The Impact Global Pharma Cost Containment Methods in APAC


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Government cost containment methods in Asia-Pacific markets are as diverse as the cultures represented in the region, so what lessons are the markets leveraging from cost containment experiences? And what, in the end, are pharmaceutical companies supposed to do about it?

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The Impact Global Pharma Cost Containment Methods in APAC

  1. 1. 10 The Impact Global Pharma Cost Containment Measures in Asia-Pacific In Italy, France, Germany, the United Kingdom, and elsewhere, government agencies are rewarding innovative, high-value products via improved pricing opportunities,but are requiring pharmaceutical companies to demonstrate both the absolute therapeutic benefit of the product as well as the therapeutic benefit relative to the existing standards of care. Meanwhile, pay for performance schemes are hitting their stride. In Italy, for example, the emphasis has been on payment for response. The United Kingdom, has negotiated a number of arrangements that tie final payments to actual outcomes, as well as dose capping, in which the pharmaceutical manufacturer covers the costs of drug beyond the expected treatment duration. It’s all part and parcel of an effort to curb the rising costs of healthcare— even as aging populations put new pressure on national systems and even as the costs of new treatments continue to rise. And it’s not a phenomenon limited to the developed markets, as recent developments throughout Asia- Pacific make clear. In fact, in countries as diverse as China,Australia, and Thailand, a range of regulatory changes and cost contain- ment measures are rapidly emerging. China, for example, announced a tally of healthcare expansion improvements and regulatory reforms in 2009—all of which are continually being aug- mented as implementation progresses. In Australia, cost containment reached a turning point in 2011 amidst wide- spread criticism when the Pharma- ceutical Benefits Scheme (PBS) de- ferred reimbursement listing for 7 new drug launches and required all new reimbursement listing requests to be reviewed by the cabinet for approval. In Thailand cost-containment is now so deeply embedded within its health- care system that various stakeholders ranging from the Prime Minister, the Controller General Department, the Government Purchasing Organization, and the Ministry of Public Health are now all involved in the process. “National health systems are caught in a complex conundrum,” says Marc Benoff, VP of Pricing and Market Access, IMS Consulting Group.“They are motivated by a desire to improve the lives of patients through quality serviceandtreatmentoptions,ontheone hand. On the other, they’re challenged by escalating needs, expectations, and costs, as healthcare expenditures as a percentage of GDP continue to soar.” Given that pharmaceutical expendi- tures account for 17% of all health- care spending globally, pharmaceutical companies must not simply be aware of the problem; they must actively assert themselves as part of the solution. To achieve that end, manufacturers need to understand just what is shap- ing national healthcare strategies. How, for example, are various markets viewing what is, as of this writing, the more than 6,000 active products in the global pharmaceutical pipeline? What lessons are the markets leveraging from early cost containment experiences. And what,in the end,are pharmaceutical companies supposed to do about it? “The environment is complicated and the risks are many,” says Benoff. “Today’s healthcare landscape is shaped as much by scientific ingenuity as it is by the ability of pharmaceutical companies to effectively navigate, on a country-by-country basis, everything from reference pricing and spending caps to generic substitution and clinical value assessments.” Taking a Closer Look at the Asian Markets: Trends and Tools It’s not just China, Australia, and Thailand where we’re seeing a new era of cost containment take root. Throughout both mature markets— which include Japan, Australia, South Korea, Taiwan, Singapore,—and less mature markets—Thailand, China, the Philippines, Malaysia,Vietnam, and Indonesia—pricing reforms and legislation aimed at making health- care more affordable have been put forward. (See figure 1). Countries intent on containing costs have many tools at their disposal. In the United States they call it“gold carding,”and already it’s in play among a handful of healthcare payers who are offering providers the opportunity to forego prior authorization in exchange for conformance to oncology prescribing guidelines.
  2. 2. 11 Prescribing and volume controls are, of course, an early line of worldwide defense. But budget controls, price management, and the promotion of innovation have lately emerged as primary.As one might expect, the less mature markets are mostly focused on price-oriented controls such as man- datory price cuts and international price referencing. On the other hand, the more mature markets tend to take a more diverse approach, relying on price controls, drug volume controls, budget controls, as well as game-changing approaches that reward and promote true innovation. Each tool, says Benoff, comes with its own set of benefits and hazards. “We’ve seen Health Technology Assessment (HTAs) incent industry to invest in new and increasingly effective treatments so that research and development can remain focused on true clinical improvements,” he says. “At the same time, HTAs are resource intensive—demanding significant funding, tapping new technical skills, and requiring the input of government, clinical, and industry stakeholders. It’s a trade-off, and compromises must be made.” Price cuts, conversely, are easy to im- plement and relatively straightforward, requiring little time and investment. And yet, they too have their down- sides, often negatively impacting the entire healthcare industry—a scenario that has recently emerged in the Philippines following the 2008 intro- duction of the Cheaper Medicines Act and the announcement of maximum retail prices. “We’ve been keeping a careful eye on the Philippines,” says Miemie Strydom, a consultant with IMS Consulting Group Asia-Pacific. “The pervasive price cutting there has not just negatively impacted sales for local and multinational pharmaceutical companies and severely affected sales for small and/or non-chain pharmacies. The price cuts have also affected the health of the people themselves. We found that the volume of sales of cheaper generic alternatives did not significantly rise and that patients— particularly poorer patients or those requiring specialist care—simply could not access the medications they need- ed, despite the major price reductions. Beyond that, the Cheaper Medicines Act discouraged foreign investment and resulted in the withdrawal of small, local multinational companies from the market.” An analysis of cost containment trends in ASEAN suggests that history favors the less complex set of tools,relative to EU or even other Asia-Pacific markets. (See figure 2). In Asian emerging markets, the sheer size of the task of improving healtcare have expedited the rise in price pressures Cost Containment Pressures most used in APAC Level of Agressiveness FrequencyofUse * An increased interest in the application of cost effectiveness is currently observed and expected to gradually increase its use as markets mature Most measures recently used by healthcare authorities focus directly on drug expenditure High Low Low High Co-payments on drugs Prescribing guidelines Cost- effectiveness requirementsReference price systems Physician prescribing budgetsSub-population limitations or restrictions Cost- effectiveness requirements Price Cuts No reimbursement Price/volume caps Figure 2 Figure 1 Select recent key healthcare strategy changes in APAC Source: IMS Market Expertise NHI - National Health Insurance; CSMBS - Civil Servant Medical Reimbursement Scheme; NLED - National Listing of Essential Drugs; PBS - Pharmaceutical Benefits Scheme Increased focus on cost containment in the region have led to significant increase in price pressures China: • Price cuts (2011) • Increased price controls S.Korea: • De-listing & price cuts (2011) • Reimbursement & pricing reforms (2009) Taiwan: • Second generation NHI reforms (2010) • Biannual price cuts • Health insurance premiums up (2010) Philippines: • Price cuts (2009 & 2010) • Cheaper Medicines Act (2008) Thailand: • CSMBS budget cuts; stricter spending controls (2010 & 2011) • Hospital audits 2010 & 2011 • NLED delistings Australia: • Reimbursement forfits (2011) • New price reference groups (2009) • PBS price reductions
  3. 3. 12 “It’s abundantly clear that cost con- tainment can only be effective when introduced through a systematic and coordinated effort,” says Strydom. “A number of national health systems— including Thailand, China, Japan, and Taiwan—have recently put forward a variety of capping provisions in an effort to keep spending down.” Taiwan, Japan, and Thailand have introduced DRG-type (Diagnosis- Related Group) reimbursement rates to cap the spend on patients and treat- ment, and talk of introducing the same sort of measures has arisen in Indonesia. At the hospital level, China and Thailand are capping expensive drug use to limit the number of prescrip- tions written and filled for expensive drugs; Thailand has also instituted capping programs for nine diseases considered to have above-average branded drug use. Sometimes spending caps are levied as part of an overall cost effectiveness program. Sometimes they are used to limit the amount of spend on the treatment of each patient, or for all patients, in a therapeutic area and in Europe, we’ve seen these evolve as far to even include payback schemes as part of the cost-saving initiative. Sometimes overspend in the public health system can also subject manufacturers to payback schemes. Generic substitution, another popular cost containment tool, helped grow global generic drug spending to US$234Bn in 2010 (27% of total global pharma spend),up from $124Bn in 2005 (20% of total global pharma spend). By 2015 generic spending is expected to grow to between $400- 430Bn,constituting 39% of total global pharma spend. At its most aggressive, generic substitution targets are set by pharmacy associations and payers, leaving patients who seek the brand to pay for the privilege out of pocket. In many places, pharmacists are legally required to inform patients of the availability of lower-cost substitutions. It is no surprise, therefore, that across many developed markets, generics growth significantly outperforms overall pharmaceutical market growth—a trend that is expected to continue. In fact, branded generics manufacturers stand to gain the greatest boost in sales as the region grows given strong market affiliation and patient trust in high-quality generics manufactured by well established, local generic players. (See figure 4). Other cost containment tools that have gained in popularity in developed countries—clinical recommendations designed to help manage both the quality and costs of care, for example, and ‘Pay-for-Performance’ schemes that actually tie payments to results— have not yet found fertile ground within developing countries. “Such complex measures have a far harder time gaining a foothold in the developing countries,” says Strydom. (See figure 5). “It’s not just the complexity of these initiatives that limits their introduction, but the fact that these Recently, with growing budget pressures, markets are looking at new systemic approaches Budget Control Price Management Promote Innovation Spending caps Generic substitution Decentralization Prescribing control Reference pricing Parallel trade Price cuts Clinical guidelines Clinical value assessment Pay for performance Strategy Specific objectives Budget control Manage healthcare expenditure by implementing tighter controls on the pharmaceutical budget. Price mgmt Limit total drug expenditure by directly managing product prices Promote innovation Encourage efficent use of financial resources by promoting higher quality of care Figure 3 80,000 50%% Mkt Sales from OriginalsOriginalsBranded GxUnbranded Gx MAT Q1 07 MAT Q1 08 MAT Q1 09 MAT Q1 10 MAT Q1 11 Total Market CAGR Growth:“Branded Gx” - Other brands “Originals” - Original brands and licensed brands “Unbranded Gx” - Unbranded and patent n/a Source: IMS MIDAS Q1 2011. All APAC generics/branded figures exclude India and Vietnam 45% 40% 40% 38% 42% 44% TOTALSALES(US$MUSD/MNF) %oftotalMarketSalesfromOrginals 35% 30% 25% 20% 15% 10% 5% 0% 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Increasing consumer demand for more affordable drugs has driven rapid growth of high quality generics across APAC Sales Breakdown by Originator Status - APAC 17,204 14,027 7,965 9,870 12,721 15,958 19,173 16,886 20,160 23,645 26,873 19,518 21,886 24,184 26,165 11% 16% 21% 21% Segment CAGR MATQ1 2006- MATQ1 2011 36% Figure 4
  4. 4. 13 countries have to first address basic needs and infrastructure pressures before they can implement more sophisticated schemes.” What Does it All Mean for MNCs? Multinational pharma companies seeking to set down or strengthen roots in the Asia-Pacific markets are clearly in need of guideposts. ”Our clients have questions,” says Benoff. “They want to know what is working right now,and what will work five years from now. What resources can they put into place? What trends will become fixed and most pressing?” The answer, says Strydom, is complex. “We are advising our clients to prepare for greater shifts toward more systematic and integrated cost containment approaches ranging from prescribing control and budget restrictions to price management and innovation,” she says. “Multinational pharma companies can’t just sit on the sidelines and wait for the forces to play out,” says Benoff. “There are very real opportunities to step in and work with payers to help shape long-term development plans that can promote favorable operating environments. There are opportunities as well for multinational companies to assert their knowledge and expertise in the region and to become a valued resource to healthcare stakeholders.” Consider the recent concerns expressed by a public healthcare representative—a regulatory advisor— who overtly recognizes the importance of incorporating cost effectiveness into reimbursement decisions, but who has been thwarted by a lack of internal know-how. “We just do not have the technical expertise to implement this overnight and even if we did, which disease areas and patients should take priority?” she asked. “Right now the best we can do to is to make quality treatment a priority. Only then can we shift our focus to compliance and the standardization of clinical care.” There are real opportunities to build bridges in this environment—to offer the technical expertise that regulators and health officials are seeking. “Multinational companies with a strong local presence have the chance to make a real difference—to strengthen the health of a country as well as their own position within it,” says Benoff. “We’ve seen companies step in and work with payers in ways that shape the future of healthcare strategies. We’ve watched real partner- ships emerge between manufacturers and healthcare authorities—partner- ships that include risk-sharing agree- ments, price/volume agreements, and pay-for-performance schemes.“ There are also very real opportunities for multinational pharmaceutical com- panies to align their local and regional strategies with the national health- care strategies by streamlining their businesses, expanding their generics and branded generics presence, and adapting their commercial models to better serve key accounts. Finally, it’s imperative that multinational pharma companies at work in developing nations share what they have learned from their experiences in developed countries. “The companies that are getting ahead have found ways to bring their knowledge to the ASEAN countries,” says Benoff. “These are companies like those that have invested in specialty training for nurses requiring IV infusion treatments in oncology and rheumatoid arthritis care environments. Companies that bring partnering solutions to governments in need. Companies that take an active role in industry organizations— forging ties with peer companies to help create the right kind of changes. “Everyone benefits when real solutions are put forth, and it’s incumbent upon these pharma companies to see themselves not just as organizations with products to sell, but as organizations with important lessons to share.”