The following sections present more detailed discussion of the drug cost control mechanisms used in Canada, Germany, France, and the UK.
In Canada, the provinces have responsibility for assuring their citizens access to health care under a Federal mandate that establishes general eligibility and benefit standards. All provinces provide some level of prescription coverage for the elderly and social assistance recipients. Coverage for the remainder of the population varies by province. Many of the consumer-oriented cost control techniques used in the United States are also used in Canada, such as formulary management, drug utilization reviews and copayments (Angus and Karpetz 1998).
In addition to consumer-oriented cost control mechanisms, Canada regulates the entry price of newly patented pharmaceuticals through the Patented Medicines Prices Review Board (PMPRB). The primary mandate of the board is “to prevent brand name firms from abusing their monopoly position during the market exclusivity period” (PMPRP 1998). The PMPRB is responsible for regulating the maximum prices charged by manufacturers for all patent-protected prescription and non-prescription drugs sold in Canada. The board has no authority over the prices charged further down the distribution chain by wholesalers or retailers. Furthermore, once a drug goes off patent its price is no longer regulated by the PMPRB. (Angus and Karpetz 1998; Anis and Wen 1998; PMPRB 1998).
The PMPRP issues pricing guidelines that defines “excessive” drug prices for three categories of products:
- Line extensions of existing medications, such as different strengths of the same product. A price is presumed to be excessive if it does not bear a reasonable relationship to the price of other strengths of the same drug sold by the company.
- Breakthrough drugs. A price is presumed to be excessive if it is greater than the prices of all other medications in the same therapeutic class and exceeds the median factory price charged for the same strength and dosage form in Germany, France, Italy, Sweden, Switzerland, the United Kingdom, and the United States.
- New chemical entities offering moderate, little or no therapeutic improvement. Price is presumed excessive if it exceeds the prices of all other medications in the same therapeutic class (Anis and Wen 1998; López-Casasnovas and Puig-Junoy 1999; PMPRB 1994).
The PMPRB also regulates prices of patent-protected products already on the market. In this case, a price increase is considered excessive if it exceeds the rise in the general consumer price index (CPI) (Angus and Karpetz 1998; Anis and Wen 1998; Dickson 1992; PMPRB 1994). If the price is found to be “excessive” the PMPRB can negotiate or order a price reduction. The company may appeal this decision through the court system. If the PMPRB and the company are unable to reach an agreement the PMPRB can revoke the patent on the product (Dickson 1992; PMPRB 1994).
Although Canada has the second lowest per capita spending on pharmaceuticals in the G7 nations, there is still an ongoing struggle for the government and drug benefit plans to contain costs. Provincial governments employ a number of drug cost control approaches such as patient copayments and formularies. The British Columbia government has instituted a policy of reference pricing for select therapeutic categories (López-Casasnovas and Puig-Junoy 1999). Initial research findings suggest that the regulation has produced a shift toward prescribing of the reference product in each therapeutic class and that drug expenditures within the targeted therapeutic categories have declined as a result (Narine 1999).
Over the past decade, the German government has introduced a number of substantial health care reforms affecting the sales of pharmaceuticals. Germany uses a combination of cost control mechanisms to manage its national drug budget. Both negative and positive “Lists of Reimbursable Drugs” (comparable to open and closed formularies) are used in formulary management (Schöffski 1996). In addition, Germany uses office-based physician drug budgets and prescription copayments along with reference pricing. Office-based physicians receive an annual budget for drug expenditures based on the number of patients under their care. Similar to a capitation system, this regulation places physicians at financial risk for their prescribing behavior.
The German government uses reference pricing to help control prices for drugs for which there are exact or close substitutes on the market. The reference price system assigns covered products to one of three levels:
- Level 1: Those products with identically active substances.
- Level 2: Those products with pharmacologically similar active ingredients
- Level 3: Those products with similar therapeutic effects (therapeutic reference pricing)
In 1993, the government introduced further reforms that froze drug prices and set an aggregate cap on drug reimbursements. If expenditures exceed the cap, financial penalties could be imposed on the medical professional associations and the pharmaceutical industry. Evaluations of the reform found some dramatic effects. After the cap was imposed, physicians prescribed more generics, decreased their prescribing of products with unproven efficacy, and increased referrals to specialists and hospitals. The cap did not affect drugs administered in hospitals where specialists had a significantly higher cap. Use and price of drug products not covered by the National Insurance system also increased after the cap was imposed. Finally, some generic manufacturers increased their prices to the reference price level (Schöffski 1996; Lecomte and Paris 1998; Ulrich and Wille 1996; von der Schulenburg and Uber 1997; von der Schulenburg 1997; Drummond 1997; López-Casasnovas and Puig-Junoy 1999).
Compared to other members of the OECD, the French pharmaceutical market is characterized by low prices complemented by high demand (Le Pen 1996). Pharmaceutical firms are free to set prices for all drugs not covered by the National Insurance plan, the Sécurité Sociale. The pricing committee, Comité Économique du Médicament (CEM) sets prices of covered drugs sold through non-hospital channels. The Ministry of Health determines the list of reimbursable drugs and the level of coverage for each drug. The CEM determines drug prices based on anticipated therapeutic benefit, anticipated sales volume, and other considerations. During the 1990’s, the French government instituted a number of innovations in an attempt to control drug expenditures. These included:
- A series of mandatory “good practice procedures" for physicians called Références Médicales Opposables (RMOs);
- An agreement between the state and the industry (Syndicat National de l’Industrie Pharmaceutique or SNIP); and
- A definition of enforceable regional spending targets (objectifs opposables) (Le Pen 1996; Lecomte and Paris1998; Pauriche and Rupprecht 1998).
The agreement between the industry and the state was designed to reduce sales volumes in exchange for price increases. This agreement was negotiated with each pharmaceutical company and outlined the conditions for permitting price increases. In return, the companies agreed to reduce promotional expenditures, promote “proper drug use” and provide information about its activities. The regional targets (objectifs opposables) represented negotiated agreements between the Sécurité Sociale and the physician associations. Separate targets were negotiated for specialist and general practitioner fees and drug prescriptions. In case of regional overspending, local physicians could be required to compensate the Sécurité Sociale for the excess spending. Despite the reforms, the French remains heavy consumers of prescription drugs relative to their OECD neighbors. The principal impact of the reforms appears to have been a slight shift toward less expensive drug products for treatment of medical conditions where RMOs have been implemented (Le Pen 1996; Lecomte and Paris 1998; Pauriche and Rupprecht 1998).
4.5.4 United Kingdom
The United Kingdom uses a variety of different methods to control drug costs. The primary method is through regulation of manufacturer profits. The Pharmaceutical Price Regulation Scheme (PPRS) regulates the rate of return on capital attributable to pharmaceutical sales in Britain. The government and the Association of the British Pharmaceutical Industry (ABPI) negotiate a target rate of return for each company based on brand-drug sales to the national health plan, known as the National Health Service (NHS). To reach the target rate (currently between 17 to 21 percent), the amount of research and development (including promotional expenditures) is set at about 9 percent of sales. Since the PPRS does not regulate prices per se, it permits the company significant flexibility in the launch price of new products. Once a product is marketed, any subsequent price increases require prior NHS authorization. In the event a manufacturer surpasses the target profit rate, it is permitted a 25 percent margin above the target rate, called the “gray area”. If the company earns more than the permitted "gray area” it must provide either reimbursement to the NHS or reduce the price. The PPRS does not address the pricing of generic products or products not reimbursed by the NHS (Lecomte and Paris 1998; Towse 1996; Bloom and van Reenen 1999; Burstall 1997; Burstall 1999).
Most prescription drugs available in the UK market are eligible for reimbursement from the NHS, but a few are included on a “Selected List” that prohibits government payment. Most drugs covered by the NHS are provided free of patient charge. Copayments are charged to certain segments of the population but more than half of all individuals are exempt. In all, only about 12 percent of prescriptions filled in the UK require a copayment, and for this reason copays contribute little in cost savings to the NHS drug budget (Towse 1996; Burstall 1997; Freemantle and Bloor 1996).
Another policy used in Britain to control drug spending targets doctors' prescribing of drugs (Towse 1996; Burstall 1997; Freemantle and Blood 1996). The NHS has introduced the Prescribing Analysis and Cost Information System (PACI) in an attempt to alter physician-prescribing patterns. This policy allows physicians to compare their prescriptions with a “theoretical” practice of patients with similar demographic characteristics. The practice guidelines are reported monthly. The PACT data have recently started to include price information on generics in order to encourage their use. Britain has also introduced voluntary drug budgets for general practitioners, called general fund holding practices.
Although the latest reforms in drug cost control in the UK have yet to be evaluated, the combination of control mechanisms is generally considered to have contributed to the fact that Britain has the lowest level of pharmaceutical expenditures per capita among the G7 nations (Burstall 1997).