Below are asks from the 2010 PhRMA submission to the USTR Special 301 list on the topic of drug pricing and reimbursement decisions, and described as ‘Market Access Barriers.’ In its assertions, PhRMA attack countries for government price negotiations, making use of reference pricing, the insufficient involvement of pharmaceutical companies in setting government pricing policies and the composition of drug formularies, among other things.
CHINA
Government Pricing Policies
Pharmaceutical products are considered special commodities in China, and thus are subject to government price controls. In 1997, the NDRC [National Development and Reform Commission] was given jurisdiction over pharmaceutical pricing. The NDRC maintains tiered pricing for patented, innovative and generic products. PhRMA encourages the Chinese Government to engage America’s pharmaceutical companies to evaluate and implement an appropriate government pricing policy for innovative products.
INDIA
Government Price Controls
PhRMA member companies are extremely concerned about the requirement, under the Proposed National Pharmaceutical Policy 2006, for mandatory one-to-one government price negotiations prior to marketing approval of patented drugs launched in India after January 1, 2005. PhRMA member companies believe that this proposal represents an effort to significantly reduce the benefits of product patent protection, and will discriminate against importers of patented drug products.Further, the draft policy contravenes the Government’s stated goal of liberalizing the pharmaceutical sector by reducing government control over the pricing of pharmaceutical products in India. The proposed policy could bring 354 drugs under government price control in addition to the 74 drugs currently subject to price controls. This greatly expands coverage from the 2002 drug policy (now mired in litigation), which subjected only 37 drugs to government price controls.
Apart from the proposed National Pharmaceutical Policy 2006, government price regulators also act arbitrarily and in a non-transparent manner in setting prices, and the existing pricing policy itself is marked by lack of transparency and clarity.
KOREA
Korea’s efforts to reform its healthcare system are ongoing, and many specific elements of Korea’s new pricing and reimbursement system, which was implemented on January 1, 2007, remain vague and, in some cases, appear to run contrary to the commitments Korea made in the KORUS FTA. At the writing of this submission, there are a number of issues that are of priority concern to PhRMA. These include:
1) Under the new government pricing and reimbursement system (the so-called Drug Expenditure Rationalization Plan or “DERP”), the lack of clear and verifiable criteria for decision making has posed a critical issue for innovative pharmaceuticals in the Korean market. The need for improved transparency, and support for enhanced recognition of innovation in government pricing and reimbursement decisions should be recognized, and appropriate corrective measures should be adopted as soon as possible in consultation with relevant stakeholders, including industry.
2) Korea announced the results of its pilot project on hyperlipidemia drugs in May 2008. Under the flawed analyses carried out by the Health Insurance Review Agency (HIRA), virtually all patented products were deemed not cost-effective and major price reductions were demanded. These results were not only out of sync with international norms, but were developed in a non-transparent process that failed to include key domestic and international stakeholders. Subsequently, however, the Ministry of Health, Welfare and Family and HIRA released detailed information as to how they arrived at their conclusions and have opened a dialogue with interested stakeholders to examine possible flaws in their analyses. It is imperative that Korea ensure that its analyses and conclusions are formulated in a rational, science-based manner and that the conclusions it reaches are not out of line with international norms. In addition, as Korea moves forward with the next group of drugs subject to re-evaluation, we urge Korean authorities to ensure that this process is fully-transparent and involves all stakeholders, including the innovative pharmaceutical industry.
3) Korea has introduced a pharmacoeconomic (PE) system under the DERP whose purpose is, among other things, to prove that a drug is cost-effective at a certain price. Despite Korea’s decision to adopt a PE system, innovative drug companies are virtually never granted the price at which their drugs are deemed by Korean authorities as cost-effective. Instead, there are so many price-cutting mechanisms built into the DERP that an innovative drug’s price can be reduced by the Government to less than 50 percent of the price at which it was initially determined to be cost effective within just a few years of introduction on the Korean market. Of key concern is the use of “Price-Volume Agreements” (PVAs). Under these agreements, if a drug is more popular than expected and its usage increases by a certain percentage as compared to forecasted sales, its price will be cut by the Government. In PhRMA’s view, this practice contradicts Korea’s FTA commitment to adequately reward innovation, and we believe that PVAs should be eliminated from the DERP system.
4) Under the DERP, Korea imposes an automatic 20 percent price reduction when generics are brought to market. This 20 percent price cut is imposed on the original pharmaceutical product, even when the product is still on-patent and the generic is infringing on that patent. It is essential that the current regulations be modified to ensure that the prices of on-patent products are not cut by the Government when an infringing generic product is brought to market.
5) The Korean Fair Trade Commission (KFTC) has been conducting an investigation of the conduct of both domestic and innovative pharmaceutical companies in the market since September 2006. We fully endorse the spirit of the KFTC’s efforts to improve transparency and ethical business practices in the pharmaceutical market, and we hope that this will remain a priority under the new Administration in Korea. It is essential that the KFTC evaluate the conduct at issue in a fair and non-discriminatory manner, and that Korea applies globally-accepted legal standards to the pharmaceutical sector.
Given the unfortunate delay in ratification of the KORUS FTA, it is even more important that the U.S. Government work with the Korean Government to address concerns in these and other areas. Further, as Korea continues to implement elements of its new pharmaceutical pricing and reimbursement system, it will be critical that the U.S. Government works to ensure that these new policies are developed and implemented in a way that is fully consistent with FTA principles.
NEW ZEALAND
Government Pricing and Reimbursement
Though not explicitly stated, PHARMAC’s reimbursement decisions suggest a pharmaceutical must achieve a cost per QALY (quality adjusted life year) of about NZ$10,000 to NZ$15,000 to be considered cost effective. This approach, combined with the need to stay within a capped budget, means that many of the most effective medicines are not available to New Zealand’s patients. One analysis has found that, of the 83 innovative new prescription-only medicines listed on the Pharmaceutical Benefit Scheme in Australia between May 2000 and October 2006, only 22 are currently reimbursed in New Zealand. Many of these 22 products have restricted reimbursement, such as reimbursement for limited indications.
PHRMA’s member companies are advocating for the following key policy reforms in New Zealand:
- Patient Outcomes – A national medicines policy should ensure the provision of quality medicines in a way that is responsive to patients’ needs and achieves optimal health outcomes.
- Comparable Access – A national medicines policy must ensure that New Zealanders have at least comparable access to medicines as do citizens in other OECD countries.
- A Core Health Strategy – Medicines play a vital role in the prevention, amelioration and treatment of disease, and as such a national medicines policy is integral to the achievement of all national health strategies and should have equal standing and priority.
- Integrity and Public Confidence – The current bundling of clinical assessment and procurement decisions creates incentives for the Government to subordinate clinical judgment to budget imperative. Determinations about which medicines are cost effective and are of clinical merit must be conducted independently before being used to form decisions about which products can be funded.
- Transparency and Rigor of Processes and Decision Making – Public confidence will be enhanced if decision making processes are underpinned by transparency, fairness, timeliness and high standards of consultation and review. All stakeholders must be able to understand the true basis of decisions and rationales should be clearly stated. What is considered “value for money” should be comparable to other OECD countries and meet WHO recommendations. Transparency and accountability are key principles in New Zealand institutions, with the exception of healthcare. It is critical that these principles be applied to healthcare.
- Recognition of the Value of Innovation – A national medicines policy should recognize the value of innovation and innovative pharmaceuticals through the adoption of procedures that appropriately value the objectively demonstrated therapeutic significance of pharmaceuticals.
- Responsive Budget Management – The pharmaceutical budget should be determined by need and access benchmarks. Rather than conduct health technology assessments (HTAs) of products after the capped budget has been set, thus simply creating a priority list of new products competing for the limited funding available, HTAs should be used to establish budget estimates on an annual basis. The capped budget is a concern as there has been little to no growth (less than 3% annually over the 5 years up to 2009) and savings from year to year are not accrued into the following year’s budget.
- Partnership – The achievement of timely access to medicines, quality use of medicines and other national medicines policy objectives is greatly enhanced by the maintenance of a responsible and viable business and regulatory environment in New Zealand. Coordination of health and industry policies and a consistent and more welcoming environment for innovation will better enable effective partnership with Government and other stakeholders to achieve improved health and economic outcomes.
PHILIPPINES
Concerns Related to the Cheaper Medicines Act Maximum Drug Retail Price Mechanism (MDRP)
By September 15, 2009, all pharmaceutical retailers were required to implement a government-mandated 50% price cut on five pharmaceutical products that were recommended by the Department of Health (DOH). This was the result of Executive Order 821, issued under Republic Act No. 9502: Universally Accessible Cheaper and Quality Medicines Act of 2008 (“the Act”). Compliance by retailers has been generally good. On January 6, 2010, PhRMA members were asked to undertake a second round of voluntary price cuts targeting high-value innovative drugs with little or no generic competition. PhRMA and its member companies have and continue to fully support the objective of ensuring that Philippine patients have access to life-saving pharmaceutical products, but question whether the MDRP as currently designed is the most effective means for accomplishing this goal. Until a thorough investigation of the MDRP process is conducted and a full review of the factors that impede the most economically disadvantaged citizens from accessing medicines occurs, PhRMA requests that the MDRP mechanism not be utilized. In addition, PhRMA is concerned that the initial MDRP list was drafted without proper stakeholder input and urges the Government of the Philippines to develop a more transparent process for utilizing the MDRP mechanism in the future.
CANADA
Patented Medicine Prices Review Board (PMPRB)
In Canada, the PMPRB is charged with review of prices of patented medicines in Canada, and is responsible for remedying excessive pricing, if found. Guidelines, as administered by Board Staff, calculate a maximum average factory gate price that a manufacturer can charge for a patented medicine regardless of whether generic alternatives are available. If a manufacturer’s average price is above this price, the Board may allege excessive pricing, and a hearing may be commenced.
Pursuant to the Patent Act,38 the PMPRB has authority to regulate the prices of patented medicines sold in Canada and has the power to issue remedial orders requiring a manufacturer to reduce the price of a patented drug. From 1987 to 2006, the PMPRB initiated very few investigations or hearings into the pricing of drugs. However, in the past three years, the PMPRB has commenced numerous investigations and hearings, alleging excessive pricing by individual drug companies, including a number of U.S.-based companies. The PMPRB issued new Guidelines in June 2009. The new Guidelines increase the complexity of reporting, yet retain the link between the average transaction price of a product and its maximum average price as the measure of whether or not there is excessive pricing.
The PMPRB had issued a Communiqué on August 18, 2008, requiring all patentees to report all benefits “connected” to sales transactions, including rebates/payments to third parties. This requirement was scheduled to take effect in January 2010. In September 2008, the Canadian innovative industry association, together with 17 member companies, filed a notice of application for judicial review with the Federal Court of Canada challenging the PMPRB’s jurisdiction to impose the requirement to report third party benefits, as set out in the Communiqué. On July 10, 2009, the Federal Court ruled in favor of the innovative industry association and its members, finding that no third party benefits are reportable. However, it remains to be seen how PMPRB will implement the remainder of the reporting requirements of the Communiqué, creating significant uncertainty in the meantime for patentees. PhRMA member companies hope to continue working with the PMPRB to find mutually agreeable policy solutions to these challenges.
Common Drug Review (CDR)
The CDR is a Federal/Provincial/Territorial (F/P/T) body that was created in 2003 by the F/P/T Ministers of Health. Its goal was to provide cost/benefit advice to F/P/T drug plans in order to help them with their public formulary listing decisions. However, despite recent dialogue and cooperation initiated with the pharmaceutical industry, the CDR has not been transparent in its operations and has rejected 44 percent of the products reviewed. Furthermore, given that the CDR can only provide listing recommendations rather than decisions, the F/P/T drug plans who manage the formularies can either discount or accept its advice without providing clear reasons to manufacturers either way.
In early 2007, the Standing Committee on Health (a body of the Federal Parliament) reviewed the CDR and made five recommendations for its improvement: (1) undertake an evaluation; (2) increase transparency; (3) increase public involvement; (4) undertake a separate review for first-in-class drugs and drugs for rare disorders; and (5) establish a separate appeals process. The Federal Minister of Health agreed with most of the Committee’s recommendations. While the Minister did not specifically support a separate appeals process, the Minister suggested that the current appeals process at the CDR must be improved. While the CDR has publicly stated that it would examine the Committee’s recommendations, no progress has been made to date.
CZECH REPUBLIC
A range of market access barriers imposed by the Czech Government deny innovative, patent-protected pharmaceuticals full access to the Czech market. The barrier of greatest concern to the pharmaceutical industry is the Czech Government’s use of “therapeutic reference pricing,” which links reimbursement for patented and non-patented products. Other components of the Czech health care reimbursement system – such as positive lists, prescribing limitations, and individual physician prescribing budgets – also directly or indirectly limit access for innovative pharmaceuticals to the Czech market.
2008 Changes in Government Pricing and Reimbursement
In the 2008 version of paragraph 39 of Law 48, dealing with pricing and reimbursement, both processes are concentrated in one regulatory body – the State’s Institute for Drugs’ Control (SUKL). SUKL is responsible for all three steps required for drugs to reach the market, including the medical evaluation of their efficacy and safety, and setting of the prices and reimbursement rates.
Although the Law contains some strictly-defined and verifiable criteria for both government pricing and reimbursement decisions, it continues to restrict market access for pharmaceuticals. For example, with respect to government price setting, the Law establishes a strict comparison with the average of five traditionally low-price EU countries (Spain, Portugal, Greece, Italy and France). With respect to government reimbursement, the lowest price for the final customer of a specific product in any EU country is the basis for the reimbursement of the same product in the Czech Republic. Law 48 sets pricing and reimbursement levels across broadly-created reference groups and clusters.
Reimbursement Criteria
The Czech Government uses a therapeutic reference pricing (TRP) system for setting reimbursement rates for medicines. Law 48 represents an unnecessary and unjustified barrier to international trade because it functions as an obstacle to innovative products, all of which are imported, and is without scientific or technical justification, raising national treatment concerns under GATT as well as potential TBT concerns.
The TRP system clusters products into therapeutic groups. A patient prescribed any of the medicines in a cluster will be reimbursed the same amount (usually the price of the cheapest product in the cluster) regardless of whether the product is patented, off-patent or an infringing copy. In rare cases, the Government does award a reimbursement premium to a patented molecule. However, a reimbursement cut for generic molecules nearly always triggers corresponding reimbursement cuts for the branded molecule.
If the Government cuts the reimbursement for a drug below the government determined maximum price, patients must make up the difference out of their own pockets. When reimbursement cuts target innovative drugs, these significant out-of-pocket payments inherently and negatively impact innovative drugs. Moreover, when a new generic enters a therapeutic group, it can trigger reimbursement cuts for all products in the group, including not only the branded counterpart to the generic, but also products still protected by patents.
Grouping patented products with generics and linking reimbursement for patented and generic products forces prices for imported patented products towards those of domestically-produced generics. This, in turn, undermines the value of pharmaceutical patents in that market segment. Through this regulation, the Ministry of Health (MOH) and the insurance funds are jointly fixing a maximum price that aims to prevent, restrict or distort competition. At the same time, it heavily favors the local generic manufacturers, who almost always produce the generic competitors to imported patented drugs. An effective remedy to this discrimination is denied to manufacturers at the local level (see below), and whether a remedy may be available under European law is subject to a referral to the European Court of Justice.
ITALY
Company Budget Restrictions
Law 222/2007 empowered AIFA to establish individual company budgets in 2008 based on volumes and pricing data for mature and generic products for the previous 12 months. This unprecedented measure created noncompetitive market conditions that discriminate against innovative products. In late 2007, the Italian Anti-trust Authority (IAA), expressed strong reservations about the Law’s effect on competition in the Italian market. Specifically, the IAA noted that basing a company’s market share on the previous year’s sales could potentially limit competition in the Italian market.
The recent cuts applied to the public pharmaceutical ceiling in 2009 will increase the risk that PhRMA members will be asked to pay a refund to the state budget.
Government Pricing and Restrictive Reimbursement Policies
Pursuant to Law 222/2007, the pharmaceutical sector must refund 100 percent of overspending in the retail pharmacy sector (representing about 83 percent of the overall public pharmaceutical expenditure) once public pharmaceutical retail expenditures exceed 14 percent of the National Healthcare Fund. For hospital sales, pharmaceutical companies are not asked to refund any overspending, but the cap is set to 2.4 percent of the NHF (excluding the drugs sold through third-party distribution). Excess expenditures in the hospital sector are the responsibility of the regions, which, as a result, are introducing a variety of schemes designed to find cost-savings, including by limiting patient access to innovative medicines.
In addition, in 2007, AIFA introduced a system for evaluating innovation, to be used in pricing and reimbursement decisions for new drugs. Under this system:
- To date, no new drugs have been classified as “innovative” by the AIFA; and
- Very few drugs have been classified as “potentially innovative.” This classification requires additional procedures for monitoring the usage of those drugs that discourage patients’ compliance and creates a bureaucratic burden for innovative pharmaceutical companies.
In addition, AIFA is increasingly using negotiating tools called “risk sharing” and “payment by results,” that limit the reimbursement of innovative drugs.
Discrimination Vis-à-vis Other Parts of Healthcare System
The Italian Government’s focus on controlling pharmaceutical expenditures is unique relative to other expenditures within Italy’s NHS. Pharmaceutical expenditures were capped at 14 percent (retail) (now 13.6% in 2009 and 13.3% in 2010-2012) and 2.4 percent (hospital) of the NHF, while no other category of healthcare expenditures faced similar budgetary restraints or limitations. As a result of this policy, in the last five years the public pharmaceutical expenditure grew only 5.7 percent, while, by contrast, the other health care costs registered an average growth of 41.2 percent.51
In addition, the two laws adopted in 2009 introduced further cost containment measures only for pharmaceuticals, but not for the other costs and expenses of the National Healthcare System.
POLAND
Significant Reimbursement Backlog for Innovative Medicines
Poland continues to pose the most difficult market access situation for innovative medicines of all 27 EU Member States. Following an almost ten-year period where no new innovative medicines were added to the reimbursement list, in the last two years a small number of new molecules were granted reimbursement status. However, there are approximately 100 new molecules still waiting for inclusion on the reimbursement list. As of March 2009, 43 of the applications for reimbursement submitted between 1998-2009 by the companies that comprise the Local Area Working Group in Poland had still not received any official reply from the Ministry of Health.
In the most recent update to the reimbursement list (October 2009), only two innovative medicines were added: Dabigatran and Valganciclovirum. By contrast, 110 new generics were added to the essential medicine and supplementary list and 123 new generics were added to the list of chronic diseases. In addition, the MoH regularly reduces the price of the innovative medicines included in the reimbursement list. To date, MoH has failed to provide reasoned justifications for products that were denied reimbursement, disapprovals, an appeals process, or a clear timeline for reimbursement decision-making.
In 2008, the MoH announced that the backlog had been eliminated by virtue of sending all pending applications to a Health Technology Assessment agency, the AOTM. However, the respective powers of the AOTM president, the AOTM Consultation Council and MoH in issuing and accepting recommendations for reimbursement are not clear. Current provisions do not meet the appropriate standards of transparency (e.g., a clear appeals procedure), and make the decision-making process lengthier and unpredictable. The transfer of applications to the AOTM body in no way mitigates
Poland’s obligations under the EU Transparency Directive, including the requirement that it issue individual decisions within 90 days.
The AOTM’s role and procedures could be made clearer via updates to the Healthcare Law, the legislative implementation of which is currently being completed. The updates contain new mechanisms for creating guaranteed and nonguaranteed medical services (a “Basic Benefit Package”), and for clarifying the role of Health Technology Assessment in the reimbursement process. However, the updates leave many gaps in the transparency of the government pricing and reimbursement system. The regulations still do not require: objective and verifiable decision-making criteria, justification of decisions, or comprehensive administrative and judicial appeals procedures. Guaranteed and non-guaranteed medical services would be reviewed every year, and the AOTM would have the power to issue a binding negative recommendation for a service, while its positive recommendations will still be subject to a financial feasibility test by the MoH.
In addition, according to the updated Healthcare Law, the MoH has proposed significantly increased prices for the assessment of the HTA reports that are attached to drug dossiers submitted to the AOTM, an extra cost which relates in practice only to innovative molecules.
Government Pricing Policies
Similar to reimbursement decisions, government pricing decisions also are made by regulation and thus the merits of the decision cannot be appealed to or reviewed by an independent court.
An example of discriminatory government pricing activities which affect U.S. and other innovative pharmaceutical companies is the planned amendment to the Pricing Act of the Pharmaceutical Law, which would formally define selling price and fixed margins. Industry analyses indicate that if such an amendment came into force as drafted, it could have a negative impact on the pharmaceutical industry by considerably restricting freedom of business operations for pharmaceutical manufacturers.
Poland continues to employ a therapeutic reference pricing (TRP) system for setting reimbursement rates where patented and non-patented products are grouped together based on therapeutic class and the reference price is set at the level of the cheapest generic product in the class. In many cases, the therapeutic classes are set by MoH contrary to WHO guidelines, which state that “therapeutic reference pricing and other pricing decisions on Anatomical Therapeutic Chemical (ATC)/Defined Daily Dose (DDD) classification are a misuse of the system.”
The Polish Government has yet to repeal its 2006 discriminatory 13% price cut on imported medical products, raising concerns under various provisions of the GATT and the U.S. Poland Bilateral Investment Treaty. In 2007, the Polish Government extended the 13% price cut to imported components of locally-manufactured products as well, deepening the discriminatory effects of the price cut. In 2007 the EU Commission presented a reasoned opinion that this price cut creates impediments to market access and constitutes a measure having equivalent effect to a quantitative restriction (Complaint 2006/4725/PL).
RUSSIA
Government Price Regulation
In August 2009, the Government issued Resolution #654 to regulate prices for essential medical products, and to create regulations governing maximum margins for all transactions throughout the supply chain. The corresponding draft governmental price control methodologies introduce separate regulations for producer price, wholesaler and pharmacy mark-ups. As the draft methodologies differ considerably from current world-wide practices, their implementation without substantial modifications could be counterproductive for development of Russia’s pharmaceutical market.
Reimbursement Procedures
The Government of Russia instituted a federal drug reimbursement program in 2004, which went into operation in 2005. Regrettably, reimbursement decisions are not based on objective and verifiable criteria. Mechanisms for purchases of reimbursed drugs and tenders are not transparent. Foreign firms are often discriminated against in both the federal reimbursement system for pharmaceuticals (DLO) and other tender processes, and no appeal procedures for reimbursement decisions are provided.
The MoH issued a regulation in 200660 in an attempt to regulate the reimbursement process, but this regulation fails to provide clear and transparent criteria for determining which products are included in the reimbursement program, timelines for decision-making, or appeals processes. At present, the processes remain opaque for development of an Essential Drugs List. The recent revision of the Essential Drugs List excludes almost all innovative INNs that are not manufactured in Russia. This decision discriminates against foreign firms and will limit patient access to modern treatments of important diseases.
TURKEY
Reimbursement
Turkey has established two committees at the Social Security Institute (SSI) to oversee transitions in the state reimbursement program. In an effort to improve efficiency, transparency, and standards for evaluation and stakeholder involvement, Turkey published the list of the Committee for Medical and Financial Evaluation & Payment Committee members, committee working principles and also submission requirements. Challenges remain, including compliance with the established meeting schedules; frequent delays are the norm. PhRMA member companies are also concerned that SSI fails to provide sufficient rationale for its decision-making. Furthermore, the Institute also fails to provide adequate information about the participants in the technical committees charged with evaluating new products, whom report to the Committee for Medical and Financial Evaluation.
In the absence of publicly available reliable and complete data, PhRMA member companies believe that the new requirements are likely to complicate reimbursement procedures and add to delays in patient access to new medicines. In an effort to determine a practical and balanced approach, innovative companies should be able to collaborate with the SSI to define realistic criteria for the reimbursement of new medicines.
Under the conditions of the global economic crisis, increasing health expenditures and budgetary discipline of Turkish Government, SSI recently imposed additional discounts for pharmaceuticals. In December 2009, the Social Security Institute determined the following additional discounts for pharmaceuticals:
• Original products without generics will be purchased by the government with an additional 12% discount (on top of the existing 11% base discount for a 23% total).
• 20-year-old products having a retail price higher than 10 Turkish Lira and without generic competition will be purchased by the government with an additional 12% discount (on top of the existing 11% base discount for a 23% total) till they will be subject to reference pricing system in 01.01.2010 (see details in Reference Pricing section).Reference Pricing
The Turkish Government applies a reference price system for pharmaceuticals. Under the pricing legislation that went into effect in 2004, February 14, the reference price of an original product is determined according to the lowest price among five countries from an established list of up to ten EU reference countries. The list may be subjected to alteration. The five reference countries are France, Spain, Italy, Portugal, and Greece.
Countries where product is released and shipped also serve as references. According to the 2004 legislation, the original product sets the reference price while its generic can take 80% of the reference price at most; 20 year old products are exempted from the reference price decreases.
On September 18, the Turkish Government published a new pricing decree (amended December 3rd), which outlines strict cost containment measures. The measures include changes in the reference pricing scheme for original products which have generic competition. Original products with generics will have a reference price of up to 66% of the lowest price among reference EU countries; the generic competitors will also receive the 66% reference price. 20 year old products (only above 10 TL) will be subjected to the reference price system after January 2010, but the rest of 20 year old products (below 10 TL) are still kept out reference price system. Correcting government pricing levels to match exchange rate changes has been made harder with the introduction of a currency band, which does not require the Government to update prices unless there has been a 10% fluctuation in the value of the Euro – and at least 90 days of a 5% fluctuation. Moreover, the new legislation for reimbursement brings additional discounts for public purchases as stated under Reimbursement section.
The newly-published decree amending pricing provisions will have a disproportionate impact on the innovative pharmaceutical industry (approximately 70% of savings according to the local innovative pharmaceutical association AIFD). These targeted savings can be achieved by alternative and more balanced policy solutions through a process that brings the industry and government together to solve the problem.
BRAZIL
Government Price Freeze and Controls.
A government-mandated price adjustment mechanism, in effect since July 2000, is a major trade barrier to PhRMA’s member companies. The arbitrary pricing restrictions were imposed with minimal input from PhRMA members. The restrictions are contrary to free-market principles espoused by Brazil and create an environment that discourages international investment.
The methodology used in the calculations of the maximum annual permitted price increase does not reflect the characteristics of the pharmaceutical sector and is the result of the application of an excessively complex and non-transparent formula. In March 2009, a price increase of 5.90% was authorized. This rate fails to take into account government-mandated increases in manufacturers’ costs, including salary increases.
On top of the price adjustment mechanism described above, Brazil created a reference price regime (Resolution 2) for new patented products in 2003. Under this regime, the final price of a new drug in Brazil cannot exceed the lowest price among nine reference countries.
In March 2007, ANVISA approved a resolution creating a price reduction factor (CAP) of 24.92 percent for government purchases at all levels of government (municipal, state, and federal). The CAP is uniformly applied to the ex-factory price of new products, which is established by an international reference price system. Calculation of the price reduction factor takes into account Brazil’s per capita GDP and those of the reference countries.
Despite these controls, the Brazilian Government has not reached its goal of improved access to medicines. While income, a major determining factor in measuring access to medicines, has improved somewhat for poorer segments of the population, unit sales volumes have remained almost flat in the last few years. This suggests that more needs to be done to achieve the goal of improved access.
VENEZUELA
Pharmaceutical market access in Venezuela mainly hinges on access to the official foreign exchange rate and government pharmaceutical pricing policies.
Foreign currency access policy
Venezuela established rigid and restrictive controls on access to foreign currency for all economic sectors in 2003. Although slight improvements were made to this policy in 2004, 2005 and 2006, uncertainty persists over the amount of foreign currency available at any given time due to variations in oil prices and lingering concerns regarding the Government’s arbitrary use of this policy to develop a selective import policy, to control imports (as it has done in the past), to force changing import suppliers, or to audit import prices. The Government’s policy results in an unpredictable investment environment for pharmaceutical companies.
Counterfeit medicines and other illicit activities
According to Direction of Drugs, Medicines and Cosmetics of Health Ministry, Venezuela in 2009 has witnessed an increase in counterfeit medicines (more than 10% of the market) as well as other illicit activities, such as smuggling, robbery and adulteration. This increase may be attributed to a combination of factors: (1) the Government’s lack of attention and political will to address the problem; (2) administrative inefficiency; (3) lack of enforcement of existing laws, most of which are inadequate; (4) insufficient penalties; and (5) an ineffective judicial system that does not consider counterfeit medicines a priority.
ALGERIA
Government Reference Pricing
Algerian law requires that reference pricing be applied only if there is a corresponding generic on the Algerian market. However, in practice, some products that have no generic equivalent on the market have been referenced. In addition, some products have been referenced against a therapeutic class to obtain the lowest possible price.
Article 59-3 of the Law of July 2, 1983, was supplemented by an Inter-ministerial Order fixing reference rates for the reimbursement of pharmaceutical products. Corresponding conditions for application of reference rates under the Order were published on July 21, 2001. The Order limited government reimbursement for a finite list of pharmaceutical products to a price set by referencing the cost of the generic versions of the product. The Order was not implemented until the publication of an Inter-ministerial Order that entered into force on April 15 2006. Since the Order was executed, hundreds of products have been officially added to the list. The 2006 Order sets government reimbursement prices, and is expected to be extended to additional products semi-annually as requested by the Minister of Health. The Government’s process for setting the prices is not transparent or reviewable and does not provide for any specific appeal system. A potential solution might be to ensure that any reference price should be linked to the price of at least three corresponding generics available on the market before its application to avoid the risk of stock-outs related to insufficient local manufacturing capabilities.
PAKISTAN
Government Pricing
The current government pricing system in Pakistan is another major market access barrier. The Government sets the prices of new products at extremely low and arbitrary levels.
There is also a lack of transparent government pricing directives or guidelines. Although the Pakistani Government has considered implementing a policy to adjust government prices to compensate for devaluation and/or exchange rate fluctuations, these changes have not been implemented. Government prices have not been revised since 2001 (government price increases are issued through public pronouncements), and the cumulative inflation during this period has been over 100%.
The Pricing Policy Board set up by the Government with representation of PhRMA member companies, local companies, and other key stakeholders, has formulated a final draft of the pricing policy. This policy will be sent to the Economic Coordination Committee (ECC) and finally to the Cabinet for approval. In the latest development, the Supreme Court of Pakistan has asked the MOH to finalize the policy by the end of March 2010, and to submit monthly progress on implementation.
AUSTRALIA
In the Pharmaceuticals Annex to the FTA, the United States and Australia agreed on breakthrough provisions for increased transparency and accountability, and enhanced consultation in the operation of Australia’s PBS. Under Australia’s National Health Care System, around 80% of prescriptions dispensed in Australia are subsidized under the PBS. Accordingly, the PBS effectively controls access to the Australian pharmaceutical market. Annex 2-C of the FTA establishes four basic obligations that pertain to operation of the PBS, including agreed principles regarding the role of innovation, transparency, independent review process, and establishing a bilateral Medicines Working Group.
PhRMA believes that the work done to date in implementing these obligations has been significant and we look forward to seeing constructive outcomes from the Medicines Working Group, including on remaining substantive initiatives required to improve access to new medicines. We note our concern, however, that it has been quite some time since the last meeting of the Medicines Working Group and are hopeful that the next meeting will be scheduled soon.
PhRMA is pleased to note that its member companies were consulted in relation to elements of the PBS reform package of 2006, and as well have been able to participate in follow-on dialogue between Government and industry, as part of the Access to Medicines Working Group (AMWG). We look forward to continuing progress via the AMWG.
TAIWAN
Reward for Innovation
DOH’s Bureau of National Health Insurance (BNHI) sets pharmaceutical prices for new innovative drugs that are extremely low. According to BNHI data, new product reimbursement prices in Taiwan have dropped from 80% of the A-10 median (based on the prices in 10 benchmark advanced countries) during the 1996-2002 period to only 51% of the A-10 median in 2007-2008. Furthermore, on average, new drugs obtained only 72% of the lowest A-10 prices in 2007-2008.
BNHI’s drug reimbursement guidelines contravene internationally-accepted norms by severely restricting the use of innovative medicines and disregarding many innovative products’ approved indications. The decision-making process has also become less transparent and predictable. Price-Volume Agreements and Health Technology Assessments (HTA) have been used as tools to exclude certain products from the market or prolong the reimbursement process.
In the interest of rewarding innovation, development of new medicines to meet Taiwan’s unmet needs, and ensuring that Taiwan patients are not deprived of access to these innovative drugs, PhRMA strongly recommends that the Government continue its dialogue with innovative pharmaceutical companies, and ensure that government pharmaceutical pricing and reimbursement policies are based on patient needs and benefits, scientific evidence, and a legal foundation rather than simply cost-containment objectives.
FINLAND
Despite the significant savings realized by the Government through the weakening of IP protections in Finland, very few new and innovative products have been added to the reimbursement list in 2009, further eroding the value of innovative companies’ IP protections in Finland. Finnish pharmaceutical prices are some of the lowest in the EU and the current practice of the PPB essentially requires companies to introduce new products at close to the price of generic products in “similar” therapeutic categories to secure reimbursement.
These measures are in addition to the existing PPB’s “2-year rule” where products need to be at a base reimbursement level for 2-years prior to being considered for special reimbursement in applicable therapeutic areas. For the moment, health outcomes and pharmacoeconomic data seem to carry little weight with the PPB. Additionally, there is currently no meaningful way for innovators to appeal PPB decisions to a third-party for evaluation of the content or substance, as the High Administrative Court only has jurisdiction over whether the process was followed.
The unfavorable IP and reimbursement environment in Finland has resulted in significant job losses in the pharmaceutical sector and significant restrictions on patient access to new and innovative treatments.
In addition to the request for an IP dialogue, PhRMA and its member companies request the U.S. Government also engage the Government of Finland to discuss the many market access challenges that the innovative industry faces.
FRANCE
Government Price Controls
Government imposed price controls fail to recognize and reward innovation, in turn eroding intellectual property protections for pharmaceutical products. In France, prices of reimbursed pharmaceuticals are decided by the CEPS after negotiations with individual companies. To be reimbursed by the national health insurance fund, reimbursement status must be granted by the Minister of Health and the public sick-funds based on a Transparency Committee (Commission de la Transparence) assessment.
All registered pharmaceuticals are subject to an Evaluation of Therapeutic Benefit (Service Médical Rendu, or SMR), which drives the level of public reimbursement. In parallel, Therapeutic Benefit Improvement (Amélioration du Service Médical Rendu, or ASMR) serves as a basis for individual company negotiations with the CEPS. The Transparency Committee assesses the efficacy and the safety of a product. This evaluation is based on the judgment of experts and is exclusively based on clinical criteria. While this evaluation is rarely contested, innovative pharmaceutical manufacturers often dispute the ASMR classification made as a result of the data analysis. PhRMA believes that this evaluation has become more and more restrictive and unpredictable; making it more difficult to ensure that innovation is recognized.
Only a limited number of patented pharmaceutical products fall under the most favorable ASMRs, with most products falling instead under the ASMR IV or V categories. Medicines receiving the ASMR I, II, and now III, or even ASMR IV (under certain conditions), can benefit from a fast-track procedure, and the first three categories have the potential to get a European average price and to maintain it for five years. PhRMA member companies believe that this process should be extended beyond five years to ensure an adequate return on investment for innovative products.
While the details remain unclear, the request by the French Government to CEPS to introduce Dynamic Price Management to certain therapeutic categories is an issue of serious concern for innovative pharmaceutical manufacturers. Although the Health Minister has stated that there will be no “jumbo group” reference pricing in France, and despite the fact that the current system is much more targeted, a system that ties prices of innovative products to those of generics would constitute movement towards government reference pricing for products still under patent. Therapeutic reference pricing would undermine the value of the intellectual property of innovative pharmaceutical companies.
THE NETHERLANDS
Reimbursement of Pharmaceuticals
Two pharmaceutical government price control systems are in place in the Netherlands: the GVS (Geneesmiddelen Vergoedings Systeem) and the WGP (Wet Geneesmiddelen Prijzen). The GVS reference price system introduced in 1991 sets fixed reimbursement ceilings for generic and innovative medicines regarded as being equivalent. The GVS has helped to limit Dutch pharmaceutical costs, but has also contributed to high generic prices and slow access for Dutch patient to new medicines.
New medicines that are assessed to have therapeutic superiority are listed separately in the GVS system, and may be permitted a price premium. These medicines account for approximately one-third of all outpatient pharmaceutical use by value. Health economic studies are mandatory in the reimbursement decision process and for high-cost medicines used in hospitals.
Additional Hurdles for Innovative Products
Innovative products face difficulty getting full reimbursement for all registered indications. Increasingly limitations/restrictions in use are implemented. This is a major hurdle for fast uptake of new products. Physician guidelines often are out of date with little room for prescribing innovative medicines.
Slow Access to Hospital Drugs
In 2002, the Dutch Health Authority introduced a special regulation for expensive hospital drugs pursuant to which hospitals receive financial compensation up to 80% of net drug costs. In 2006, the regulation was adapted and includes conditions for temporary financial compensation such as a minimum total turnover of each drug per indication and collection of data on real world utilization, effectiveness and cost effectiveness with a reassessment after three years.
The 1996 Medicines Pricing Act introduced further controls (the WGP system). This sets the maximum pharmacy purchase price of medicines in The Netherlands. Dutch pharmacy purchase prices are based on the averages of prices in Belgium, France, Germany and the UK.
In 2005, health insurance companies started with preference policies for two classes, namely statins and omeprazoles.
Government Pricing
As mentioned above, the maximum pharmacy purchase price of medicines in the Netherlands is set by the Medicines Pricing Act (WGP). Dutch maximum wholesale prices are based on the average of prices in Belgium, France, Germany and the UK.
Under the TAPC, Dutch pharmaceutical companies may not increase the government price of existing pharmaceutical products, with some exceptions allowed. When a patent expires for a pharmaceutical product (provided that generic equivalents have been introduced in the Dutch market), there will be a list-price reduction (either of that product or of other products as long as it provides the same savings). Effective in 2008, the average price of the existing off-patent products would decrease by at least 10% and for new multi-source products (with generic versions on the market) by at least 50%.
Under the TAPC, the Government undertook (1) not to implement the proposed measures regarding reductions of the reimbursement prices (i.e., they would not implement therapeutic reference pricing), (2) to refrain from extending the WGP to injectables and infusion products, and (3) not to apply any new or strengthen any existing regulations regarding new pharmaceutical products. The TAPC expired at the end of 2009; meanwhile the Government has announced that the WGP will be extended to at least a portion of injectable and infusion products.
In January 2008, the Government indicated that, after the expiration of the current TAPC, it would abolish reimbursement limits on pharmaceutical product clusters, thus opening the way for free price negotiations between individual pharmaceutical companies and insurers. Product clusters will be retained for negotiating purposes. It is critical for PhRMA member companies that innovative products are guaranteed their own separate categories.
One issue that is of increasing concern in The Netherlands and other European countries, which reference the United Kingdom (UK), is the effect of exchange rates on pharmaceutical prices. Due to the decline in value of the UK pound (GBP), government prices in the Netherlands are effectively being reduced, simply because the GBP to Euro rate is decreasing.
COLUMBIA
Government Price Control
In 2006, the Government of Colombia modified its pricing policy for pharmaceutical products in a way that could unfairly limit free trade and may discriminate against patented pharmaceutical products. Pursuant to the policy established in Circular No. 04, all medicines must be classified in one of the following three regimes established by Law 81 of 1988: (i) Supervised Freedom Regime; (ii) Regulated Freedom Regime; or (iii) Direct Control Regime.
The National Commission on Pricing of Medications fixes the maximum public sale price of the medicines included in the Direct Control Regime, according to the reference price obtained as an average of the three lowest prices of at least four of the following reference countries: Colombia, Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Panama, Peru and Venezuela.
Public messages delivered by the Government of Colombia suggest that the government price control measures were implemented as a counterbalance to IP provisions like the ones established in Decree 2085 and those envisioned in future CTPA obligations. Beyond simply creating a business climate that deteriorates competitiveness, these measures serve to undercut the underpinnings of an effective IP system.
PhRMA member companies are closely monitoring the expected implementation of Circular 04, as further regulation is required for defining its scope and impact on market access for pharmaceuticals. Improper implementation and a lack of transparency in both the implementation and application of Circular 04 could negatively impact PhRMA’s member companies.
SAUDI ARABIA
Volatile Government Pricing Policies
PhRMA member companies are concerned by the volatility of Saudi Arabia’s government pricing regime. The Saudi Government issued the draft of a new pricing regime in June 2008. The Government’s efforts to seek industry and other stakeholder input into the draft policy is commendable, and the result of U.S. Government advocacy for Saudi Arabia to live up to its WTO accession commitments.
PhRMA member companies are concerned that that the proposed government pricing policy does not focus on market-based principles that promote competitiveness. Instead, it appears to put in place a system for automatic reductions in the prices of medicines, irrespective of the significant amount of research and development costs that have been invested by innovative pharmaceutical companies in the development of these medicines.
In 2008, PhRMA member companies communicated to the SFDA specific concerns pertaining to the proposed government pricing policy, mainly: (1) prices for pharmaceutical products in Saudi Arabia are already some of the lowest in the region; (2) when setting prices, the Saudi Government references countries with significantly lower standards of living; (3) the new policy proposes expanding the list from 30 referenced countries to 41 countries; (4) Government prices are revised too frequently; (5) the categories of products that are subject to the price cut are unknown, (6) pharmaco-economics is proposed as a means to determine prices, but no clear criteria for the evaluation is given; (7) that there is a category of “post-patent pricing” with no definition of what this entails; and (8) the issue of exchange rate is still not resolved.
Since July 2009, the Saudi SFDA has taken over responsibilities from the Ministry of Health. PhRMA hopes that the SFDA will engage with pharmaceutical companies to discuss the real implications of the proposed policy.
Drug Formularies
PhRMA is concerned about the lack of transparency in the selection and placement of drugs on tender formularies. If transparency is not addressed, drug formularies could constitute potential market access barriers.
The Saudi Government has established a National Unified Purchase Company (NUPCO) which is expected to procure pharmaceuticals on behalf of all government agencies. In the past, each agency procured its pharmaceuticals independently on the basis of its own formulary. PhRMA has learned that NUPCO is in the process of developing a unified formulary.
SFDA is assisting private insurance companies in developing a formulary that would be used as the basis for mandatory private insurance for expatriates.