Drug Prices: National Specificities in a Global Market

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Fellow - Healthcare

In 2017, the global drug market exceeded the US$1 trillion turnover threshold, equivalent to €826 billion. The American market remains the largest, covering 45% of the world market, far ahead of the main European countries (Germany, France, Italy, the United Kingdom and Spain), which jointly own 16.5% of global market share. Turnover depends partly on drug prices; whose fixing mechanisms are more or less regulated across countries. While drug pricing is strictly controlled in France for example, it is not the case in the United States where price negotiations are unconstrained. We provide here a short country panorama to shine light on the main issues of Institut Montaigne’s latest study on innovative medicines.

A single price across the country: the French case

France is one of the world's leading pharmaceutical markets: in 2017, it ranked fifth reaching nearly €54 billion turnover and drug sales being the fourth largest contributor to France's trade balance. In France, the drug economy is regulated by the State, with a single price applied across the country.

After obtaining a marketing authorization (AMM), a pharmaceutical company can set the price of a drug.But for the drug to be reimbursed by Social security, it must apply to the Haute Autorité de santé (HAS) - French National Authority for Health -. The guideline issued by the HAS Transparency Commission is then forwarded to the Comité Economique des Produits de Santé (CEPS) - French Economic Committee of Health Care Products - and the Union Nationale desCaisses d'Assurance Maladie (UNCAM) - National Union of Health Insurance Funds. The final decision on reimbursement eschews to ministers responsible for health and social security.

The price is decided by the Economic Committee for Health Products, usually through a negotiation process with the company operating the drug.

Based on the application submitted by the pharmaceutical company and available scientific evidence, the HAS Transparency Commission draws up a scientific opinion assessing the Medical Service Provided (SMR) and the Improvement of the Medical Service Provided (ASMR) by the relevant drug. The price is decided by the Economic Committee for Health Products, usually through a negotiation process with the company operating the drug(failing this, by decision of the Committee), on the basis of several criteria including theASMR, the price of medicines with equivalent therapeutic purpose, sales forecasts, the target audience and prices applied abroad.

France has set up a derogation mechanism, called the temporary authorization for use (ATU). Exceptionally, some drugs may be subject to ATU, making them available in healthcare institutions before the issuing of their marketing authorization (autorisation de mise sur le marché, AMM) for a limited period of time. It is intended for drugs treating serious or rare diseases, when no other appropriate treatment exists, and implementation of the treatment cannot be deferred. Drugs with an ATU are 100% covered by health insurance. They are provided to the healthcare institution directly by the laboratory holding the operating rights, either free of charge or in return for an indemnity determined by the laboratory.

In hospitals, some medicines are financed "en sus" (in addition), meaning that for some innovative and expensive treatments, the healthcare institution receives, in addition to the lump sum paid by the social security system, the full cost of the medicines. The list of drugs benefiting from this derogation funding is called the "liste en sus" (list in addition), as these are financed besides and in addition to the costs of hospital stay.

The unregulated price: the American case

In a country where private insurance is the main source of health care coverage, price negotiation is unconstrained by a conventional policy. In practice, prices are the outcome of a very fragmented process of negotiation between the manufacturer and each insurance provider (public or private), most often arbitrated by specialized organizations called Pharmacy Benefit Managers. There is therefore not one but several American prices.

Two patients with different health insurance providers may have very different remaining expenses, meaning that the amount paid at the pharmacy for the same prescribed drug may vary from one patient to another. Besides, it is in the United States that pharmaceutical innovations are usually marketed first, and where the manufacturer begins to make his product profitable. Indeed, of the ten largest pharmaceutical companies in the world in terms of revenues, more than half are American.

Prices are the outcome of a very fragmented process of negotiation between the manufacturer and each insurance provider (public or private).

Price differences are subject to heated debate in American society, with drug pricing being one of the key recurrent issues in every presidential campaign. Taking a protectionist perspective, Donald Trump recently raised this issue back on the agenda, arguing that the United States are paying the high price for the rest of the world. According to him, higher prices paid by Americans give pharmaceutical companies the latitude to negotiate lower prices in other countries, especially in Europe, while preserving their profitability. In other words, without the United States, other countries would have to pay higher drug prices in order to access pharmaceutical innovations.

Instant marketing: the German case

The German health system relies both on public and private health insurance. Private sector employees earning an income below a certain threshold are required to join one of the public statutory health insurance funds, while the highest income earners may choose to be covered by private insurance. About 90% of the population is covered by public health insurance funds, and 10% by private insurers or special schemes.

The basket of reimbursable medicines is defined by high-level principles inscribed in law and by the Joint Federal Committee, the Gemensamer Bundesausschuss, representing professionals, healthcare institutions and health insurance funds. It takes a reverse approach meaning it establishes a list of non-reimbursable medicines, modulated by category of patients. By default, drugs are otherwise reimbursable.

About 90% of the population is covered by public health insurance funds, and 10% by private insurers or special schemes.

The German system allows for immediate insurance takeover, as soon as the marketing authorization is granted.This mechanism enables rapid patient access to innovative treatments. The price is unregulated for one year, during which period the drug is fully reimbursed by health insurance, before regulation is carried out later. Typically, the price ceiling is regulated indirectly, through the maximum level of reimbursement offered by health insurance.

In 2010, a law changed the way prices are set, in order to better regulate spending and to establish the link between a drug’s price and effectiveness. The Joint Federal Committee is tasked with reviewing the added value of the drug during the first 12 months of marketing, requesting if necessary additional expertise from the German Institute for Quality and Efficiency in Health Care (IQWiG).

In hospital, prices are negotiated directly between the manufacturer and the institution. However, since 2017, pricing set in urban areas constitute a price ceiling. Germany has a system of diagnosis-related groups (DRG), equivalent to Groupements Homogènes de Séjours in France, with a lump sum payment. In order to ensure that hospitals are not disincentivised to prescribe innovative medicines when their cost is higher than existing treatments, additional funding is provided besides the agreed fixed fee, following a mechanism comparable to the "liste en sus" in France as described above.

Medico-economics: the British example

For most medicines, coverage is automatic in the United Kingdom after the marketing authorization is issued. Instead, a negative list exists for health products considered as not deserving of receiving support from national solidarity. These drugs are mostly so-called "lifestyle" drugs, such as ones to lose weight or improve sexual performance.

Until 2019, pricing was regulated through the Pharmaceutical Price Regulation Scheme (PPRS), for a period of 5 years. In January 2019, the PPRS was replaced by the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS). It introduces a number of significant changes compared to the former model which was based on a combination of "unregulated price" and "control of profit".

VPAS introduces a 2% limit on the drug sales growth of the National Health Service (NHS, the UK’s health insurance system), through pharmaceutical companies returning a proportion of their net sales. In exchange, the process for evaluating new drugs by the National Institute for Health and Care Excellence (NICE) should be quicker, with the goal of accelerating this process by 6 months.

Instead, a negative list exists for health products considered as not deserving of receiving support from national solidarity.

NICE will now evaluate all new drugs on their first indication and major new indications.NICE had been established to deliver recommendations on access to drugs that could pose funding problems. It conducts a medico-economic assessment of the cost per QALY (Quality-Adjusted Life Year), an economic indicator measuring the quality-adjusted gain of years of life. If it is too high, NICE issues a negative recommendation for use by the NHS. This guideline is typically followed up, given that British doctors are directly under contract with the NHS. The notion of "value-based pricing" is particularly important so that pricing is fixed depending on the value given to the product.

While the medico-economic approach is fundamental in the United Kingdom, it is not without its limits, since it can restrict access to innovative treatments, in cases where uncertainty about the drug’s effectiveness is too high or the cost per QALY is assessed to be excessive.

Innovative mechanisms for innovative medicines: the Italian case

In Italy, the AIFA (Agenzia Italiana del Farmaco) is responsible for pricing, after negotiation with pharmaceutical laboratories, while care is provided by the SSN (Servizio Sanitario Nazionale) with highly decentralized management. The SSN is organized in the form of a network of local health agencies, each able to define its modalities and level of care. Price negotiations are held on the basis of the product's cost-effectiveness ratio, risk-benefit, foreseeable financial impact, forecasted sales volumes, as well as prices and consumption in other European countries. Prices are usually set for two years. If no price agreement is reached, the drug is reclassified as non-refundable. As in Germany, price references exist with cap mechanisms.

To contain drug prices, Italy has also introduced new types of agreements where pricing can be set conditionally, through performance contracts. These are contracts where the terms of payment are contingent on subsequent measures of the drug’s effectiveness. There are four types:

cost sharing contracts (negotiation of a discount for all patients eligible for treatment during the first treatment cycles),
risk sharing contracts (negotiation of a discount for "non-responder" patients for whom the treatment did not work after clinical evaluation),
payment by results (full reimbursement of treatments by the manufacturer for "non-responder" patients) and,
success fee (treatment is only paid to the manufacturer for patients for whom the treatment worked. Health insurance does not make advance payments and only pays if the result is verified in real life).

These types of innovative pricing agreements are favoured by the use of a database collecting real-life evidence, pending the timely update of the database. An Italian study in 2015 demonstrated the relative effectiveness of the first three mechanisms: in 2012, laboratories paid €121 million to the Italian health insurance through the first three types of performance contracts out of a total of €3.7 billion in drug expenses. In 2015, this amount reached approximately €200 million according to the National Cancer Institute (INCa). Success fee contracts thus seem promising for containing drug expenses.

Performance contracts at the local level: the Swedish case

In Sweden, the Tandvårds-Läkemedelförmånsverket (TLV), the pharmaceutical and dental authority decides both drug pricing and the health insurance coverage rate. Manufacturers first issue price proposals, which are then analysed by the TLV. This is done in close collaboration with the Sveriges Kommuner och Landsting (SKL), an association of Sweden’s 21 local authorities, counties, which are responsible with municipalities for health policies.

The pharmaceutical and dental authority decides both drug pricing and the health insurance coverage rate. Manufacturers first issue price proposals, which are then analysed by the TLV.

Performance agreements negotiated at the county level enable a speedy access to innovation. These managed entry agreements include the reimbursement of treatments by the manufacturer when effectiveness is lower than what was anticipated.

A Council for New Therapies, established in 1987, is responsible for developing recommendations to the County Councils on the medico-economic perspective and on the drugs for which managed entry agreements should be made.

Finally, the Swedish system is characterized by a degressive reimbursement rate based on the expenses incurred by the patient since the beginning of a 12-months period. The patient pays for the prescribed drugs up to an amount equivalent to €100 per period. Beyond this ceiling, a degressive reimbursement rate is applied, depending on the expense bracket, up to a price ceiling beyond which the patient no longer pays anything. This system does not apply to all drugs but depends on the patient's cumulative expenditure since the beginning of the period.