Pharmaceutical Pricing and Reimbursement: A Clear Win in Ireland
OECD countries’ pharmaceutical policies seek to balance three broad objectives:
make medicines accessible and affordable to patients; contain public spending
growth, and provide incentives for future innovation. In Ireland, pharmaceutical
expenditure accounts for 1.7% of GDP – substantially higher than the OECD average
of 1.2% of GDP in 2009 (OECD, 2011a). Per capita expenditure on pharmaceuticals
also far exceeded the OECD average and was the highest among OECD countries
after the US, Canada and Greece (Figure 14). Moreover, Ireland has experienced a
relatively high annual growth in pharmaceutical expenditure of almost 9% between
2000 and 2009 (Figure 15).
Figure 14: Per Capita Expenditure on Pharmaceuticals US$
PPP, 2009
Figure 15: Annual Growth in Pharmaceutical Expenditure,
2000‐2009
These high rates of expenditure may be somewhat attributable to the low
penetration of generics into the Irish pharmaceutical market. The development of
generic markets presents a good opportunity to increase efficiency in
pharmaceutical spending, by offering cheaper products and allowing a reallocation
of scarce funds to innovative medicines. The intention of the Irish government to
introduce generic substitution along with reference pricing is to be welcomed.
However, for generic substitution to be successful it must generate at least the
savings expected to accrue from the price reductions outlined in the current
agreement between the Irish Pharmaceutical Association and the HSE (IPHA, 2010).
Of these two changes, the most urgent is to promote generic substitution. Other
countries have sometimes taken a long time to define which drug can be substituted
by another. If Ireland intends to define groups of interchangeable drugs, this work
should be given high priority. Furthermore, merely permitting substitution by
pharmacists is not always enough to guarantee high generic penetration. Experience
elsewhere shows that someone has to gain something from generic substitution for
it to take off and that incentives directed at consumers are particularly effective
while the role of the prescriber is also crucial.
The ideal would be to implement jointly generic substitution and reference prices
and it is encouraging that legislation to do so is close to finalisation. However, if the
implementation of the reference price scheme is to take some months, it may be
worth introducing consumer incentives before its implementation if this does not
require a lengthy legislative process. For instance, in 2006 Switzerland increased the
co‐insurance rate for brand‐name drugs for which cheaper interchangeable generics
are available from 10 to 20% (OECD, forthcoming). France decided in 2008 that
patients had to pay in advance for their drugs and be reimbursed later when they
refuse generic substitution (while the usual rule is direct payment of the pharmacist
by third‐party payer). Both strategies met significant success in increasing generic
market share.
The design of the reference price scheme is crucial if potential savings are to be
realised. Reference prices are used in two‐third of OECD countries –sometimes in
juxtaposition with another type of price control. The majority of countries with
reference prices only have “generic clusters” (ATC5‐level groups including a brand‐
name originator and its generics) but a few countries make larger clusters, including
drugs with similar pharmaceutical or therapeutic properties (ATC4 or ATC3‐level).
For instance, a group can include all statins, or all Proton‐pump inhibitors. In
Germany, on‐patent drugs can be included in co‐called “jumbo groups”. Reference
prices are generally set by reference to prices observed on the market: often at the
budget pressures in Ireland, there is a good case that it should opt for the scheme
design that maximise potential savings (large groups, lowest possible price). The
inclusion of patented drugs with low additional therapeutic value in wide clusters is
desirable in the long term, but experience suggests that such a policy may face
strong opposition from the pharmaceutical industry and can delay policy
implementation (Habl et al. 2008).
Experience shows, however, that Reference Prices do not always lead to “the
lowest” or even to ‘low’ generic prices. In Germany and the Netherlands (the two
oldest Reference Pricing systems in Europe), generic prices were still high in the
2000s. There are a number of reasons for this. In countries with Reference Prices,
manufacturers and distributors have no incentive to lower the retail price of
products below the set price. Generic manufacturers may give rebates to
pharmacists to encourage them to select their own product when they substitute,
but these rebates are often not passed on to the public or to purchasers (as happens
more often in other systems with price regulation for generics). To overcome this
problem, Germany and the Netherlands have allowed health insurers to tender for
generics and insurers obtained spectacular price reductions for the most prescribed
active ingredients (up to 90%) (OECD, 2010c). But other solutions exist: periodic
revisions of Reference Prices, for example, taking into account disclosed rebates or
“real wholesale” prices are an alternative option, used in Japan and Australia (ibid.).