Excessive prices in Pharmaceutical Markets - PARIS - OECD Competition Open Day 2019
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This presentation by Valérie Paris, Senior Health Policy Analyst, OECD, was made during the discussion “Excessive prices in pharmaceutical markets" held at the OECD Competition Open Day on 27 February 2019. More documents and presentations on this topic can be found at oe.cd/comp-open-day-19.
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Excessive prices in Pharmaceutical Markets - PARIS - OECD Competition Open Day 2019
- 1. PHARMACEUTICAL PRICING A Health System Perspective Valérie Paris Health Division OECD Directorate for Employment, Labour and Social Affairs (ELS) OECD Competition Open Day 2019
- 2. More than half of pharmaceutical spending is financed by governments or compulsory health insurance in OECD countries 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Household out-of-pocket payments Voluntary healthcare payment schemes Compulsory contributory health insuranceschemes Government schemes Expenditure on pharmaceuticals and other medical non-durable goods, by financing schemes (%), in 2016 Notes: Australia and Japan, 2015 - In the United States, compulsory and voluntary private health insurance cannot be distinguished Source: OECD Health Statistics, 2018
- 3. When defining pharma pricing policies, policy makers seek a balance between… To encourage development of new and quality products that improve health • To ensure equitable access • To achieve value for money from current spending …paying enough for medicines to incentivise further investment in R&D …not paying more than necessary for such an incentive
- 4. Prices along the life cycle of medicines Source: Amgros I/S Denmark, reproduced with permission Horizon scanning Introduction of new product or new delivery method Monopoly or de-facto monopoly Full or partial analogue competition Generic or biosimilar competition Supply risk or de facto monopoly New products - monopolyPRICE Potential supply risk Generic and biosimilars Supply and demand issues Sector-specific price regulation Greater reliance on competition
- 5. Most OECD countries directly/indirectly regulate prices, using HTA Source: Panteli et al. 2016 Pharmaceutical Regulation in 15 European Countries Two simplified archetypes of coverage and pricing decision-making
- 6. In many countries, prices of existing drugs tend to remain stable of decrease Trends in list prices of biologic disease modifying anti-rheumatic drugs, 2011-2015 Note: All prices are “list prices” as reported in the original MIDAS™ Database, 2011 to 2015, IMS AG, for hospital and outpatient markets. Source: Patented Medicines Prices Review Board Canada 2015 • Indices of list prices stable in countries with regulated originator prices • No regulation in the United States However, price indices do not show impact of prices of newly introduced products
- 7. Launch prices of new drugs tend to increase, with little relation to their clinical benefits 54,100 139,100 207,000 0 50,000 100,000 150,000 200,000 1995 2005 2013 constantUSD United States 20,700 133,200 176,000 0 50,000 100,000 150,000 200,000 1996 2005 2016 constantEUR France Average list prices of cancer medicines per life-year gained, inflation-adjusted at product launch • When comparing average prices per unit of product effectiveness (e.g. life-years gained as a result of therapy)… Increases in list prices outpace increases in product effectiveness Source: Howard D.H. et al 2015 Pricing in the Market for Anticancer Drugs. Journal of Economic Perspectives 29 (1): 139-62. Source: CNAMTS 2017. Propositions pour l’Assurance Maladie pour 2018. Paris.
- 8. Pharma industry’s profitability remains relatively high and stable -6 -3 0 3 6 9 12 % Pharma R&D Pharma other All other sectors IT hardware Healthcare technology Aerospace & defence Tobacco Source: OECD 2018 Pharmaceutical Innovation and Access to Medicines • Development of medicines is risky: the probability of marketing authorisation of a medicine entering Phase 1 trials is estimated to be 14% However, risk-adjusted profitability in the industry overall is high and stable • Economic profits of 2% to 6% in the R&D-based industry between 2002 and 2016 • R&D-based industry more profitable than many other sectors, including IT and generics Return on assets less cost of capital in the R&D-based pharmaceutical and other selected industries, 2002 - 2016
- 9. Generic market shares vary widely across OECD countries 28 71 36 31 39 45 28 17 40 19 29 48 25 23 16 23 20 17 18 16 17 12 15 16 23 18 8 6 86 84 81 79 78 75 73 72 70 61 55 53 52 50 49 48 47 42 42 39 36 34 32 30 24 22 19 11 0 30 60 90 Value Volume % Share of generics in the total pharmaceutical market, 2015 (or nearest year) 1. Reimbursed pharmaceutical market. 2. Community pharmacy market. Source: OECD Health Statistics 2017. • Generics represent about half of the market volume and one quarter of pharmaceutical expenditure in the OECD • Generic penetration varies widely between countries
- 10. Issues in off-patent markets: exceptional cases or worrying trends? • Highly mediatised cases of price hikes in the US (e.g. Epipen +500% in 10 years, Daraprim +5000%!) • .. . and in other countries (Italy, UK, Austria), with some cases brought treated by competition authorities • Impact on generic price trends – In Canada: prices of single-source non-patented drugs have increased on average by 18% between 2010 and 2016 (only 2.5% of total expenditure of public drug plans). – In the United Kingdom, however, annual change in the average price of generics in 2015: +14.4%. – In the United States, 1/5 generics marketed for the whole 2010-15 period experienced extraordinary price increases (higher than 100%), which moderated the price erosion of “established” generics. • Trends in US generic markets 2004-2016 (NBER, 2017): – 40% of generic molecules supplied by a single manufacturer; 20% by 2-3 manufacturers – The number of generic manufacturers has been decreasing recently – Generic prices have risen faster than inflation, especially in markets with few competitors.
- 11. • Facilitate market entry of generic products after loss of market exclusivity (LoE) of originators: – Allowing generics manufacturers to complete regulatory requirements prior to LoE – Readily accessible and easily searchable databases to compile patents and exclusivity status of originator medicines (e.g. FDA orange book ) – Identify areas where generic competition is limited or lacking (e.g. less than 3 competitors), to prioritise generic approval in these areas (FDA, 2017). • Encourage price competition – Encourage competitive mechanisms in drug procurement, such as tendering or negotiations, avoiding single-supplier contracts and with appropriate safeguards to secure supply and preserve long term competition – When competition for market shares takes the form of discounting in the supply chain, impose price disclosure (e.g. Australia) to make sure discounts are finally passed on to public payers or consumers. How to promote healthy competition in generic markets? (1)
- 12. • Encourage uptake of generics and biosimilars through steering the behaviour of main stakeholders, e.g. – Allow/mandate prescribing by INN – Allowing generic substitution – Use prescribing softwares that highlight price differences or select the cheapest alternative by default; – Introduce financial incentives for pharmacists to dispense, and for patients to accept generic/biosimilar products; – Educating professionals and patients through information campaigns – Implementing a system to monitor market dynamics and allow purchasers to report sharp price increases if procurement mechanisms are unsuccessful in avoiding market concentration. – When the number of competitors becomes low (for example, less than three), payers could start negotiating with generics manufacturers to re-enter the market (minimum price?) – Enforcement of competition and antitrust laws as a last resort. How to promote healthy competition in generic markets? (2)
- 13. Staying in touch with the Health Division Martin Wenzl Valerie.paris@oecd.org @OECD_socialFollow us on Twitter http://www.oecd.org/healthVisit our website New release in OECD Health Policy Studies series Pharmaceutical Innovation and Access to Medicines http://www.oecd.org/health/pharmaceutical-innovation-and-access- to-medicines-9789264307391-en.htm
Editor's Notes
- When paying for medicines, these goals imply that health systems need to achieve a balance between, what might be referred to as dynamic and static efficiency. That is, on the one hand, paying enough for products to provide manufacturers with an attractive return on investment to incentivise further investment in R&D. This helps ensure that quality products that improve health are and continue to be available. And, on the other hand, health systems should not pay more than necessary. This can help achieve equitable access and value from current spending.
- Looking at prices of medicines, this figure illustrates price levels along the life cycle of a typical medicine. When a novel medicine is first introduced to the market, intellectual property rights and other forms of market exclusivity shield the product from generic competition. Prices usually significantly exceed marginal costs. This period typically lasts about 10-15 years from marketing authorisation. During this time, products can face competition but only to the extent that different products or alternative therapies for the same condition and with comparable effects are available. In many countries, prices are constrained by some form of regulation or market power of public payers. Once market exclusivity expires, generics are expected to enter the market and bring prices down towards marginal costs. Countries take various approaches to generic pricing but there is usually a greater reliance on competition than on price regulation. Prices can sometimes drop drastically, which can lead to supplier exit from the market and potential supply risks and, eventually, sometimes to de-facto monopolies and price increases.
- As the background note prepared for this meeting pointed out, regulation employs a variety of methods. Let me point out again that, in countries where prices are regulated, regulation often only applies to retail or outpatient medicines that are covered by public health care coverage schemes. One increasingly popular way of regulating prices is to evaluate the benefits of products in health technology assessment and then trying to align the relative prices of products with their relative benefits. This is sometimes also referred to as value-based pricing. The literature has identified 2 simplified archetypes of such pricing – One is to let manufacturers to submit a price ex ante to evaluate the cost-effectiveness of the product and then making the coverage decision conditional on the product’s achieving a desired level of cost-effectiveness, or if it doesn’t, negotiating prices that meet the cost-effectiveness target. The other one is to evaluate the benefit of the product relative to existing alternatives and then setting or negotiating a price based on its relative benefit. Both methods rely on the availability of rigorous evidence on the effectiveness of a new product and the ability to constrain prices partly relies on the ability to deny coverage of products that are not effective enough. This has been increasingly difficult, for example, because Payers find it difficult to deny coverage for rare and severe diseases, even if medicines provide little benefit. There is also a trend towards increasing uncertainty at the time of coverage and pricing decision because the availability of evidence is largely driven by clinical trial requirements of regulatory agencies for marketing authorisation. And medicines are increasingly for rare diseases, where trials are small and less conclusive, They are increasingly approved by accelerated authorisation pathways based on preliminary evidence, and, In some areas, such as oncology, therapies that combine products make it difficult to isolate the effects of individual products.
- Looking at whether regulation is successful at constraining prices. This shows a price index of originator medicines in 8 countries used in reference pricing by the Canadian regulator of patented medicines prices. We clearly see that, in countries where prices are regulated – for example Canada, France, Germany or the UK, prices are either constant or decrease over time. This is in contrast to the United States, where prices are unregulated. These are the best data we have but they are relatively uninformative for two main reasons – First of all, only list prices are publicly available and these do not reflect confidential discounts or rebates negotiated between payers and manufacturers. Second, these are price indices that hold the product mix constant over time. They therefore only show that unit prices of existing products do not increase but say nothing about whether new products that come to market are more expensive than older products.
- Looking at prices of new medicines over time, We have some very limited data for cancer medicines from the United States and France. Again, these reflect only list prices. These data show that, relative to the benefits that they deliver, oncology medicines have been becoming significantly more expensive over time – In the United States, the average price per life-year gained through putting a patient on a cancer medicine has increased from about 50,000 dollars in 1995 to more than 200,000 dollars. We see an even starker increase in France, where the same benefit-adjusted average price has gone from about 20,000 Euros to nearly 180,000.
- Another way to look at the effectiveness of price regulation is the profitability of the industry. This figure is from a recent analysis we have conducted together with our colleagues from this Directorate, using financial data from the Bloomberg database. It shows the difference between the return on assets and the cost of capital in the R&D-based pharmaceutical industry and other industries. The cost of capital reflects the risk of investing in an industry and, in a perfectly competitive market, the difference between return and cost would be expected to be zero in the long run. The data show that the R&D-based industry has earned returns in the range of 2% to 6% in excess of its cost of capital between 2002 and 2016. This suggests that investors earn more than required by the risk of the industry. This is also significantly higher than in other R&D-intensive sectors, such as IT or aerospace and defence, or than in the generics industry.
- To give an idea of the relative sizes of the originator vs. generic segments – Across the OECD, generics represent about half of the volume of medicines used and about one quarter of pharmaceutical expenditure. However, the proportions vary significantly between countries, especially in terms of volume – In the United States, for example, generics represent more than 80% of volume, While the share of generics is around or below 30% in countries such as France or Italy.