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

3. Agenda Pharmaceutical Regulation in Europe Lessons for the US

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

6. Trends in health care expenditure

7. Pharmaceutical consumption, 1998/9 Per capita spend, US$ PPPRx spend as % of total health

8. 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

9. Bi-lateral comparisons of ex-manufacturer prices (UK=100) 199519961997199819995-yr av France 10611286858495 Germany 128124108 97112 Italy 829182818392 Netherla 13411293--- Spain 878871 6777 USA 170183175174184187 Austria ---818396 Belgium ---868497 Finland ---868598

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

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

13. 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)

14. 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)

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

16. Rate 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

17. Price Setting 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

18. Reference Pricing variations CountryYearAttributes Germany1989identical substance Denmark1993identical substance, exemptions Netherlands1991clusters of interchangeable products (incl. patent) Sweden1993identical substance Italy2001identical substance Spain2000/1identical substance USA (Medicaid) 2002identical substance; cluster

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

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

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

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

23. “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

24. 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)

25. 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

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

27. 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

28. 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

30. Statins and parallel trade: UK

31. Overall 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?