Investigation of the accessibility and affordability of medicines in specialist medical care

Transcription

1 Investigation of the accessibility and affordability of medicines in specialist medical care june 0

2 Description of the policies concerning SMC medicines Description of the supply chain and financing of medicines in SMC Results from the quantitative part of the investigation Results from the qualitative part of the investigation

3 INTRODUCTION Understanding accessibility As yet, nearly all patients have sufficient access to medicines in specialist medical care (SMC). But will this always be the case? And will healthcare remain affordable? What can the key players in the healthcare system do to help? And what are the bottlenecks and areas for improvement regarding the assurance of the accessibility and affordability of SMC medicines? The Dutch Healthcare Authority (NZa) investigated these questions from mid-march until June 0. This was done through interviews with the most important parties in the healthcare system, literature review, surveys submitted to healthcare providers and health insurers, and the analysis of data. This interactive report is a rendition of that qualitative and quantitative research, commissioned by the Dutch Ministry of Health, Welfare and Sport (VWS). Motivation Objectives Focus back next

4 INTRODUCTION Motivation Objectives Focus In 0, the Ministry received the report Accessibility of expensive cancer medicines, now and in the future. In this report, the Dutch Cancer Society wrote that the accessibility of expensive cancer medicines is currently good, but could come under pressure. This could be prevented by specific measures related to the way the supply chain is financed, among other things. The Ministry wants to guarantee the accessibility and affordability of expensive medicines for patients. They have therefore asked the Dutch Cancer Society to carry out further research into the provision of cancer medicines. At the same time, the Ministry also requested that the NZa conduct further research, without limiting itself to cancer medicines and looking at the entire (hospital) medicine market from its position as market supervisor.* The following issues are of key importance to the Ministry of VWS: - How accessible and affordable are SMC medicines? - What are the threats to accessibility and affordability? - How has expenditure on SMC medicines developed? - How will these costs develop in years to come? - How can accessibility and affordability be guaranteed more effectively? The NZa was required to investigate: - what the current financial situation concerning SMC medicines looks like; - how the various parties in the healthcare system try to keep these medicines accessible and affordable; - the obstacles these parties encounter in the process; - what areas of improvement there are and what possible measures can be taken. The NZa focused its investigation on medicines in SMC, especially medicines that give rise to relatively high costs per patient. In general, these are the medicines for which hospitals can bill surcharges on their regular rates, and which are referred to as expensive medicines, orphan medicines and coagulation factors in this report. A list of all the medicines that were part of this investigation has been included in the appendix. In this report, the NZa refers to SMC medicines. These medicines are generally administered to patients in a hospital environment. The investigation also focused on the behaviour of parties within the healthcare system; not least the way in which (price) agreements are reached. Special attention was paid to the interactions between: - healthcare provider and manufacturer; - hospital and specialist; - specialist and patient; - healthcare provider and insurer. * The NZa carried out this investigation independently. To do so, it set up a careful investigation process, as described in the methodology included in this report. With this independence and level of care, the NZa intends to present the results of its investigation as objectively as possible. There has been no intermediary alignment of the contents of the findings and recommendations with other ongoing investigations. It is possible that the Dutch Cancer Society and the NZa will have different advice to offer in the areas where their investigations overlap. back next

5 Description of the policies concerning SMC medicines back next

6 The accessibility and affordability of SMC medicines Who are the key players in the production, purchasing, administration and reimbursement of expensive medicines? What threats are there to the accessibility of these medicines? And what funding policies apply to these medicines? Key players Threats Funding policy - Medicine manufacturers - Government - Institutions for specialist medical care (hospitals) - Health insurers - Patients/policy holders - Physical inaccessibility - Financial inaccessibility - Patient selection - Risk selection and insurance premium differentiation - Funding policy until 0 - Funding policy from 0 back NeXT

7 CONTEXT > KEY PLAYERS Medicine manufacturers Medicines are produced and supplied by the pharmaceutical industry. This industry consists of industrial companies in the private sector, many of which are listed companies. Since a recent wave of mergers and acquisitions, the vast majority of these pharmaceutical manufacturers are globally active. In order to produce and supply pharmaceuticals, they are required to comply with a great deal of national and international legislation and regulations. Manufacturers decide for themselves which medicines to develop and produce. They are also free to choose which market to supply to. Presently, the most important markets are the US, the EU and Japan, but there are many highly populated, fast-growing economies that represent large potential markets. Types of manufacturers Manufacturers can be classified as: a) manufacturers that put new medicines onto the market and b) manufacturers that produce generic medicines. To a certain extent, the first category of manufacturers has development (the invention of a new mechanism of action) carried out by other parties. These parties could be universities, research institutions or spin outs from universities. Generic medicines are unbranded medicines that are made up of the same active ingredients and formula as the original medicine (brand/reference listed). The production/sale of a generic medicine is only permitted if the patent on the original medicine has expired, which is typically after approximately twenty years. Recovering investments Manufacturers want to fully recover all of their costs. In addition, they want to see some return on their investments (for their shareholders and for future research). For this reason, they aim to sell their medicines for a profit. After being approved, the medicine may be sold. The recovery of costs truly begins when a medicine becomes available as part of the basic insurance package, because only then does it become available to the majority of patients. Recovery occurs mainly while the patent is still valid. Manufacturers can extend the patent period by making changes (often only minor) to the formula or indication. A new indication requires the medicine to be re-registered. Market dynamics The development, research and production of medicines occur in a dynamic market. This dynamism is partially a result of the emergence of spin outs from universities or research institutions, large-scale acquisition of companies (including the spin outs) often by the larger medicine manufacturers, loss of patents due to setting aside development of medicines, bankruptcy of companies and high investment costs using venture capital from investors who want a rapid return on their investments. These developments have driven up costs. 7

8 CONTEXT > KEY PLAYERS Government In most EU countries the sales prices within the pharmaceutical industry are regulated by legislation and regulations. For many medicines, the Dutch government determines the maximum price that the manufacturer can ask from hospitals and pharmacies. The goal here is to reduce costs for healthcare providers, in the hope that the resultant savings will be transferred to insurers and policy holders/ patients in the form of lower rates and premiums. Ministry of VWS In the Netherlands the Minister of VWS can set maximum sales prices using the Pharmaceuticals Pricing Act (WGP). Much like in other EU member states, this involves making a comparison with reference prices in other countries (see box to the right). In compliance with the WGP, the Ministry conducts biannual investigations into whether there is any reason to reassess the maximum prices. Reference prices and countries Most EU member states have a fixed system for determining maximum selling prices. These systems often involve looking at prices in other countries. This is also the case for the Dutch system. The Minister of VWS (with the help of the agency Farmatec) determines the maximum price that may be demanded for a new medicine when it s put on the market. If the price requested by the manufacturer is higher than the arithmetic mean of the prices in the four legally designated reference countries (Belgium, Germany, France and the United Kingdom), then this price is adjusted downwards. As a result, the prices that the manufacturers suggest in other countries or the prices that are determined by the authorities in these countries have a direct effect on the maximum price in the Netherlands. The National Healthcare Institute (ZIN) The ZIN makes (non-binding) statements (indications) about some of the specialist medicines, the aim of which is to clarify whether or not they should be included in insured healthcare. The Ministry of VWS makes the final decision regarding what is included in the basic insurance package. The Dutch Healthcare Authority (NZa) The NZa sets declaration titles and maximum rates for specialist medical care, including medicines. Medicines that cannot be funded with DBC healthcare products receive a separate declaration title (add-on). For outpatient medicines this is regulated indirectly using the Medicine Reimbursement System (GVS). The maximum reimbursement that the insurer pays for a medicine is determined using the GVS. However, this investigation is focused on the SMC medicines that are provided by hospitals. So the Minister does not determine the price that the hospital can charge to the health insurer; that is the role of the NZa. See also the supply chain step 9. 8

9 CONTEXT > KEY PLAYERS SMC Institutions (hospitals) Institutions authorised to provide specialist medical care are allowed to supply SMC medicines to patients. Between 0 and 0 an increasing number of medicines were transferred from the pharmaceutical healthcare designation (outpatient medicines) to the medical healthcare designation and the specialist medical care Budgetary Framework. This means that only SMC institutions are currently permitted to supply these medicines and receive reimbursement at the expense of the Health Insurance Act ( Zorgverzekeringswet or Zvw). Expenditure The table on this page shows the expenses of general hospitals and UMC s, including the share of expenditure for each item. The table reveals that the average margins (differences between turnover and expenditure) are relatively small. The SMC medicines are categorised under Materials. In contrast to the expenditure on, for example, equipment and accommodation, the costs incurred for medicines are largely variable. After all, hospitals can adjust purchasing to suit the number of patients being treated. However, a large proportion of hospitals expenditures are fixed. These are expenditures that do not depend on the amount of healthcare that must be provided. This means that (in the short term) a hospital cannot realise savings by using less equipment, but it can realise savings if it administers less medicines or treats less patients with expensive medicines. The integral funding system gives hospitals a choice as to how they spend money and makes them responsible for expenditure and operating risk. In general, the hospitals expenditures on inpatient medicines compete with all the other expenses. From a financial perspective, there is no difference between an increase in the price of medicines and, for example, an increase in VAT or in the prices of medical equipment, buildings and interest on loans. Since 0, an important new expenditure item has been added: hospitals now have to negotiate the wages of their consulting specialists. Hospital expenditure in 0 ( Millions)) Proportion of total expenditure (%) Total General University hospitals hospitals Personnel.78 / 8% 7. / %. / % Materials.0 / 0%. / %.80 / 7% (inc. medicines) Maintenance, / % / % 98 / % electricity, etc. Asset depreciation. / 8%. / 9% 89 / % Interest / % 7 / % 0 / % Total expenses Turnover Source: Dutch Hospital Data, Hospital indicators 0 Under the Healthcare Institutions Approval Act (WTZi) The expenses do not include expenditure for consulting specialists. As of 0 this expenditure will also be included under personnel expenses. 9

10 CONTEXT > KEY PLAYERS SMC institutions (hospitals) Income The majority of SMC institutions income comes from reimbursements from health insurers. Income is now almost completely dependent on declared production. So unlike in the past, the institutions no longer receive one fixed annual budget. Instead, they are paid based on healthcare output (i.e. for each Combined Diagnosis and Treatment Healthcare Product or DBC ). In turn, the price per DBC is dependent on the agreements that have been made with health insurers. The transition from traditional funding to this system of performance-based funding was completed in 0. Hospitals can deal with the costs of SMC medicines in various ways. One way is to try to lower purchasing prices (for example, by negotiating lower prices, limiting provision or cutting other costs). The other way is to increase their income, for example by reaching different agreements with insurers and/or supplying more (paid) production. The reimbursement of SMC medicines can proceed via two channels:. Institutions can declare medicines as part of an integral healthcare product, in compliance with DBC prices that have been agreed with insurers.. Institutions can declare some medicines separately. A separate declaration title for such a medicine is known as an add-on. Add-ons Medicines for which add-ons are available and for which the NZa has established a maximum price are listed in the NZa provisions and rates table. Until 0, the criterion for admission to the add-on list was that the average annual expenditure on a medicine per patient was more than 0,000. From 0 it is possible for less expensive medicines to be admitted if healthcare providers and/or health insurers submit a request. They do that if they are of the opinion that it is not desirable to fund a specific medicine using the average rate from the integral healthcare system (a DBC). + Medicine as part of a DBC healthcare product + Medicine as an add-on in a separate declaration 0

11 CONTEXT > KEY PLAYERS SMC Institutions (hospitals) Influencing income The majority of hospitals and UMC s turnover comes from healthcare services that they declare through the Health Insurance Act (Zvw). If the Zvw turnover of all hospitals and UMC s rises above a pre-determined level, the Budgetary Framework for Healthcare (BKZ), then the government can intervene. The Ministry of VWS then instructs the NZa to remove a part of the individual turnover from each institution, so that the total turnover drops to the agreed level. This charge is known as the macro-management instrument. The Ministry s macromanagement instrument only applies to the Zvw turnover and has not yet been applied to SMC. Turnover limit from insurers Health insurers, hospitals and UMC s follow the Administrative Outline Agreement (BHA), agreed upon by the Ministry of VWS, the Dutch Hospital Association (NVZ), the Netherlands Federation of University Medical Centres (NFU), Zelfstandige Klinieken Nederland (ZKN) and Zorgverzekeraars Nederland (ZN). This agreement states, among other things, that expenditure by hospitals and UMC s may not rise above percent per year for the period from 0 to 07. For 0 and 0 the limit was. percent per year, and for 0 it was. percent per year. As a result of this growth limitation, health insurers and hospitals often agree upon a turnover limit; a contractually established ban on declaring more than an agreed amount per year. No financial incentive for expensive drugs When a hospital or UMC uses or provides SMC medicines, the declarable turnover rises. This is profitable if the marginal costs are lower than the marginal returns. But because of the turnover limit, the marginal returns (for example, from an expensive addon) can be zero, while the marginal costs of expensive medicines are high especially the costs of purchasing those medicines. As a result, the treatment of more patients does not result in more reimbursement, but still costs money. Considering the presence of the turnover limit, it could be financially safer to provide more treatments with lower variable costs. The contribution to the covering of fixed costs is then comparatively higher. A turnover limit provides a financial incentive to stop providing SMC medicines after reaching the limit.

12 CONTEXT > KEY PLAYERS Health insurers Health insurers have a directorial role within the healthcare system. Every Dutch citizen is required to have insurance and must have a policy with one of the twenty-six health insurers. In turn, these insurers are required to accept anyone who signs up as a customer (obligation to accept). Expenditure The Health Insurance Act (Zvw) requires insurers to purchase or reimburse sufficient healthcare services for their policy holders. This duty of care does not apply to supplementary insurance. Most SMC medicines are included in basic insurance packages and so insurers are obliged to purchase them as (part of) specialist medical care. Insurers bear a certain amount of risk due to their healthcare expenditures. If they purchase or reimburse more than they earn in revenue, then they make losses that can only be compensated by increasing rates, decreasing expenditure or depleting reserves. By increasing its premiums an insurer worsens its position in the insurance market and policy holders are then more likely to choose to move to a competitor. Revenue Insurers are permitted to make and distribute profits, although most of them are not profit-driven. Requirements set by De Nederlandsche Bank (DNB) demand that they keep a minimum amount of reserve that must, in principle, consist of initial capital and retained profits. Insurers earn revenue from three sources: nominal premiums (directly from policy holders), additional payments (in the form of deductibles and excess) and risk equalisation payments determined by the government (see next page). Basic insurance does not require payment of excess for SMC. However, all SMC, including SMC medicines, is subject to the legally required deductible.

13 CONTEXT > KEY PLAYERS Health insurers Risk equalisation The government s Health Insurance Fund distributes an equalisation contribution to insurers annually, based on rules and criteria drawn up by the National Healthcare Institute. The Minister of VWS can change these rules or have them changed, and in February 0 the Minister announced that this was to be done, particularly for patients with chronic diseases. However, it has yet to be seen how this adjustment will take shape. The characteristics of policy holders, including their health characteristics, are essential to the determination of the size of the equalisation contribution. When a policy holder incurs high healthcare costs over several consecutive years, this also has an effect. For example, insurers receive a lower contribution if they have a relatively high number of young, healthy, highly educated customers with high incomes. A large group of medicines, which includes oncolytics and orphan drugs, is currently considered to represent unpredictable levels of risk. For this reason, expenditures on these medicines are part of the so-called fixed healthcare costs, for which an insurer only takes a limited risk and receives a risk equalisation. Risk equalisation works using macro-provision sums, for example for specialist medical care, mental health care and other services such as outpatient pharmacies and healthcare provided by general practitioners. These macro-provision sums (mpb s) assume predictable healthcare costs and represent the upper limit of the equalisations. As such they are more or less the insurers equivalent of the Budgetary Framework for Healthcare that applies to healthcare providers. The main difference is that healthcare providers may be charged a fine if their turnover exceeds the Budgetary Framework for Healthcare. Even though health insurers do not have to pay a fine when they exceed the macro sums, they still have to supplement their shortages, for example by spending their reserves or Extending packages without increasing macro-provision sums It is possible to broaden the basic insurance package (for example, by including a new and expensive medicine) without increasing the mpb s. To do so insurers need to take a closer look at other expenditures and take steps to change them. Broadly speaking, there are two ways to do this:. Increase the nominal premium. (Unlike for hospitals, there is no regulation that limits the collective turnover of insurers. Only the risk equalisation has a maximum limit.). Limit expenditure (on medicine for example). This can be achieved by, for example: - establishing a turnover limit; - encouraging healthcare providers to behave in a certain way when prescribing medicines; - negotiating with manufacturers; - cutting back on other expenditures, although this increases the danger of applying disguised risk selection. Ministry of VWS, Letter Quality pays ( February 0) Parliamentary letter Risk equalisation 0: improving compensation for chronic diseases June 0.

14 CONTEXT > KEY PLAYERS Patients/policy holders All inhabitants of the Netherlands are required to have insurance. Adult policy holders (>8 years old) must pay a nominal premium to their health insurer. People with lower incomes can receive compensation (healthcare benefit), regardless of actual healthcare consumption. Premium and deductible In principle, all basic policies chosen by policy holders provide the same cover; at most there is a difference in the number of healthcare providers. Policy holders are permitted to choose their own health insurer and can change insurer once a year. The insurance market is competitive. In addition to paying a nominal premium policy holders and their employers also pay an income dependent premium. This is then used by the Health Insurance Fund to finance the risk equalisation and healthcare for minors in the Netherlands. Policy holders (not including minors) who actually receive healthcare are required to pay the initial costs themselves. This compulsory deductible applies to all specialist medical care but does not apply to certain kinds of healthcare, for example general practitioner care, obstetric care, maternity care or district nursing. In 0 a compulsory deductible of 7 applies. Policy holders can arrange a voluntarily increase in this deductible with their insurers up to a maximum of 87 in exchange for a discount on their nominal premium. Worried because of low income? There is some debate in the Netherlands regarding whether the compulsory deductible could cause people with lower incomes to avoid or postpone necessary healthcare. Although this is possible for general care, it is less likely for specialist medical care. After all, it is probable that patients being referred for treatment with expensive medicines have already been receiving secondary care for some time, and have therefore already paid their deductibles. In such cases there are then no additional costs associated with the use of expensive medicines. Only in cases where patients receive treatment for two successive years are they required to pay the deductible in the second year. However, there is no indication that this causes patients to refuse further treatment. Neither are their personal expenses affected by the general increase in expenditure on healthcare. Instead, at most policy holders (including patients) are affected indirectly, by a potentially higher nominal premium or a higher income dependent premium. However, for a large proportion of this group of policy holders a higher nominal premium leads to a higher deductible. And a higher income dependent premium is usually accompanied by a set of tax measures that make the net effect on an individual difficult to predict. So far all increases in healthcare costs have largely been reimbursed collectively (and to a lesser extent, by increased deductibles). The policy holders bear the smallest financial risk. Their main concern is then primarily whether a specific expensive medicine is included as part of their basic insurance. A soon as this is the case, and they have also received reasonable notification of the fact, they are theoretically entitled to it.

15 CONTEXT > THREATS Physical inaccessibility Important potential threats to the physical accessibility of SMC medicines are problems with production and (temporary) problems with distribution. The unavailability of medicines because they have not yet been developed is also a problem. For example, at the start of the st century there was a shortage of Enbrel, a cheaper alternative to the arthritis medicine Infliximab (Remicade). This made it necessary to introduce new regulations for the reimbursement of Remicade. Physical inaccessibility due to production and/or distribution problems The tendency to focus strongly on the use of generic medicines (especially for outpatient prescriptions) leads to high levels of price competition and low margins. This results in the relocation of production, which in turn threatens distribution and availability. The Royal Dutch Association for the Advancement of Pharmacy (KNMP) recently informed the government that the threat of shortages in the availability of medicines is increasing. 7 According to the KNMP, supply problems have been encountered with more than 00 medicines. This is especially applicable to medicines that are supplied via the community pharmacy. The KNMP states that the causes are lower stock inventory levels and the closure of production facilities in an attempt to increase efficiency. Physical inaccessibility due to unavailability For some conditions effective medicines are simply not yet available. For example, until recently this was the case for cystic fibrosis and hepatitis C. The EU could also provide incentives focused on solving these issues. These examples describe the difference between two forms of physical inaccessibility. The first form arises from temporary production or distribution problems and the second form is the result of insufficient research and development. It is conceivable that research and development of innovative medicines would stagnate if it was not possible to recuperate the money invested in the process. Conceivable stagnation Sometimes physical inaccessibility is the result of insufficient research and development. It is conceivable that research and development of innovative medicines would stagnate if it was not possible to recuperate the money invested in the process. 7 Source: KNMP

16 CONTEXT > THREATS Financial inaccessibility For the vast majority of policy holders SMC medicines are only financially accessible if they are covered as part of the basic insurance package. Presently, nearly all SMC medicines which are required are available through basic insurance. 8 Two years ago a concept report authored by the ZIN, at that time still called the CVZ, suggested the exclusion of two orphan drugs from the basic insurance package. This did not lead to the exclusion of these medicines and the advice was changed. In the Netherlands there are no hard criteria on the basis of which a medicine can be included or excluded from the basic package. In a report published in 00 entitled Sensible and sustainable healthcare, the Council for Public Health and Healthcare (RVZ) proposed setting a limit of 80,000 per quality adjusted life year. 9 This method was disputed and the minister chose not to accept the recommendation. It is also possible for an individual patient to have limited financial access to a medicine that has been included as part of the basic insurance package. For example: - if a health insurer states that the policy holder does not meet the conditions of his or her policy. 0 A difference in opinion may arise regarding policy conditions. In such cases the Health Insurance Complaints and Disputes Foundation (SKGZ) or a civil court can be asked to make a statement; - if the health insurer tightens the criteria based on which patients become eligible for treatment or remain eligible for further treatment. This is known as management for appropriate use. When new SMC medicines are approved for the market, they are then immediately incorporated in the basic insurance package. This is done based on the implicit assumption that they comply with the state of the art in science and practice. In principle, they are then directly available to patients (see step 7 in the supply chain). The Dutch Healthcare Institute carries out a risk selection for approved SMC medicines on the basis of which it determines which medicines are eligible for further assessment regarding their status in the package. 8 There are four substances included in the list of add-on medicines that are not included in basic insurance. These substances are collagenase clostridium histolyticum (Xiapex ), belimumab (Benlysta ), catumaxomab (Removab ) and mifamurtide (Mepact ). These medicines do not comply with the state of the art in science and practice criterion and so they cannot be included in the basic insurance package. 9 Sensible and sustainable healthcare, RvZ, Zoetermeer, For pharmaceutical healthcare designations (outpatient pharmacy) health insurers are permitted to implement preferential policies under the Health Insurance Decree. This means that the health insurer may choose to only reimburse the cost of medicines that it has listed in the policy conditions. For example, this could be a generic medicine and not the original, unless the doctor indicates that the use of the original is medically necessary. Similar preferential policies are not permitted for SMC medicines that are part of the designation medical healthcare.

17 CONTEXT > THREATS Patient selection There are various forms of patient selection: - A healthcare provider refers patients or groups of patients to other healthcare providers. - A healthcare provider places patients or groups of patients on a waiting list. - A healthcare provider stops admitting patients or groups of patients. - A healthcare provider cancels or postpones treatments, with or without discussion with the relevant policy holders. Patient selection is a genuine problem for policy holders. The term postcode healthcare is often seen in the media. This refers to the phenomenon whereby patients who are dependent on treatment with expensive medicines are unable to receive this treatment in certain hospitals or UMC s. Around , the fact that some groups of patients were being rejected or referred to other healthcare providers led the government to change its funding policies and to introduce the policy rules Expensive medicines and Orphan drugs. Why select patients? The current DBC system is based on average expenditure. As a result, it is financially beneficial to healthcare providers to exclude patients who require relatively expensive treatment. The same situation can also occur with medicines if healthcare providers fail to negotiate lower prices. Turnover limits, pressure on prices, the macro-management instrument and selective contracting are all incentives that can stimulate patient selection. In 0, in order to counteract this selection, separate declaration titles (add-ons) that are not connected to the reimbursement of hospital treatment were developed which should theoretically cover the costs of SMC medicines. The decision to concentrate healthcare is not a direct incentive for patient selection. This concentration does lead to referral (and the associated travel times and expenses), but the referral should be compensated for with higher quality treatment. One obvious side effect of the concentration of healthcare is that the financial risks associated with expensive medicines (the fact that they crowd out other forms of spending) are concentrated at a limited number of healthcare providers. 7

18 CONTEXT > THREATS Risk selection and differentiation of premiums In the insurance sector risk selection or adverse selection refers to the avoidance of customers with a high risk of making claims or customers who are already making claims. In the Netherlands differentiation of premiums is not permitted. Health insurers have an obligation to accept all potential customers. Even so, it is possible for limited forms of premium differentiation and risk selection to arise. Limited risk selection The risk equalisation system is not perfect. As a result it is still advantageous for an insurer to avoid policy holders with a predictably (relatively) high risk of making claims whilst attempting to attract customers with lower risk. This does not involve direct risk selection (rejecting ill policy holders) but rather marketing drives designed to recruit customers with a beneficial risk profile. The NZa is currently investigating risk selection by health insurers and will publish its results later in 0. Differentiation of premiums In 00 differentiation of premiums occurred in the private health insurance sector; for example, premium prices were higher for older policy holders. Presently, premium differentiation is only possible through offering various policies with different conditions. It is forbidden to demand varying premiums for the same policy. Recently, cheap policies with limited healthcare provision have come under the spotlight. These could be seen as showing a limited form of premium differentiation. Customers who took out more expensive policies were allowed to go straight to the UMC. These variations between policies are also possible with regards to SMC medicines. Patients who are dependent on certain medicines are more likely to choose a more expensive policy if it includes the hospitals that provide these medicines. As long as insurers are able to identify potential customers who are more likely to use these expensive medicines, then there is a risk of limited premium differentiation occurring. However, as yet there are no indications that this is happening. 8

19 CONTEXT > FUNDING POLICY Funding policy until 0 Until 0, healthcare providers received an average reimbursement in their healthcare budget. They did not consider this to be sufficient in view of the rising cost of medicines. As a result patients did not have the same level of access to expensive medicines in all hospitals. The NZa wanted to curb patient selection, and in 00 it introduced the policy rules Expensive medicines and Orphan drugs in an attempt to do so. This was open-ended regulation (with no maximum limit), which allowed hospitals to have expenses reimbursed retroactively. The government: - provided customised reimbursement: health insurers were able to offer healthcare providers reimbursement of 80% of their purchasing costs through the budgeting system. The supplementary reimbursement only applied to a list of medicines that met specific cost requirements. - classified the budget reimbursement for insurers in the context of equalisation as fixed expenditure. Insurers only take limited risks with these expenses. Nine consequences of the policy rules Expensive medicines and Orphan drugs. Rising costs Now that hospitals and insurers no longer had to take the significant financial risks previously associated with the medicines on the list, they also had less incentive to limit their distribution. As a result, costs rose and were covered by the Budgetary Framework for Healthcare (BKZ).. More budget discounts The increase in expenditure on expensive medicines led to an increase in healthcare expenditure (more than the budget) and was also partially responsible for the discounts imposed upon healthcare providers.. Higher premiums Considering that the additional funds required for the BKZ had to come from somewhere, this has also partially contributed to the increase in expenditure. In general, the increases in expenditure on healthcare have led to higher insurance premiums and higher taxes.. Counterproductive incentives In some cases and for some medicines it was suddenly more profitable for insurers to provide medicines (that were on the list) via the hospital instead of providing a cheaper equivalent from the community pharmacy. Within hospitals it was also more profitable to use listed medicines rather than a cheaper alternative. This was not the first ever measure designed to guarantee access to expensive medicines: earlier ad-hoc regulations had been drawn up to deal with taxoids and HIV inhibitors, among other things. Initially, the maximum was 7% and hospitals and insurers could negotiate. Later this was changed to fixed percentage. This was independent of approval for the basic insurance package: in all cases the medicines were already available as part of the package (pre-00: ZfW). Only applied to health insurance funds until 00. Moreover, there are very few alternatives to most expensive medicines. 9

20 CONTEXT > FUNDING POLICY Funding policy until 0. Improper use Furthermore, medicines were often placed on the list for a specific indication (and not for other indications). This connection with the indication was probably not always strictly adhered to (improper use).. Permanent list Despite the criteria, the list suffered from one-way traffic : medicines that were placed on the list were never removed in practice. Not even if these medicines no longer met the policy rule s financial criteria (such as a minimum macro-turnover and minimum expenditure per treatment). 7. Desirable position For manufacturers of medicines, getting a medicine onto the list was nearly as important as getting it approved for inclusion in the basic insurance package. 8. Collective lobbying It was not long before a collective lobby involving healthcare providers, medicine manufacturers and patient groups was formed, with the goal of adding more medicines to the list. The government did not offer effective resistance. 9. Bureaucracy At the same time, the list also involved a large amount of bureaucracy. 0

21 CONTEXT > FUNDING POLICY Funding policy from 0 An add-on is a declaration title that can be declared by a SMC institution, independent of (or as a supplement to) a DBC healthcare product. Add-ons are intended as a way to compensate large differences in expenditure within DBC healthcare products. In the current DBC system there are add-ons for medicines and for intensive care (IC). When we refer to add-ons in this document, we are referring to SMC medicines (and their declaration titles). The turnover due to add-ons is no longer unlimited and is also governed by the macro-management instrument. In addition, insurers and hospitals can agree on a turnover limit. For insurers, add-ons are partially included under expenditures that involve a degree of risk in the risk equalisation. Costs incurred for oncolytics and orphan drugs do not involve any risk for health insurers, since the government largely reimburses those costs. The other products do involve a certain degree of risk. The repeal of the budgeting system (from 0) also meant the repeal of the policy rules Expensive medicines and Orphan drugs. Add-ons represent an alternative to these policy rules, within the performance based funding system (based on DBC s). Add-ons were initially limited to the medicines that were subject to the earlier Expensive medicines and Orphan drugs policy rules. From 0 the list was expanded to include medicines that cost more than 0,000 per patient per year. The Minister of VWS also decided to add specific medicines to this add-on list. In the meantime, the criteria for adding medicines to the add-on list have been extended (from 0). Healthcare providers and health insurers now negotiate whether the price of a medicine should be reimbursed as part of the rate for the treatment or separately as an add-on. The goal of separate reimbursement of expensive medicines is the prevention of patient selection (just like the goal of the policy rules). Several of the consequences that were mentioned for the funding policy until 0 (especially to 9) are still at least partially applicable to current policy.

22 Description of the supply chain and financing of medicines in SMC

23 SMC medicines in steps What route do SMC medicines have to take before they become available on the market? What are the most important parties that deal with the medicine in the process? And how and at what stage in the supply chain do these parties interact with one another? octrooi Universityt Manufacturer STEP STEP STEP STEP STEP Dutch Healthcare Institute Ministry of VWS NZa ADD-ON + STEP 9 STEP 8 policy STEP 7 STEP Hospital Health insurer STEP 0 STEP STEP STEP

24 SUPPLY CHAIN STEP : The search for molecules The pharmaceutical industry (hereinafter referred to as: industry) researches, manufactures and markets medicines. The research phase is preceded by research into a disease process and a medicine s mechanism of action. This research is often carried out by universities and research institutes that receive funding from charities (such as the Dutch Cancer Society or the Kidney Foundation) or the government. In addition, the EU also grants subsidies for the development of medicines. Horizon 00 This is an EU programme aimed at stimulating research and innovation. Its goal is to put Europe in a strong and competitive position globally. It is the commission s intention that this will create economic growth and job opportunities. Horizon 00 started on January 0 and is the successor of the Seventh Framework Programme (KP7). Its total budget for the period 0-00 is 80 billion, percent of which is to be used for research into new medicines under the name Innovative Medicines Initiative (IMI). Innovative Medicines Initiative (IMI) This is a partnership between the European Union (represented by the European Commission) and the European pharmaceutical industry (represented by the European Federation of Pharmaceutical Industries and Associations, of which the Dutch industry association Nefarma is a member). The European Union and the pharmaceutical industry will each invest.7 billion in the collaboration from 0 to 00. The goal of IMI is to speed up the development of innovative medicines and make them more widely available. IMI is helping to strengthen cooperation between involved parties; from universities and industry to small and medium-sized enterprises, patient groups and the government / market regulators. IMI is also financing The European Lead Factory ; a platform for the development of promising medicines. The non-profit organisation TI Pharma is this platform s organiser.

25 SUPPLY CHAIN STEP : Patent application PATENT Once a molecule has been shown to work, pharmaceutical companies ( the industry ) apply for a patent. In other words, they establish that they are its legal, intellectual owner. They then proceed to develop the molecule into a medicine. This also involves patent applications; for example, on the way in which the medicine is made or on the form in which it is administered. 0 year patent > year extension PATENT ABC Conditional protection A medicine can be patented in various forms. From the basic molecule up until the medicine is put on the market in a specific form and in specific packaging. Two conditions are crucial when applying for a patent. Firstly, a new medicine or a new way of producing a medicine must be involved. Secondly, the medicine or method must have shown some practical results. The government uses these conditions to encourage entrepreneurs to invest in innovative and useful medicines. The granting of a patent is a prerequisite for the process of getting a medicine approved for the market. In practice, patents for medicines are applied for by the industry. Once a patent has been granted, the party it has been granted to becomes the owner of the associated knowledge, products and methods. This prohibits other parties from earning money from the patented product. In Europe this legal protection from competition is valid for a maximum of twenty years, starting from the application date. Patents on pharmaceutical products and on production methods can be extended by five years with the Supplementary Protection Certificate (SPC). However, the period during which the industry can profit from a given medicine is actually shorter than years. Patents are usually requested long before a medicine s introduction to the market is requested and approved. In reality, manufacturers have less time to recuperate their investments and make a profit. According to industry associations representing manufacturers of pharmaceuticals, the average time between the approval of an original medicine for the market and the licensing of a generic medicine is eight to ten years. For the medicine Glivec (chemical name: imatinib) and its generic equivalent Imatinib this period was indeed eight years. Sometimes it is longer. For example, market approval was granted to two biosimilars of the medicine Infliximab fourteen years after the original Remicade (chemical name: infliximab) was granted access to the market.

26 SUPPLY CHAIN STEP : Research The development process from molecule to medicine requires preclinical research using animals and clinical trials with human volunteers. The industry determines the hospitals in which the clinical research takes place. A medicine may only be approved for release onto the market after three research phases have been properly completed (see step ). In addition, after release of the medicine research continues to determine whether there are any unexpected side effects or interactions with other medicines. Research phase Successive clinical research phases. Research into the correct dosage of the medicine with small groups of healthy volunteers. What dosage is tolerable, how is the medicine absorbed into the body and how is it excreted?. Research into the effectiveness of the medicine with a relatively small number of patients. What is the most effective dosage that can be safely administered? How does the reaction of the patients to the medicine differ from their reaction to a placebo?. Research into side effects and the correct dosage for the medicine. How effective is the new medicine compared to other medicines?. Research into unexpected side effects or unexpected interactions with other medicines. At this stage the medicine is already on the market. This phase is focused on the patients who are using the medicine. Research phase Research phase Research phase + =? Therapeutic indication Every research project focuses on a specific group of patients. They have certain characteristics, including a clearly definable disease. The group on which the research is focused is also the group for which the medicine will eventually be released onto the market (see step ). For example, the industry could receive a marketing authorisation for a medicine targeting patients over 8 years of age, who are receiving tertiary care for metastatic breast cancer. This is known as the medicine s therapeutic indication.

27 SUPPLY CHAIN STEP : Marketing authorisation application After the required preclinical and clinical research phases the medicine is eligible for marketing authorisation. The industry can choose three paths that lead to a marketing authorisation (also known as registration ). These are the national, the centralised and the decentralised procedures. The centralised procedure is obligatory for biotechnologically produced medicines and for medicines that are designed to treat, among other things, cancer, AIDS, neurodegenerative diseases and diabetes. In other cases, developers of medicines are permitted to choose which procedure to follow. For certain kinds of medicines, exceptions are applicable and procedures can differ. National procedure Centralised procedure Decentralised procedure Exceptions applicable to procedures - DCP - Mutual recognition procedure 7

28 SUPPLY CHAIN STEP : Marketing authorisation application The procedures. The national procedure The industry can apply for an authorisation for the Dutch market by submitting a registration dossier to the Medicines Evaluation Board (CBG). The CBG is an independent administrative body associated with the Ministry of VWS. It evaluates the function, risks and quality of the medicine and then decides whether the beneficial effects sufficiently compensate for the potential drawbacks. If that is the case, the CBG then grants a marketing authorisation. This market authorisation is only valid in the Netherlands and is not based on an authorisation for the same medicine from another EU/EER member state.. The centralised procedure The industry can also apply for market authorisation that is valid for the entire EU, including the Netherlands. For this procedure the applicant must submit its registration dossier to the European Medicines Agency (EMA) in London. The dossier is then evaluated by the EMA s medicines evaluation committee, the Committee for Medicinal Products for Human Use (CHMP). This committee presents its recommendations to the European Commission, which is responsible for the market authorisation. Finally, the committee makes a binding decision. The evaluation committee All European member states are represented in the CHMP. The committee appoints two reporters for each medicine. The CHMP members operate in their personal capacity and have a bridging role between the European and national systems. In the Netherlands the Dutch members of the CHMP are accountable to the CBG.. The decentralised procedures The third route that the industry can choose has two variants, both of which are designed to lead to European market authorisation albeit without the authorisation being requested through the central European body. The first variant is actually referred to as the decentralised procedure (DCP) and in this case the applicant has not yet received any authorisations from any member states. Using the DCP, it is possible for an applicant to receive a market authorisation that is valid in multiple member states. The second variant is known as the mutual recognition procedure. An applicant using this procedure already has a market authorisation from at least one member state. This applicant submits a request to other countries via the CMDh (a European coordinating body, see box) with a view to persuading them to follow the example of the Reference Member State (RMS). The member states are thus asked to approve the medicine, including the Summary of Product Characteristics, the patient information leaflet and the labelling text. The coordinating body The Coordination Group for Mutual recognition and Decentralised procedures (CMDh) is the European coordinating body responsible for the proper functioning of the mutual recognition and the decentralised procedures. The CMDh is part of the Heads of Medicines Agencies (HMA). 8