EUGLOREH project




11.3. Health system resources

11.3.2. Pharmaceuticals


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11.3.2. Pharmaceuticals


Pharmaceutical policy varies across European countries according to the balance between health policy and industrial policy objectives. On the one hand, governments want to secure health policy objectives in order to protect the public’s health, guarantee access to safe and effective medicines and control costs. On the other hand, the industrial policy seeks to promote research and development for new innovative medicines, and provide economic incentives for the industry to thrive. Governments choose a mix of different controls and regulations to balance these objectives and to ensure spending on pharmaceuticals is efficient and controlled.


As observed above, a relatively consistent pattern of health expenditure growth was seen in most European countries in the past decades. The pharmaceutical sector has received considerable attention because of the relatively high growth rate seen since data records began; technological advance has been identified as one of the main drivers of expenditure in the health system. Indeed, as shown in Table 11.7, the growth in spending on pharmaceuticals as a proportion of total health spending has been significant in many countries. Between 1990 and 2004, where data exist, the proportion of expenditure allocated to pharmaceuticals increased by about 20% or more in almost half the countries, representing an increase in percentage points of 2.5 in Austria (between 1995 and 2005), 3.8 in Belgium, 4 in Sweden, 6.9 in Finland and 9% in the Czech Republic (Table 11.7).


Additionally, while most healthcare in the EU is publicly funded, the pharmaceutical sector relies heavily on private sources of financing. Public expenditure on pharmaceuticals is less than 60% of total spending in Belgium, Denmark, Estonia, Finland, Iceland, Italy, the Netherlands, Norway, Poland and Portugal (HFA 2007)3. Estimates of pharmaceutical expenditure include both prescription and over-the-counter drugs, with the latter that normally remain outside of the statutory health insurance system. The public share of total pharmaceutical spending actually declined over the period 1996 to 2004/5 in some countries, including the Czech Republic, Hungary, Iceland, the Netherlands, Poland, Portugal and Sweden (HFA 2007). This could be due to cost containment efforts throughout the 1990s. Over the same period, however, even more countries saw an increase in the public share of spending i.e. Austria, , Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Norway, Slovakia, Slovenia, Switzerland and Turkey (HFA 2007).


Table 11.7. Spending on pharmaceuticals as a proportion (%) of total health expenditure, 1990-2005


Pharmaceutical policy consists of a wide range of regulatory decisions about market authorization, pricing and reimbursement (i.e. the level of public subsidy). While at EU level there has been a harmonization of market authorization via the European Medicines Agency (EMEA), pricing and reimbursement policies vary across the EU Member States.


One of the primary mechanisms governments use to control pharmaceutical expenditure is price regulation. Common methods include direct fixed price control, profit control, international price comparisons and reference pricing. Price fixing is based on what is determined to be a ‘reasonableprice for the product based on balancing affordability and effectiveness. Setting a maximum price can be done through negotiated prices, price-caps, and price comparisons with other countries; the least transparent of these approaches is the one of negotiations between industry and government. International price comparisons to determine prices are used in most countries, including countries in central and Eastern Europe and all countries in Western Europe except Germany and the UK.


Reference pricing, a form of indirect price control, refers to setting a maximum reimbursement level which the third-party payer - whether government or insurance fund - pays. The reference price can be defined in different ways, such as the lowest priced generic equivalent available on the market (as in Denmark, Italy and Portugal), the average or median price of drugs with similar pharmacotherapeutic effects (as in Germany and the Netherlands) or at a proportion lower than the price of the original branded drug (as in Belgium, fixed at 26% lower) (Mrazek and Mossialos, 2004). Reference pricing is also widely used in central and Eastern European countries, including the Czech Republic, Estonia, Hungary, Lithuania, Poland, Romania and Slovakia. Reference pricing can also be linked to reimbursement decisions by setting a maximum level of reimbursement by the payer beyond which the patient must bare the additional cost of a more expensive product. Evidence suggests, however, that where cost savings through reference price systems have been shown, these were generally only on a short-term basis (Mossialos et al, 2006).


Profit control as a method for limiting spending on drugs is currently exclusively used in the UK, where there is a free pricing at the time of launch, but later profits are clawed back by the government (the maximum allowable profit is set at 21% rate of return on capital). Because expenditure depends on a combination of price and volume, direct price regulation schemes may not be effective in controlling expenditure since savings could be offset by volume increases. Furthermore, price control systems currently do not provide incentives to reward the therapeutic value of a drug and clinical gains. While the price control system in the UK may not have been successful at containing costs, it does encourage innovation (Mossialos et al, 2006).


Reimbursement decisions about whether and at what level to reimburse the cost of drugs to the insurance beneficiaries depend both on negotiations between the pharmaceutical company and the payer, and policy decisions regarding cost-sharing arrangements. Increasingly, economic evaluation is being used to make reimbursement decisions, e.g. in Finland and the UK. However, there are numerous challenges with this approach, such as deciding what costs and consequences to include in the analysis, how to ensure the consistent application of guidelines across studies, limitedgeneralizability’ of the results due to context-specific factors, and the extensive resources needed to undertake analysis. Many countries are now including economic concepts in applying for reimbursement listing; however, the extent to which this information is used by payers is not always clear. In Finland a product’s price and reimbursement is explicitly linked to the results of economic evaluation, but in many other countries (Denmark, Switzerland, Sweden, the Netherlands, Italy, Portugal, Norway, England, Wales, and the Baltic States), economic evidence is considered to some extent in pricing. This practice is either under preparation or rising in influence in France, Greece, Poland, Spain, Hungary, Slovenia, the Czech Republic and Slovakia. In Germany and France cost-effectiveness analysis is used to inform decisions about reimbursement, but not prices (although it is becoming more important for pricing in France).


Other possible pricing mechanisms to contain costs include the Ramsay methodstating that prices should differ across market segments inversely with their demand elasticity - or that governments purchase patents and release them for public use through auction. More importantly in containing pharmaceutical costs and encouraging innovation and best value, however, is the integration of pricing and reimbursement activities, as increasingly seen in some countries such as Belgium, the Netherlands and Sweden (Mossialos et al, 2006).


The substitution of less expensive generic drugs for brand name drugs once the pharmaceutical patent has expired is also a favoured approach in Europe. Generic equivalents are less expensive because of the existence of competition, with different mechanisms employed across European countries to encourage the uptake of generics. For example, financial incentives for pharmacists such as higher margins or additional payments may provide an incentive to dispense a lower-cost generic equivalent (e.g. in France, the Netherlands, Norway, Spain and the UK). Similarly, in Romania and Estonia, pharmacists are required to dispense the least-cost multi-sourced product. However, this policy is contingent on the pharmacists being authorized to make changes to a physician’s prescription, such as substituting a generic equivalent for a branded drug. In some countries physicians are mandated or encouraged to prescribe by generic name, as in Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, the Uk and in some regions in Spain. Since generic substitution is only permitted in some countries (e.g. Denmark, Finland, France, Norway, Spain, with the physician’s consent in Poland, and only if the original brand is not available, in the Czech Republic) financial incentives are instead placed on patients in the form of reference pricing (as mentioned above). Policies to promote generic drugs are prevalent in Europe, with most countries choosing a combination of approaches. These have contributed to the growing share of the pharmaceutical market held by generics, although it is not so clear to what extent they have slowed overall expenditure growth.


In containing pharmaceutical costs, much depends on whether physicians are given the appropriate incentives to prescribe generics when possible and aim for best value for money. Recent years have seen a growth in initiatives focusing on incentives for physicians, such as individual, practice or collective prescribing budgets in the UK and Germany, or prescribing guidelines in France. Evidence of the impact of this different type of incentives is not conclusive. Their effectiveness relies on both adequate information systems to track the guidelines, and also explicit quality assurance mechanisms (Mossialos et al, 2005).


Data and information on pharmaceuticals and medical technologies


Where possible, the EMEA will endeavour to use data on EU27 countries from 1992 onwards. However, publicly available/non-proprietary data on the status and use of pharmaceuticals in the EU25 market is limited. Although OECD, EUROSTAT and WHO Europe provide excellent data on health status, causes of death and healthcare spend, they have little information on the availability and use of pharmaceuticals in Europe. In addition, much of the information that the EMEA holds internally is classified as confidential due to ongoing procedures or company agreements.


Table 11.8. Contribution of European countries to global prescription drug market by value (2006)


Europe remains the second largest pharmaceutical market in the world with prescription drug sales of $181.8bn in 2006. However, growth rates of all other regions, except Japan, exceed that of Europe (4.8%). This trend is expected to continue in future years, particularly with the rapid emergence of developing pharmaceutical markets in China and India.


Figure 11.4. Relative prices of drugs across EU25 based on price data from 181 pharmaceutical products (2005)


The total cost of pharmaceuticals to society is highest in Germany, followed by Denmark, Ireland and Italy. Eastern European pharmaceutical markets, as represented by Lithuania, Slovakia, the Czech Republic and Hungary, have the lowest cost.


Research and development into priority diseases.


Figure 11.5. Current levels of research and development into WHO priority diseases in the developed world (2007)


To date, the highest number of products under development in Europe, in accordance with the World Health Organization (WHO) priority-list-of-diseases, are anti-neoplastic agents (figure 11.5).


Therapeutic focus of products approved at Community level and forecast for the years 2008-2010


Figure 11.6. Therapeutic focus of products approved at Community level by ATC-1 therapy area (2004-2010)


The expected product-mix of prospective applications for marketing authorisation to be submitted at Community level through centralised procedure shows stability in the main therapeutic areas with the class of anti-neoplastic and immunomodulating agents remaining dominant and representing approximately 20% of the overall product-mix (figure 11.6.).


3 Data are not available for seven countries, while there is no available data for the UK after 1997