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December 20, 2014

Unlocking the drugs supply chain quandry

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Photo by OJO Images / Rex Features

Dara Gantly speaks with IPHA President Francis Lynch about the cost of drugs and how new legislation could possibly jeopardise the supply of medications in this country.

You don’t have to look far and wide to come across criticism of the high cost of prescription drugs in Ireland: from commentary on the front-page of The Irish Times Business Section, claiming that paying over the odds for drugs amounts to a subsidy to the pharma industry, to draft reports from the European Commission circulated to German MPs, noting that Ireland has the highest OECD per-head health spend, with the cost of medications having almost tripled between 2000 and 2008 and, in 2010, was a third above the EU average.

Such a narrative has also dominated the political sphere, with the Government heralding a new deal agreed with the Irish Pharmaceutical Healthcare Association (IPHA) last October that will provide €400 million in savings over three years, reduce State expenditure on medicines through the various State schemes and also provide patients who pay for their medicines with significant savings on hundreds of medicines.

Described as a “landmark deal” by the Department of Health, it comes as legislation aimed at reducing the cost of prescription drugs makes its way through the Oireachtas.

The Health (Pricing and Supply of Medical Goods) Bill 2012, which will introduce a system of reference pricing and generic substitution, has been declared a priority by the current Government.

Reports of a 640 per cent rise in the spend on pharmaceutical products and medical equipment between 1995 and 2008 have been described by some commentators as not just astounding, but “scandalous”.

‘Uneducated’ criticism

In an interview with Irish Medical Times, IPHA President Francis Lynch said he believed much of this criticism has been “uneducated” rather than “unfair”, and that the six significant price reductions undertaken since January 2009 have not been analysed or reported in any of the recently published comparative studies. He also believes there is often a confusion between the ‘spend’ on medicines and their ‘cost’.

“The spend can often be driven by volume, which can be a result of initiatives such as more people being included on the drugs scheme and more schemes, indeed, being included,” he said, in reference to the increase — according to the IPHA — from 1.4 million to 3.1 million in the number of persons eligible for the State’s schemes between 1995 and 2008, and such extensions as giving the medical card to the over-70s.

This was also a period when Ireland was largely playing “catch-up” with Europe as medicines consumption per capita here was one of the lowest in the EU, and a time which saw a movement of spend from one budget to the next, which appeared to suggest a significant increase. “The High Tech Scheme is something that is charged to the community, and that is something that changed over time. It used to be that those high-tech drugs went directly through hospitals, so it looks like an increase.”

Lynch explained that the ‘price’ of drugs was in fact a separate issue. “I can’t recall when the last time was that we had a price increase. We have had a series of supply agreements with the Government since 1968, and certainly the 1993 agreement provided for price freezes.”

Price reduction

“There have been volume increases for sure, but not price increases,” he told IMT. IPHA calculates that there has been a one-third reduction in prices paid to its members since 2006.

The IPHA President stated that since that agreement seven years ago, which brought in the current basket of nine countries used to set prices, the ex-factory prices for innovative products on patent have not been any more expensive than the average price in those nine countries. The current nominated EU States used in this basket include Belgium, Denmark, France, Germany, the Netherlands, Spain, the UK, Finland and Austria.

In his view, one of the major weaknesses in the Irish pharmaceutical sector has been the under-utilisation of genetics — an issue over which IPHA has no control. The level of generic substitution in the UK is as high as 80 per cent, compared with less than 20 per cent in Ireland.

Generic substitution

“For example, if I have a drug that goes off patent tomorrow there is a very steep price decrease on those drugs, which we have negotiated with the Government. However, you will find that below that, the cost of the generic hasn’t been much of a difference. In fact, I could give you an example of my own portfolio of a drug that is now 46 per cent of its original price and the generic is exactly the same price. In that instance, there is no benefit to the State or the patient to prescribe or dispense a generic.”

This, added Lynch, was very different to the UK market. “What happens in the UK is that when a drug goes off patent, as an innovator you hold your price and you lose a lot of volume because there is a huge amount of generic prescribing. But the difference in cost between the two is huge.”

‘Flaw’ in the market

This “flaw” in the Irish market, however, was going to be addressed by the new Health Bill through reference pricing, he added, which should result in a large difference between the heavily discounted off-patent products and the generics.

The main proposals of the Health Bill were well flagged in the Moran report published two-and-a-half years ago, which was described by then Minister for Health Mary Harney as an “instruction manual” for the new arrangements. The legislation will permit pharmacists to substitute medicines that have been designated as interchangeable by the Irish Medicines Board — or the Health Products Regulatory Authority, as it will soon be renamed.

Reference pricing, meanwhile, involves the setting of a common reimbursement price for a group of interchangeable medicines, and will also be brought in by Government. Patients will not face any additional costs for products priced at or below the reference price, but if they want to receive a particular brand that costs more than the reference price, then the patient will have to pay the additional cost. In cases where substitution is prohibited for clinical reasons, patients will not face any additional costs if the prescribed product costs more than the reference price.

The Bill also sets out statutory procedures governing the supply, reimbursement and pricing of medicines and other items to patients under the GMS and community drugs schemes. We will also move away from using a basket of nine countries to set prices to a system that takes into account prices in all 27 EU Member States.

The HSE may also review this price and set a new one at least once a year, if not more often — but not more than once every three months.

The legislation will also allow the Executive to attach conditions to the supply of certain items, provided that any restrictions are evidence-based and in the interests of patients and — significantly — ensuring value for money. It seems the HSE will be able to limit the quantity of items reimbursed over a set period, and even set an expiry date on that reimbursement.

The Executive will also be able to determine if one class of patient can receive the drug, but not another.

Sweeping changes

Such sweeping changes have caused some concerns within the pharmaceutical industry, with the move to extend the ‘basket’ used to set prices to all 27 EU Member States being described by the IPHA President as “unreasonable” and a “dangerous thing to do from the point of view of supply”.

Lynch explained: “For example, a country like Greece arranged their prices so that they were no more expensive than the average of the three lowest. Well, all you are going to have there is literally a ‘race to the bottom’.

“If you look at the IPHA agreements over the past 40 years or more, the word ‘supply’ is always there. When we agree a pricing mechanism with the Government, we also have a huge responsibility in terms of supply. At the moment, despite all the commentary about high prices in Ireland, there are lots of drugs here that are the cheapest in Europe. And that has a huge impact in terms of the product flowing out of the country, and we are having difficulty getting supplies to some Irish patients. So I think it is reasonable in any economic framework to pitch the prices at the development of the economy. The notion of having the cheapest in Europe is just not a flyer.”

Reports emerged last year of a shortage of many medicines in Greece, with the country’s drugs regulator suspending all drug exports in the wake of a fresh round of price cuts. The head of the National Organisation for Medicines, part of the health ministry, also wrote to governments around Europe urging them not to refer to the latest reduced prices in Greece when setting their own medicine prices. Last year, the European Federation of Pharmaceutical Industries and Associations (EFPIA) estimated that a quarter or more of all medicines shipped to Greece were being re-exported to higher-priced markets like Germany.

While recent allegations have been made that manufacturers or pharmacists could be deliberately creating medicine shortages in Greece, the problem can be explained by what is called ‘parallel exports’, according to Lynch.

Parallel exports

“[Pharmaceuticals] are treated as commodities and you have dealers or traders who are moving the product around Europe to get the highest price they can possibly get,” he explained, adding that this was creating a huge and unsustainable distortion to the market. “On the one hand you have free movement of goods, and there is an entitlement on traders to do this. But it is up to policy makers to take that into account when arranging prices, because it will have an effect on supply.”

But along with criticism over high prices have come accusations that when it comes to influencing governments, big pharma has few rivals. Could further cuts or bans on reimbursement have “a number of unintended consequences for the wider Irish Economy”, I asked the IPHA President, with reference to comments made by Eli Lilly President John C Lechleiter in a letter to Taoiseach Enda Kenny last year, as part of an intense lobbying campaign involving up to 20 multinational pharmaceutical companies over the HSE’s decision not to reimburse a series of new drugs in 2012.

The IPHA President told IMT that is was important to understand the context behind that lobbying. “At the time, we had an agreement from 2006 which had been extended a number of times as a result of the various price decreases arranged outside of the agreement. We stepped up to the plate as an organisation,” he insisted.

“Part of that agreement was that we were to ensure access to the market for new products. What happened was that the HSE decided all by themselves, unilaterally, without any discussion, to stop reimbursing new products. So you had a huge backlog of new, innovative products that were being denied to patients. It is vital for patients and vital for the industry that access to new products be maintained.”

Lynch felt that much of the commentary subsequent to that was probably both ‘unfair’ and ‘uneducated’ in suggesting that the industry was in some way holding the Government to ransom. “Like any industry — be it farming, food production, IT, fishing, the media — all sorts of interests have the capacity to speak with and inform Government.”

However, he stressed that sentiment was also very important in business. “If a country acts very negatively against a sector, they may say ‘Well, why should we be here?’”

So why does Ireland have such a vibrant pharmaceutical industry? It is believed that 25,000 people are employed in a pharmaceutical industry that accounts for more than 50 per cent of Irish exports (€51 billion) and half of all corporation tax, according to some estimates (others put the export level in 2011 at €26.4 billion, or 17 per cent of GDP).

Is it fair to say that there are three reasons: corporation tax, corporation tax and corporation tax? Lynch does not think it is as simple as that — although this was certainly a key factor.

“Skills, workforce, language, and the ease of doing business are all very important,” he replied. “I won’t name any countries, but there are certain countries in Europe that are very difficult to do business with. As a country, we try to facilitate this.”

Reference pricing

While the precise mechanism of how reference pricing will work remains unclear, the IPHA President is adamant that whatever price is set must facilitate supply. “Two things that might militate against supply would be unsustainable low prices and the frequency of changing this. I don’t think we have the administrative capacity to change it very regularly. This could lead to huge shortages, if you are in one day and out the next.”

The Bill itself mentions reviewing the price set at least once a year, and possibly every three months. “We would have thought yearly… but certainly every three months would appear to us to be too frequent,” commented Lynch.

He added that there was a supposition that when generic reference pricing came in, that the innovator drug would always be more expensive than the generic.

“That may not be the case. You may find a lot of companies will adjust the price to their reference price, whatever that happens to be. But if that doesn’t happen, and if that is deemed to be uneconomic, then, yes, the patient will have the ability to co-pay the difference to the pharmacist.”

Co-pay coupons?

Many companies in the US have started to offer patients coupons to reduce co-payments on brand-name medicines and compete with new generic versions of the drugs. Could a similar system emerge in Ireland? The IPHA President does not think so. “The European and the American environments are very different in the context of direct to consumer (DTC) marketing. There is a huge dialogue between the industry and the consumer/patient in the US and by European law it is not a done thing. I am always shocked when I go to the US and drive along and see the billboard ads for prescription medicines.”

Another significant difference is that, unlike the US, European medicine is more or less “socialised”, he added, so the pharmaceutical companies do not promote directly on the taxpayer account.

However, patient involvement is not always a bad thing. At IPHA’s annual meeting last November, Irish Cancer Society CEO John McCormack mentioned that patients should be formally involved in considerations on how medicines are funded. Lynch agreed that hearing their voice in such matters would be reasonable.

“We have recently had the patient outcry in relation to the drug Ipi [Ipilimumab] for melanoma. There was a huge outcry from the patient groups and indeed, they were reasonably central in making it available,” he commented. “Ultimately, what we are about is producing medicines that have disease-modifying, life-saving qualities, and the patient is central to the whole thing. So I think it is not unreasonable that they should have a role.”

Delisting drugs

While the main ticket items in the Health Bill are obviously generic substitution and reference pricing, there are other elements dealing with time limits on reimbursement and determining which class of patients can receive drugs that have sparked IPHA’s interest.

“The Health Bill, as I understand it, gives the HSE the power perhaps to look at drugs that are currently reimbursed and delist them. That would be a big concern we would have on behalf on patients and the industry: to in an unaccountable way delist them without proper evaluation would be unreasonable.”

Lynch believes the appeals mechanism in this area remains unclear. “We are hopeful that at Committee stage, that can be sorted out in a reasonable way, such that there is reasonableness and transparency to the evaluation process, and that a drug wouldn’t just be willy-nilly delisted. Essentially, if the drug has therapeutic merit and patient-benefit merit, then it should be there.”

Risk sharing

While there was a long list of drugs held up last year from reimbursement, the Department of Health/IPHA deal resolved that issue. However, some of the newer high-tech medicines coming on the market are very, very expensive — the cystic fibrosis drug Kalydeco is a case in point, initially costing €234,000 a year per patient. (The drug is now set to become available from March 1 at a reduced cost.)

In its health technology assessment on the drug, the National Centre for Pharmacoeconomics suggested a new ‘risk sharing’ mechanism whereby the effectiveness of the drug would be factored into the reimbursement, and the company would not get paid if it didn’t work. Would this be a workable solution to cut our drugs bill?

The IPHA President said such a mechanism was still in its infancy across Europe, and as an idea was “not fully cooked by any stretch of the imagination”.

In the DoH/IPHA agreement, there was a very clear mechanism for how a drug should get reimbursed, he said. “It gets reimbursed if it passes the HTA and falls in between the rails of the economic assessment — [in terms of] quality-adjusted life years (QALYs). Then there is a mechanism to set that price, which is the average of the basket of nine. Where a drug doesn’t meet the economic criteria as set down, and with some of these high-tech drugs it is very difficult for them to meet that, then negotiation takes place. The agreement says once it is outside of that, then you sit down, talk and look at it.

“Risk sharing is talked about but is in its infancy in Europe, and really there is no ideal model. It is actually very difficult: how do you evaluate it? But it is perhaps something that can be considered and looked at.”

The industry also has concerns over a new EU Directive on recognising medical prescriptions across borders, which wants the ‘international non-proprietary name’ used on prescriptions. The IPHA President believes that from a patient certainty and safety perspective, it is important that there would be brand recognition.

R&D pipeline

It can be said that a research-based pharmaceutical company is only as healthy as its R&D pipeline. Lynch accepts that there has been a dearth of new products in recent times, but does not believe this to be because of a lack of investment due to the recession. But currently, he says there is a reasonably rich pipeline coming through. “I think it is important that everyone concerned doesn’t take the foot off the accelerator in terms of investing in research and development. It is the lifeblood of our business. It is the big hope for the patient and for our economy. So it is important that there is a balance struck in these austere times and you don’t choke off investment.”

So IPHA will be watching the passage of the Health Bill with interest, and its President — who has a two-year term to serve — is looking out for any amendments that will be introduced at Committee stage.

“Unless some major surprise comes at us, I think we don’t have major concerns — particularly in light of the fact that we have the agreement for three years. We don’t know exactly what reference pricing is going to look like and would like to see more clarity on that. And we would also like to understand this business of the expiration on reimbursement. We would have big concerns about that.”

And what if those concerns are not eased — would the Association consider a legal challenge down the road?

“We would rather hope not… but I can’t rule it in and I can’t rule it out,” he commented.

The Government clearly believes these new legislative measures will promote price competition and deliver lower medicine prices for both the State and patients, and points out that many EU countries, the US, Canada and Australia have similar systems already in operation.

Yet could these measures have a negative affect on the supply of drugs on the Irish market or on our economic growth?

Across Europe, the industry has significant concerns about the implications of pharmaceutical pricing and reimbursement policies that are being implemented. The industry views these policies as taking a short-term perspective; failing to strike the right balance between managing budgets and securing current and future patient access to medicines and vaccines. Viewed in the most pessimistic light, they undermine both patient benefit and the status of Europe as a home for innovation.

Is there a genuine risk of future supply disruption in Ireland? Will patients get access to the latest, yet costly, high-tech drugs? Can Ireland remain a European hub for pharmaceutical manufacturing and innovation? And will the industry have to accept some form of ‘risk sharing’ if they want reimbursement guaranteed in the long term?

Our new economic reality may well mean that despite significant savings already delivered, the industry may yet have some bitter pills to swallow.