In the context of a predominantly harmonised EU medicinal product system, it can come as a surprise that each of the 28 member states has its own pricing regime.
The primacy of EU member states in pricing and reimbursement decisions in relation to medicines expenditure is long established: ‘Union action shall respect the responsibilities of the Member States for the definition of their health policy and for the organisation and delivery of health services and medical care… and the allocation of the resources assigned to them’ (Article 168(7), Treaty on the Functioning of the European Union (TFEU).
However, Article 168(2) of the TFEU confirms that EU action may ‘complement national policies’ by taking ‘any useful initiative to promote such coordination’.
Transparency Directive
The autonomy under Article 168(7) of the TFEU is subject to EU laws requiring consistent and transparent decision-making by member states. The Transparency Directive (89/105/EEC) aims to ensure that national pricing and reimbursement decisions are made in a transparent manner. These controls are however, relatively high level, concentrating largely on setting time limits for pricing and reimbursement decisions, requirements for objective criteria and a requirement for an appeal mechanism. It also does not reflect current price control practice but an attempt in 2011 to update the Directive was subsequently abandoned without agreement.
How member states control pricing
There are three broad categories of member state interventions:
* Methods to control the prices of medicines. These include direct price regulation, reimbursement controls or profit or regulation of allowable profits and rates-of-return. External referencing pricing is used in all EU member states (except the UK and Sweden) whereby the member state sets the national price of a medicine by reference to the prices of that medicine in other member states, with the member state in question adopting either the average or even the lowest price. For instance, in UK pricing there are controls on branded medicines through both voluntary and statutory schemes both of which include the imposition of rebates if certain NHS spending limits are exceeded
* Controls on prescribing (whether through financial and non-financial incentives or penalties), dispensing (including policies encouraging or enforcing generic substitution or limiting pharmacy margins) and cost-sharing demands on patients
* Reimbursement strategies for new medicines (especially high-priced products) commonly based on health technology assessment (HTA) are used to determine whether a new product provides value for money in relation to existing comparators. Such an assessment involves the use of economic techniques to assess a drug’s cost-effectiveness as against its comparator to determine the price premium over its existing product and therefore, the pharmaceutical’s price
Risk-sharing agreements
Where the HTA benefit is uncertain, ‘risk-sharing’ or ‘performance-based’ agreements have been developed in the EU to afford payers a degree of certainty and allow patients access to innovative medicines. Through such agreements, payers may typically seek to enter agreements to manage uncertainty as to clinical value and cost-effectiveness. These agreements include:
* A medicine being reimbursed on a conditional basis as against pre-defined criteria and if the product fails to meet these targets, the manufacturer may incur price changes or rebates. Alternatively, the uncertainty as to value could mean that the payer only agrees to reimbursement in limited cases. If a budget is also fixed and then exceeded, the manufacturer may then be liable to return the excess. There may also be predefined outcomes for individual patients and the manufacturer would bear the costs if those desired outcomes are not achieved
* The medicine being reimbursed under controlled circumstances while further evidence is gathered, for example, as to the most appropriate patient populations or the cost-effectiveness of the product. The development within the EU of ‘adaptive pathways’ will pose reimbursement challenges to member states. The adaptive pathway approach envisages products for unmet needs undergoing an iterative and pre-planned process of an initial approval for a well-defined patient subgroup. Use would be extended to a larger patient population as uncertainty is reduced through the collection of post-approval data
* Disease management or ‘beyond the pill’ deals whereby the manufacturer becomes responsible for both the management of treatment of certain patients and offering the payers overall patient management savings in return for a favourable price or coverage
Widening interpretations of equivalence in the EU
In certain circumstances, national payers including national healthcare administrations, HTA or cost-effectiveness bodies, social insurance bodies and other governmental agencies will seek to avoid paying for an expensive new product entirely. Instead, they will sanction or encourage the use of cheaper alternatives, sometimes including either unlicensed medicines or off-label use of medicines for other indications, notwithstanding the availability of the new, licensed preparation.
Notable examples include the following:
* In 2012, France amended the law allowing its authorities to recommend for solely economic reasons off-label use where licensed alternatives existed
* In 2014, Italy similarly allowed the authorities to make recommendations on cost grounds as to the safety and efficacy of a given medicine for off-label use
* In the UK, NICE appraised the cost-effectiveness of Avastin (bevacizumab) against Lucentis (ranibizumab) in the treatment of wet age-related macular degeneration (WAMD) although the former has only been licensed for oncology indications. In a September 2018 decision, the UK High Court also upheld the right of clinical commissioning groups in the UK to use Avastin to treat patients with WAMD
These practices appear questionable in light of EU legal principles, including Article 168(1) of TFEU, which states that ‘a high level of human health protection shall be ensured in the definition and implementation of all Union policies and activities’, committing the EU to adopting and enforcing a strict medicines approval system. For member states to be allowed to put cost before patient safety under these circumstances has been argued to run contrary to this objective.
Parallel trade and free movement of goods
Different national approaches to pricing and reimbursement decisions inevitably result in differences in prices and coverage decisions across the member states so that patient access to such medicines also varies across the EU. A UK Department of Health price analysis among 11 member states of 150 pharmaceuticals demonstrated a 25% difference between the lowest and highest prices.
As a consequence of these differences, distributors and others in the supply chain may purchase pharmaceuticals in member states with lower prices and resell them in another where prices are higher (parallel trade). Attempts by the industry to rein in such EU trade have generally been rejected by the Court of Justice of the European Union as contrary to the core EU principle of the free movement of goods, notwithstanding that most of the difference in price is taken by the traders.
Excessive pricing
A further recent development in Europe is action against alleged excessive pricing. The European Commission in 2017 opened an investigation into concerns of excessive pricing concerning five life-saving cancer medicines and whether there had been an abuse of a dominant market position in breach of EU antitrust rules. In addition, several member states have taken action nationally. However, in the recent quashing in the UK by the Competition Appeal Tribunal (CAT) in June 2018 of a case by the UK Competition and Markets Authority, the CAT stressed that excessive pricing cases should remain rare and that the authorities should be wary of stepping in the shoes of price regulators, unless this is “soundly based on proper evidence and analysis”.
Conclusion
The combination of increasing public payer pressures, national autonomy and parallel trade result in a complex and difficult pricing and reimbursement environment which is commonly perceived as a disincentive to investment from outside the EU and a complication for European product launches.
Paul Ranson is a consultant at global law firm Morgan Lewis
