1. Economics of Pharmaceutical Regulation in the Mediterranean: the case of Spain and Italy
Joan Costa Font
LSE

2. Objectives
To examine the instruments to regulate the pharmaceutical market in “late modernisation” countries
To evaluate the consequences for regulatory goals
Cost containment and efficiency
Competition
Innovation and quality

3. Index Regulation Goals and Stakeholders Mediterranean Patterns
Instruments
Pricing
Reimbursement
Efficiency and Quality
Competition
Reforms in place
Evidence

4. Goals and Stakeholders

5. Regulatory Goals Innovation and Quality
Cost-Effectiveness
Pricing and Prescription guidelines
Efficiency and Cost-containment
Reimbursement
Cost sharing
Competition (generics, distribution)
In patent (parallel trade)
Off patent
Distribution

7. Mediterranean Patterns

8. What is common? Tradition of regulation as a cheap way of intervention
Path dependency: “what has been going on in the past determines the present”
Late modernisation countries
Tradition of non-democracy, low priority to innovation and adoption of western regulatory patterns (value of competition)
Europeanization of Regulation
Adoption of patent regulation
Development of Parallel Exporting
Low Generics Penetration
Control of the distribution Chain

9. Instruments

10. Pricing Criteria
Pricing is still not transparent and countries make use of frequent unilateral price cuts
Spain:
Price Control via Cost plus
Price Benchmarking other countries
Expert Assessment of value
Negotiation with manufacturers
Italy
Price Benchmarking (Average of Spain, France, Germany and the UK)
Ex-manufacturer’s price (excluding VAT) of the top five selling equivalents, including generics, in the reference countries
Negotiation between the marketing company and the regulatory authorities
Based on cost-benefit and expected use mainly

11. Reimbursement
Use of Positive (1974) in Italy and Negative lists in Spain (delisting experiences in in 1993 & 1998)
Criteria: relevance, efficacy & cost
Reference Pricing in place from 2000 both in Italy and Spain
Initially as an Avoidable co-payment to promote substitutes
Reference pricing being reformed several rimes
Redefinition of therapeutic groups
But switching effect to non referenced products

12. Reimbursement in Spain
Three schemes:
Retired Population pay 0% of the cost
Disabled population pay 10% up to an adjustable cap of about 4€ per prescription
General population pay 40% of the price
With the exception of civil servants that pay 30%
High levels of self-medication

13. Reimbursement in Italy
The price of a generic product is at least 20% lower than the patent product it
automatically belongs to the same reimbursable class

14. Efficiency and Quality
Cost Effectiveness Analysis:
Economic evaluation is formally required during the negotiation of pricing
Health technology Agencies exist in different regions
Negotiation is based on economic evaluation and effects of innovation on the pharmaceutical industry.
Health Care is heavily decentralised and is the main responsibility of region states
Important regional participation for prescription policies

15. Competition Distribution Chain Regulation Generics policy
Retailer competition and mark up
Distributors Margins and mark-ups
Generics policy
Until 1992 only process patents were recognised
20% reduction in the price of products that after ten years of registration have a generic equivalent in another European country.
Parallel Trade
Alternative distribution channel
But might cause shortages source countries
Product traceability introduced in Spain which allow effectively companies to undertake dual pricing

16. Distribution margins and competition
Higher wholesale & retail competition in Med countries, though
Pharmacy margins are as high as other EU countries

17. Policies to improve generics competition

18. Reforms in Place

19. Supply side reforms in Spain

20. Demand side reforms

21. Decentralisation and Drug Policy

22. Evidence on Expenditures
Expenditure= Price x Consumption

23. Health and Pharma Expenditure

24. Drug Consumption in Italy
No change in private expenditures
30% rise in public expenditures
50% drop in cost-sharing and implicit cost-haring dropped from 8% to 4%

25. Drug Consumption Spain
30% rise from
Total and per capita expenditures have increased 400%
Public expenditure in more important

26. Sources of Expenditure Italy
Moderate expansion in consumption

27. Sources of Expenditure Spain
Cost Sharing drops from 13% to 6%
Price per prescription 300% rise
Moderate consumption rise 25%

28. Factors Affecting Drug Expenditure growth

29. Stylised Facts
Drug expenditure has raised significantly especially public expenditure
Driven by price increases and moderately by consumption
Cost sharing has dropped to levels around 6-5%

30. Evidence on Competition

31. Competition in the Distribution Chain?
Manufacturers receive a higher percentage of the price
Reduced rents to distributors

32. Market Share Evolution once a drug goes off Patent

33. Generics paradox

34. Generics Competition in EI 2004

35. Delay in Market Access for Generics Drugs

36. Origin of Parallel Exports

37. Effects of PT on German price?

38. Effects of PT on UK price?

39. Concluding Points
Similarities in the way Mediterranean counties regulate the drug industry
Lack of transparency
Cost Effectiveness is overlooked
Limited generics competition
Lack of competition in the distribution chain limits the capacity of parallel trade as an efficiency enhancing tool