changes

Emphasis on value-for-money

Strong emphasis on the demand-side

Continued emphasis on the supply-side; in some cases, increased emphasis on S-S

Shift towards aggressive bargaining rather than command-and-control

Lessons from EU countries may include:– Using (the right) economic

evidence more intensively– Managing “price” better or

differently– Aggressively managing

formularies and bargaining– Reference pricing– Physician incentives– Return on capital formulae for

drug procurement– More aggressive discounts

required for early launch/use– Myth: interventions have

isolated effects: balloon squeeze– Appropriateness of care?