| |
PDF version
|
|
|
Reference
pricing
Why don’t we have reference pricing
in the UK?
Jim Furniss of Bridgehead International asks.
A central concern of governments everywhere is to control
the inexorable growth in pharmaceutical expenditure. Many
approaches have been used in different countries, one of the
most popular being reference pricing, which was first introduced
in Germany in 1989 and has extended to almost all European
governments, apart from the UK, as well as further a field
in Australia and some Canadian provinces. But growth in pharmaceutical
expenditure is no less a concern for the UK Government –
hence, for example, the mandatory 7% price reduction imposed
as part of the 2005 PPRS agreement. So why hasn’t the
UK followed the fashion of the rest of the world and adopted
reference pricing? Is the UK approach better?
Reference pricing for medicines must be viewed within the
context of the cost-containment pressures being faced by healthcare
systems everywhere. Although it is a relatively small component
of the overall healthcare budget, expenditure on medicines
is the fastest-growing component.
Analysis of the factors contributing to the growth in pharmaceutical
expenditure in major markets shows that the biggest factor
is innovation, as physicians switch from older to newer and
more effective medicines. A detailed analysis of this was
published every year until 2001 by the Department of Health
1.
Sadly, since 2001, this information has not been published,
although similar analyses are available annually for other
countries, such as Germany and Sweden, and show a similar
pattern. Partially offsetting this continued upward pressure
on expenditure is the switch to generics, at very much lower
prices, as patents expire.
At the same time, investment in R&D by the pharmaceutical
sector is recognised by most governments as being one of the
main sources of healthcare innovation. There is, therefore,
an implicit bargain between governments and pharmaceutical
companies to reward innovation through patents and relatively
high prices for patent-protected products, but at the same
time to encourage generic competition following patent expiry.
In countries where generic prescribing is not well-established,
reference pricing is one of the main tools used by governments
to implement this switch to generics, or at least to achieve
generic prices even if doctors persist in prescribing brands.
The immediate intuitive appeal of reference pricing is clear
– to pay a similar price for products that provide a
similar benefit. From the payer’s perspective, it provides
an opportunity to reduce the cost of higher-priced products
– to pay only the lowest common denominator, the generic
price.
However, reference pricing has negative consequences for both
patients and pharmaceutical innovation. What it fails to take
into account is the variety of both products and patients.
Products within the same class may have characteristics that
differ in clinically significant ways, and much innovation
comes from incremental improvement within therapeutic classes.
But, if new products will be clustered with existing products
there is no incentive for companies to invest in such incremental
improvement. The almost infinite variability of patients may
mean that, for an individual patient, only one medicine in
a class may be effective or appropriate.
When reference pricing was first introduced in Germany, many
companies believed that their products had sufficient brand
value that patients would be willing to pay an additional
co-payment. They were wrong. Patients were not willing to
pay extra for a different brand of NSAID, for example. More
importantly, doctors were not willing to explain to patients
why a specific brand was better than the alternatives and
worth a premium price. Since then, companies throughout Europe
have accepted the reality that patients will not pay for brand
value and have reduced their prices to the reference level.
Pfizer is now testing this proposition again, by refusing
to reduce the price of Lipitor to the reference price for
statins in Germany. Sales have dropped dramatically as patients
(and doctors) switch to other brands or generics.
Reference pricing
No two reference pricing schemes are identical, but the essential elements are:
The grouping together of medicines into identical or similar
classes (often known as clusters), whether by active substance
or therapeutic class. In most countries this clustering is
restricted to generic medicines, but in Germany and the Netherlands
patent-protected medicines may be included. The assumption
is that products in a cluster are interchangeable. A fixed maximum reimbursement price is set for all the
medicines within the cluster, irrespective of their actual
prices. Usually this is set by reference to the cheapest medicines
within the cluster. Manufacturers are free to set the price of their products
above the reference price (the reimbursed amount), but patients
are responsible for paying co-payments where the price exceeds
the reference price.
Prescribing and dispensing in the UK
One of the distinctive features of the UK pharmaceutical market
is the extent to which prescriptions are written using the
generic name. This has been a long-standing national policy,
but has been strongly reinforced in the last fifteen years
by the introduction of computerised prescribing systems: almost
all prescriptions now are generated by computer systems. While
they allow doctors the flexibility to change settings, the
default position is to write prescriptions generically.
According to a Department of Health publication 2, there
has been a significant increase over the last ten years in
the use of generics: the proportion of scripts written generically,
already at 47% in 1993, increased to 78% in
2003, with a corresponding drop in those written using the
proprietary (brand) name. Importantly, half the scripts for
products dispensed as a brand are written using the
generic name, meaning that pharmacists will switch to
dispensing a generic as soon as one becomes available.
This is coupled with the effect of the Drug Tariff, which
gives pharmacists a strong incentive to dispense generics
whenever they can, as they will be reimbursed only the
generic price. (In some cases they may actually dispense
a brand against a generic prescription, as a result of
parallel imports or brand equalisation deals, but the
important point is that the Department of Health pays only
the generic price.)
The net effect of this is that, in practice, the Department
of Health is already getting most of the benefit that
could be achieved from reference pricing. The
combination of the long-standing generic prescribing
policy, reinforced by computerised prescribing, and the
incentives to pharmacists to dispense generic medicines
whenever they can, has had the same effect in the UK
as reference pricing has had in other markets.
Whether by accident or design, the Department of Health
has managed to achieve the benefits of reference pricing
by different means. At the same time, the UK has avoided
some of the market distortions and other disadvantages
of reference pricing, such as restricted choice for patients
(for whom only one specific product in a therapeutic class
may be effective) and the reduced incentives for
incremental development caused by clustering, with its
presumption of interchangeabiltity.
Overall, the UK has achieved the same results as reference
pricing, but in a way which is less damaging to both
patients and the research-based pharmaceutical industry.
References
1 Pharmaceutical Price Regulation Scheme – Fourth
Report to Parliament, available at www.dh.gov.uk/
assetRoot/04/06/74/85/04067485.pdf
2 DoH, Prescriptions dispensed in the community:
Statistics for 1993 to 2003, England, Bulletin 2004/12
Top
|
