An Overview of Pharmaceutical Pricing in the European Community: An Overview of Pharmaceutical Pricing in the European Community Summit: Washington D.C. December 5th, 2003 Global Medical Forum geursen-consulting Robert G. Geursen, Ph.D., M.D. Health Policy Consultant robert.geursen@geursen-consulting.de www.geursen-consulting.de


An Overview of Pharmaceutical Pricing in the European Community: An Overview of Pharmaceutical Pricing in the European Community Summit: Washington D.C. Global Medical Forum i) Features of the European Health Care Market ii) Purchasing Power and Differential Pricing iii) The Impact of the Euro Zone iv) Approaches to Control Drug Prices in Europe v) Consequences and Outlook


World Market for Pharmaceuticals / Sales Index in 2002*: * Source: IMS Health 2003, ex factory prices World Market for Pharmaceuticals / Sales Index in 2002*


Europe - The Common Market for Pharmaceutical Products in 2003: EU Medicines Evaluation Agency in London since 1995 European Patent Office in Munich since 1977 / SPC introduced in 1991 Directive on European Patent still pending - six Member States have implemented the Bio Patent Directive so far Technical Standards re: GMP, GLP, GCP established „Rational Use“ Directives on Labeling, Packaging and Advertising since 1992 European Monetary Union in twelve countries since 1999 Europe - The Common Market for Pharmaceutical Products in 2003


Special Features of the EuropeanHealth Care Market: Special Features of the European Health Care Market Biggest regional market of the world with 380 mill. inhabitants High-quality level of health care and medicines Coverage of total population by compulsory sickness funds or national health services Common principles of market access and technical standards No competition between the systems Pharmaceutical industry regarded as an economic asset (?)


The (Un) Common European Health Environment: Cost-containment bite getting deeper („meeting Maastricht criteria”) Accumulation of controls (measures targeting both supply and demand side) Cross-fertilization among countries: regarding price levels, everybody wants to be the average Growing role of regions in health care provision Industry conceding on different measures in each country The (Un) Common European Health Environment


An Overview of Pharmaceutical Pricing in the European Community: An Overview of Pharmaceutical Pricing in the European Community Summit: Washington D.C. Global Medical Forum i) Features of the European Health Care Market ii) Purchasing Power and Differential Pricing iii) The Impact of the Euro Zone iv) Approaches to Control Drug Prices in Europe v) Consequences and Outlook


Slide8: GDP per capita in standard purchasing power: Average of 200+ Regions = 100 Inner London (GB) 243 Hamburg (D) 186 Brussels (B) 169 Luxembourg (L) 176 Vienna (A) 163 Ionianisia (EL) 56 Anatoliki Makedonia, Thraki (EL) 55 Peloponnisos (EL) 53 Açores (P) 52 Extremadura (E) 50 Ipeiros (EL) 42 EU Poverty and Wealth: Up to 600% Divergence Between Regions in 2001 Source: Eurostat, reported year 1998


Price Variations in the European Union: Price Variations in the European Union Germany France UK Sweden Divergence Victorinox Swiss Army Knife No 16795 48.45 58.90 81.35 72.32 68 % Bosch Accumulator Drill PSR 9.6 51.60 77.45 98.68 99.00 92 % Kodak Digital Camera DC5000 806.73 913.30 841.85 926.53 15 % Calvin Klein Fragrance "Eternity" 100ml 39.24 36.28 47.86 54.50 50 % Panasonic CD Player SL/SX 270 91.93 135.90 124.75 130.68 48 % GAP T-Shirt "Big Oxford" 35.29 38.13 49.27 69.52 97 % Salomon Ski Boot Evolution 28,0 274.47 234.62 279.18 315.46 35 % Nike Football "Geo Merlin" 83.21 72.42 83.32 86.00 19 % Public Prices of Selected Branded Goods in € Source: Swedish Ministry of Foreign Affairs, EIU, 2001


Burger Big Mac Price Index – Europe in 2002: Burger Big Mac Price Index – Europe in 2002


Segmented Market and Ramsey* Pricing: Segmented Market and Ramsey* Pricing Where there is a need to recover fixed costs in several markets, all participants can be made better off by price discrimination according to the elasticities between the various markets The mark up over marginal cost in each market should be inversely proportional to the price sensitivity of demand, i.e. willingness to pay Increased access to product spreads burden of fixed costs Approach adopted by enterprises with high sunk costs, e.g. airlines, railways, utility providers * Frank Plumpton Ramsey, UK economist (1903-1930), a contribution to the theory of taxation (1927)


Single Price Versus Price Differentiation: Note: A single price produces much smaller profits (small rectangle) than does price differentiation (large triangle). Single Price Versus Price Differentiation


An Overview of Pharmaceutical Pricing in the European Community: An Overview of Pharmaceutical Pricing in the European Community Summit: Washington D.C. Global Medical Forum i) Features of the European Health Care Market ii) Purchasing Power and Differential Pricing iii) The Impact of the Euro Zone iv) Approaches to Control Drug Prices in Europe v) Consequences and Outlook


The Impact of the Euro for European States: Need for suppliers to innovate and to demonstrate value-for-money The Euro has triggered further tight macroeconomic policies. National budgets constrained by “Maastricht criteria” National policies shaped by fiscal and monetary requirements Economic constraints accelerate debate on structural reforms of social systems Measures to cut government spending Restrictive policies in health financing The Impact of the Euro for European States


The Impact of the Euro: Higher speed of price harmonization within the Euro zone The Euro has not changed the trends towards more centralized pricing and price corridor strategies, but it has accelerated it. Due to the increased price transparency, prices are more visible and comparable to consumers which will intensify competition Within the Euro zone, the exchange risk for parallel trade is gone, encouraging more parallel trade Regarding countries´ pricing strategies, pharmaceutical companies are forced to act more quickly and adopt strategies to optimize their revenues The Impact of the Euro


An Overview of Pharmaceutical Pricing in the European Community: An Overview of Pharmaceutical Pricing in the European Community Summit: Washington D.C. Global Medical Forum i) Features of the European Health Care Market ii) Purchasing Power and Differential Pricing iii) The Impact of the Euro Zone iv) Approaches to Control Drug Prices in Europe v) Consequences and Outlook


Most Frequently Used Approaches to Control Prices in Europe: comparing with the prices of standards or similar products in the same country comparing with the prices of the same product in other countries using direct, indirect and intangible cost savings as a basis for pricing National Price Referencing International Price Referencing Health-economic Data Most Frequently Used Approaches to Control Prices in Europe


Principles of Reference Pricing: Source: Donald Macarthur, July 2000 Group together marketed products that are deemed interchangeable, and then cap reimbursement for all members of the group (or cluster) at some preset amount below the group’s maximum price Patient is required to pay the amount over this reimbursement level if a product that costs more than the reference level is prescribed At least one product in a group is always fully reimbursable and available Principles of Reference Pricing


Slide19: Hypertension One for all - all for one? / Clustering of Beta-blocking Agents: Which Class?


Introduction of Reference Pricing in Europe: Germany 09/1989 complex regression model, includes pack sizes and formulations, since 1996 patented drugs excluded, reestablished in 01/2004 Netherlands 07/1991 product price below average price based on cost per day, includes patented products Sweden 01/1993 price of cheapest generic +10%; replaced in 2002 by generic substitution Denmark 06/1993 average of two cheapest multi-source products Norway 09/1993 lowest price in group + 5%, abolished in 2000, reestablished in 2003 Spain 06/2000 weighted average of 3 cheapest alternatives Belgium 06/2001 300 products; maximum price reduction 16% Italy 09/2001 list of some 4000 products, including patent protected medicines since 01/2003 France 10/2003 29 substances with a generic substitution rate of 10-45% in 04/2003, clustered into 72 groups Introduction of Reference Pricing in Europe


Slide21: Germany - Drug Market Structure and Market Trends First half-year, ** 1995 to 2001 ex-factory prices; from 2002 pharmacy sales prices Source: GKV-Arzneimittelindex (until 1994), IMS Health (from 1995) In 1993: 5 % price cut; until 1997: price freeze for drugs not under reference pricing; until 2000: global budget caps for outpatient prescription drugs replaced in 2001 by physician-specific budgets


Pharmaceuticals – Which Single Price?: A single price to the manufacturer? A single price to the health insurance funds? Reimbursement policy Co-payment rate A single price to the consumer? Variable share of out-of-pocket payment Pharmaceuticals – Which Single Price?


Drug Cost Containment Measures since 1993:Predominance on Pricing: Source: EFPIA, 2002 Drug Cost Containment Measures since 1993: Predominance on Pricing


Slide24: Pricing in Europe: International Referencing


EU - External Price Comparisons are Widespread: € EU - External Price Comparisons are Widespread


European Pharma Price Index Consequences: Price convergence in Europe over the last 15 years driven by cost containment measures and international referencing Pricing and launch sequence decisions drive the average value for new products European Pharma Price Index Consequences


An Overview of Pharmaceutical Pricing in the European Community: An Overview of Pharmaceutical Pricing in the European Community Summit: Washington D.C. Global Medical Forum i) Features of the European Health Care Market ii) Purchasing Power and Differential Pricing iii) The Impact of the Euro Zone iv) Approaches to Control Drug Prices in Europe v) Consequences and Outlook


Slide28: comparing with the prices of gold standards in the same country comparing with the prices of the same product in other countries use direct, indirect and intangible cost savings as a basis for pricing Carefully select the comparators in clinical studies to show “superiority” for … Carefully plan the launch sequence to establish the best “price sequence” for … Prepare health economic arguments on time for price negotiations, to … Source: Simon · Kucher & Partners National Price Referencing International Price Referencing Health-economic Data Responding to Most Frequent Approaches of Price Controls


Determining the Price of a New MedicineThe Past: Determining the Price of a New Medicine The Past


Determining the Price of a New MedicineThe Future: Determining the Price of a New Medicine The Future


Challenges re: Pharmaceutical Pricing andReimbursement in Europe: Challenges re: Pharmaceutical Pricing and Reimbursement in Europe Pricing and reimbursement systems will develop into even more regulated schemes with negotiations replacing market forces. Countries will not primarily be led by medical necessity but by budget constraints. Evidence based medicine related decisions will finally prevail. Relationship management will join marketing acumen as the driving power for market success. For pharmaceutical manufacturers stronger focus on patients will be necessary to complement activities targeted at physicians and health authorities / payers. Knowledge and understanding of all stakeholders will become crucial.


Future Pharmaceutical Pricing andReimbursement in Europe: Market pricing will be replaced by price negotiations or by price referencing, be it internal or external. Treatment guidelines will play a more prominent role in the selection of drugs. Patients become more involved, both as payers and as decision makers. Relationship management and negotiations skills will be key success factors. Early planning re: indication sequence, clinical trial program, health economic data will become essential for price justification. Life cycle management will become equally important to launch price setting for fully exploiting the revenue potential of new products. Price premiums will still be possible, however, only for truly superior products. Comprehensive deals, e.g. disease management programs, will be the trend . Future Pharmaceutical Pricing and Reimbursement in Europe