A legal amendment implemented pushed through Austria’s parliament in late March introduces a series of changes unfavourable to producers of originators and generics.
Tensions between the pharmaceutical industry and the social security institutions in Austria are high again after the implementation of a legal amendment in at the end of March, which will have a negative impact on all segments of the industry. Just over a year after a framework agreement was signed between the industry and the Main Association of Austrian Social Security Institutions (HV-SV), introducing new voluntary discounts on reimbursed medicines, after long and difficult negotiations, the latest legal amendment was rushed through parliament without full consultation or discussion with the various groups affected by it.
The framework agreement signed in early 2016 included the stipulation that changes to the rules governing the inclusion of medicines in the Reimbursement codex (Erstattungskodex, or EKO, Austria’s reimbursement list) would be negotiated by the HV-SV, the Federal Ministry of Health and Women’s Affairs (BMGF) and the various pharmaceutical industry associations. An agreement was due to have been reached on such changes by mid-2016, making implementation possible by early 2017. However, no such agreement was reached.
So it was not a surprise that new regulations were implemented – but the manner of their implementation certainly was a surprise. As reported in the website of the Austrian parliament, the coalition government used a purely technical amendment in the General Social Insurance Act (Allegemeine Sozialversicherungsgesetz; ASVG) to push through its drug pricing and reimbursement (P&R) plans through in a fast-track procedure. The source reported that opposition members were displeased about the short space of time which the proposed amendment was given in the parliament, but it was passed with the help of the Greens.
Erwin Spindelberger, the health spokesman of the Social Democratic Party of Austria (one of the parties in the governing coalition), is reported to have said that the HV-SV had negotiated for 14 months with the pharmaceutical industry on the changes, with no agreement being reached. He noted that Austria spent large amounts on innovative drugs, and the changes would make it possible for patients to continue to receive these without the finances of the health insurance institutions going out of control. On the other side of the debate, Austrian chemicals industry news magazine Chemiereport accused the government of using a parliamentary “trick” to push the legislation through – albeit fully in compliance with the law.
Details of the amendment
There are a number of changes which are important for producers of originators. First, with effect from 1 January 2018, the prices of medicines for which producers do not apply for inclusion in the EKO (i.e. the reimbursement list), will not be able to exceed the EU average price, if their sales in the previous 12 months were in excess of EUR750,000. If the medicine is so new that no EU average price can be calculated, then the manufacturer’s price applies on a provisional basis, but if the Price Commission discovers that this provisional price exceeds the EU average price, then the company has to pay back the difference within six months of a request from the social security institutions.
To add some background to this change: Austrian newspaper Der Standard reported in March that there are an increasing number of cases of pharmaceutical companies deciding not to place new products in the EKO, preferring to have the freedom of setting their own price. As reported by the source, in some cases, companies set “exorbitant” prices, and doctors and patients do their utmost to ensure that health insurance providers pay for the drugs – which they often do.
Also important for producers of originators are new regulations introducing price reviews for “yellow” and “red”- box medicines (the reimbursement categories in which most on-patent medicines are placed, at least initially). For these, price reviews are due to take place 18 months after their price is first set by the Price Commission, and then after another 24 months; it is foreseen, additionally, that another price review can be conducted 18 months after the second price review. These changes came into effect from April.
There are also changes to the maximum prices of generics coming on to the Austrian market, which will have to be marginally lower than previously, and the maximum prices of biosimilars are regulated separately for the first time. For generics, the overall price reduction (compared with the price of the originator before patent expiry) resulting from the regulations amounts to 65%, compared with 60% previously. Biosimilars prices have until now been regulated, controversially, in the same manner as those of generics; the overall price reduction resulting from the new regulations will be 52.5% – slightly better than before, but still a very hefty cut.
Significantly, a new “price corridor” for off-patent drugs is also introduced, for medicines included in the Green Box category of the reimbursement system (medicines which are automatically reimbursed without the need for prior approval by social security institutions). Drugs in this category may not be priced any higher than 30% above the lowest-priced equivalent at ATC Level 5. The lowest price is set for each dosage form and strength on the basis of prices from 1 February 2017, and the HV-SV will publish details of these prices by 30 June 2017. Producers have until 1 October 2017 to bring their prices within this price range, or face delisting. The process will be repeated in 2019, on the basis of prices on 1 February of that year, with the HV-SV to publish details by 30 June and producers required to adjust their prices by 1 October of that year.
In the amendment, it is stated that if a generic equivalent of an originator becomes available, in the case of originators which have already undergone the 30% price reduction on the basis of the 2003 law, a price corridor is established, whereby the highest price for a drug cannot exceed the lowest price of a drug with the same API by more than 30%. If the producer does not reduce the price as envisaged, the HV-SV will remove them from the EKO. However, as long as the prices of the affected drugs are brought within the price range within the specified dates, then removal from EKO is excluded, on health-economic grounds, until 1 October 2020. This is being presented as a ‘concession’ to the pharmaceutical industry, since under rules in place already before the amendment, prices of originators are meant to be aligned with generics after a specified time period, and after the entry of a certain number of generic equivalents into the EKO.
The new regulations cannot be interpreted properly without considering the ongoing reforms to the public healthcare system taking place in Austria. The innovative pharmaceutical association Pharmig has argued that it has already helped social security institutions reduce their debts and even finish 2016 with a financial surplus, thanks to the additional discounts provided in the framework agreement. Drug spending is rising by a much lower rate than may be implied by continual references to a “cost explosion” and other such alarmist phrases – Pharmig estimates that in 2016, it went up by just 2.9%.
However, the HV-SV is concerned that some pharmaceutical companies are opting strategically to avoid price regulation in Austria by not applying to place their drugs in the EKO. The HV-SV has estimated that in 2005, the proportion of its total drug reimbursement spending accounted for by drugs in the “No Box” category (i.e. for which producers do not apply for inclusion in the EKO) was 2.2% – and that by 2016, it had increased to 10.4% (source: Österreichische Ärztezeitung).
Certainly, it is possible that some producers may opt to launch new originators in Austria later in the launch sequence if they consider the regulatory arrangements in place too restrictive. Austria currently has a fairly good record on early access to new drugs, and this could be negatively impacted. Equally, in the case of off-patent medicines, the new price corridor and the reduction in the maximum price of generics could have negative consequences for patient access.
Brendan Melck is Life Sciences Analyst at IHS Markit
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