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Approaches to Pharmaceutical Regulation in Europe and the USA

Approaches to Pharmaceutical Regulation in Europe and the USA. Panos Kanavos London School of Economics Washington, D.C., 10 June 2003. Agenda. Pharmaceutical Regulation in Europe Lessons for the US.

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Approaches to Pharmaceutical Regulation in Europe and the USA

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  1. Approaches to Pharmaceutical Regulation in Europe and the USA Panos Kanavos London School of Economics Washington, D.C., 10 June 2003

  2. Agenda • Pharmaceutical Regulation in Europe • Lessons for the US

  3. Key issues: maintain quality of care whilst containing increasing costs & improving allocation of resources

  4. Trends in health care expenditure

  5. Pharmaceutical consumption, 1998/9 Rx spend as % of total health Per capita spend, US$ PPP

  6. EU-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 medicines • A process of frequently regulated or negotiated drug prices • Modest patient co-payments • Significant co-payment exemptions • No explicit DTCA, but access to information • Significant and rising parallel trade

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

  8. Rx drug spending increases • “… Between 1990 and 2000 spending on prescription drugs far outstripped spending for hospital care and physician services …”

  9. National approaches to the pricing of Rx medicines • Rate of Return (RoR) Regulation • Price Setting • command & control • Negotiation and agreement

  10. Pricing & Reimbursement Methodologies: Managing 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)

  11. Pricing & Reimbursement Methodologies: Controlling 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)

  12. Variation in Average European Prices • Pricing methods at times irrelevant • Little evidence of price consistency between US the EU

  13. 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 Rate of Return Regulation

  14. 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 Price Setting Regulation

  15. Reference Pricing variations CountryYear 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

  16. Reference pricing: policy dilemmas Design parameters • Coverage by reference pricing system • In-patent drugs • Setting the reference price

  17. Reference pricing: Impact • Prices: downward pressure • Prescribing volume: unaffected • Switch effect: can be significant • Quality of care: little evidence of impact

  18. Reference Pricing: a Specific Type of Incentive-based Formulary Out-of-pocket contribution Reference price (ACE inhibitors: $27 per 30 day supply) Total drug price Paid by drug benefits program

  19. Economic Effects of Reference Pricing of ACE Inhibitors in B.C. (right scale) 20 0 Schneeweiss et al, NEJM 2002; 346:822-9) -20

  20. “Reference” 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

  21. 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)

  22. 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 Requirements

  23. u UK France u u Holland u Italy u Germany u USA u Japan Regulation and acceptance of economic evaluation High u Australia u Canada Regulation u Spain Low Low High Acceptance

  24. Requirements for economic evaluations • 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

  25. The economic impact of parallel trade • Increasing in significance • Allowed by European jurisprudence • Encouraged by several EU Member States • Parallel trade policies in conflict with other incentives for industry • Static v. dynamic effects

  26. Statins and parallel trade: UK

  27. 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? Overall concluding remarks

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