Transcript Health care systems lessons from the reform experience

The Global Market for Pharmaceuticals
and Policy Responses
Elizabeth Docteur
Deputy Head, Health Division
Organization for Economic Cooperation and Development
Visit to the Korean Ministry of Health and Welfare
May 9, 2007
Overview

Pharmaceutical sales and sellers

Pharmaceutical expenditures and purchasers

Pharmaceutical price regulation

Concluding remarks
2
US Dominates Global Market in Retail Pharmacy Drug
Purchases
Retail pharmacy drug purchases
12 Months ending August 2006
US $ Millions
Share in global market
Approx. percentage
13 key markets
379,294
66%
North America
USA
Canada
204,858
191,593
13,265
36%
33%
2%
Europe (leading 5)
Germany
France
Italy
UK
Spain
93, 026
27,097
24,791
14,797
15,186
11,155
16%
5%
4%
3%
3%
2%
Japan (incl. hospital)
57,141
10%
Latin America (leading 3)
18,562
3%
5,708
1%
Australia/New Zealand
SOURCE: IMS Health – Retail Drug Monitor 2006
3
10 corporations account for half
of global sales
TOP CORPORATIONS BY GLOBAL PHARMA SALES IN 2005
> RANKING
2005
GLOBAL SALES
% GLOBAL
US$ BN
SALES
% GROWTH
CONSTANT $
CAGR
2005
00-04
01 Pfizer
02 GlaxoSmithKline
03 Sanofi -Aventis
04 Novartis
05 Johnson & Johnson
06 AstraZeneca
07 Merck & Co.
08 Roche
09 Abbott
10 Bristol-Myers Squibb
47.6
34.7
30.0
28.5
25.3
24.0
23.5
19.8
15.7
14.7
8.4
6.1
5.3
5.0
4.5
4.3
4.2
3.5
2.8
2.6
-7.4
4.8
8.3
10.9
0.2
9.0
-2.7
16.3
8.4
-6.5
10.5
7.3
12.9
13.7
15.6
8.3
9.0
10.7
10.5
1.0
TOTAL Top 10 Corporations
$264.0
46.7
2.8
10.0
Source IMS, Intelligence 360, IMS Health MIDAS, Dec 2005
4
Global pharmaceutical sales have increased 7 - 13%
annually since 1998
5
Sales growth factors: Changing importance of
volume/mix, new products and price
6
Growth factors vary across countries, 2004
7
SOURCE: IMS Health Data MIDAS MAT Dec 2004
Cross-European price differentials are diminishing
8
Wide variation in share of generics in the
pharmaceutical market, 2004
Volume
37%
35%
33%
30%
10%
8%
4%
2%
Value
USA
Canada
UK
Germany
France
Spain
Italy
Japan
7%
16%
19%
20%
7%
5%
4%
2%
9
SOURCE: IMS Health MIDAS, MAT Dec 2004
Determinants of pharmaceutical sales value
SALES = [Ex-manufacturer Price] x [Volume of units sold]
Where volume over a product’s life cycle is a function of:
Total time on market
Extent of competition (from generics, therapeutic alternatives)
Prescribing regulations and practice patterns
Coverage by insurance
Financial incentives faced by doctors, pharmacists and patients
Advertising/marketing
Thus, a range of policy levers exist by which to affect pharmaceutical sales
and industry profits, including:
Marketing authorization practices
Default coverage status: positive lists (formularies) versus negative lists
Physician prescribing and dispensing policies
Patient cost-sharing (co-payments, deductibles)
Pharmaceutical pricing and reimbursement pricing policies and practices
are just part of a bigger picture
10
Variation in availability of new drugs
Time between first launch in the world and first launch in the
country for drugs launched between 1999 and 2002
1st world application-application in market
application in market-approval in market
approval in market-launch in market
50
45
40
Months
35
30
25
20
15
10
5
Ja
pa
n
an
ce
Fr
ly
Ita
Sp
ai
n
lia
Au
st
ra
nd
s
Ne
th
er
la
Ca
na
da
Sw
ed
en
nd
Sw
itz
er
la
UK
an
y
er
m
G
US
A
0
Source: Pharmaceutical Industry Competitiveness Task Force PICTF, 2005, from Association of the British
Pharmaceutical Industry ABPI calculations
11
Average time between receipt of marketing
authorization and launch on market
90 days 180 days
Belgium
Greece
Portugal
France
Austria
Finland
Italy
Norway
Spain
Increasing
overall delay
Netherlands
Switzerland
Sweden
Denmark
Ireland
Pricing
Germany
UK
Reimbursement
P&R
0
100
200
300
400
Source: WHO Priority Medicines for Europe and the World Project, 2004.
500
Publication
600
700
800
(Days)
12
ni
te
d
St
at
e
Fr s
an
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an
ad
a
It a
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an
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G our
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m
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it z (1)
er
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Au al
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G D
re
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or
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C
lic
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ch D (2
e
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ep
ub ark
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(
Po 2)
la
n
M d
ex
ico
U
Drug expenditure per capita (public and private) in
OECD countries, 2004
USD PPP
800 752
700
Public
600
520
500
400
300
200
(1) 2003; (2) 2002
OECD Health Data 2006
434 429 425 424 421
407 400 393
Private
599
559
494 477
377 375 364
348 344
321 318 315 308
299
270 261
238
138
100
0
13
Real annual growth in pharmaceutical spending and
total health expenditure (net of pharmaceutical
expenditure) in the OECD, 1997-2004
Pharmaceutical expenditure
12.0
THE (net pharmaceutical)
11.9
11.4
10.0
Mean Annual Growth Rate (1997-2004)
9 .0
8.5
8.1
8.0
8.0
7.9
7.7
7.5
7.7
7.4
7.1
7.0
6.7 6.7
6.3
6.7
6.2
6.0
6.1
5.5
5 .0
4.9
4.9
4.7
5.2
4.8
5 .4
5 .0
5.2
5.2
5.0
4.3
4.0
4.6
4.2
4.6
4.6
4.5
4.0
3.6
3.7
3.5 3.3
3.0
3.0
3.6
3.5
2.4
5.0
3.3
2.3
1.7
2.0
1.4
0.3
(1) 1997-2003; (2) 1997-2002; (3) 1999-2004; (4) 1999-2003
OECD Health Data 2006
Ita
er l y
C
m
ze
a
ch Jap ny
a
R
ep n (
u b 1)
Be li c
l g (2)
iu
m
(1
)
U
-2.0
-0.8
G
I
ni rela
te
d nd
H Sta
un
ga te s
r
M y(
ex 2 )
ic
o
(
C 3)
an
Sl
ov
ad
ak
a
K
R
o
ep re
ub a
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Au (4
st )
ra
l
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an
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d
et
he Sp
rl a a i
nd n
s
(
G 2)
re
ec
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O
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Fi D
nl
an
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an
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st
N ria
Lu orw
xe a
m y
bo
Sw urg
ed
Po en
rtu
D ga
en l
Sw m
i tz a r
er k
la
nd
0.0
14
Drug expenditure as share of total health spending and
share of GDP in OECD countries, 2004
50
2.5
45
% of pharmaceutical spending in GDP
38.5
2
35
29.6
30
27.6
25 23.1
20
22.8
21.1
18.9
15
10
1.5
27.4
17.7
17.4
22
20.9
18.9
14.114.8
12.3
% GDP
% total health spending
40
% in total health spending
17.6
1
16.3
13
12.8
12.311.512.4
10.411.3
9.5 9.4
8.5 0.5
5
0
Sl
ov Po
a k rtu
R g
H ep a l
un ub
ga lic
ry
Fr (2 )
an
c
U
ni Po e
te l a
d nd
St
a
C te s
an
ad
a
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C
l
ze
Sp y
ch
a
R Gre in
ep e
u b ce
l
G i c (2
er )
m
a
Ic ny
el
J a an
pa d
n
(1
Ko )
re
O a
E
Au CD
st
M ria
e
Au x ic
st o
ra
l
Sw Fin i a
l
a
i tz n
e d
Be rl a
l g nd
iu
m
N
et Sw (1
he e )
rl a d e
nd n
s
(
Ire 2)
l
N an d
or
w
D a
Lu en y
x e ma
m rk
bo
ur
g
0
(1) 2003 (2) 2002
SOURCE: OECD Health Data 2006
15
Determinants of pharmaceutical expenditure
Expenditure = [volume of units sold] x [retail price]
Where retail price = [Ex-manufacturer price] + [distributor/wholesale
mark-up] + [retail mark-up] + [VAT or sales tax paid by consumer]
Variation across OECD countries is very large
For example, the share of the retail price accruing the product
manufacturer ranges across Europe from a low of 45% to a high of
88%
Many countries have scope to relieve the burden on public and
private financing for pharmaceuticals by obtaining efficiencies in
the supply chain.
16
Policy framework for pharmaceutical pricing and
reimbursement

Pharmaceutical sectors reflect a mix of policies
– free pricing --- in which prices are set according to what the market will
bear, without government intervention
– regulated pricing --- in which prices are defined or capped according to
government rules
– reimbursement pricing --- in which purchasers establish the level of
subsidies paid for pharmaceutical products. In the case of public
purchasers, reimbursement pricing may reflect the use of regulatory
authority in addition to purchasing power.
– de facto price regulation --- in which purchasers establish the level of
subsidies paid for pharmaceutical products and set limits on how much
patients can be charged above the reimbursement level.

Objectives
– Free pricing seeks to optimize efficiency through market competition
– Price regulation seeks to provide some degree of consumer protection
against the risk that manufacturers will exploit their market power to charge
excessive prices for goods considered essential
– Reimbursement pricing generally seeks to promote accessibility and
affordability of pharmaceuticals via subsidies
– de facto price regulation seeks to meet both objectives
17
Approaches used to set prices

Prices subject to price-setting vary and include
– Ex-manufacturer price
– Retail price
– Reimbursement price

Methods and considerations in price setting
–
–
–
–
–
Internal price referencing (therapeutic benchmarking)
External price referencing (international benchmarking)
Cost-effectiveness assessment
Consideration of budget impact
Negotiations with manufacturers (which may include agreements
for risk-sharing, rebates or discounts)
– Profit control
– Consideration of manufacturer costs (R&D, production)
18
Overview of pharmaceutical pricing in 6 OECD countries

Free pricing
– In Germany, all pharmaceutical products.
– In Canada, all off-patent pharmaceuticals.
– In Mexico, all off-patent pharmaceuticals, as well as on-patent products sold
to public purchasers.
– In both Sweden and Switzerland, any pharmaceutical product that has
received approval for marketing that is not reimbursed by the universal
health coverage scheme.
– In Slovakia, no pharmaceutical products.

Price regulation
– In Slovakia, prices of all pharmaceutical products are regulated: retail prices
for medicines sold outside hospital and ex-manufacturer prices for hospital
drugs.
– In Canada, all on-patent pharmaceuticals sold in Canada, to any purchaser.
Regulation defines a level which ex-manufacturer price may not exceed.
– In Mexico, any on-patent pharmaceuticals sold in the private market.
Regulation defines maximum retail price paid by consumers. Participation in
pricing scheme is voluntary.
– In Sweden, Switzerland, and Germany there is no formal price regulation.
19
Preliminary findings from six case studies (cont’d)

Reimbursement pricing arrangements
– Sweden, Switzerland and Slovakia have universal coverage
through a common scheme
– Germany has universal coverage through a common scheme for
90% of the population; 10% opt out and use private coverage
– In Canada, employment-based private insurance predominates.
Vulnerable populations are often covered through provincial,
territorial and federal schemes. Significant diversity in coverage
arrangements.
– Half of Mexicans have drug coverage through various social
insurance schemes; half have no coverage but may be eligible for
drugs furnished through federal programmes. Most Mexicans buy
drugs at retail prices with no reimbursement.

de facto price regulation
– In Sweden and Switzerland, prices paid for drugs reimbursed by
the universal health coverage schemes’ (quite inclusive) positive
lists are regulated. There is a limit on what manufacturers can
charge for reimbursed drugs.
– In Germany, there is no limit on prices charged by manufacturers,
even for reimbursed drugs. (Neither direct nor de facto regulation).
– Canada, Mexico and Slovakia use direct price regulation.
20
Overview of preliminary findings

(cont’d)
Cost-sharing arrangements vary widely
– In Sweden, a graduated cost-sharing formula is used with an annual
cap on total out-of-pocket (OOP) spending.
– In Switzerland, a cost-sharing formula exists for all drugs reimbursed
by basic insurance. Private insurance is prohibited from covering
cost-sharing amounts.
– In German social insurance, co-payments are set at 10% of the drugs’
reimbursement price, with a minimum of €5 and a maximum of €10.
Patients must pay out-of-pocket any difference between the retail
price and the reimbursement price. Caps on OOP of 1% or 2% of
income apply.
– In Slovakia, cost-sharing is set as a share of the reimbursed price.
The ratio is maintained even if manufacturer lowers price. There is no
cap on OOP.
– In Canada, cost-sharing arrangements vary widely.
– In Mexico, there is no cost-sharing for prescription drugs included in
the public schemes’ formularies and dispensed through public
pharmacies, although drugs are not always available and there are
perceived quality issues.
21
Methods used to set prices

Internal reference pricing
– Used in price regulation in Canada. Prices of ‘me-too’ drugs
and drugs offering little or no therapeutic improvement cannot
exceed price of comparable products
– Used in reimbursement pricing in Germany, Slovakia and
Switzerland, and in some Canadian provinces
• In Switzerland, price of alternatives in therapeutic class
considered (with flexibility) in reimbursement price negotiations.
Particularly innovative drugs may be awarded an “innovation
bonus.” New generics must have lower reimbursement price than
the original product or existing generics.
• In Germany, reimbursement price is defined for reference group
consisting of at least 3 drugs. Drugs may be sold at prices above
the reference price in theory, but rarely in practice.
• In Slovakia, internal reference pricing is used to create reference
price determining reimbursement price. Drugs may be (and are)
sold at prices above the reference price.
– Not used in Sweden and Mexico
22
Methods used to set prices (cont’d)

External reference pricing
– Used in price regulation in Canada, Mexico and Slovakia
• Median price in seven comparator countries, selected because
of their support for domestic pharmaceutical industry,
considered as cap for ex-manufacturer prices of breakthrough
drugs in Canada
• Weighted average price of six countries with highest sales
penetration for a particular product serves as reference for
defining maximum retail price in Mexico
• Median ex-manufacturer price in nine countries considered
when setting retail price in Slovakia.
– Used in de facto price regulation in Switzerland
• Average price of four economically comparable countries plus
three alternates considered as Swiss reimbursement price cap
(much flexibility)
– Not used in Germany or Sweden
23
Methods used to set prices

(cont’d)
Cost-effectiveness analysis
– Used in price regulation in Canada and Slovakia
• In Canada, drugs that offer significant savings, in comparison with
therapeutic alternatives, can be classed as “substantial improvements,”
with price caps determined by international benchmarks (rather than
therapeutic alternatives).
– Used in reimbursement pricing in Canada and Sweden and --- to a
lesser extent --- in Mexico and Switzerland
• In Canada, CE is a very strong consideration in national, non-binding
reimbursement recommendations for publicly financed drug coverage
schemes. Also considered in formulary decisions by public plans.
• In Sweden, CE from social perspective is most important consideration
in formulary inclusion and reimbursement pricing decisions.
• In Mexico, CE is considered to some extent by public coverage
schemes in formulary inclusion decisions.
• In Switzerland, CE not formally considered in formulary and
reimbursement pricing, but manufacturers may supply info and use in
price negotiations.
– Not used in Germany at present
24
Other factors in pharmaceutical pricing

Cost or budgetary considerations
– Considered in formulary inclusion decisions in Canada and Mexico.
– Not taken into account in reimbursement pricing or coverage
decisions in Germany, Slovakia, Sweden and Switzerland.
– Germany sometimes requires discounts to public purchasers.

Distribution costs
– Wholesale and/or retail margins are fixed in Germany, Slovakia,
Sweden and Switzerland.
– In Canada, both public and private third-party payers define markups and other similar types of regulation.
– Wholesale and/or retail margins are implicitly determined in Mexico
by manufacturers who set both the ex-manufacturer and maximum
retail sales price.
25
Summary and conclusions

The global pharmaceutical market is large and growing

Market value is not just about price levels
– Many relevant market factors and policy levers

Manufacturers operate in a global market, where policies and outcomes
in one country bear on what happens elsewhere

The United States is the most important pharmaceutical market
– The US accounts for 1/3 of global retail pharmaceutical sales and is
responsible for 40% of all non-hospital drug expenditures in the OECD.
– The US is characterized by relatively high prices for patented medicines,
and quick uptake and diffusion of new products.
– Only a few other markets share this combination of characteristics, which
contribute to high sales and profits for the research-based pharmaceutical
industry, but no other market compares to the US in size.
– Changes that affect the US prices obtained by manufacturers and/or the
level or mix of consumption have significant implications for the industry as
a whole.
26
Summary and conclusions
(cont’d)

Pharmaceutical policies in OECD countries vary widely

These schemes have different objectives, apply different
approaches and achieve different outcomes

The notion of regulated/free market pricing is overly simplistic
and does not reflect the reality of the policy responses
27
More information

Project web page:
http://www.oecd.org/health/pharmaceutical

OECD Health Working Papers can be downloaded at no
charge: www.oecd.org/els/health/workingpapers
– “Pharmaceutical Pricing and Reimbursement Policies in Canada,”
OECD Health Working Paper #24.
– “Pharmaceutical Pricing and Reimbursement Policies in Mexico,”
OECD Health Working Paper #25.
– “Pharmaceutical Pricing and Reimbursement Policies in
Switzerland,” (forthcoming).
– “Pharmaceutical Pricing and Reimbursement Policies in Sweden,”
(forthcoming).
– “Pharmaceutical Pricing and Reimbursement Policies in
Germany,” OECD Health Working Paper (forthcoming).
– “Pharmaceutical Pricing and Reimbursement Policies in Slovakia,”
OECD Health Working Paper (forthcoming).
28