New ceiling price model in Sweden’s pharmaceutical benefits system

On 1 July 2014, new rules came into force allowing the Swedish Dental and Pharmaceutical Benefits Agency (‘TLV’) to issue regulations on price changes for certain drugs that are more than 15 years old. 
   The regulations come on the back of amendments to the Pharmaceutical Benefits Act (2002: 160) and the agreement reached between the government and the research-based pharmaceutical industry in Sweden (LIF) in autumn 2013. 

The agreement between the government and LIF

This agreement involved a 7.5 percent reduction in the price of drugs that were introduced in 1998 or earlier. The price reductions were launched at the beginning of 2014, and will also mean successive price reductions for the next three years on those drugs that have then been on the market for 15 years or more. In 2015-2017, additional average savings of SEK 130 million (AIP) a year will be achieved, which equates to an additional reduction of approximately SEK 400 million between 2015 and 2017. The agreement means that the pricing model known as International Reference Pricing could be avoided.

In a report of 17 March 2014, TLV announced that the savings for 2014 are equivalent to about SEK 400 million (AIP). This means that the first part of the agreement has been fulfilled. 

New regulations

In light of this, on 19 June 2014, TLV submitted a proposal for new regulations and general advice about the pricing of some older drugs. These come into force on 1 November 2014. The first price reductions under the new rules will apply from 1 January 2015 and a preliminary list of the products concerned has been published. Approximately 100 companies with a total of about 500 different products are affected.

According to the regulations section 4, a new, lower price will apply from the decision made in the month, or immediately following the month, marking 15 years since the drug was first approved for sale. The calculation of a drug’s age is based on the earliest date of product authorisation of the drug’s substance-form group.

General recommendations stipulate that drugs with the same substance and form are part of a particular substance-form group. The calculation of a drug’s age is based on the earliest approval in each such group. Combinations of active substances are defined as new substances, apart from certain minerals, vitamins and solutions. Form is defined by the form of administration and does not distinguish between administration device or storage form.

With regard to the new lower price, the regulations in section 5 show that the unit price of a drug represents 92.5 percent of the original price unless TLV decides otherwise. The price of a pack, however, will never correspond to less than a purchase price of SEK 15. 

In general, the original price is the price per unit, based on the purchase price that the drug had under the pharmaceutical benefits system at 31 October 2012. With regard to the handling of the cases, TLV will publish a list of the products that the authority preliminarily believes meet the criteria for a new lower price and what the new lower price will be.

The companies will then be allowed a period within which they can submit comments on the list. It is also possible to request exemptions. It is still not clear how this will be implemented. TLV will then publish an updated list of the future price changes. The companies are allowed to submit an application for a price reduction in accordance with the list. At the beginning of the decisions month, TLV will contact the companies that have not applied for a price reduction and will inform them that TLV intends to decide on price reductions for their products on its own initiative.

The future

Price reductions will be implemented twice a year, in a process that will continue for four months. Not all pharmaceutical companies will be affected by this work to the same extent. The number of products affected by the reduction at any one time will vary, as will the number of companies concerned. One estimate is that about 30 companies and 30 products will be affected on each occasion of a price reduction. A product is only expected to be affected once by the 15-year rule. 

It is anticipated that the regulations will affect different companies in different ways. The impact will be especially great for companies that have several older drugs in their portfolio. In addition to the future price reductions, the new regulations will mean that companies incur increased administration costs. This will include assessing whether TLV is correct in its preliminary list, and assessing whether an exemption application may be appropriate. If the price reduction is warranted, it is up to the companies to apply for new, lower prices for the products in question.

Furthermore, there is uncertainty over the size of the future price reductions. As mentioned above, TLV may decide that the price reductions at a certain time should not be 7.5 percent, but that a different figure should be applied to achieve the savings requirement for the period.

TLV will follow up the impact of the regulations to ensure that the agreed savings are achieved for the entire period. The authority states that a review will be needed at the beginning of 2015 to examine whether the percentage reduction, or other variables such as the management of any exemptions or the intervals, need to be changed. We are following developments closely.