The medicines market in Norway - prices and regulations

Design and print by Grafia Kommunikasjon AS / 08-49787 / www.grafia.net. Photo by Jens Sølvberg The medicines market in Norway - prices and regulations Apotekforeningen (The Norwegian Pharmacy Association) is the trade organisation for pharmacies in Norway and their owners. According to its rules, the organisation shall primarily work to secure the best possible and predictable framework terms for the pharmacies. Apotekforeningen fulfills some joint functions and service tasks on behalf of the trade. In addition the organisation shall work to secure the pharmacies a clear and valuable position within the health care system, the pharmacy profession and towards consumers. Apotekforeningen Postboks 5070 Majorstuen, 0301 Oslo telefon: +47 21 62 02 00, fax +47 22 60 81 73 e-post: apotekforeningen@apotek.no www.apotek.no August 2008

4 Prices and regulations i n d e x 1 INTRODUCTION 4 2 THE MARKET 5 2.1 ONE MARKET - SEVERAL SUB-MARKETS 5 Reimbursed medicines 5 Non-reimbursed medicines 5 The hospital market and other professional customers 5 The market for non-prescription medicines 5 3 NORWEGIAN SYSTEMS FOR MEDICINES PRICE REGULATION 6 3.1 MAXIMUM PRICES FOR PRESCRIPTION MEDICINES 6 3.2 Review of maximum prices 8 3.3 Trinnpris for generics - interchangeable, equivalent medicines 8 3.4 NO PRICE REGULATION FOR SALES OF NON-PRESCRIPTION MEDICINES AND PRODUCTS 9 4 MEDICINES PRICE DEVELOPMENT IN NORWAY AND COST DEVELOPMENT FOR THE PUBLIC SECTOR 4.1 COST DEVELOPMENT IN THE MARKET FOR PRESCRIPTION MEDICINES 10 4.2 PRICE DEVELOPMENT FOR SOME MEDICINES BEST SELLERS 14 10 5 MEDICINES PRICES IN NORWAY COMPARED TO OTHER COUNTRIES 15 5.1 PRICE SURVEY BY THE NORWEGIAN INSTITUTE FOR RESEARCH ECONOMICS AND 15 BUSINESS ADMINISTRATION (SNF) Background and method Results 15 15 6 CONCLUSION 21

6 Prices and regulations Prices and regulations 5 1 i n t r o d u c t i o n This brochure provides a brief description of how medicine prices are regulated and the development of turnover and prices on medicines in Norway. The brochure also reproduces the results from a recent price comparison between Norway and the countries Norwegian authorities look to when maximum prices are set in Norway. The Norwegian Pharmacy Association has experienced steadily growing interest from other countries about Norway and the development in Norwegian medicines prices and the regulations of pharmacies and pharmaceuticals. This brochure describes in brief the price system, prices and medicines costs in Norway. The Norwegian Pharmacy Association hopes that this publication will be useful to readers who wish to learn more about the price level of medicines in Norway and the price regulation regimes and other circumstances that have contributed to this price level. 2 t h e m a r k e t 2.1 One market several sub-markets The Norwegian medicines market can be regarded as at least four different sub-markets: Reimbursed medicines, non-reimbursed medicines, the hospital market and the market for non-prescription medicines. The market mechanisms in these four sub-markets differ from one another. This is reflected in the regulations to which the sub-markets are subjected. Reimbursed medicines This is the largest of the sub-markets, with a turnover in 2007 of almost NOK 9.0 billion, out of a total turnover for prescription medicines of NOK 14.2 billion. This market only includes medicines used by individual patients outside institutions, and covers mainly medicines that are used over a long period for the treatment or prevention of chronic diseases. Medicines used in hospitals and other health care institutions are not part of this market, and are covered by another financing arrangement. The reimbursement system in Norway can in rough terms be divided in two: Reimbursements approved in advance (main rule) and individual reimbursements (exception rule). In addition, there are some minor systems that are not dealt with here. Reimbursements approved in advance A number of medicines and products are approved in advance for reimbursement for closely defined areas of use and terms and conditions. These medicines with reimbursable areas of use and reimbursement terms and conditions are listed and described on the so-called reimbursement list. The reimbursement list contains information about all reimbursable medicines and the terms and conditions on which these are reimbursable. The right to a reimbursement arises immediately when a doctor prescribes a reimbursement prescription. The total cost of reimbursement medicines according to this arrangement in 2007 was NOK 7.5 billion. Individual reimbursement A medicine that is not listed on the reimbursement list, or is to be used for another illness than that described in the reimbursement list, can only be reimbursed once an application has been made to the Norwegian Labour and Welfare Administration (NAV). If the Labour and Welfare Administration (NAV) grants the application, the patient may get the medicine on a reimbursement prescription. The total cost of reimbursements according to this arrangement in 2007 was NOK 1.2 billion. Reimbursed medicines In this sub-market are mainly paid for by the state. The patient normally pays only a co-payment of 36 percent, or a maximum of NOK 510 each time he receives medicines from the pharmacy. There is a ceiling for how much a patient should pay for contributions towards medicines, doctor s consultations and psychotherapy during the course of a year. In 2008, this ceiling was set at NOK 1740 in total. Since the patients themselves do not decide on which medicines to be used, and since national insurance pays for the greater part of the cost of the medicines, the price of a pharmaceutical does not affect a patient s purchase or use of the pharmaceutical to any great degree. None of the actors in the medicines supply chain can expect increased sales to any particular extent by reducing their prices to patients. Therefore, the foundations for price competition are weak. Non-reimbursed medicines In the market for non-reimbursed medicines, the patients themselves have to pay for all medicines used. It is therefore assumed that patients are more price conscious on this market than on the market for reimbursed medicines, even if it is still doctors who decide which medicines are to be used. Turnover on this sub-market in 2007 was NOK 2.6 billion. The hospital market and other professional customers The hospital market differs from the two markets already described, as there is a greater correlation between price and usage of a pharmaceutical. Hospitals themselves finance the medicines used for treating patients. Therefore, when choosing which medicines to use, they consider the price of the medicines to a greater degree, which stimulates price competition. Turnover on this sub-market in 2007 was NOK 2.8 billion. The market for non-prescription medicines The market for non-prescription medicines is the sub-market that most resembles other markets. In this market, users themselves decide which pharmaceutical to buy, and they pay the bill themselves. As in the hospital market, there is a correlation between price and choice of pharmaceutical, which simulates price competition. In 2007, pharmacies share of the turnover in this sub-market was NOK 2.0 billion. In addition, there is turnover from other points of sale than pharmacies, as grocery shops and others are allowed to sell a number of non-prescription medicines.

6 Prices and regulations Prices and regulations 7 3 n o r w e g i a n s y s t e m s f o r m e d i c i n e s p r i c e r e g u l a t i o n 3.1 Maximum prices for prescription medicines The authorities decide the maximum price for prescription medicines in Norway. Maximum prices are set using three steps: Step 1: Gather comparison prices from other countries The Norwegian Medicines Agency sets a maximum purchase price for pharmacies which is the average of the three lowest market prices (pharmacy purchasing price) for the pharmaceutical in the following nine countries: Sweden, Finland, Denmark, Germany, United Kingdom, Netherlands, Austria, Belgium and Ireland. The reason for using these nine countries is that they are regarded as the most relevant with which to compare Norway. Since the Norwegian price is set as the average of the three lowest observed prices for each product, Norwegian prices will always be among the three lowest observed prices at product level. Different countries may be the cheapest for the different products, but Norwegian prices will always be the average of the three cheapest. For this reason, the average price for all medicines as a whole will in all probability be lower in Norway than the average price in the countries with which we compare ourselves. This is illustrated in Tables 1 and 2: Table 1 illustrates three different medicines. For each of the products, prices for the corresponding product is gathered from the nine countries named. The Norwegian price is the average of the three lowest prices. The table illustrates how different countries can be the cheapest for different products, and that the Norwegian price will lie in a position between the three cheapest countries for each of the products. If we calculate the average price per country for all three medicines, we get table 2. Table 2 shows that the Norwegian method for determining maximum price ensures that medicines in Norway on average are cheaper than in most countries with which we normally compare ourselves. Step 2: Determination of mark-up The authorities have decided that pharmacies maximum mark-up shall consist of a percentage addition to the pharmacies purchase price combined with a fixed additional amount per package. Table 3. Pharmacy mark-up Pharmacy purchase price Percent increase Supplement in NOK per package NOK 0-200 8,00 % NOK 21,50 NOK > 200 5,00 % NOK 21,50 The pharmacy mark-up for a pharmaceutical where the pharmacy s purchase price is NOK 300 would then be: Mark-up = (NOK 200 x 0.08) + (NOK 100 x 0.05) + NOK 21.50 = NOK 42.50 From the pharmacy s mark-up, the pharmaceutical turnover fee of 1.3 percent of pharmacy s purchase price is deducted. On this occasion, this would equal (NOK 300 x 0.013) = NOK 3.90 Table 2. Norwegian prices are lowest: Average* Country Price Norway 245 Austria 247 Belgium 250 Netherlands 254 Sweden 254 Denmark 258 Finland 258 Germany 259 Ireland 268 United Kingdom 278 *of the prices in Table 1 Table 1. Mathematical example calculation of maximum price in Norway Drug A Drug B Drug C Country Price Country Price Country Price Sweden 100 Belgium 200 Austria 400 Denmark 100 Netherlands 210 Belgium 430 Finland 115 Ireland 220 Germany 430 Germany 116 United Kingdom 220 Finland 430 Netherlands 116 Denmark 223 Netherlands 435 Austria 118 Austria 224 Sweden 436 Belgium 120 Sweden 227 Denmark 450 United Kingdom 124 Germany 230 Ireland 458 Ireland 125 Finland 230 United Kingdom 489 Norway 105 Norway 210 Norway 420 For narcotic drugs and addictive medicines, the pharmacy receives an extra NOK 10 in mark-up. Step 3: Value added tax The sum of the pharmacy s purchase price and the pharmacy s mark-up is subject to a value added tax of 25 percent. This amount is the maximum price the pharmacy can demand from a customer. The maximum retail price is therefore calculated as follows: Pharmacy purchase price NOK 300.00 + Pharmacy mark-up nok 42.50 + VAt nok 85.60 = Maximum retail price NOK 428.10

8 Prices and regulations Prices and regulations 9 3.2 Review of maximum prices The Norwegian Medicines Agency evaluates the prices of 300 of the most used prescription substances every year to ensure that the maximum prices reflect the price development in Europe. Reasons for changes in the maximum price may be, for instance, changes in the European price picture, changes in exchange rates or a pharmaceutical being withdrawn from one of the above-mentioned nine European countries. 3.3 Trinnpris for generics - interchangeable, equivalent medicines The Norwegian Medicines Agency determines which medicines are regarded as equivalent and thus interchangeable, and are therefore subject to generic substitution. Interchangeable medicines, or generic medicines, contain the same substances in the same doses and same formats (capsules, tablets, etc), but are manufactured by different producers. For 45 of the most used medicines on the Medicines Agency s interchange list, the authorities have decided that pharmacies shall offer patients at least one generic alternative at a price that is considerably lower than the maximum price. These prices are called trinnpris (stepped prices). For a medicine with an annual turnover higher than NOK 100 million and is included in the trinnpris -system, the price development will be as illustrated in Figure 4. Mathematical example: Pharmaceutical A is covered by a patent, has a maximum price of NOK 500 set by the authorities and a turnover of NOK 150 million. The patent expires and several manufacturers choose to launch generic alternatives to the previously patented pharmaceutical A. When at least one of these alternative suppliers can supply the Norwegian market, stable generic competition is said to have started. The Medicines Agency can then set a trinnpris which is 30 percent lower than the original maximum price. On this occasion, the trinnpris will be NOK 350. 3.4 No price regulation for sales of non-prescription medicines and products Pharmacies can decide themselves the prices for non-prescription medicines and non-pharmaceutical products. However, the government does impose maximum prices also for medical equipment and medical consumables. Six months after the introduction of a trinnpris, the price is cut further. As pharmaceutical A originally turned over NOK 150 million, a new trinnpris is set equivalent to a cut in the original maximum price of 75 percent. The new price is NOK 125. This is the price at which the pharmacies sell the pharmaceutical. Provided the consumption of the pharmaceutical remains unchanged, the annual turnover 12 months after the latest trinnpris was set would be 25 percent of the original turnover, or NOK 37.5 million. Table 4 shows that there is reason to set a new and lower stepped price, equivalent to a cut in the original maximum price of 80 percent. A new trinnpris price is set at NOK 100. This is done 18 months after stable generic competition started on the market. Table 4 Trinnpris Figur 4 The trinnpris system Time since stable generic competition started Sales below MNOK 100 (latest year of generic competition) Sales above MNOK 100 (latest year of generic competition) Annual sales above MNOK 100 after last price cut Pris Immediately -30 % -30 % After 6 months -55 % -75 % Further cut 12 months after latest cut -65 % (for pharmaceuticals with turnover higher than MNOK 15) -80 % (for pharmaceuticals with turnover higher than MNOK 30) -85 % (for pharmaceuticals with turnover higher than MNOK 100) Stabil generisk konkurranse 6 mnd 12 mnd etter siste kutt (18 mnd etter stabil generisk konkurranse)

10 Prices and regulations Legemiddelmarkedet 11 4 m e d i c i n e s p r i c e d e v e l o p m e n t i n n o r w a y a n d c o s t d e v e l o p m e n t f o r t h e p u b l i c s e c t o r 4.1 Cost development in the market for prescription medicines The growth in total pharmaceutical costs in Norway has stagnated over the last few years. The tendency is for a larger proportion of the total costs of prescription medicines to be paid by hospitals, and by patients themselves on non-reimbursed medicines. The amount falling within the national insurance area of responsibility (reimbursed medicines) is reducing, see Figure 7. Reimbursement costs for medicines measured in nominal NOK were lower in 2007 than in 2004. Figure 8 shows the results when all figures are indexed, so that the value in 2004 for all sub-markets for prescription medicines is 100. Table 5. Costs of prescription medicines divided into sub-markets nominal NOK (millions) Year 2004 2005 2006 2007 Non-reimbursed medicines 2 133 2 332 2 415 2 580 Reimbursed medicines 9 651 9 644 9 161 8 880 Medicines used in hospitals 1 849 1 985 2 483 2 766 Total value of prescription medicines 13 633 13 961 14 059 14 226 Figure 7. Costs of prescription medicines divided up into sub-markets nominal NOK (millions) Figure 8. Relative distribution of medicines costs 2004-2007

12 Prices and regulations Prices and regulations 13 One of the causes of the strong growth in hospitals expenses for medicines in 2006 is that the responsibility for financing a group of very expensive medicines against serious rheumatic illnesses was transferred from the national insurance to the regional health enterprises (hospital owners). The tendency is for hospitals to use more expensive medicines. Figure 9 shows that the proportion of medicines turnover that falls within the reimbursement system constitutes a steadily falling proportion of prescription medicines. The total medicines turnover in Norway shows a reducing tendency at the same time as consumption in volume is increasing. This development means that prices have fallen over the period, and that consumption has changed in the direction of cheaper medicines. In graphic terms, the change in distribution between hospital use, non-refundable medicines and refundable medicines is illustrated in Figure 9. Table 6. Relative distribution of medicines costs 2004 2007, nominal, not price-adjusted (nominal NOKs) Figure 9. Relative distribution of medicines costs hospitals, refundable and non-refundable medicines Year 2004 2005 2006 2007 Non-reimbursed medicines 100 % 109 % 113 % 121 % Reimbursed medicines 100 % 100 % 95 % 92 % Medicines used in hospitals 100 % 107 % 134 % 150 % Total value of prescription medicines 100 % 102 % 103 % 104 %

14 Prices and regulations Legemiddelmarkedet 15 5 m e d i c i n e s p r i c e s i n n o r w a y c o m p a r e d t o o t h e r c o u n t r i e s 4.2 Price development for some medicines best sellers The state maximum price regulation and the trinnpris -system have made sure that the price of medicines as a whole is falling. In Figure 10, the price development for seven of the most used/turned over prescription medicines is compared with the development of the general level of prices (consumer retail price index, CRPI) and the average blue-collar worker wage. The first four products are patented medicines, while the last three are interchangeable medicines subject to generic substitution and included in the trinnpris system. Figure 10 compares the levels in 2007 with levels in 2003. 20 0-20 -40-42,5% Figure 10 shows that both the average blue-collar worker wage and CRPI have risen, while the price of medicines has fallen during the period from 2003 up to and including 2007. Figure 10. Price development for some of the most sold pharmaceuticals vs. consumer retail price index and growth in wages. (2003-2007) -31,8% -9,3% -25,6% -8,4% -16,9% 5.1 Price survey by the Norwegian Institute for Research in Economics and Business Administration (SNF) Background and method In May 2008, the Ministry of Health and Care Services published their price survey carried out by the Institute for Research in Economics and Business Administration (SNF). Prices in Norway were compared to prices in nine reference countries: Belgium, Denmark, Finland, Ireland, Netherlands, United Kingdom, Sweden, Germany and Austria. (See Chapter 3.1) The survey covers the 300 most turned over pharmaceutical substances in Norway, and the prices are from the first six months of 2007, excluding value added tax. Since the prices are from the first six months of 2007, they do not include the effects of the price cuts on trinnpris -medicines implemented on 1 January 2008. The report has used several different methods for comparing prices. All the methods clearly point to medicines being cheaper in Norway. Results The price investigation shows that Norway is among the very cheapest countries, whether you look at: all medicines together, the segment for patented medicines, or the segment for medicines with generic competition. Norway is clearly the cheapest when you look only at medicines in the trinnpris -system. The investigation also shows that Norway has among the lowest wholesaler and pharmacy margins. Table 8 shows in index format (Norway = 100) what the Norwegian medicines consumption would have cost if volume-weighted prices from the different countries had been used. -60-65,2% Table 8. -80-81,9% -87,1% Norway Sweden Denmark Finland UK Germany Netherlands Belgium Austria Ireland -100 Seretide Lipitor Nexium Patenterte legemidler Byttbare legemidler Cipralex Amlodipin Simvastatin Sumatriptan Konsumprisindeksen Des 2002 - Jan 2008 Industriarbeiderlønn All drugs 100 109,6 113,8 123,7 104,4 138,7 117,4 156,7 122,7 234,6 Patent 100 112,0 123,9 124,2 101,7 124,2 100,0 154,2 119,7 196,7 Off patent 100 105,3 95,6 122,8 109,0 166,8 147,3 161,3 128,2 300,5 Trinnpris 100 108,0 109,1 127,4 136,4 174,4 215,9 210,1 194,4 518,1 Table 7. Price changes over the period 2002-2008 for some of the most turned over pharmaceuticals Pharmaceutical Used against Then (31/12 2002) Now (1/3 2008) Reduction Change in % Nexium Gastric ulcer 1267 728 539-43 % Lipitor Cholesterol 2310 1576 734-32 % Seretide Asthma 1523 1381 142-9 % Cipralex Depression 837 623 215-26 % Amlodipin Heart disease 900 163 737-82 % Simvastatin Cholesterol 1762 227 1535-87 % Sumatriptan Migraine 1342 466 875-65 % 1 http://www.regjeringen.no/en/dep/hod/whats-new/news/2008/report-on-pharmaceutical-prices.html?id=514810

16 Prices and regulations Prices and regulations 17 In graphic terms, the price level of prescription medicines, irrespective of patent status, can be presented as in Figure 11. If we look closer at patented medicines, the price difference can be expressed graphically as in Figure 12. Figure 11. Public price - all Rx drugs Figure 12 confirms that the manner in which maximum prices are set in Norway ensures that maximum prices in Norway will be the lowest among the countries to which Norway is compared, see Chapter 3. During the period from which the price survey gathered data, the trinnpris -system included 31 substances. For a more detailed description of the principles of the trinnpris - system, see Chapter 3.3. Table 8 shows that price difference between Norway and other countries is greatest for these substances. In graphic terms, this can be shown as in Figure 13: Norway Sweden Denmark Finland UK Germany Belgium Austria Ireland Nether-lands Figure 12. Patented drug index Figure 13. Trinnpris index for generic drugs Norway Sweden Denmark Finland UK Germany Belgium Austria Ireland Nether-lands Norway Sweden Denmark Finland UK Germany Belgium Austria Ireland Nether-lands

18 Prices and regulations Prices and regulations 19 The trinnpris in Norway were cut further in January 2008. As the data used in the price survey dates from 2007, the effect of this price cut is not shown in the survey in question. The survey also establishes that distribution margins in Norway are among the lowest in the comparison countries, see Table 9 and Figure 14. The distribution margin is the total margin for pharmacies and wholesalers, defined as: Distribution margin = Pharmacy selling price. Pharmacy selling price Wholesaler purchase price The survey shows that only Sweden and Denmark have lower percentage margins than Norway. It is important to point out that this does not compare pharmacy mark-ups, but the mark-up for the distribution stage. The survey does therefore not provide a basis for stating anything about the differences in either pharmacy mark-ups or wholesaler mark-ups, but only the sum of the two. It is also important to notice that the margins here are percentages. A certain percentage increase of a low amount results in a lower increase in NOK than the same percentage increase of a higher amount. Since prices in Norway are low, there has to be a higher percentage margin in Norway in order for the distribution stage to receive the same amount in NOK as in other countries. 6 c o n c l u s i o n Most countries use one form or another of price or reimbursement regulations for medicines. The systems vary a lot from country to country. This must be considered in conjunction with the framework conditions, which may also vary, and the fact that there might be good reasons for different countries choosing different price and reimbursement systems. It is therefore not the case that a country which copies another country s price/reimbursement systems necessarily achieves the same result. Table 9. Distribution margins Norway Sweden Denmark Finland UK Germany Netherlands Belgium Austria Ireland Total 24,1 21,2 23,5 33,5 29,4 32,8 29,3 24,9 29,5 49,1 Patent 16,8 12,8 18,5 29,9 12,1 21,1 17,2 17,5 25,9 46,5 Off patent 32,9 31,5 29,6 37,9 50,4 47,2 43,9 33,9 33,9 52,2 Figure 14. Distribution margins % NorwaySweden Denmark Finland UK Germany Holland Belgium Austria Ireland