1

Selection of drugsDrug pricingDrug reimbursement or subsidyGovernmental drug budget control

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Selection of drugs

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Selection of drugs – Why?• For governmental procurement Government

purchases/manufactures drugs and distribute them

• For subsidy Government subsidizes the prices of all/certain drugs (for everybody)

• For reimbursement Government (or private) Insurance pays part of prices of certain drugs, only insured patients covered. (National insurance may cover every citizen)

• For rationalisation of the therapy e.g. Standard Treatment Guidelines STG

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In certain countries: „need clause”

• e.g. earlier in Scandinavia, in the Communist countries…

• Principle: of every type of medicines only one is „needed” e.g. one H2–receptor blocker, one statin, one ACE-

inhibitor… • One single API and its one single preparation per

dosage forms• A National Committee decides• In Scandinavia: the „best”• In former Communist countries: the „cheapest”

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The „need clause” is a wrong approach!

For• What „cheapest” means? Absolutely

no (price) competition…• What „best” means? Are different

APIs belonging to the same theraputic class completely the same?

Forget it!

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Comparison of assessments for registration and selection of drugs

Registration = accepted as a drug or not?Selection of drugs for• governmental procurement• subsidy• reimbursement

Registration = availability = benefit/risk evaluation

The above other selections = affordability = benefit/cost evaluation

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Selection of drugs

• Also another purpose: rationalisation of the use of drugs– by reimbursement/subsidy (via prices)– by direct means: standard treatment guidelines (active

substance of the first choice, if more available: the cheapest)

• As a rule: by a national/regional/hospital Standing C’ttee comprising medicine (all fields), nursing, pharmacy, public health and consumer affairs professionals

• Also consultation with interested parties, organisations

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Drug selection process, 1

First step: based on INN + dosage-forms, not on brand names

• identify health problems (prevailing illnesses, etc.)

• create Standard Treatment Guidelines STG

• identify INNs and dosage-forms

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Drug selection process, 2

• Second step: for the selected INNs list existing preparations

• Select the equivalents, if possible• If doubts concerning their

availability: select those that are always available

• Put them into pharmacoeconomic STDs

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General selection criteria• Quality is prerequisite• Evidence-based ranking• Costcost of treatment regimen, not of dosage form units!

cost vs. savings e.g. reducing hospitalisation shortcoming of “separated parcels”

patient compliance

reduced waste (more stable products at ambient conditions)

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Levels of proof:

I. randomised clinical trials, meta-analysis

Ib. At least one randomised clinical trial

IIa. At least one controlled, non/randomised clinical trial

IIb. At least one open clinical trial III. Documented data on individual treatments,

evaluated using scientific methods

IV. Expert/regulatory Committees standpoint on the basis of evaluated literature data

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Drug of (1st, 2nd etc.) choice STGs

• Treatment started with the drug of 1st choice, if fails switch to the next (more expensive!) one, etc.

• Naturally, when patients tolerate it100% success

0% success

TREATMENT

1st 2nd3rd

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Example: treatment of acute tonsillopharyngitis

An acute infection of the pharynx or the palatine tonsils, or both. Symptoms may include sore throat, dysphagia, cervical lymphadenopathy and fever

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Guideline of the Hungarian Ministry of Health

• Acute tonsillopharyngitis

• Caused mostly by virus (adults: 90%, children: 60-75%)

• When bacteria: (children: 25-40%, adult: 10%) then almost exclusively Streptococcus pyogenes (diagnostic sign: acute manifestation)

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Treatment of acute, bacterial tonsillopharyngitis

• Drug of the first choice: penicillin (oral or parenteral, daily dose 50,000 to 100,000 IU/body weight-kg, distributed twice a day for 10 days), success rate 90-95%– known penicillin allergy: macrolides– late (non-IgE-mediated) reactions: switch to

cefalospirins• Drugs of the second choice (unnecessarily wider

spectra, but only 5-day treatment): – amoxacillin (if H. influenzae present and its beta-

lactamase decomposes penicillin)– 2nd generation cefalosporins

• (Naturally plus paracetamol or ibuprophen as antypiretic and pain-killer, no acetylsalicylic acid under 12 years!)

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2nd step: what penicillins are available? (March 2010, Hungary)

• Promptcillin forte injection 3x and 50x, 800,000 IU/ampoule

• Retardillin injection 3x, and 50x, 1,000,000 IU/ampoule

• Say: 40-kg-weight patient, 50,000 IU/kg administered = 2,000,000 IU/day

• Promptcillin: 3 amp/day = 30 ampoules/10 days

• Retardillin: 2 amp/day = 20 ampoules/10 days

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(continued)

• Naturally, the 50x pack units are too big! The 3x packs apply

• Promptcillin: 30 ampoules/treatment• Retardillin: 21 (!) ampoules/treatment• Ex pharmacy prices:• Promptcillin: 867 Ft/3 amp. = 8670 Ft• Retardillin: 1067 FT/ 3 amp. = 7470 Ft• Retardillin is the drug of first choice!

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(continued)

• Actually, the same decision was taken by the Hungarian National Health Insurance Administration

• They gave 267 Ft reimbursement to every box of 3 ampoules, the 40-kg-weight patients pay 7x800 = 5600 Ft for the treatment

(And so on, the same calculation could be done for amoxicillins, cefalosporins, macrolides…)

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Selection criteria (continued)

• The former is valid for single API drugs. Fixed combinations: only when distinct advantages over single API drugs exist

• Antimicrobials: local resistance (or sensitivity) patterns are determining factor

• The selection results should be part of under- and postgraduate training!

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Some definitions

• Fixed dose combination: combination of two or more active ingredients into single product

• Co-Packaging: two or more single, distinct products presented in a single package

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Fixed dose combinationsAdvantages

• Increased efficacy if additive and synergistic effects

• If doses can be reduced this way: also reduced toxicity

• Simplified treatment

• Improved adherence (compliance)

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Fixed dose combinationsDisadvantages

• Dosage adjustment according to individual needs – not possible

• (If forgotten taking: both drugs missing)

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Drug selection successful if

• objective drug info is also provided

• National Drug Info Centre

• STGs

• National Drug Information Bulletin

• Regulation of Firms’ advertising activities

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Rational use of drugs by health personnel

Components:• adequate diagnosis• correct prescribing (only physician?

nurses? basic health workers?)• appropriate dispensing - substances,

containers, labels available (only pharmacists?)

• Patient compliance (adherence to treatment), understanding?

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Pricing and reimbursement

A balanced price and reimbursement system is necessary to guarantee

• affordability of necessary drugs for the patients

• development and marketing costs to be recovered

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Drug pricesPricing

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Drug price structure

Price component Price

Manufacturing price + profit (among others to earn the expenses of R&D)

ex factory price

ex factory price + wholesaling margin

wholesale price

wholesale price + retail profit +VAT (if any)

ex pharmacy (retail) pricemay be different from the fee the patient pays!

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Drug price

ex factory priceex factory price

wholesale margin

retail margin

VAT

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Ex factory prices

• Manufacture + (distribution costs +) profit

• Innovation: “extra” profit should cover also the money spent for innovation, within the patent period

• Later and generic: profit for shareholders (theoretically as big as possible)

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Wholesale and retail prices

• More exactly: margins

• To cover wholesale distribution and pharmacists’ retail activity costs

• VAT (value added tax): income of the State (Government)

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Price systems

Ex factory prices

free controlled

Wholesale margin

free controlled

Retail margin free controlled

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Price system (theoretical) variations

Ex factory price

Wholesale margin

Retail margin

free free free

controlled free free

free controlled free

controlled controlled free

free free controlled

controlled free controlled

free controlled controlled

controlled controlled controlled

1

2

3

4

5

6

7

8

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Discussion of some possible drug price systems

1 Ex factory price and both margins are free– completely liberal system, for all kinds

of drugs is rare– often applied for non-prescription drugs

that are not reimbursed or subsidised

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Discussion of some possible drug price systems

7 Ex factory price free, the two margins are controlled– semi liberal system for all kinds of

drugs – the former Hungarian one– often applied for reimbursed

prescription-only drugs

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Discussion of some possible drug price systems

8 Ex factory price and both margins are controlled– completely controlled price system –

but not without examples!

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Price control

Governmental• Political issue. • In certain countries it covers all drugs• In others: only reimbursed drugs and

those used in hospitals• Price control may be directed to all

elements of drug prices (see previously)

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Ex factory price control

• Appointed Governmental organs for different prices

• As a rule, in the Price Act

• (In general: both goods and services, e.g. train tickets, gas for heating, postal services…)

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Control over ex factory drug prices, 3 main types

• proven manufacturing cost + fixed mark-up (profit) for companies

• control of profit (profit ceilings) (negotiations: money earned over the negotiated profit paid back to Government) UK: Pharmaceutical Price Regulating System PPRS

• price comparisons (“not higher than in selected reference countries”)

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Danger of too strict ex factory price regulation

• Profit of new innovative medicines will be claimed to be high to compensate for lost profit of established drugs, with earlier regulated prices

• otherwise no new innovative medicines available

the balloon exampletry to attach a cord and make the baloon narrower: it will swell out elsewhere!

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Wholesale - retail margin regulation

Do not forget:• Wholesale margin: “fee for the

wholesaling activities”• Retail (pharmacy) margin: “fee for

retailing activities” plus “fee for pharmacist’s (e.g. pharmaceutical care) activities” – the latter often forgotten

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Wholesale - retail margin regulation: various models

Linear mark-up (e.g. ex factory price + 5%, wholesale price +12%) Problem: Higher price=+higher margin, but the pharmacist’s work is the same

• Fixed mark-up (e.g. 300 Forints per drug box). Problem: for cheaper medicines higher, for more expensive ones lower than the linear one

• Digressive mark-up system (the higher the ex factory price the lower /in percentage/ the margin)

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Two-sided problems of mark-up regulation

• Completely linear: Highest mark-ups for the most expensive medicines = even more expensive, affordability problems

• Fixed mark-up: see before• Very digressive mark/up structure to

balance prices = patients’ (and doctors’!) price sensitivity decreases

• A well balanced approach is needed!

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Mark-up control variations

In percentage digressive and only maximised

• the higher is the price the lower is the margin (in percentage)

• but the margins specified are the maximal ones, e.g. the wholesaler may use lower margins (as a competition weapon = the Hunagrian system)

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Governmental subsidy

• (=The Government „pays” the considerable part of drug prices, they are artificially low)

• Actually, not the Government „pays”, other goods will have artificially higher prices (e.g. high VAT) to compensate it

• At first site sympathetic, but the same problem: patients and doctors do not value drugs, high percentage is not used, wasted

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Reimbursement of drugsfor, as seen before, with pricing alone the

problems can not be solved

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Two main models to contribute to/cover drug expenses

• Reimbursement: part of the price paid by the Insurance Organ = in the outpatient care

• DRG (Diagnosis Related Groups) financing: the Insurance Organ pays a fixed sum of money for the treatment of a sickness (that, ideally, covers all expenses including drugs) = in the in-patient (hospital) care

• Insurance Organ = Governmental or private

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Reimbursement

• The Insurance Company (or Governmental Administration) collects money from the insured people regularly (National Insurance: solidarity concept, the poor pays less = solidarity principle)…

• …to finance (partially) out-patient drug expenses (as a rule: prescription-only ones)

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Reimbursement system, different models

Example: the drug is reimbursed to some extent (e.g. 90% of ex pharmacy price)

• Co-payment (now 10%) by the patient in the pharmacy, the remaining part reimbursed later

• Co-payment (now 10%) + a fix dispensing fee (user charge) are paid by the patient, the remaining part reimbursed later

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Reimbursement issues

Low level reimbursement: affordability problems

High level reimbursement:

• budgetary problems

• patients, doctors do not realise the value of medication

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Thus, reimbursement

• “Pauper list” + drugs reimbursed in 100% for socially handicapped people– selected drugs– all drugs within a personal budget

• Positive and negative reimbursement lists

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Positive reimbursement lists - varies by country – based on the importance

of drugs (seriousness of the sicknesses)E.g.

• 100% reimbursement of drugs for chronic and life-threatening diseases (cancer, Parkinson’s disease, diabetes)

• 80-90% reimbursement of drugs for chronic diseases

• 50% reimbursement of drugs for acute diseases (e.g. infections)

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Negative reimbursement lists - varies by country

E.g.

• Non-prescription medicines (not necessarily!)

• Anti-baby tablets

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„Reimbursement and indirect price control”

• Ex factory drug price is free• Negotiations on reimbursement• The Reimbursement Organ says: „if your

ex factory price is so high, I will not reimburse it! The lower your price the higher % reimbursement will be granted”

• Then the marketing authorisation holder calculates and may lower the price!

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„Reimbursement and indirect price control” – a calculation example

• Ex factory drug price offer is 5000 HUF• If no reimbursement, with the margins the retail

price would be 6000 HUF• 600,000 patients expected, only max. 5%

assumed to pay such an amount of money = 180 mio HUF turnover

• If ex factory price 3000 HUF, retail price 3600, but 80% reimbursement offered

• Assumption: 50% of the patients = 300,000 would take it (patient fee only 720 HUF)

• The turnover is then 1080 mio HUF!

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Governmental drug budget control

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Governmental drug budget control

• Direct– substitution

• generic• ATC subgroups

– reimbursement sum ceiling for „baskets”

– tendering

• (Indirect: Standard Treatment Guidelines – see before)

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Substitution

• Doctors directed to prescribe cheaper variations of the same/similar medicines– information– prescribing softwares (colours)– even punishment

• money• mandatory training course

• Pharmacists also to substitute– if not forbidden by the doctor (special

prescripition box)– also in agreement with the patient

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Substitution

• Same API substitution– proven bioequivalent generics– the API, strength, dosage form is the

same, equivalence not known dubious

• Different API (same ATC subgroup) substitution only in specific cases true!

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Generic substitution• The most powerful tool to cut

reimbursement budgets

• USA: innovative medicines if sold at 5% of their introductory prices still make profit

• If generic version available, why to use the innovator’s brand in hospitals, outpatient care...

• Reference price system

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Generic reference pricing, 1

The cheapest version is the reference product. Percentage reimbursement. Higher priced versions: the same fixed sum for reimbursement, the remaining sum = co-payment.

Problem if the reference is unable to cover the needs

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Example for the fixed sum reimbursement: reference is the

cheapest• Box price of the innovative product: 6000 HUF• Price of the first generic version: 5600 HUF• Price of the second generic version: 5000 HUF• Applying e.g. 80% reimburesement, the

Reimburesement Organ pays 4000 HUF for every product

• The patients pays: – 1000 HUF/box for the second generic– 1600 HUF/box for the first generic– 2000 HUF/box for the innovative product

• What is expected: the first two will decrease their prices!

600 HUF difference

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Generic reference pricing, 2

The reference price is the average of the e.g. 2 cheapest established versions

Given % of the reference price reimbursed

(However, in the rare cases when the product that is so cheap that the reimbursement would be higher: the reference price has also the same %)

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Example for the fixed sum reimbursement: reference is the

average of the two cheapest• Box price of the innovative product: 6000 HUF• Price of the first generic version: 5600 HUF• Price of the second generic version: 5000 HUF• The reference price: 5300 HUF• Applying e.g. 80% reimburesement, the

Reimburesement Organ pays 4240 HUF for every product

• The patients pays: – 760 HUF/box for the second generic– 1360 HUF/box for the first generic– 1760 HUF/box for the innovative product

• What is expected: less incentive for price competition!

only 400 HUF difference

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ATC subgroup substitution

For instance: • H2–receptor blockers ranitidine – famotidine –

roxatidine – nizatidine (the side-effect profile of cimetidine is different!) or

• proton pump inhibitors omeprazole – pantoprazole – lansoprazole – rabeprazole

are taken as „the same therapeutic value” drugs and their DDDs are reimbursed with a fix sum (or athe average of the cheapest products is the reference for reimbursement)

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ATC (sub)group substitution

• Problem: different active ingredients may have different effects in individual patients

• e.g. NSAIDS: wide inter-personal and (whithin one person) inter-organ differences!

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Sometimes even indication-related fixed reimbursement

• For instance: every kind of antihypertensives put into the same group (diuretics, beta-receptor blockers, calcium channel blockers, ACE-inhibitors, angiotnsin-II antagonists, etc.)

• Completely wrong approach, they are by no means interchangable

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There is one danger of the too strict budget control: do not

forget rare/neglected diseases!

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Neglected diseases

• Pharma research operates in global market economy. Market forces skew R&D direction towards diseases that ensure highest financial returns. Purchasing power defines research agenda =

• Failure of industry to develop drugs for neglected diseases

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Neglected disease: definition

• Seriously disabling or life-threatening disease where treatment options are inadequate or do not exist, and when drug-market potential is insufficient to attract private sector

• Mainly affect people in developing countries

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European „orphan drug” definition

• 5/10.000 population• Government incentives, even

research co-sponsoring needed• EU: expedited assessment and

marketing authorisation, longer intellectual property rights

• Do not forget reimbursement solidarity

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Common neglected diseases in developing countries

• Tuberculosis• Malaria• Filiariasis• Kala Azar (Leishmaniasis)• Sleeping Sickness• Other Parasitic Diseases e.g.

Amoebiasis• Dengue fever

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Drug selection for reimbursement is truly the

most difficult part of the drug policy!

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Exam topic

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Drug selection, pricing and governmental budget control

• Drug selection purposes (4). Difference from registration criteria

• The resommended processand selection criteria• Specificities of fixed combinations• Structure of the drug price• Pricing systems• Different price regulation/control possibilities• Reimbursement/subsidy of drugs. Models of

reimbursement systems• Governmental control over drug budget –

possibilities and dangers