Most nations’ spending on pharmaceuticals grows slightly more each year than their Gross Domestic Product (GDP), but middle-income countries' drug expenditures grow, on average, twice as fast, according to a World Bank expert.

Increasing its drug spending at 10% a year, it takes a developing nation around 18 years to catch up with a developed nation which is spending three times as much but with just a 3% annual growth rate, Andreas Seiter told a meeting in Vienna, Austria last week. The only developed country where drug spending is lower than GDP is New Zealand, which is very restrictive in allowing new drugs on the market and employs tough pricing negotiations. However, these “frugal” policies have a significant price, including the high and rising rates of coronary bypass operations performed in New Zealand compared with its more liberal neighbour Australia, he noted.

In his work at the World Bank, advising developing and transitional countries on their pharmaceutical policy decisions, Mr Seiter noted that these become difficult because public expectations grow faster than funding – as more patients enter the system, they gain increased access to health information, and access to effective drugs constitutes a ‘proxy’ for satisfaction with the health system. However, genuine health economic assessment is difficult because of the lack of cost transparency - for example, many countries still spend hugely on inefficient hospitals - while the high commercial importance of drugs creates pressures for policymakers.

They face navigating between two rocks, he said; either facing fiscal ruin by giving in to the pressures from providers and patients, or losing political support by rationing and restricting access to medicines. A common problem encountered in emerging countries is the cost explosion created by too-inclusive reimbursement lists with low co-payments. For example, Romania’s top 10 list of products in 2006 for health insurance spending is led by high-cost, specialised medicines - Roche’s NeoRecormon (erythropoetin) leads, followed by the same firm’s Pegasys (peginterferon alfa-2a) – and at number eight is Servier’s phlebotropic Detralex (diosmin) a nutraceutical product which does not appear on any other reimbursement list in Europe.

Pragmatic reimbursement policy options which he advises emerging and transitional companies to use include a “scoring tool” based on the health technology (HTA) assessment decisions made by other nations, and “hard and smart” bargaining with drugs makers, including risk-sharing deals which pay for outcomes rather than just concentrating on price.

Truly innovative drugs have global price bands

However, Mr Seiter believes that price control mechanisms such as reference pricing may have had their day. Truly innovative drugs have global price bands, which limits the effectiveness of reference pricing models, he said, while regulators have limited bargaining power or and risk trade conflicts, so this is not a sustainable solution. On the other hand, generic prices have downward room in many countries, and reimbursement systems can be used to create more competition among generics and capture the efficiency reserve.

In one such model, the reimbursement authority would invite bids from the makers of a given generic, who would have to state the maximum volume, which they can supply. Winner Brands 1 and 2, who together can supply the whole market, would get 90% reimbursement, higher than all others. Brands 3-6 would get 70% of the price of Brand 2, creating a significant commercial barrier for these brands, but these manufacturers could come back with a better offer in the next round. By Lynne Taylor