A proposal for a system of pharmaceutical pricing and reimbursement in greece

1. Pharmaceutical Pricing and
Reimbursement in Greece
25/5/2011 ΣfΕΕ 1

2. Greek Pharmaceutical Market Today
Product
Money
Everything controlled
by government
(cartel?)
25/5/2011 ΣfΕΕ 2

3. Pharmaceutical Pricing Today
(retail market, 0% co-pay)
• Pharma Revenue: Ex-Factory – 4% Rebate
91.08
• Ex-Factory: Pharma -> Wholesaler
94.88
• Wholesale: Wholesaler -> Pharmacy
100.00 • 5.4% markup
• Pharmacy Margin
135.00 • 35% markup
• Retail: Pharmacy -> Social Security OR Private Payer
143.78 • VAT 6.5%
25/5/2011 ΣfΕΕ 3

4. Pharmaceutical Reimbursement Today
• Negative Reimbursement List
– All other medicines reimbursed
• 3 levels of co-pay for reimbursed medicines
based on combination of medicine & disease
– 0%
– 10%
– 25%
25/5/2011 ΣfΕΕ 4

5. Contradictions to Free Market
Principles that Exist Today
• Legislated prices, margins and discounts
between two private businesses
– Government created cartels
• Legislated cost burdens between two private
businesses
– Who pays for goods shipment
– Who pays for insurance
– Who pays for destruction of expired goods
• Government should not legislate any of these
25/5/2011 ΣfΕΕ 5

6. Proposal
A Win – Win Solution
25/5/2011 ΣfΕΕ 6

7. Government Benefits
• No medicine shortages
• Total Public Pharmaceutical Expenditure will gradually reach
approximately 1% of GDP
• Decrease in social security waste
• Increase in VAT
• Increase in Income Tax
• IMF & EU goals for free markets
• Benefits for employment in pharmaceutical & other industries
– Increased contributions to social security
• Clearer horizon for pharmaceutical investment in research &
development
• Ability to fund social policy to help patients who need lower co-pay
25/5/2011 ΣfΕΕ 7

8. Prerequisites
• Must Have:
Full Electronic Medicine Supply Chain Tracking
– All medicines bought by the government must be recorded
electronically
– All medicines sold by pharmacies must be recorded electronically
– All medicines sold by wholesalers and private clinics must be recorded
electronically
– All medicines sold by pharma industry must be recorded electronically
– Monthly updated data for calculating % of medicines sold that are
reimbursed
• Useful to Have:
Full Electronic Patient Health Record
– Would allow reliable and verifiable indication based reimbursement
– Would lead to savings in other areas of healthcare
25/5/2011 ΣfΕΕ 8

9. Pharmaceutical Pricing
25/5/2011 ΣfΕΕ 9

10. Pricing Goals
• Government should be involved and control prices only
where government pays
• All prices that government does not pay should be “free”
– In essence “Free” prices are not free
– Market forces shape prices more efficiently than any forced
control:
• Competition
• Customers
• Distribution channels
• European Pricing - Parallel Import / Export
• Internal Company Policies
– Free prices will force society (physicians & patients) to become
more price sensitive
25/5/2011 ΣfΕΕ 10

11. Pricing
Free Price Reimbursement
for private market buyers for government only
• Pharma Company Sets Wholesale • Social Security will calculate reimbursed wholesale
Price (Price to pharmacist) and price
– E.g value based price, international reference price
Suggested Retail Price – all prices will be recalculated once a year
– Pharma company may offer discounts • New products reimbursed when price is available
– Wholesalers may offer discounts in at least one other European country
– Pharmacists may offer discounts – quick access to new medicines for patients
– new products repriced every quarter for first 12
– Private clinic may offer discounts quarters (3 years) to capture new cheaper countries
– Public hospitals must transfer • Reasonable pharmacy markup/discount
discounts to social security • Social Security will reimburse private clinics at
• Published online in official SfEE wholesale price + 5%
price bulletin quarterly • Public Hospitals will purchase at hospital price
– SfEE publishes next quarters prices • Social Security will reimburse public hospitals at
online two weeks before quarter their purchase price + x%
starts • Reimbursed wholesale price cannot be higher than
– Companies responsible for free wholesale price (RWP <= FWP)
submitting prices electronically to • Prices not published
SfEE two weeks before publish date
25/5/2011 ΣfΕΕ 11

12. Reimbursed Money Flow
Government money
Private money
(margins and prices
not controlled by
government)
25/5/2011 ΣfΕΕ 12

13. 3 part Pharma Industry Rebate
• Euro amount for each unit reimbursed
Fixed • Difference between free wholesale price and reimbursed
Amount wholesale price
• % of reimbursed wholesale price
• Based on proportion of total units sold reimbursed
Variable % • As % of units reimbursed falls from 100% this variable
rebate % increases
4% Fixed • 4% of reimbursed wholesale price
Rebate • Same as today
25/5/2011 ΣfΕΕ 13

14. Rebate Paid by Pharma Companies
(does not include price difference part)
16%
14%
Rebate % of reimbursed price
12%
10%
8%
6%
4%
2%
0%
50%
95%
90%
85%
80%
75%
70%
65%
60%
55%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
100%
% of total units sold reimbursed
25/5/2011 ΣfΕΕ 14

15. Variable Rebate Mechanism
• At each quarter close government will
calculate total number of each medicine
purchased by social security and will compare
to total sales provided by pharmaceutical
companies to EOF.
• For every 1% point of non-reimbursed sales
rebate will increase by 0.1%
– 0% non-reimbursed sales = 0% + 4% rebate
– 100% non-reimbursed sales = 10% + 4% rebate
25/5/2011 ΣfΕΕ 15

16. Price System
(25% free price premium, retail market, 0% co-pay, 65% reimbursed sales)
Today Reimbursment Money Flow
Net Rebate 4% Net Rebate 7.5%
• Pharma Revenue
•Pharma Revenue: Ex-Factory – 4% Rebate
91.08 • Ex-Factory – Rebate = 25 + 4% + 3.5% = 32.5
•Ex-Factory: Pharma -> Wholesaler • Ex-Factory: Pharma -> Wholesaler
94.88
•Wholesale: Wholesaler -> Pharmacy
• Wholesale: Wholesaler -> Pharmacy
•5.4% markup
100.00 125.00
•Pharmacy Margin • Retail (before VAT): Pharmacy -> Social Security
•35% markup • 25% markup on Reimbursed wholesale price
135.00 150.00
•Retail Price: Pharmacy -> Social Security OR Private
Patient • VAT (Social Security does not pay VAT)
143.78 •+VAT 6.5%
Total Gov Spend = 150.00 – 32.50 rebate = 117.50 (vs 135)
25/5/2011 ΣfΕΕ 16

17. Price System
(25% free price premium, 100% contribution, 65% of units sold reimbursed)
Free Market Money Flow Reimbursed Money Flow
Reimbursed Wholesale Price = 100
Net Rebate 7.5%
• Pharma Revenue
• Pharma Revenue
• =Ex-Factory – Rebate = 25 + 4% + 3.5% = 32.5
• Ex-Factory: Pharma -> Wholesaler • Ex-Factory: Pharma -> Wholesaler
• Wholesale: Wholesaler -> Pharmacy • Wholesale: Wholesaler -> Pharmacy
125.00 125.00
• Pharmacy Margin • Retail (before VAT): Pharmacy -> Social Security
168.75 • Suggested 35% markup 150.00 • 25% markup on Reimbursed wholesale price
• Retail Price: Pharmacy -> Private Patient
• VAT (Social Security does not pay VAT)
190.69 • VAT 13%
Total Gov Spend = 150.00 – 32.50 rebate = 117.50 (vs 130 today)
25/5/2011 ΣfΕΕ 17

18. Co-payment
• Government will legislate social security
contribution.
– Patient co-payment will be on free price
• Will give a small benefit for social security
• This benefit will finance the necessity for some
populations to have reduced co-payment
25/5/2011 ΣfΕΕ 18

19. Rebate & Sales Example
(retail market, fixed units, 25% free price premium, 0% co-pay)
180,000 0%
160,000 -2%
140,000
-4%
120,000
-6%
Pharma Sales (Before Rebate)
100,000
Pharmacy Sales
euro
Total Pharma Rebate
-8%
80,000 Total Gov Expenditure (After Rebate)
Total Pharma Revenue (After Rebate) -10%
60,000 Rebate %
-12%
40,000
20,000 -14%
0 -16%
100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
% of total units sold reimbursed
25/5/2011 ΣfΕΕ 19

20. Generics
• The use of generics could significantly reduce government pharmaceutical
expenditure
IF
1. There is ongoing official accreditation to ensure quality of generic
medicines
2. There is full implementation of generic pricing rules
(IMF says 60%)
3. Price sensitivity in society increases by the application of this proposal
• When a molecule has gone off patent and generic competition begins,
the value of the contribution of social security can decrease.
– For example: social security contribution can move to 60% of prototype
product reimbursed wholesale price for all medicines with that active
ingredient
25/5/2011 ΣfΕΕ 20

21. Issues not yet resolved
• Pharmacy Reimbursed Margin
– Options could include:
• Fixed markup
• Variable discount on total amount purchased
• Variable discount on how fast payment is made
– 25% markup used here for examples
as mentioned in IMF document:
• reduced profit margin of pharmacies on retail prices directly
to 15-20 percent or indirectly through rebates
(25% markup = 20% margin)
• VAT
– For government VAT is in one pocket out the other
– For private payers VAT is revenue for government
– State buyers should not pay VAT
25/5/2011 ΣfΕΕ 21

22. Reimbursement
25/5/2011 ΣfΕΕ 22

23. Reimbursement Goals
1. No reimbursement for lifestyle ailments
2. Reimbursement for other illnesses with
varying levels of patient co-payment
3. Incentive for physicians, pharmacists and
patients to prefer treatments that represent
better value for money
25/5/2011 ΣfΕΕ 23

24. 1. Negative List
• Certain products are not reimbursed
– Lifestyle
– Over the counter
– Inadequate efficacy (do not work)
• Reimbursement for certain diseases with co-pay
– For some patients these products are not lifestyle
treatments but chronic illness treatments
– Some products made lead to significant savings in
other health care expenses (e.g. smoking cessation)
25/5/2011 ΣfΕΕ 24

25. 2. Reimbursement Contribution
Social security contribution should also have social criteria
(patient ability to afford, age group, etc)
Contribution categories:
• Full contribution for chronic life threatening diseases /
therapies
• Large contribution for serious diseases / therapies
• Medium contribution for less serious diseases / therapies
• Low social security contribution
• Very low social security contribution
(similar to Belgian reimbursement system)
25/5/2011 ΣfΕΕ 25

26. 3. Incentive for lower cost
• Create an incentive for cheaper therapies with
patients as drivers
– Social security must increase price sensitivity in
patients who will then influence physicians and
pharmacists
– Co-payment is the only way to incent patients to
select cheaper medicines
25/5/2011 ΣfΕΕ 26

27. Government Benefits
• No medicine shortages
• Total Public Pharmaceutical Expenditure will gradually reach
approximately 1% of GDP
• Decrease in social security waste
• Increase in VAT
• Increase in Income Tax
• IMF & EU goals for free markets
• Benefits for employment in pharmaceutical & other industries
– Increased contributions to social security
• Clearer horizon for pharmaceutical investment in research &
development
• Ability to fund social policy to help patients who need lower co-pay
25/5/2011 ΣfΕΕ 27

28. Contradictions to Free Market
Principles that Exist Today
• Legislated prices, margins and discounts
between two private businesses
– Government created cartels
• Legislated cost burdens between two private
businesses
– Who pays for goods shipment
– Who pays for insurance
– Who pays for destruction of expired goods
• Government should not legislate any of these
25/5/2011 ΣfΕΕ 28