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The Impact of Reference Pricing in Europe
Decision Resources, Inc., Oct 2005, Pages: 12
In an effort to control pharmaceutical spending, European governments have long utilized reference pricing-the practice of setting a maximum reimbursement price and requiring patients to pay any excess if the manufacturer sets the retail price above the reference price. This measure may appear to target consumers, but its real objective is to force manufacturers to reduce their prices. The apparent success of reference pricing in curbing pharmaceutical costs has prompted an increasing number of European countries to adopt this practice or, in those countries already using this cost-containment measure, to expand or more aggressively implement their reference pricing systems. The practice, however, may pose hidden costs for patients and pharma companies alike.
In this report, we review the use of reference pricing in four major European markets: Germany, Spain, Italy, and France. We conclude with an assessment of the outlook and implications for the pharmaceutical industry.
Business Implications
- Recent health care reforms in Germany have led to the extension of reference pricing to certain patent-protected drugs, with the prospect
of further expansion of the reference pricing system in January and July 2006 and January 2007. In the future, the only medicines that will be safe from the threat of reference pricing will be drugs that are deemed to be therapeutically superior to established therapies. The pharmaceutical industry is particularly critical of what it considers to be an unduly narrow definition of 'therapeutic improvement' and a policy of combining patent-protected and off-patent medicines in 'jumbo' reference pricing groups. The German government hopes that new reference pricing groups will save the country's health care system approximately €1 billion ($1.2 billion) per year.
- In Spain, the government has temporarily suspended the country's reference pricing system but hopes to introduce a new system in 2006 or 2007. The Ministry of Health states that this new reference pricing system will 'generate greater savings for the National Health System; will be predictable, objective, and stable; will have a gradual impact on the pharmaceutical industry; will make it possible to keep generics as the most economical option; and will affect all drugs that are in a mature stage of market development.' Among other reforms, the new system will require pharmacists to substitute the lowest-priced generic version of a drug if a physician prescribes a drug that exceeds its reference price.
- In Italy, if a prescribed drug appears on the reference list, pharmacists are authorized to substitute the least expensive generic equivalent
unless the prescribing physician explicitly forbids substitution. Furthermore, physicians who prescribe products that exceed reference prices must inform their patients about the excess they would have to pay and to advise them if less expensive options are available. As of May 2005, 138 compounds are included in the Italian reference pricing list. Regional governments have some discretion in deciding reimbursement terms in their territories for reference-priced medicines.
- Recent legislation has made the French reference pricing system more aggressive. The Generics Monitoring Committee will meet monthly to review the generics dispensing rates of drugs that have been off patent for a year or longer. Reference prices will be imposed if a drug's generics dispensing rate does not reach 50% (60% in the case of drugs with substantial sales) within one year of patent expiration and 70% (80% in the case of drugs with substantial sales) within two years of patent expiration. These conditions may be relaxed if generics dispensing is growing strongly but has not reached the targeted rates, or if the range of generics on the market is limited. However, the proposed social security budget for 2006 would overturn these changes by automatically imposing reference prices two years after the patent on a compound expires.
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