Second Plenary Session INTERNATIONAL PRICE REFERENCING IS THERE A RIGHT WAY TO PERFORM IT? Thomas B. Cueni, MSc

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1 Second Plenary Session Speaker INTERNATIONAL PRICE REFERENCING IS THERE A RIGHT WAY TO PERFORM IT? Thomas B. Cueni, MSc Secretary General Interpharma Basel, Switzerland 6 th November 2012, Berlin International Price Referencing Is there a right way to perform? ISPOR, 15 th Annual European Congress, Second Plenary Session Thomas B. Cueni, General Secretary Interpharma, Chair ESPC EFPIA 1

2 Lisbon IRELAND Madrid Dublin Belfast English Channel ANDORRA Barcelona London Paris BELGIUM Geneva North Bruxelles Marseille Mediterranean NETH. Amsterdam LUX. Bern SWITZERLAND Milan Frankfurt Oslo Munich Venice Berlin SLOVENIA Rome Copenhagen Prague Stockholm CZECH Vienna Naples Zagreb CROATIA Hammerfest Baltic BOSNIA Krakow SLOVAKIA Sarajevo Adriatic Budapest MONTENEGRO Helsinki Warsaw Belgrade SERBIA ALBANIA Tallinn ESTONIA LITHUANIA MACEDONIA GREECE Riga Vilnius LATVIA Bucharest CRETE Aegean Athens 11/6/2012 Pharmaceutical pricing policies - static vs. dynamic efficiency Pharmaceutical policy making serves multiple objectives that must be balanced with one another to arrive at the policy mix that best reflects national priorities: affordable access to effective medicines vs. strong pressure for public cost-containment; inherent trade-off between static and dynamic efficiency static efficiency, in which consumer welfare is maximised by getting the most health value from today s expenditures, as constrained by the limits of present technological capability dynamic efficiency, in which the R&D incentives serve to generate growth in the capacity to prevent health conditions and cure diseases in the future. Getting the best possible price or lowest possible expenditures for pharmaceutical products in the market today may mean having fewer and less innovative alternatives for the future. International price referencing - widely used but what is the underlying rationale? (I) The use of IRP by EU member states and the pricing rule used Conclusions from OECD study: International price referencing is the most widely used approach (22/30 OECD countries) to cap prices (or reimbursement levels) of innovative medicines; is perceived by public authorities as a means to assess the appropriateness of the proposed or actual price in relation to what is paid elsewhere; requires an explicit or implicit notion about how pharmaceutical prices ought to differ across countries, and how they should be similar; the rationale for selecting particular benchmark countries is not always explicit. KEY: Average Lowest None PORTUGAL SPAIN U. K. FRANCE NORWAY DENMARK GERMANY Source: CRA analysis. Note that international reference pricing is not applied to all products in every country. For example, in Germany it is only applied in particular circumstances. ITALY AUSTRIA SWEDEN POLAND HUNGARY FINLAND ROMANIA BULGARIA Source: OECD, Efficiency in Health-care Delivery, Joint OECD/European Commission Conference, Brussels, International Price Referencing - Is there a right way to perform? 6th November

3 International price referencing - widely used but what is the underlying rationale? (II) Conclusions from OECD study: International price referencing Does not support aim of cost-effective expenditure: Whether use of a medicine is cost-effective at a given price depends on health needs, income, preferences and health care costs, which vary across countries. Does not provide market signals for valued innovation: Use may be cost-effective at a higher price than elsewhere, in which case the policy has a negative impact on rewards to valued innovation. Promotes minor product differentiation across markets. Adds to problem of affordable access in global market. As tools for meeting a range of pharmaceutical policy objectives, external and internal price referencing are problematic in a number of respects Source: OECD, Efficiency in Health-care Delivery, Joint OECD/European Commission Conference, Brussels, Inequalities in availability of and access to innovation Source: Innovation and Solidarity in Pharmaceuticals. EU Belgian Presidency Ministerial Conference, 09/

4 Availability vs affordability Huge variation in availability and uptake of medicines across European countries Variations do not appear to be linked to differences in availability of medicines across markets but to differences in the average GDP per capita Availability of medicines in smaller markets highly influenced by regulatory requirements in addition to financial constraints or affordability considerations Limiting cross-national effects of pharmaceutical pricing policies could improve differential pricing, increase access for middle/low income countries and increase pharmaceutical R&D - OECD Spillovers from international price reference International price referencing Introduces a spillover but its direction depends on the rules On average the income of the basket of countries that are referenced is lower than the income of the country itself 12 countries reference countries with income less than 80% of their own Without IRP, much stronger incentives for pharmaceutical firms to price in lower-income countries on basis of willingness to pay Income indexed to European average (100= European average) Comparing the income of the country using IRP with the reference price basket Source: CRA analysis Actual income Income of basket AT BE BG CY CZ EE FI FR GR HU IE IT LV LT NL PL PT RO SK SI ES 4

5 Problem has been acknowledged a similar price level leads to a different level of affordability depending on the economic situation of each Member State. Attention could be given to measures that allow companies to offer medicines at affordable prices in each EU market. Member States are not interested in fixing prices of products that are only transiting through their territory to be utilised within other Member States. They should, therefore, abstain from fixing prices for products that will not be used within their territory and that will not impact on their national budgets Source: Recommendation on P&R policies from High Level Pharmaceutical Forum International Price Referencing - Is there a right way to perform? 6th November 2012 but short-term politics still prevail AMNOG in Germany introduces country basket with 15 countries which include inter alia Greece, Ireland, Portugal, Slovakia and the Czech republic Swiss Government decides in March 2012 that, at a time of significantly overvalued Swiss franc, price reviews should only be based on international price comparison. CJEU judgments acknowledge right for companies to protect their commercial interests but there is no waivering yet from dogma of unhindered free flow of goods, or call to refrain from international price referencing International Price Referencing - Is there a right way to perform? 6th November

6 How can we improve the situation? Need for social contract Problems of access and affordability can only be addressed if there is a willingness by richer countries to pay more for innovative medicines than poorer countries Need for more flexible solutions All parties concerned payers, distributors, and industry should work towards more flexible solutions (e.g. managed entry schemes, risk sharing agreements for new products, rebates/clawbacks) for the benefit of improving access without compromising future innovation Focus in value-based pricing Value-based pricing means significant reward for breakthrough innovation and incremental reward for incremental innovation Revisit current legislative framework CJEU judgments give flexibility to companies but don t solve the problem 6