Drug Pricing in Europe: Small Steps Toward Big Changes

It didn’t hit the headlines, but in late September the French Minister of Health and Social Affairs, Marisol Touraine, put her name to a document that makes France the 22nd European Union (EU) country to sign up to the Joint Procurement Agreement to procure medical countermeasures. This rather obscure accord is receiving new attention from public interest groups and public authorities as anxiety grows over what is seen as a frightening rise in the costs of providing drugs to patients. It arose from widespread concerns at the time of the H1N1 flu epidemic that some countries were not able to access sufficient supplies of vaccines and antivirals to protect their populations.

Support strengthens

Strictly speaking, the scope of the pact is very limited. It can be invoked only when there are cross-border threats to health in Europe, and so far it has been used only in an attempt at joint purchase of protective clothing for health workers dealing with Ebola patients. However, its potential is attracting adherents, with France and Ireland joining this year, and Denmark, Lithuania, Hungary, Italy, Romania, and Luxembourg adding their names last year to the initial list of signatories. That pioneer group was not just small countries that had some justification for doubting their purchasing power. Alongside the more predictable backers-Belgium, Croatia, the Czech Republic, Cyprus, Estonia, Greece, Latvia, Malta, Portugal, Slovakia and Slovenia-were countries with much bigger clout: the Netherlands, Spain and the UK.

It is more than a straw in the wind that three quarters of the EU’s 28 member states are now keen to work within this system. And the wind is pretty obvious. It is not just the cost of Gilead Sciences’ hepatitis C treatment that is provoking concerns. The latest example of high pharmaceutical prices in the remarkable behavior of Turing Pharmaceuticals has inevitably focused the pressure still more harshly on public authorities to be more effective in the way they deal with the providers of medical hardware.

Pricing report in mix

The discussions are being nourished by a report that is currently being drafted for the European commission. This is still in preparation and is at present under examination by a handful of EU member states and leaders from the drug industry, health professional associations, and patient representatives. But even in draft form, it reveals some interesting data about current EU drug pricing systems.

It spells out that the most common pricing policy in European countries is external reference pricing. This is when one country uses using the prices of medicine in a basket of other countries to derive a benchmark or reference price for its own price-setting. At present, 25 European countries use the system for at least some of the medicines they approve, and it is the main or sole system used in 21 of those countries. They believe that the system is able to generate some savings for public authorities.

Countries don’t all use the same basket. They choose as far as possible countries that are either geographically close or have compatible economic conditions. For instance the three Baltic countries of Estonia, Latvia, and Lithuania reference one another’s prices. The countries which are most often included as a reference are France, Denmark, Belgium, Italy, Spain, the UK, Austria, Germany, and Slovakia. 

They don’t all use the same methodology in making their calculations either. Most countries use the price charged by the manufacturer, but some also take account of prices that the pharmacist pays to the wholesale distributor. This is further complicated because not all countries in Europe regulate the price at wholesale level. And even where information about prices is available from official sources, it is not always up-to-date.

There are variations, too, in the way that the formula is applied against the basket of other countries’ prices. Some countries use the average price, some use the average of the three lowest prices, and some just choose the lowest price in their basket. Some countries include the price of generics in their baskets, while others make comparisons only between branded products. And some include only products that are reimbursed, while  others ignore distinctions based on reimbursement status. There are similar variations in the choice of packsize or strength or form of the products selected.

Not surprisingly, the report suggests that the system has limitations. In addition to the methodological variations, further imprecisions result from currency variations, since not all the countries concerned are in the Eurozone. The efficacy of the system also depends heavily on the quality of information used, and on the technical and manpower resources available to operate it.

Cost-control negatives 

In consequence, there are some indications that any beneficial effects in containing prices evaporate over time.  It can even have negative effects on availability of medicines. The nature of the system gives companies an incentive to launch their products first in the countries with high price levels, and to delay the launch or even not to launch it all in nations with a low price level, so as to avoid a negative impact on any international benchmark for the product. 

This can obviously contribute to the drug shortages in some countries. The Organization for Economic Co-operation and Development (OECD) considers that external reference pricing is “readily gameable by the pharmaceutical industry, and by reducing firms’ willingness to price to

market, contributes to access and affordability problems.” The parallel importing that inevitably-and legally- occurs in Europe can also lead to shortages in countries with low prices.

The draft study in its current form recommends several mechanisms aimed at improving the quality and effectiveness of external reference pricing. But as it more or less admits, so much of this is just theory. Earlier studies have already suggested that external reference pricing may actually be less effective than other methods for bringing down prices. 

It may be more effective to revise prices more often, to impose repeated price cuts, or even to promote generic competition more energetically. Studies also show that the system is not even very popular in surveys of opinion and among interested parties. The research-based industry has expressed very low preferences for it, and so have many pricing and reimbursement authorities and public payers.

Smarter strides

European countries have made other steps towards better understanding of pricing issues. A European medicines price database called Euripid was set up a couple of years ago. And the joint procurement agreement is now the subject of intense speculation as another possible method of promoting joint work on drug pricing. 

But perhaps the most significant moves now taking place are discussions between Belgium and the Netherlands over joint negotiation of prices with drug companies. These two countries are on the brink of announcing the first agreement with drug companies to run a pilot project in finding a common approach to agreeing a price.  

The entire movement is being driven by a desire among many countries to find more effective methods of challenging what they see as a threat to public finances from soaring drug budgets. In that context, even the obscure joint procurement agreement and France’s recent signature of it takes on greater importance.

Reflector is Pharmaceutical Executive's correspondent in Brussels