Pricing & Reimbursement in Europe: Can The Drive for Cost Effectiveness Overcome Cost Containment?

Published by: Datamonitor

Published: Oct. 4, 2006

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

Scope of the report

Key findings

CHAPTER 2 OVERVIEW OF THE DRUGS MARKET: IDENTIFYING WHY PRICING AND REIMBURSEMENT IS IMPORTANT AND WHERE IT FITS IN

Introduction: why is drug pricing and reimbursement important?

Pharma is facing a reduction in productivity

R&D spend is rising

The number of approvals is falling

There are delays in P&R assessment

Biotech is more productive and is set to have a correspondingly higher growth rate

Blockbuster patent expiries are also damaging Big Pharma

Pharma pipeline strategy needs to adjust to market demands

Globally, public and private payers exert pressure on profit margins

Pressures on drug developers rise because healthcare expenditure is set to continue to increase

Although drugs make up a relatively small percentage of healthcare spending, they are a highly visible target

Spending on drugs is set to rise

The drugs industry is being squeezed on drug pricing and reimbursement

CHAPTER 3 GLOBAL OVERVIEW OF P&R TOOL IMPLEMENTATION

Introduction

Price setting mechanisms are used to set the initial theoretical price

The initial theoretical price is then modulated by a range of factors

A key factor impacting pricing is the broad range of pricing controls used globally

An overview of government-led price controls

Profit controls are used in some European countries such as the UK

Reference pricing is used extensively across Europe

Price cutting and price freezing play a central role in European cost containment

Linking pricing with the Consumer Price Index

The use of pharmacoeconomics in pricing controls: using healthcare economics, outcomes research and pharmacoeconomics to justify pricing

Discounts and rebates play a role in European drug pricing

A single European drug price has been discussed as a possible cost containment tool

A range of factors impact the drug price only once the drug has been launched

Parallel importation can reduce profit margins for drugs companies

Health informatics may lead to increased cost containment

DTC marketing cannot be used in Europe to support higher drug pricing

Generic incursion reduces profit margins for drugs

Key global reimbursement mechanisms

Reimbursement favours innovation-focused drug development

Spending on sales and marketing is prioritized over seeking innovation

The focus on sales and marketing encourages the development of me-too drugs, although healthcare providers are penalizing me-too development

A wide range of factors influence reimbursement

Controlling doctors' budgets is used more widely in Europe than in the US

Volume and expenditure limitations play a role in Europe

Although tiered co-pay and formularies play an extensive role in the US, they are not used in Europe, and most patients pay a low co-pay in a flat-fee form

Formulary access and Positive/Negative lists play a more significant role in the US compared to Europe

Taxes on reimbursed drugs

Some countries require drugs to be included on reimbursement lists of a number of countries before reimbursement is granted

Pharmacoeconomics and risk-sharing agreements are increasingly important in Europe

Step therapy or fail first plays a key role in the US, but is not widely used explicitly in Europe

Prior authorization

Pharmacist substitution

Enforcing a switch to OTC status is another reimbursement restriction tool in both the US and some European countries

CHAPTER 4 PRICING & REIMBURSEMENT IN FRANCE

Healthcare in France: high debts increase the focus on P&R

An overview of the French healthcare system

Private healthcare is increasingly used to support public healthcare

French healthcare provision can be split into PCP-dominated community healthcare and hospital-based healthcare

The creation of the HAS has significant impacts on healthcare provision in Europe

A range of other stakeholders impacts on healthcare provision

Recent changes affecting the pricing and reimbursement environment in France

The Transparency Commission determines the SMR and the ASMR

The SMR and the ASMR are used as a basis for P&R in France

The unification of a range of P&R functionalities under HAS is set to transform P&R in France

P&R mechanisms used to contain costs in France

A range of reforms have been instituted to boost cost containment

Recent co-payment reforms help drive healthcare cost containment

The 'Médecin Traitant' scheme drives adoption of a gatekeeper system in France

There has been considerable consolidation across a range of healthcare stakeholders to help contain costs

A range of P&R tools are being used to support healthcare reforms in the fight to contain costs

Volume limitations are an important restrictor of strong sales growth

The focus on utilizing and incorporating reference pricing is increasing

The market profile of drugs companies and their products is limited by restricting salesforce activity and physician contact

Taxes and levies make the environment harsher for drug developers

Generic usage and prescription is the most important macroeconomic factor modulating pricing once the drug is on the market

CHAPTER 5 PRICING & REIMBURSEMENT IN GERMANY

Healthcare in Germany: the need for cost containment

An overview of the German healthcare system

Public healthcare insurance covers the vast majority of German patients

Ambulatory care is highly regulated and is dominated by reimbursement controls

A range of stakeholders impact healthcare provision in Germany

The limited control that governmental bodies exert on healthcare provision is primarily mediated through the Federal Ministry of Health and the 16 Länder

Sickness funds are the key healthcare provider

Physician and pharmacist committees exert significant influence on prescription

A range of organizations represent industry interests

A number of reforms shape the evolution of the German healthcare market

IQWiG is helping to introduce cost effectiveness and evidence-based healthcare

Recent changes affecting the pricing and reimbursement environment in Germany

Reference pricing is a key cost-containment tool but the inclusion of patented drugs in the scheme is highly contentious

The evolution of jumbo reference pricing

Reference price levels are calculated by the Federal Committee of Physicians and Sickness Funds

German pharmaceutical companies are fighting jumbo reference pricing

Jumbo reference pricing is affecting an increasing number of drugs

The requirement for innovation is steep and many drugs are not sufficiently innovative

Pharmacy substitution: a cost-saving idea in principle but it has yet to show significant savings

Restrictors of aut idem substitution

Incentives for aut idem substitution

The impact of aut idem substitution on the German drugs market

Pharmacy and pharmaceutical company rebates are used in cost containment

The high number of patients exempt from co-payment is being reduced

Historically, budgets and spending caps have restricted Germany's pharmaceutical market

Ambulatory physician budgets have been successful at reining in drug expenditure

Hospital budgets are being reshaped by DRGs

Despite several initiatives over the last 15 years, there are no plans to introduce a positive list

Germany lacks a positive list

Payers are restricting the number of reimbursable drugs by placing them on negative lists in Germany

Additional factors impact on drug prescription guidelines

Discounts and rebates increasingly shape profit margins in the German hospital markets

Parallel importation and generic competition impact on drug price following launch

A reduction in the parallel importation quota is set to reduce the damage to pharmaceutical company profit margins

Generic penetration in Germany is relatively high

Healthcare informatics is playing an increasingly important role in German healthcare provision

CHAPTER 6 PRICING & REIMBURSEMENT IN ITALY

The Italian healthcare system is racked by debt and it is very difficult for drugs companies to generate a profit in this market

An overview of the Italian healthcare system

Private healthcare is used to replace public service with better provision

Italian healthcare provision is increasingly decentralized

The Italian national health service

Reimbursement is still assessed on a national level

AIFA dictates drug reimbursement in Italy

Although there is a formalized reimbursement structure, reimbursement is based on negotiations

Drugs are grouped into classes to determine reimbursement levels

Class C drugs still face cost containment pressures

Healthcare delivery is the responsibility of regional and local healthcare bodies

ASLs provide primary and secondary care in Italy

Italian reforms have shaped healthcare provision significantly in the last two decades

Recent changes affecting the pricing and reimbursement environment in Italy

Patient co-payment is making a re-emergence on a local level

Drugs companies help fund the Italian healthcare system through levies

Price cuts are part of price manipulation, and are used to contain costs in Italy

Pharmacist substitution has been introduced but has historically had slow adoption

Reference pricing is a key cost-containment tool in Italy

Drug monitoring and risk-sharing agreements have been introduced in Italy

Parallel importation and generic competition impact on drug price following launch

Generic drugs have historically made a limited impact but are now being increasingly utilized

CHAPTER 7 PRICING & REIMBURSEMENT IN SPAIN

An overview of the Spanish healthcare system

Spanish healthcare has become increasingly devolved to the Autonomous Communities

Public healthcare dominates healthcare provision

Inpatient and outpatient healthcare is provided on a devolved regional basis

The introduction of the Medicines Bill in July 2006 revolutionizes healthcare provision in Spain

Recent changes affecting the pricing and reimbursement environment in Spain

Reference pricing, price cuts, price freezes, discounts, rebates and taxes are all used in Spain to limit drug company profit margins

Reference pricing has evolved significantly with the introduction of the new medicines bill

Price cuts and price freezes are used in Spain to contain costs

Despite their unpopularity, discounts, rebates and taxes are used by the Spanish government

Positive/negative lists and prior authorization are used to limit physician prescription

Positive/negative lists have met with limited success in Spain

Despite issues raised by the EC, prior authorization exists in Spain

Additional tools are used in cost containment, including pharmacist substitution and patient co-payment, although these have a limited role in P&R in Spain

Pharmacist substitution is allowed on a relatively restricted basis

Patient co-payment is low in Spain

Generic competition is having an increasing role affecting drug prices following launch

The profile of generics is being raised

A range of strategies have been used by Big Pharma to restrict parallel importation of drugs out of Spain

Healthcare informatics helps to promote the rational use of medicines

CHAPTER 8 PRICING & REIMBURSEMENT IN THE UK

An overview of the UK healthcare system

Governmental spending on healthcare in the UK has risen significantly in the last five years

A range of trusts, authorities and NHS plans increase the complexity of healthcare provision in the UK

A range of trusts and authorities are involved in healthcare provision in the NHS

PCTs dominate healthcare provision in the UK

PCTs and SHAs shape prescription in the primary care setting and beyond

A number of plans and publications are shaping the evolution of the NHS

Additional initiatives impact on NHS evolution

A range of schemes and bodies impact on drug prescription in the UK

NICE is a key P&R stakeholder in the UK

NICE and HTAs

HTA bodies are becoming more homogeneous, however significant differences still exist between them

The government has thrown significant power behind the adoption of NICE recommendations

The postguidance and preguidance effects are a significant concern

Accelerated assessments via the STA route will help to reduce the preguidance effect, although there are also concerns over how the shortened timeframe will impact assessment and approval

There are concerns that NICE and more specifically the new STAs are shaped by politics

A range of schemes also impact on drug prescription

Recent changes affecting the pricing and reimbursement environment in the UK

Direct pricing and reimbursement mechanisms in the UK

The PPRS is the principal method of governmental P&R regulation in the UK

Patient co-pay, hospital discounts and pharmacist clawback are also used to contain costs, however they are not key P&R tools

Parallel importation and generic competition impact on drug price following launch in the UK

The UK has a strong generics market and increased switching to generics is set to make it stronger

Parallel importation

CHAPTER 9 KEY P&R TRENDS AND RECOMMENDATIONS ACROSS THE FIVE MAJOR EUROPEAN COUNTRIES

European P&R is a difficult environment to generate a strong ROI

There is slow uptake of new drugs in the European market

Governments need to clarify their P&R strategy, making it more transparent and remove conflicting policies

Governments are incentivizing increased generic prescription and setting quotas for parallel trade

The drugs industry is being pressed into helping to fund healthcare provision

Identifying and targeting the right stakeholders is increasingly difficult in the various European markets

The mix of P&R tools used by governments depends on other European countries and constantly fluctuates

The regulator and the P&R bodies have different goals

The definition of innovation is making the European P&R environment difficult

Innovation is the key to securing strong pricing and reimbursement, however, is it being adequately rewarded?

Do governments recognize the argument of incremental innovation?

How to best identify innovation? It is based on whether a drug improves quality and/or quantity of life

Me-too drugs, together with non-essential drugs are being strongly discriminated against from a reimbursement perspective

What will happen if innovation is marginalized?

The use of PE in Europe is evolving

The use of PE in Europe is increasing

The way that PE analysis is being used and analyzed is evolving

Drugs companies need to determine which bodies want which types of analysis

Payer HTAs are increasingly based on in-house analysis using company clinical data and peer-reviewed PE analysis

P&R bodies want simpler PE models, although not at the expense of a confused message

There is increased sharing of information between the main HTA bodies

Key recommendations: ways that drugs companies can build up skills to optimize European P&R strategy

Negotiation skills are highly important

Drugs companies need to be better at communicating

Internal communication is vital in ensuring a strong ROI

External communication is vital in ensuring a strong price and adequate reimbursement

It is vital for drugs companies to have a clear P&R strategy

It is important to integrate P&R analysis into the clinical trial process

The remit of PE analysis should be broadened and shifted into earlier-phase clinical trials

Drugs companies should know which markets to launch in first

Drugs companies should consider adopting certain US-focused P&R strategies

Consider using political lobbying and legislation to change the P&R environment

Carry out more effective targeting of healthcare professionals as part of the allowance for providing information

CHAPTER 10 GLOSSARY

Glossary of terms

CHAPTER 11 BIBLIOGRAPHY

Publications and online articles

Datamonitor resources

Conference literature

Online resources

List of Tables

Table 1: HAS has taken over a number of healthcare P&R stakeholders

Table 2: Examples of additional stakeholders that affect healthcare provision and P&R in France

Table 3: The range of ASMR levels used to determine reimbursement in France

Table 4: Key reforms shaping the German healthcare system

Table 5: Key drug reforms in Italy, 1993-2005

Table 6: Examples of discounts on drug prices for high-volume drugs (statins, PPIs), 2003-05

Table 7: Trusts and authorities involved in UK healthcare provision

Table 8: Key plans and publications shaping NHS evolution

List of Figures

Figure 1: Key pressures facing drugs developers in the US market, 2006

Figure 2: Key P&R cost-containment tools in EU5

Figure 3: NME & BLA approvals, compared to PhRMA company R&D spend, 1990-2004

Figure 4: Average time delay between marketing authorization and effective market access, using products from June 2000- June 2004

Figure 5: Biotechnology companies are set to show a stronger CAGR than pharmaceutical companies for 2004-10

Figure 6: The percentage of BLAs approved is falling, while the percentage of NMEs is rising, 1990-2004

Figure 7: Generic risk facing leading pharmaceutical and biotech companies is rising through to 2010

Figure 8: Average EU5 healthcare spending has risen steadily between 1990 and 2003

Figure 9: Spending on pharmaceuticals as a percentage of total healthcare spending is higher in the EU5 than the US, although some European markets have lower spending than Japan

Figure 10: The UK has the highest CAGR increase in healthcare spending for 1990-2003

Figure 11: Factors affecting drug pricing, 2006

Figure 12: Key pricing controls used globally, 2006

Figure 13: Globally, a number of factors can affect the price of a drug following launch

Figure 14: Examples of reimbursement controls used globally, 2006

Figure 15: Estimated cost-containment savings in France, 2003-05

Figure 16: Reimbursable drugs provided by retail pharmacies account for three-quarters of drug provision, 2003

Figure 17: Both the SMR and the ASMR rating are required to determine the reimbursement rate

Figure 18: Key cost-containment P&R tools used in Germany

Figure 19: Estimated cost-containment savings in Germany, 2003-05

Figure 20: There are few major differences between public and private healthcare insurance in Germany

Figure 21: A number of governmental bodies, physician and pharmacist associations, and industry associations impact healthcare provision in Germany

Figure 22: Pfizer's evaluation of Sortis' therapeutic benefit did not match the assessment of the drug

Figure 23: Pfizer's atorvastatin sales in Germany fell significantly after being removed from the reference pricing list

Figure 24: AstraZeneca's Nexium generates strong sales and volume growth, after drug prices fall to the reference level

Figure 25: Parallel importation penetration in Germany increased from 1997-2002 before falling slightly through to 2004

Figure 26: Key cost-containment P&R tools used in Italy

Figure 27: Estimated cost-containment savings in Italy, 2003-05

Figure 28: The Italian healthcare system is highly decentralized

Figure 29: AIFA acts as an umbrella to a range of commissions and observatories

Figure 30: Reimbursement depends on the level of therapeutic advantage offered by a new drug

Figure 31: Key cost-containment P&R tools used in Spain, 2006

Figure 32: Estimated cost-containment savings in Spain, 2003-05

Figure 33: Spain's healthcare provision is largely decentralized with provision made by ACs

Figure 34: There are a range of incentives and disincentives impacting generic prescription in Spain

Figure 35: An overview of the UK healthcare system

Figure 36: A range of bodies impact drug prescription in the UK

Figure 37: There are more advantages than disadvantages to the PPRS system

Figure 38: There are a number of incentives for generic prescription in the UK

Figure 39: Drugs companies must overcome a range of hurdles to generate a strong ROI

Figure 40: European markets are complex and involve a number of bodies, complicating the task of identifying key P&R stakeholders

Figure 41: The battle between cost-containment and cost-effectiveness determines whether drugs companies stay in the European market or decide to exit

Figure 42: Although a greater priority is being placed on PE analysis, it has a relatively low profile in Germany and France

Figure 43: The optimal launch across Europe takes place over three waves

Figure 44: Estimated cost-containment savings in the five major European markets, 2003-05

Abstract

• Evaluation of the pressures facing the drugs industry and how these pressures will impact P&R
• Overview of global P&R controls, examining which are important in the European market both currently and in the future
• In-depth analysis of each of the five major European markets, examining both the healthcare systems and the key P&R infrastructure
• Identification of trends and recommendations shaping the European P&R environment

• Gain a clear understanding of the healthcare market dynamics and P&R environment within each of the five major European healthcare markets
• Review P&R trends in Europe, based on Datamonitor's analysis and primary research conducted with key stakeholders in the industry
• Gain insight into how P&R fits into company strategy and understand how specific P&R trends are shaping the European markets

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