Re-regulation of the pharmacy market – model for pricing and subsidisation of pharmaceuticals
Pending the re-regulation of the pharmacy market, the Dental and Pharmaceutical Benefits Agency (SW. Tandvårds- och läkemedelsförmånsverket, hereinafter TLV) was commissioned by the Government to produce a proposal regarding the structure of the pharmacies’ trading margin. This includes the model for pricing and subsidisation of patented pharmaceuticals, non-patented pharmaceuticals (original pharmaceuticals whose patent has expired), generic pharmaceuticals and parallel-imported pharmaceuticals.
Today, TLV is presenting its proposals to the Government and we are pleased to note that TLV, similarly to the Government bill, recommends a system which maintains the dynamic marketplace for substitutable pharmaceuticals. Any other choice would have been very questionable since the current system, which encourages transparent price competition, has proved to be one of the most efficient systems in the world. The current marketplace for generic pharmaceuticals and the well-functioning competition between large and small generics companies has resulted in multi-billion kronor savings each year for the public and individual patients.
In connection with the re-regulation, TLV’s responsibility will be expanded, which is welcomed by most players within the pharmaceuticals area. We can note that, with the currently proposed wording, TLV has succeeded in combining the difficult balancing between, on the one hand, increased access and service for the consumers and an increased trading margin for the future pharmacies with, on the other hand, a continued demand that costs for publicly financed pharmaceuticals must not increase.
This is successfully achieved primarily by refining somewhat the model for generic substitution, while at the same time a major savings potential is envisaged by reducing the subsidised price for an original pharmaceutical whose patent has expired. The fact that prices can be reduced for original pharmaceuticals that have lost their patent is entirely in line with the so-called value-based pricing which is advocated by TLV and the pharmaceuticals industry. This will not, however, affect the prices for generically substitutable pharmaceuticals, since the prices for these pharmaceuticals are significantly lower than the price to which TLV believes it might reduce the price for the original pharmaceutical. The Swedish generics company Bluefish Pharmaceuticals welcomes the fact that TLV is further enhancing the possibility for, and also rewarding, substitution by a cheaper alternative at the pharmacy.
Bluefish, which primarily markets substitutable pharmaceuticals on the European market, benefits from open, transparent marketplaces with pure competition. The company’s Head of Sales and Marketing, Johan Florin, takes a positive view of the Government’s intentions regarding generic pharmaceuticals as well as the pricing model proposed by TLV.
“It is pleasing that TLV wishes to maintain and develop the extremely efficient Swedish model for compensation and substitution of medically equivalent alternatives. For a number of years Sweden has been at the forefront as regards openness and simplicity in the pricing of generic pharmaceuticals and the trend in Europe is now clear. Pricing agencies and paying bodies (public and private) around Europe have been looking at countries such as Sweden and Denmark and realised that major benefits can be obtained by allowing the pharmaceuticals manufacturers to compete on the price charged to the patient,” says Florin. In his view, it is clear that major savings have got stuck in the distribution chain in many countries, and he mentions Germany and the Netherlands as examples of other countries which now, in different ways, are copying the Swedish and Danish system. “For Bluefish as a company, such a trend is positive since the company is adapted to working on dynamic marketplaces characterised by transparent price competition. If, as a generics manufacturer, one were allowed to choose between being rewarded by granting large concealed discounts to the distribution chain as opposed to being rewarded by reducing an official price which directly provides savings for the public and patients, the choice is quite simple,” claims Florin.
Ever since the Government’s Bill was presented, it has been clear that pharmacies are permitted to negotiate the price for patented pharmaceuticals and parallel-imported pharmaceuticals without generic competition. In so doing, the pharmacies can strengthen their trading margin if they are skilled negotiators. Pharmacy chains will also be afforded the opportunity to parallel-import pharmaceuticals themselves, which is common on certain European markets that are dominated by strong wholesalers and pharmacy chains, e.g. in Norway and the Netherlands.