Selection of drugs Drug pricing Drug reimbursement or subsidy Governmental drug budget control

1. Selection of drugsDrug pricingDrug reimbursement or subsidyGovernmental drug budget control

2. Selection of drugs

3. Selection of drugs – Why? • For governmental procurementGovernment purchases/manufactures drugs and distribute them • For subsidyGovernment subsidizes the prices of all/certain drugs (for everybody) • For reimbursementGovernment (or private) Insurance pays part of prices of certain drugs, only insured patients covered. (National insurance may cover every citizen) • For rationalisation of the therapy e.g. Standard Treatment Guidelines STG

4. In certain countries: „need clause” • e.g. earlier in Scandinavia, in the Communist countries… • Principle: of every type of medicines only one is „needed” e.g. one H2–receptor blocker, one statin, one ACE-inhibitor… • One single API and its one single preparation per dosage forms • A National Committee decides • In Scandinavia: the „best” • In former Communist countries: the „cheapest”

5. The „need clause” is a wrong approach! For • What „cheapest” means? Absolutely no (price) competition… • What „best” means? Are different APIs belonging to the same theraputic class completely the same? Forget it!

6. Comparison of assessments for registration and selection of drugs Registration = accepted as a drug or not? Selection of drugs for • governmental procurement • subsidy • reimbursement Registration = availability = benefit/risk evaluation The aboveother selections = affordability = benefit/cost evaluation

7. Selection of drugs • Also another purpose: rationalisation of the use of drugs • by reimbursement/subsidy (via prices) • by direct means: standard treatment guidelines (active substance of the first choice, if more available: the cheapest) • As a rule: by a national/regional/hospital Standing C’ttee comprising medicine (all fields), nursing, pharmacy, public health and consumer affairs professionals • Also consultation with interested parties, organisations

8. Drug selection process, 1 First step: based on INN + dosage-forms, not on brand names • identify health problems (prevailing illnesses, etc.) • create Standard Treatment Guidelines STG • identify INNs and dosage-forms

9. Drug selection process, 2 • Second step: for the selected INNs list existing preparations • Select the equivalents, if possible • If doubts concerning their availability: select those that are always available • Put them into pharmacoeconomic STDs

10. General selection criteria • Quality is prerequisite • Evidence-based ranking • Cost cost of treatment regimen, not of dosage form units!  cost vs. savings e.g. reducing hospitalisation shortcoming of “separated parcels”  patient compliance  reduced waste (more stable products at ambient conditions)

11. Levels of proof: I. randomised clinical trials, meta-analysis Ib. At least one randomised clinical trial IIa. At least one controlled, non/randomised clinical trial IIb. At least one open clinical trial III. Documented data on individual treatments, evaluated using scientific methods IV. Expert/regulatory Committees standpoint on the basis of evaluated literature data

12. Drug of (1st, 2nd etc.) choice STGs • Treatment started with the drug of 1st choice, if fails switch to the next (more expensive!) one, etc. • Naturally, when patients tolerate it TREATMENT 100% success 3rd 2nd 1st 0% success

13. Example: treatment of acute tonsillopharyngitis An acute infection of the pharynx or the palatine tonsils, or both. Symptoms may include sore throat, dysphagia, cervical lymphadenopathy and fever

14. Guideline of the Hungarian Ministry of Health • Acute tonsillopharyngitis • Caused mostly by virus (adults: 90%, children: 60-75%) • When bacteria: (children: 25-40%, adult: 10%) then almost exclusively Streptococcus pyogenes (diagnostic sign: acute manifestation)

15. Treatment of acute, bacterial tonsillopharyngitis • Drug of the first choice: penicillin (oral or parenteral, daily dose 50,000 to 100,000 IU/body weight-kg, distributed twice a day for 10 days), success rate 90-95% • known penicillin allergy: macrolides • late (non-IgE-mediated) reactions: switch to cefalospirins • Drugs of the second choice (unnecessarily wider spectra, but only 5-day treatment): • amoxacillin (if H. influenzae present and its beta-lactamase decomposes penicillin) • 2nd generation cefalosporins • (Naturally plus paracetamol or ibuprophen as antypiretic and pain-killer, no acetylsalicylic acid under 12 years!)

16. 2nd step: what penicillins are available? (March 2010, Hungary) • Promptcillin forte injection 3x and 50x, 800,000 IU/ampoule • Retardillin injection 3x, and 50x, 1,000,000 IU/ampoule • Say: 40-kg-weight patient, 50,000 IU/kg administered = 2,000,000 IU/day • Promptcillin: 3 amp/day = 30 ampoules/10 days • Retardillin: 2 amp/day = 20 ampoules/10 days

17. (continued) • Naturally, the 50x pack units are too big! The 3x packs apply • Promptcillin: 30 ampoules/treatment • Retardillin: 21 (!) ampoules/treatment • Ex pharmacy prices: • Promptcillin: 867 Ft/3 amp. = 8670 Ft • Retardillin: 1067 FT/ 3 amp. = 7470 Ft • Retardillin is the drug of first choice!

18. (continued) • Actually, the same decision was taken by the Hungarian National Health Insurance Administration • They gave 267 Ft reimbursement to every box of 3 ampoules, the 40-kg-weight patients pay 7x800 = 5600 Ft for the treatment (And so on, the same calculation could be done for amoxicillins, cefalosporins, macrolides…)

19. Selection criteria (continued) • The former is valid for single API drugs. Fixed combinations: only when distinct advantages over single API drugs exist • Antimicrobials: local resistance (or sensitivity) patterns are determining factor • The selection results should be part of under- and postgraduate training!

20. Some definitions • Fixed dose combination: combination of two or more active ingredients into single product • Co-Packaging: two or more single, distinct products presented in a single package

21. Fixed dose combinationsAdvantages • Increased efficacy if additive and synergistic effects • If doses can be reduced this way: also reduced toxicity • Simplified treatment • Improved adherence (compliance)

22. Fixed dose combinationsDisadvantages • Dosage adjustment according to individual needs – not possible • (If forgotten taking: both drugs missing)

23. Drug selection successful if • objective drug info is also provided • National Drug Info Centre • STGs • National Drug Information Bulletin • Regulation of Firms’ advertising activities

24. Rational use of drugs by health personnel Components: • adequate diagnosis • correct prescribing (only physician? nurses? basic health workers?) • appropriate dispensing - substances, containers, labels available (only pharmacists?) • Patient compliance (adherence to treatment), understanding?

25. Pricing and reimbursement A balanced price and reimbursement system is necessary to guarantee • affordability of necessary drugs for the patients • development and marketing costs to be recovered

26. Drug pricesPricing

27. Drug price structure

28. Drug price VAT retail margin wholesale margin ex factory price

29. Ex factory prices • Manufacture + (distribution costs +) profit • Innovation: “extra” profit should cover also the money spent for innovation, within the patent period • Later and generic: profit for shareholders (theoretically as big as possible)

30. Wholesale and retail prices • More exactly: margins • To cover wholesale distribution and pharmacists’ retail activity costs • VAT (value added tax): income of the State (Government)

31. Price systems

32. Price system (theoretical) variations 1 2 3 4 5 6 7 8

33. Discussion of some possible drug price systems 1 Ex factory price and both margins are free • completely liberal system, for all kinds of drugs is rare • often applied for non-prescription drugs that are not reimbursed or subsidised

34. Discussion of some possible drug price systems 7 Ex factory price free, the two margins are controlled • semi liberal system for all kinds of drugs – the former Hungarian one • often applied for reimbursed prescription-only drugs

35. Discussion of some possible drug price systems 8 Ex factory price and both margins are controlled • completely controlled price system – but not without examples!

36. Price control Governmental • Political issue. • In certain countries it covers all drugs • In others: only reimbursed drugs and those used in hospitals • Price control may be directed to all elements of drug prices (see previously)

37. Ex factory price control • Appointed Governmental organs for different prices • As a rule, in the Price Act • (In general: both goods and services, e.g. train tickets, gas for heating, postal services…)

38. Control over ex factory drug prices, 3 main types • proven manufacturing cost + fixed mark-up (profit) for companies • control of profit (profit ceilings)(negotiations: money earned over the negotiated profit paid back to Government) UK: Pharmaceutical Price Regulating System PPRS • price comparisons (“not higher than in selected reference countries”)

39. Danger of too strict ex factory price regulation • Profit of new innovative medicines will be claimed to be high to compensate for lost profit of established drugs, with earlier regulated prices • otherwise no new innovative medicines available the balloon example try to attach a cord and make the baloon narrower: it will swell out elsewhere!

40. Wholesale - retail margin regulation Do not forget: • Wholesale margin: “fee for the wholesaling activities” • Retail (pharmacy) margin: “fee for retailing activities” plus “fee for pharmacist’s (e.g. pharmaceutical care) activities” – the latter often forgotten

41. Wholesale - retail margin regulation: various models Linear mark-up (e.g. ex factory price + 5%, wholesale price +12%) Problem: Higher price=+higher margin, but the pharmacist’s work is the same • Fixed mark-up (e.g. 300 Forints per drug box). Problem: for cheaper medicines higher, for more expensive ones lower than the linear one • Digressive mark-up system (the higher the ex factory price the lower /in percentage/ the margin)

42. Two-sided problems of mark-up regulation • Completely linear: Highest mark-ups for the most expensive medicines = even more expensive, affordability problems • Fixed mark-up: see before • Very digressive mark/up structure to balance prices = patients’ (and doctors’!) price sensitivity decreases • A well balanced approach is needed!

43. Mark-up control variations In percentage digressive and only maximised • the higher is the price the lower is the margin (in percentage) • but the margins specified are the maximal ones, e.g. the wholesaler may use lower margins (as a competition weapon = the Hunagrian system)

44. Governmental subsidy • (=The Government „pays” the considerable part of drug prices, they are artificially low) • Actually, not the Government „pays”, other goods will have artificially higher prices (e.g. high VAT) to compensate it • At first site sympathetic, but the same problem: patients and doctors do not value drugs, high percentage is not used, wasted

45. Reimbursement of drugsfor, as seen before, with pricing alone the problems can not be solved

46. Two main models to contribute to/cover drug expenses • Reimbursement: part of the price paid by the Insurance Organ = in the outpatient care • DRG (Diagnosis Related Groups) financing: the Insurance Organ pays a fixed sum of money for the treatment of a sickness (that, ideally, covers all expenses including drugs) = in the in-patient (hospital) care • Insurance Organ = Governmental or private

47. Reimbursement • The Insurance Company (or Governmental Administration) collects money from the insured people regularly (National Insurance: solidarity concept, the poor pays less = solidarity principle)… • …to finance (partially) out-patient drug expenses (as a rule: prescription-only ones)

48. Reimbursement system, different models Example: the drug is reimbursed to some extent (e.g. 90% of ex pharmacy price) • Co-payment (now 10%) by the patient in the pharmacy, the remaining part reimbursed later • Co-payment (now 10%) + a fix dispensing fee (user charge) are paid by the patient, the remaining part reimbursed later

49. Reimbursement issues Low level reimbursement: affordability problems High level reimbursement: • budgetary problems • patients, doctors do not realise the value of medication

50. Thus, reimbursement • “Pauper list” + drugs reimbursed in 100% for socially handicapped people • selected drugs • all drugs within a personal budget • Positive and negative reimbursement lists