Pricing and financing of pharmaceuticals

The Swedish government has recently published an investigation into the pricing and financing of pharmaceuticals. In this article, we will summarize the main features of this investigation.

In 2016, a pharmaceutical investigation was appointed to review the financing responsibility for benefit pharmaceuticals. The latest specific review in this area was conducted in 1998, which is why many have considered this to be a much-needed review. As a result of the current review, in December 2018 the Public Investigation on Pharmaceuticals published its final report, SOU 2018:89, called Clearer Responsibility and Rules for Pharmaceuticals (Sw. Tydligare ansvar och regler för läkemedel).

The overall purpose of this investigation is to investigate how, by further developing existing rules and systems, to increase social benefits and reduce costs to the state for pharmaceuticals. The investigation has now been circulated for comment and the final reply date is 10 May 2019.

The investigation proposes, inter alia, changes to how pharmaceuticals are financed at state level. Today, a special subsidy goes from the state to the county councils for their costs for pharmaceutical benefits. According to the proposal, this subsidy should instead be included in the general state subsidy that currently goes from the state to the county councils. In addition, special state aid to county councils will be introduced for the use of new unique pharmaceuticals, such as orphan drugs, and consumables.

Some pharmaceuticals and consumables are currently subject to special subsidies and the proposal includes certain changes in this area. For example, it has been proposed that under certain circumstances, pharmaceuticals for treating severe mental disorders under certain circumstances should be free of charge for the patient and that certain contraceptives should be free of charge for individuals under age 26, since according to the proposal there is a risk that the patient does not realize the value of the pharmaceutical and will refrain from using it if it is associated with a cost. However, the investigation does not consider that this is the case for diabetes patients, and thus proposes that insulin will no longer be free of charge for patients. In addition, VAT exemption is proposed for consumables in the same way as for pharmaceuticals today, i.e. that consumables will be exempt from VAT if they are prescribed or sold to hospitals or brought into the country for such a purpose.

According to the investigation, the Medical Products Agency should be tasked with producing a so-called Knowledge Base that can be used by, for example, the Dental and Pharmaceutical Benefits Agency (the TLV) and county councils in their evaluations. The reason is that the investigation states that even after a pharmaceutical has been approved, there is a need for an objective and easily accessible basis that illuminates the pharmaceutical’s relative effect and clinical added value. As a basis for the Knowledge Base, the MPA will use study data and other information from the regulatory approval. This will be supplemented with treatment-specific information on existing care and treatment options.

The investigation proposes that companies should be able to apply for a county council joint recommendation for pharmaceuticals that have not previously been evaluated nationally. The evaluation will be conducted by a new authority, the Medical Products Council. The Medical Products Council will issue recommendations to the county councils on the use of pharmaceuticals and thus partly take over the tasks that are currently performed by the NT Council (Sw. NT-rådet).

It has been proposed that the TLV should begin publishing and thus continuously report which applications for price and benefit for new pharmaceuticals that have been submitted. The TLV will also publish whether or not a priority decision has been made, or if the company has chosen to withdraw its application.

For some of the products within the pharmaceutical benefits, there are Side Agreements between pharmaceutical companies and county councils. In practice, the agreements mean that the prices set by the TLV are not applied, but the company pays a discount on the fixed price, or a kick-back, to the county councils. The investigation notes that there are many legal aspects that are unclear about these side agreements, among other things in relation to the so-called Transparency Directive. It has been suggested that the current Act on Pharmaceutical Benefits should be replaced by a new law, the Pharmaceutical Benefits Act, from which it must be clear that it is possible to sign agreements that affect the costs of using products within the benefits. The investigation proposes that it should also be stated in the TLV’s price and decision database whether there is an agreement that affects the cost and what sort of agreement it is (e.g. a discount agreement or a risk sharing agreement). However, the discount should not be specified.

According to the investigation, the TLV will be tasked with reducing the costs of subsidized medicines by SEK 700 million annually through cost reductions. As part of this, the TLV will have increased resources to re-examine the price and benefit of pharmaceuticals that have been included in the benefits for more than 5 years.

It will be clarified in law that the TLV can determine several different prices for the same product, i.e. so-called indication-based pricing. The investigation sees difficulties in finding a solution for how this should be done, but leans towards an agreement solution between the county councils and the companies, where the companies pay back at the end of a period if they have been paid for more expensive indications.

The investigation also proposes that the negotiating rights of pharmacies for parallel imported pharmaceuticals should be removed. The investigation notes that this may affect the pharmacies’ revenues, depending on which trade margin (the state’s compensation for the pharmacies’ dispensing of prescription medicines) that the TLV determines.

Summary
It can be concluded that many of the proposals aim to give county councils an incentive to drive down the costs of pharmaceuticals. According to the investigation, the generalization of the subsidy should make it easier for the regions to create equal access to medicines. One could ask whether this will in fact be the outcome, given that pharmaceutical use in the regions already differs today.

It may further be concluded that several of the proposals of the investigation lead to the conditions for the companies becoming clearer. For example, the occurrence and use of Side Agreements is clarified in the new Pharmaceutical Benefits Act. A company that intends to introduce a new requisition pharmaceutical with a new active substance may, according to the proposal of the investigation, be able to request a national recommendation from the proposed authority, the Medical Products Council. The Medical Products Council has been proposed to take over some of the tasks that the NT Council has today. In view of the influence of the NT Council, it would be beneficial for these tasks to be placed with an authority that is subject to the Public Access to Information and Secrecy Act and the regulations of the Administrative Procedure Act on case handling, service obligation, party transparency and decision motivation.

However, some of the other proposals of the investigation mean that the pressure on companies to lower pharmaceutical prices may arise earlier than today. The county councils are given clear incentives to achieve competition between patent protected medicines. Increased pressure on prices after just 5 years will reduce the margins of pharmaceutical companies for this category of pharmaceuticals. The aim of the pressure on prices is to create savings of at least SEK 700 million, which, according to the investigation, is intended to increase the use of newer medicines. At the same time, according to the investigation, the amount of medicines sold is expected to continue to increase at the same rate as, among other things, demographic developments. As the savings on older medicines are proposed to finance expensive new medicines, the revenues of pharmaceutical companies should simultaneously increase for this category of pharmaceuticals, the investigation states. This assumes, however, that the company is also marketing new medicines.

We are following the proposals carefully and will now investigate what the referral bodies think of the proposals.