2014 - The Worldwide Guide To Pharmaceutical Pricing and Reimbursement (Espicom)

IMPORTANT NOTICE:
The information in this PDF file is subject to Business Monitor International’s full copyright
and entitlements as defined and protected by international law. The contents of the file are for the
sole use of the addressee. All content in this file is owned and operated by Business Monitor
International, and the copying or distribution of this file, internally or externally, is strictly prohibited
without the prior written permission and consent of Business Monitor International Ltd.
If you wish to distribute the file, please email the Subscriptions Department at
subs@businessmonitor.com, providing details of your subscription and the number of recipients
you wish to forward or distribute this information to.
DISCLAIMER
All information contained in this publication has been researched and compiled from from sources
sources believed
believed toto
be accurate and
and reliable
reliable at
atthe
thetime
timeofofpublishing.
publishing.However,
However,ininview
viewofofthe natural
the scope
natural scopeforfor
human
human and/or
and/
mechanical
or mechanicalerror, either
error, at source
either or during
at source production,
or during Business
production, BusinessMonitor International
Monitor accepts
International no liability
Limited and its
whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of
the publication. All information is provided without warranty, and Business Monitor International makes no
representation of warranty of any kind as to the accuracy or completeness of any information hereto
contained.
The Worldwide Guide to
Pharmaceutical Pricing
& Reimbursement
July 2014
A Business Monitor International Company

World Leaders in Health Industry Analysis
The Worldwide Guide to Pharmaceutical Pricing & Reimbursement
© Copyright 2014 Espicom Business Intelligence
All rights reserved. No part of this publication may be reproduced or used in any form or by any
means graphic, electronic or mechanical, including photocopying, recording, taping or storage in
information retrieval systems without the express permission of the publisher.
Every care has been taken to ensure that the information contained in this report is correct. The
publisher accepts no liability for decisions made on the basis of information contained herein.
A catalogue record for this report is available from the British Library.
PHARMACEUTICAL PRICING & REIMBURSEMENT
Contents
FOREWORD ........................................................................................................................................... 1
EXECUTIVE SUMMARY ......................................................................................................................... 3
PRICING & REIMBURSEMENT SYSTEMS .............................................................................................. 5
Free Pricing and Indirect Control ....................................................................................................................................... 5
Value-Based Pricing ................................................................................................................................................................ 5
Reference Pricing ..................................................................................................................................................................... 6
External Reference Pricing ............................................................................................................................................. 6
Concerns and Limitations of External Reference Pricing ...................................................................................................... 8
Internal Reference Pricing ............................................................................................................................................. 9

Fixed Generic Price Reductions ................................................................................................................................................... 10
Wholesale and Pharmacy Mark-ups ................................................................................................................................ 10
Reimbursement Lists ............................................................................................................................................................ 11
Positive and Negative Lists .......................................................................................................................................... 11
Essential Medicines ........................................................................................................................................................ 11
AMERICAS ...........................................................................................................................................13
ARGENTINA .............................................................................................................................................................................. 14
Pricing ................................................................................................................................................................................. 14
Price Controls in the National Medicines Policy .................................................................................................................... 14
Reimbursement ............................................................................................................................................................... 15
BRAZIL ........................................................................................................................................................................................ 16
Pricing ................................................................................................................................................................................. 16
Drug Price Set-up.............................................................................................................................................................................. 16
Drug Price Control ............................................................................................................................................................................ 16
Reimbursement ............................................................................................................................................................... 18
Popular Pharmacy Programme ................................................................................................................................................... 18
CANADA .................................................................................................................................................................................... 19
Pricing ................................................................................................................................................................................. 19
Reimbursement ............................................................................................................................................................... 20
Provincial Formularies .................................................................................................................................................................... 20
Recent Developments ............................................................................................................................................................ 21
Drug Insurance Programmes ....................................................................................................................................................... 21
National Pharmaceuticals Strategy ............................................................................................................................................ 21
Orphan Drugs .................................................................................................................................................................................... 22
CHILE .......................................................................................................................................................................................... 22
Pricing ................................................................................................................................................................................. 22
Public Procurement ......................................................................................................................................................................... 22
© espicom BUSINESS INTELLIGENCE

July 2014 i
Reimbursement ............................................................................................................................................................... 23
COLOMBIA ................................................................................................................................................................................ 23
Pricing ................................................................................................................................................................................. 23
Price Regulation ................................................................................................................................................................................ 23
Resolutions/Decrees Issued in 2010..................................................................................................................................... 24
Resolution No. 04/2006 .......................................................................................................................................................... 25
Reference Pricing.............................................................................................................................................................................. 26
SISMED ................................................................................................................................................................................................. 26
Reimbursement ............................................................................................................................................................... 27
MEXICO ...................................................................................................................................................................................... 28
Pricing ................................................................................................................................................................................. 28
Private Sector ..................................................................................................................................................................................... 28
Seguro Popular ......................................................................................................................................................................... 29
Recent Developments .................................................................................................................................................................... 30
Reimbursement ............................................................................................................................................................... 30
PERU ........................................................................................................................................................................................... 31
Pricing ................................................................................................................................................................................. 31
Reverse Auctions ...................................................................................................................................................................... 31
Public Monitoring .................................................................................................................................................................... 32
OPPF ............................................................................................................................................................................................ 32
Reimbursement ............................................................................................................................................................... 32
PNUM .................................................................................................................................................................................................... 32
USA .............................................................................................................................................................................................. 33
Pricing ................................................................................................................................................................................. 33
Public Drug Procurement .............................................................................................................................................................. 33
Average Wholesale Price (AWP) .................................................................................................................................................. 34
Biologics Price Competition and Innovation Act .................................................................................................................. 34
Reimbursement ............................................................................................................................................................... 34
Medicaid .............................................................................................................................................................................................. 34
Medicare .............................................................................................................................................................................................. 35
Legislative Background .......................................................................................................................................................... 35
Bill H.R.1 ...................................................................................................................................................................................... 36
State Pricing/Reimbursement Moves ...................................................................................................................... 36
VENEZUELA .............................................................................................................................................................................. 37
Pricing ................................................................................................................................................................................. 37
Regulation ........................................................................................................................................................................................... 37
Background to Price Control ................................................................................................................................................. 37

ii July 2014
Foreign Exchange Controls ........................................................................................................................................................... 38

Reimbursement ............................................................................................................................................................... 38
ASIA/PACIFIC ......................................................................................................................................40
AUSTRALIA ............................................................................................................................................................................... 41
Pricing ................................................................................................................................................................................. 41
Drug Pricing Developments ......................................................................................................................................................... 41
PBS Drug Price Cuts ................................................................................................................................................................. 41
PBS Medicine Bill Reforms ..................................................................................................................................................... 42
Reference Pricing System .............................................................................................................................................................. 42
12.5% Price Reductions for New Market Entrants ........................................................................................................... 43
US Free Trade Agreement ............................................................................................................................................................. 43
Reimbursement ............................................................................................................................................................... 43
PBS Formularies................................................................................................................................................................................. 44
Patient Co-Payments ....................................................................................................................................................................... 44
Health Technology Assessment ................................................................................................................................ 45
CHINA ......................................................................................................................................................................................... 45
Pricing ................................................................................................................................................................................. 45
Essential Drugs List .......................................................................................................................................................................... 45
Price Reductions ............................................................................................................................................................................... 46
Retail Price Limits Eased ................................................................................................................................................................. 46
Mandatory Licensing ....................................................................................................................................................................... 47
Reimbursement ............................................................................................................................................................... 47
Patient Contributions ...................................................................................................................................................................... 48
INDIA .......................................................................................................................................................................................... 48
Pricing ................................................................................................................................................................................. 48
Drugs (Prices Control) Order, 2013............................................................................................................................................. 48
National Pharmaceuticals Pricing Policy, 2012 ...................................................................................................................... 49
Background .............................................................................................................................................................................. 49
NPPP-2012 and NLEM-2011 ................................................................................................................................................. 50
Reimbursement ............................................................................................................................................................... 50
INDONESIA ............................................................................................................................................................................... 51
Pricing ................................................................................................................................................................................. 51
Price Changes ........................................................................................................................................................................... 52
Essential Drugs List .......................................................................................................................................................................... 52
Reimbursement ............................................................................................................................................................... 53
JAPAN ......................................................................................................................................................................................... 53
Pricing ................................................................................................................................................................................. 53
Price Reductions ............................................................................................................................................................................... 54
Reimbursement ............................................................................................................................................................... 54

July 2014 iii
National Health Insurance Drug Price List............................................................................................................................... 54

MALAYSIA ................................................................................................................................................................................. 55
Pricing ................................................................................................................................................................................. 55
NEW ZEALAND ........................................................................................................................................................................ 56
Pricing ................................................................................................................................................................................. 56
Drug Tender Scheme ...................................................................................................................................................................... 56
Reimbursement ............................................................................................................................................................... 56
Prescription Charges ....................................................................................................................................................................... 57
PAKISTAN .................................................................................................................................................................................. 57
Pricing ................................................................................................................................................................................. 57
Drug Pricing Policy........................................................................................................................................................................... 58
Medicine Tariffs Abolished ........................................................................................................................................................... 58
Illegal Price Increases ...................................................................................................................................................................... 58
Reimbursement ............................................................................................................................................................... 59
PHILIPPINES.............................................................................................................................................................................. 59
Pricing ................................................................................................................................................................................. 59
Government Mediated Access Price ......................................................................................................................................... 59
Further Price Reductions, 2010 ............................................................................................................................................. 60
DoH issues Cease and Desist Orders on retailers that violate the GMAP and MRP .................................................. 60
Essential Medicines Price Freeze ................................................................................................................................................ 61
Reimbursement ............................................................................................................................................................... 61
SINGAPORE .............................................................................................................................................................................. 61
Pricing ................................................................................................................................................................................. 61
Reimbursement ............................................................................................................................................................... 62
SOUTH KOREA ......................................................................................................................................................................... 62
Pricing ................................................................................................................................................................................. 62
Key Developments ........................................................................................................................................................................... 63
Drug Price Cuts to Encourage Generic Competition ....................................................................................................... 63
Preferential Drug Price-Cut Exemption Policy .................................................................................................................. 64
Transacted Drug Price Control System ............................................................................................................................... 64
Separation of Prescribing and Dispensing ........................................................................................................................ 64
Reimbursement ............................................................................................................................................................... 64
Actual Transaction Price Schemes ............................................................................................................................................. 65
TAIWAN ..................................................................................................................................................................................... 66
Pricing ................................................................................................................................................................................. 66
NHIA Price Cuts ................................................................................................................................................................................. 66
Reimbursement ............................................................................................................................................................... 67
Co-payment system ........................................................................................................................................................................ 68
THAILAND ................................................................................................................................................................................. 68

iv July 2014
Pricing ................................................................................................................................................................................. 68
Reimbursement ............................................................................................................................................................... 68
VIETNAM ................................................................................................................................................................................... 69
Pricing ................................................................................................................................................................................. 69
Drug Price Regulation ..................................................................................................................................................................... 69
Cuts in Tax & Import Duties .......................................................................................................................................................... 70
Price Adjustments ............................................................................................................................................................................ 70
Regional Price Comparison................................................................................................................................................... 71
Reimbursement ............................................................................................................................................................... 71
Health Insurance Fund Deficits.................................................................................................................................................... 72
Increase in Hospital Fees................................................................................................................................................................ 72
CENTRAL AND EASTERN EUROPE ......................................................................................................73
BELARUS .................................................................................................................................................................................... 75
Pricing ................................................................................................................................................................................. 75
Wholesale and Retail Mark-ups ................................................................................................................................................... 75
Reimbursement ............................................................................................................................................................... 76
Tendering Procedures .................................................................................................................................................................... 76
BULGARIA ................................................................................................................................................................................. 77
Pricing ................................................................................................................................................................................. 77
Reference Pricing .............................................................................................................................................................................. 77
Reimbursement ............................................................................................................................................................... 78
CROATIA .................................................................................................................................................................................... 79
Pricing ................................................................................................................................................................................. 79
VAT ......................................................................................................................................................................................................... 79
Price Cuts ............................................................................................................................................................................................. 80
Wholesale Margins ........................................................................................................................................................................... 80
Reimbursement ............................................................................................................................................................... 80
CZECH REPUBLIC .................................................................................................................................................................... 81
Pricing ................................................................................................................................................................................. 82
Price Application Procedure ................................................................................................................................................. 82
Reimbursement ............................................................................................................................................................... 83
ESTONIA .................................................................................................................................................................................... 84
Pricing ................................................................................................................................................................................. 84
VAT ......................................................................................................................................................................................................... 84
Reimbursement ............................................................................................................................................................... 85

July 2014 v
Supplementary Benefit for Pharmaceuticals.......................................................................................................................... 85

Reimbursement Application Process ........................................................................................................................................ 86
HUNGARY ................................................................................................................................................................................. 86
Pricing ................................................................................................................................................................................. 86
Pricing Developments .................................................................................................................................................................... 87
Wholesale and Pharmacy Mark-ups .......................................................................................................................................... 87
VAT......................................................................................................................................................................................................... 87
Reimbursement ............................................................................................................................................................... 88
LATVIA ........................................................................................................................................................................................ 89
Pricing ................................................................................................................................................................................. 89
Pricing Developments .................................................................................................................................................................... 89
VAT......................................................................................................................................................................................................... 89
Reimbursement ............................................................................................................................................................... 89
LITHUANIA ................................................................................................................................................................................ 90
Pricing ................................................................................................................................................................................. 90
VAT......................................................................................................................................................................................................... 91
Reimbursement ............................................................................................................................................................... 91
POLAND..................................................................................................................................................................................... 92
Pricing ................................................................................................................................................................................. 92
VAT......................................................................................................................................................................................................... 93
Reimbursement ............................................................................................................................................................... 93
ROMANIA .................................................................................................................................................................................. 94
Pricing ................................................................................................................................................................................. 94
VAT......................................................................................................................................................................................................... 95
Reimbursement ............................................................................................................................................................... 95
RUSSIA ....................................................................................................................................................................................... 96
Pricing ................................................................................................................................................................................. 96
Vital & Essential Medicines List .................................................................................................................................................... 97
Wholesale and Retail Mark-ups ................................................................................................................................................... 98
Maximum Prices................................................................................................................................................................................ 98

vi July 2014
Changes to State Tenders.............................................................................................................................................................. 99

Medicines Financing...................................................................................................................................................................... 100
Reimbursement ............................................................................................................................................................ 101
DLO Programme ............................................................................................................................................................................. 101
DLO Budget ............................................................................................................................................................................. 101
DLO Procurement .................................................................................................................................................................. 102
Cancer Treatments ................................................................................................................................................................ 102
Proposed Orphan Drugs Programme .............................................................................................................................. 102
SERBIA ..................................................................................................................................................................................... 103
Pricing .............................................................................................................................................................................. 103
Reference Pricing ............................................................................................................................................................................ 104
VAT ....................................................................................................................................................................................................... 104
Medicines Shortages ..................................................................................................................................................................... 104
Reimbursement ............................................................................................................................................................ 104
SLOVAKIA ............................................................................................................................................................................... 106
Pricing .............................................................................................................................................................................. 106
Wholesale and Pharmacy Mark-ups ........................................................................................................................................ 106
VAT ....................................................................................................................................................................................................... 106
Reimbursement ............................................................................................................................................................ 107
SLOVENIA ............................................................................................................................................................................... 108
Pricing .............................................................................................................................................................................. 108
Wholesale Mark-ups ...................................................................................................................................................................... 108
VAT ....................................................................................................................................................................................................... 109
Reimbursement ............................................................................................................................................................ 109

UKRAINE ................................................................................................................................................................................. 110
Pricing .............................................................................................................................................................................. 110
VAT Exemption ................................................................................................................................................................................ 111
Price Ceilings and Mandatory Price Change Notification ................................................................................................ 111
Reference Pricing Proposal ......................................................................................................................................................... 111
Reimbursement ............................................................................................................................................................ 111
Pilot Project for Hypertension Patients .................................................................................................................................. 112
MIDDLE EAST/AFRICA ..................................................................................................................... 113

EGYPT ...................................................................................................................................................................................... 114
Pricing .............................................................................................................................................................................. 114
Recent Pricing Issues ..................................................................................................................................................................... 115
Reimbursement ............................................................................................................................................................ 116

July 2014 vii
ISRAEL ..................................................................................................................................................................................... 116

Pricing .............................................................................................................................................................................. 116
Reference Pricing............................................................................................................................................................................ 117
Reimbursement ............................................................................................................................................................ 117
KUWAIT ................................................................................................................................................................................... 118
Pricing .............................................................................................................................................................................. 118
Regional Harmonisation .............................................................................................................................................................. 119
Reimbursement ............................................................................................................................................................ 119
Public Procurement of Medicines ............................................................................................................................................ 120
MOROCCO ............................................................................................................................................................................. 120
Pricing .............................................................................................................................................................................. 120
Parliamentary Drug Pricing Report .......................................................................................................................................... 121
Price Reductions ............................................................................................................................................................................. 122
Reimbursement ............................................................................................................................................................ 122
SAUDI ARABIA ...................................................................................................................................................................... 122
Pricing .............................................................................................................................................................................. 122
Pricing System Reform ......................................................................................................................................................... 123
Tendering Procedures .................................................................................................................................................................. 124
National Unified Procurement Company for Medical Supplies ................................................................................ 124
Reimbursement ............................................................................................................................................................ 125
SOUTH AFRICA ..................................................................................................................................................................... 125
Pricing .............................................................................................................................................................................. 125
Dispensing Fees Charged by Pharmacists ............................................................................................................................ 126
Reimbursement ............................................................................................................................................................ 126
Essential Medicines List ................................................................................................................................................................ 127
TURKEY ................................................................................................................................................................................... 127
Pricing .............................................................................................................................................................................. 127
Price Cuts ........................................................................................................................................................................................... 128
Reimbursement ............................................................................................................................................................ 129
UNITED ARAB EMIRATES .................................................................................................................................................. 129
Pricing .............................................................................................................................................................................. 129
Importer and Pharmacy Mark-ups ........................................................................................................................................... 130
Price Reductions ............................................................................................................................................................................. 130
Regional Harmonisation .............................................................................................................................................................. 130

viii July 2014
Pharmaceutical Tenders ............................................................................................................................................................... 130

Reimbursement ............................................................................................................................................................ 131
Pharmacy Benefit Management................................................................................................................................................ 131
Health Card for Expats .................................................................................................................................................................. 132
WESTERN EUROPE ........................................................................................................................... 133
AUSTRIA.................................................................................................................................................................................. 135
Pricing .............................................................................................................................................................................. 135
Price Notification System ............................................................................................................................................................. 136
Hospital Medicines ......................................................................................................................................................................... 136
Wholesaler and Pharmacy Mark-ups ....................................................................................................................................... 136
VAT ....................................................................................................................................................................................................... 136
Reimbursement ............................................................................................................................................................ 136
Erstattungskodex (EKO)................................................................................................................................................................ 136
Rational Use of Pharmaceuticals ............................................................................................................................................... 137
Patient Co-payments..................................................................................................................................................................... 138
BELGIUM................................................................................................................................................................................. 138
Pricing .............................................................................................................................................................................. 138
Cost Control Policies ...................................................................................................................................................................... 139
Reimbursement ............................................................................................................................................................ 139
DENMARK .............................................................................................................................................................................. 141
Pricing .............................................................................................................................................................................. 141
Medicine Prices................................................................................................................................................................................ 141
Price Index ......................................................................................................................................................................................... 142
VAT ....................................................................................................................................................................................................... 142
Pharmacy Prices Decline .............................................................................................................................................................. 142
Reimbursement ............................................................................................................................................................ 143
Executive Order ............................................................................................................................................................................... 143
Reimbursement Thresholds........................................................................................................................................................ 144
FINLAND ................................................................................................................................................................................. 145
Pricing .............................................................................................................................................................................. 145
Reference Pricing and Generic Substitution ......................................................................................................................... 145
Price Cuts and Trends.................................................................................................................................................................... 146
Reimbursement ............................................................................................................................................................ 146
Reimbursement Categories ........................................................................................................................................................ 146
Basic Reimbursement ........................................................................................................................................................... 146

July 2014 ix
Special Reimbursement ....................................................................................................................................................... 147

Patient Co-payments .................................................................................................................................................................... 147
FRANCE ................................................................................................................................................................................... 148
Pricing .............................................................................................................................................................................. 148
Internal Reference Pricing ........................................................................................................................................................... 148
Formal Medico-Economic Assessment .................................................................................................................................. 148
VAT....................................................................................................................................................................................................... 149
Government Cost Saving Measures ........................................................................................................................................ 149
Reimbursement ............................................................................................................................................................ 149
Patient co-payments ..................................................................................................................................................................... 150
Index Thérapeutique Relatif ....................................................................................................................................................... 150
GERMANY .............................................................................................................................................................................. 150
Pricing .............................................................................................................................................................................. 150
Evidential Requirements Under AMNOG............................................................................................................................... 150
Amendment to the Law on Medicines Regarding Comparator Therapies ............................................................. 151
IQWiG ....................................................................................................................................................................................... 151
Industry Concerns ................................................................................................................................................................. 152
Generic Substitution Policies ..................................................................................................................................................... 152
Pharmaceutical Discount Contracts ........................................................................................................................................ 152
VAT....................................................................................................................................................................................................... 153
Reimbursement ............................................................................................................................................................ 153

Patient co-payments ..................................................................................................................................................................... 154
GREECE ................................................................................................................................................................................... 154
Pricing .............................................................................................................................................................................. 154
Pricing Regime Developments .................................................................................................................................................. 154
Reference Price System ................................................................................................................................................................ 155
Wholesale and Retail Margins .................................................................................................................................................... 155
VAT....................................................................................................................................................................................................... 155
Reimbursement ............................................................................................................................................................ 155

Social Insurance and Reimbursement Categories .............................................................................................................. 156
IRELAND ................................................................................................................................................................................. 157
Pricing .............................................................................................................................................................................. 157
Reference Pricing and Generic Substitution ........................................................................................................................ 157
Wholesale Margins ......................................................................................................................................................................... 158
Reimbursement ............................................................................................................................................................ 158

HSE Primary Care Reimbursement Service (PCRS) ............................................................................................................. 158
Reimbursement Policies Create Drug Shortages ................................................................................................................ 159
Prescription Charges ..................................................................................................................................................................... 159

x July 2014
ITALY ........................................................................................................................................................................................ 159

Pricing .............................................................................................................................................................................. 159
Reimbursement ............................................................................................................................................................ 160
Expenditure Capping and Payback .......................................................................................................................................... 161
Tendering System........................................................................................................................................................................... 161
Risk Sharing ...................................................................................................................................................................................... 161
NETHERLANDS ..................................................................................................................................................................... 162
Pricing .............................................................................................................................................................................. 162
Pricing Developments .................................................................................................................................................................. 162
VAT ....................................................................................................................................................................................................... 162
Pharmacy Fees ................................................................................................................................................................................. 162
Reimbursement ............................................................................................................................................................ 163
Generic Substitution...................................................................................................................................................................... 163
NORWAY ................................................................................................................................................................................ 163
Pricing .............................................................................................................................................................................. 163
Reference Pricing System ............................................................................................................................................................ 164
Generic Pricing System ................................................................................................................................................................. 164
Sales Tax and VAT ........................................................................................................................................................................... 165
Reimbursement ............................................................................................................................................................ 165
First-Choice Scheme ...................................................................................................................................................................... 166
PORTUGAL ............................................................................................................................................................................. 167
Pricing .............................................................................................................................................................................. 167
Reference Pricing System ............................................................................................................................................................ 168
Generics ............................................................................................................................................................................................. 169
VAT ....................................................................................................................................................................................................... 169
Reimbursement ............................................................................................................................................................ 169
SPAIN ....................................................................................................................................................................................... 170
Pricing .............................................................................................................................................................................. 170
Reference pricing ............................................................................................................................................................................ 171
Regional Variations ........................................................................................................................................................................ 172
Drug Price Discounts ..................................................................................................................................................................... 172
Pharmacy Margins .......................................................................................................................................................................... 172
Reimbursement ............................................................................................................................................................ 173
Generic prescribing........................................................................................................................................................................ 173
Tendering System........................................................................................................................................................................... 173
Regional Tenders ................................................................................................................................................................... 174

July 2014 xi

SWEDEN ................................................................................................................................................................................. 174
Pricing .............................................................................................................................................................................. 174
VAT....................................................................................................................................................................................................... 175
Reimbursement ............................................................................................................................................................ 175
Reimbursement Rates................................................................................................................................................................... 176
SWITZERLAND ...................................................................................................................................................................... 176
Pricing .............................................................................................................................................................................. 176
Wholesale Mark-ups ...................................................................................................................................................................... 177
Pricing Agreement ......................................................................................................................................................................... 177
Reimbursement ............................................................................................................................................................ 177
UNITED KINGDOM .............................................................................................................................................................. 178
Pricing .............................................................................................................................................................................. 178
PPRS 2014.......................................................................................................................................................................................... 179
Generics ............................................................................................................................................................................................. 179
Reimbursement ............................................................................................................................................................ 179
Patient Access Schemes ............................................................................................................................................................... 180
Prescription Charges ..................................................................................................................................................................... 180
SOURCES ........................................................................................................................................... 182
List of Tables
Countries Operating External Reference Price Systems ............................................................................................ 7
Pricing & Reimbursement in the Americas ................................................................................................................... 13
Pricing & Reimbursement in the Asia/Pacific Region ............................................................................................... 40
Pricing Premiums in Japan ................................................................................................................................................. 53
Pricing & Reimbursement in Central and Eastern Europe ...................................................................................... 73
Profit Margins For Wholesalers in Croatia ..................................................................................................................... 80
Pricing & Reimbursement in the Middle East and Africa ...................................................................................... 113
Pricing & Reimbursement in Western Europe .......................................................................................................... 133
List of Figures
Most-commonly Referenced Countries for External Pricing.................................................................................... 8

xii July 2014
FOREWORD
The intention of this report is to provide insight into pharmaceutical pricing and reimbursement
systems around the world. The report begins with an overview, highlighting some common features
of pricing and reimbursement systems, with examples from various countries. The remainder of the
report provides country-specific information, organised by region.
Every effort has been made to ensure the accuracy and timeliness of the information contained in this
report, at the time of publication. Espicom cannot, however, be held responsible for errors, omissions
or subsequent developments.
We hope you find the report useful in your research.
Karen Holmes, Author

July 2014 1
[This page left intentionally blank.]

2 July 2014
EXECUTIVE SUMMARY
For budget conscious healthcare providers, “value” has become a widely used term that plays a
central role in the decision-making process alongside quality of care, particularly for pharmaceuticals.
Increasingly, value is expressed in economic as well as medical terms and companies are expected to
provide evidence of both. In some markets, economic assessment has been formalised and takes
place alongside an assessment of medical benefit. The broader concept of value is, therefore, open to
varying interpretations around the world, depending on the local needs of national and regional
healthcare providers and has become central to pricing and reimbursement decision-making
processes.
For the pharmaceutical industry, pricing and reimbursement decisions are important in determining
the likely commercial success of a pharmaceutical product in the marketplace. So how is
pharmaceutical pricing established? There is no simple answer to this question. For other consumer
goods, pricing may be as simple as the manufacturer setting a price at which their product can
reasonably be sold in a particular market. In other words, a competitive price that is both affordable
for the customer and allows the manufacturer to make a profit. For pharmaceutical companies,
pricing is often far more complicated. Governments and health insurance providers around the world
strive to contain costs while providing effective medicines for their patients. Their efforts to do so
have resulted in national pricing policies that include various direct and indirect pricing controls. For
prescription pharmaceuticals in particular, the issues of pricing and reimbursement are inextricably
linked, as one is dependent on the other.
In the majority of countries surveyed for this report, there is some form of pricing control for
pharmaceuticals that are reimbursed under the public health system, whether direct or indirect.
National pricing authorities employ various methods of arriving at pharmaceutical prices, such as
reference pricing schemes, medico-economic assessment, fixed generic price reductions, fixed
wholesale and pharmacy mark-ups, or limitations on company profits. Rather than relying on one
method of price control, government agencies generally employ several tactics to minimise
reimbursement costs. These may be directly enforced, or the subject of negotiation between
government and industry.
Internal reference pricing schemes are often used to calculate the reimbursement rate for a particular
therapeutic group of drugs. These may only come into play once generic alternatives are available for
a group of drugs with the same active ingredient, or they may include a wider range of patented
drugs with a similar therapeutic effect.
External reference pricing, also known as international reference pricing, is often employed for
products that are new to the market. Put simply, a pricing authority will compare the manufacturer’s
suggested price for the product with the price in a basket of other countries in which it is marketed.
There are numerous variations among external reference pricing schemes. A basket of countries may
include as few as three neighbouring states with a similar standard of living, or as many as 30
countries from various parts of the world. The reference price may be calculated as the median price
among a group of countries; the mean average of a defined number of countries, to which a
percentage reduction may or may not be applied; or it may simply be the lowest price among all
countries in the basket. In other words, there are almost as many variations of reference pricing
schemes as there are countries that operate them.
Reference pricing schemes in Western Europe have faced particular criticism from industry as a result
of austerity measures in countries like Greece and Spain during the economic crisis, which resulted in
dramatically reduced prices in those markets. It has been argued that the continued inclusion of
these countries in reference baskets has a knock-on effect in many other markets, causing prices to
fall in countries with a higher standard of living. Nonetheless, both countries continue to appear in
reference baskets around the world.

July 2014 3
For manufacturers, even when the issue of price has been successfully concluded, the issue of
reimbursement may still remain. For a prescription medication to be used by the widest possible
number of patients, it needs to be included in the reimbursement scheme. In some countries,
reimbursement and pricing go hand in hand, so that once a price has been arrived at, the product is
available for reimbursement. In others, the product will need to be included on a positive
reimbursement list, or be recommended by a national health technology assessment (HTA) agency.
This report examines the various strategies employed by healthcare stakeholders in 62 countries
around the world in order to secure the required medicines at the best possible price.

4 July 2014
PRICING & REIMBURSEMENT

SYSTEMS
Free Pricing and Indirect Control
In many countries, manufacturers are generally free to set their own prices of non-reimbursed
medicines and over-the-counter (OTC) products, whether or not the prices of reimbursed medicines
are subject to price controls.
However, the concept of free pricing for reimbursed pharmaceuticals is unrealistic, even where
government’s choose not to directly control pharmaceutical prices. In the US, the world’s biggest
pharmaceutical market, manufacturers are theoretically free to set their own prices for medicines in
the private sector. In practice, prices for prescription medicines are negotiated with private Health
Maintenance Organisations (HMOs) and Pharmacy Benefit Managers (PBMs). Most HMOs and PBMs
use drug formularies, with around one third using 'closed' formularies that prevent reimbursement of
non-listed drugs.
HMOs also employ various indirect ways of controlling costs. These include generic substitution;
step-care therapy, whereby more expensive treatments are only prescribed once cheaper alternatives
have proved unsuccessful; and therapeutic interchange, allowing pharmacists to substitute a drug for
another in the same therapeutic class.
In the UK, pharmaceutical prices are indirectly controlled by the Department of Health, under the
Pharmaceutical Price Regulation Scheme (PPRS). The PPRS does not regulate prices directly, but
limits individual company profits. Manufacturers are free to set specific drug prices, but must not
breach their overall profit limit on sales to the NHS. If they do, the excess must be paid to the
government.
It had been thought that government plans to bring in a value-based pricing (VBP) system for new
active substances would result in the PPRS being gradually phased out. However, this would appear
not to be the case, at least for the foreseeable future. PPRS 2014 is now in operation, and will apply
until the end of 2018. In the meantime, VBP has been delayed, at least until September 2014, and it is
not yet clear how this will work alongside the PPRS.
Value-Based Pricing
While the UK may still be moving towards value-based pricing, in other markets, a need to provide
“value” has already been introduced. However, “value” remains open to interpretation. The value
that a new medicine can provide in terms of medical advancement is now increasingly being
assessed alongside its value to healthcare providers in terms of cost-effectiveness in comparison with
existing treatments.
The perceived value of a treatment is central to the German AMNOG (Arzneimittelmarkt-

Neuordnungsgesetz) system. Prior to the enforcement of AMNOG in January 2011, manufacturers
had been free to set their own prices for new medicines in Germany. However, the new system
introduced mandatory pricing assessment for newly introduced drugs in the German healthcare
system, whereby the price of medicines is determined by the added benefit they bring to patients. If
the Joint Federal Committee agrees that a new prescription medicine has an added benefit and that it
qualifies for reimbursement by the statutory health insurance funds, the price is negotiated based on
the evaluation of this benefit. Where there is no added benefit, reimbursement prices may not
exceed the costs of a comparable therapy.

July 2014 5
In France, formal medico-economic assessment became part of the pricing and reimbursement
process from October 2013, for all new drugs whose manufacturers request an ASMR (Amelioration
du Service Medical Rendu) rating of I to III, and/or drugs that are expected to have a significant impact
on public insurance expenditure. This effectively means that drugs are assessed for cost-effectiveness
in parallel to their medical assessment. Pricing decisions will be made not only on the medical
assessment, but also on the cost-effectiveness analysis.
As part of the value principle, both countries have also adopted reference pricing as part of their cost-
containment strategies.
Reference Pricing
Various types of reference pricing systems are employed in the regulation of pharmaceutical prices.
Reference pricing schemes can be external or internal and may be restricted to biologically
equivalent products or to a wider basket of similar therapies. The common feature of all reference
pricing systems is the desire to reduce the cost of reimbursement for healthcare providers.
External Reference Pricing

External reference pricing, or international reference pricing, refers to the price of a similar medicinal
product in a defined basket of countries. Initially, these countries were selected on the basis that they
were generally considered to have a similar standard of living and were, therefore, comparable.
However, European reference baskets have become increasingly controversial in recent years,
particularly during times of economic recession when some governments have taken drastic austerity
measures to reduce costs. The use of Greece has proved particularly contentious and that country
has been removed from some reference baskets, while other countries have simply extended their
baskets to include a larger number of markets around the world, regardless of whether or not their
economies are comparable.
Among external pricing systems, a number of different methods of calculating the reference price are
employed. These include taking the average price of the pharmaceutical product in several countries,
or selecting the lowest price of the pharmaceutical among selected countries. The average price may
be the mean or the median price in the basket of reference countries, to which additional calculations
may be applied, such as a percentage reduction on the mean average, or the average of the three or
four lowest prices in the basket.
While most prevalent in the European Economic Area, external reference pricing has been adopted
by a number of countries around the world. For example, Colombia introduced a scheme in 2006
that references prices in eight neighbouring Latin American countries, taking the average price of the
three cheapest. Israel has adopted an external reference pricing system similar to that in the
Netherlands, whereby the maximum price of a medicinal product is set to the average price among
seven European countries. Morocco has adopted a system similar to that in France, which references
the lowest price in its basket of countries. Among the countries surveyed for this report, 45 (69%)
employ some form of external reference pricing scheme, generally as one of several measures for
containing the costs of pharmaceuticals.

6 July 2014
Countries Operating External Reference Price Systems

Reference Basket
Country Region (Number of Countries)
Austria Western Europe 24
Belgium Western Europe 26
Bulgaria Central and Eastern Europe 12
Colombia Latin America 8
Croatia Central and Eastern Europe 3
Cyprus Western Europe 4
Czech Republic Central and Eastern Europe 19
Estonia Central and Eastern Europe 3 main + others in EU
Finland Western Europe 29
France Western Europe 4
Germany Western Europe 15
Greece Western Europe 22
Hungary Central and Eastern Europe 31
Iceland Western Europe 4
Ireland Western Europe 9
Israel Middle East/Africa 7 main + 1 other
Italy Western Europe 27
Japan Asia/Pacific 4
Latvia Central and Eastern Europe 7
Lithuania Central and Eastern Europe 8
Malta Western Europe 11-12
Morocco Middle East/Africa 7
Netherlands Western Europe 4
Norway Western Europe 9
Portugal Western Europe 3
Romania Central and Eastern Europe 12
Saudi Arabia Middle East/Africa 30
Serbia Central and Eastern Europe 3
Slovakia Central and Eastern Europe 27
Slovenia Central and Eastern Europe 3
South Korea Asia/Pacific 9
Spain Western Europe 16
Switzerland Western Europe 6
Taiwan Asia/Pacific 10
Source: European Commission, BMI Espicom
The countries most commonly referenced in external pricing schemes are France, Germany, Spain
and the UK. Among our surveyed countries, 29 included France in their basket of countries for
external pricing, while Germany and the UK were each included in 25 baskets and Spain was included
in 24 baskets. Interestingly, despite calls for the exclusion of Greece during the economic crisis, that
market remains in the reference basket of 19 countries.

July 2014 7
Most-commonly Referenced Countries for External Pricing
0 5 10 15 20 25 30 35
France 29
Germany 25
UK 25
Spain 24
Italy 22
Belgium 20
Greece 19
Portugal 19
Denmark 18
Austria 17
Netherlands 17
Sweden 17
Finland 16
Slovakia 16
Hungary 15
Ireland 15
Czech Republic 14
Lithuania 14
Slovenia 14
Poland 12
Cyprus 11
Estonia 11
Latvia 11
Bulgaria 10
Romania 10
Source: European Commission, BMI Espicom
Concerns and Limitations of External Reference Pricing

While external reference pricing is widely adopted by regulatory agencies, it is not without its
limitations. For example, Germany’s price regulation system has come under criticism for several
reasons, not least of which the use of Greece among its reference countries when determining
pharmaceutical prices. Low prices in Germany are likely to have a knock-on effect on prices in
numerous other countries that use Germany as a reference price country. These include: Austria,
Belgium, Cyprus, Estonia, Finland, France, Greece, Hungary, Ireland, Israel, Italy, Japan, Latvia,
Netherlands, Norway, Romania, Slovakia, Slovenia, Spain, South Korea, Switzerland and Taiwan.

8 July 2014
Other concerns raised in a 2014 European Commission (EC) report on external reference pricing
include:
• External reference pricing can create a “path of dependence” because pricing is influenced
by the system itself, relying on prices in the reference basket of countries, rather than local
healthcare needs.
• Prices in reference markets are not always strictly comparable due to the availability of
information (ex-manufacturer, wholesale, retail). The EC report points out that, since ex-
manufacturer prices are used by most countries for reference pricing, these may be derived
from calculations, thereby representing “a proxy of the true ex-factory price”.
• Publicly available prices are unlikely to take into account managed entry agreements or
other discount arrangements, since these may be confidential. As a result, the theoretical
reference price does not always reflect the actual market price.
• It may be difficult to identify the same medicine across countries, due to the availability of
different brands, formulations, dosages and pack sizes.
• External reference pricing can also be affected by volatile currency exchange rates, which
can affect prices denominated in local currencies. In addition, currency exchange rates used
to set a reference price at a point in time are generally not disclosed, which could lead to
prices being miscalculated in other countries.
The full report, External reference pricing of medicinal products: simulation-based considerations for
cross-country coordination, is available for download from the EC website:
http://ec.europa.eu/health/healthcare/docs/erp_reimbursement_medicinal_products_en.pdf
Internal Reference Pricing

Internal reference pricing systems utilise the prices of drugs already marketed within the same
country as reference points for the pricing of new drugs. There are various systems in operation,
some of which are restricted to bioequivalent drugs groups and others that take a significantly wider
basket of comparable drugs into the equation.
The reference price established through this type of system is usually the reimbursement price for a
group of drugs, rather than for a single product. This is often the lowest priced generic in a defined
reference group. For example, in Spain, which has both internal and external reference pricing
schemes, the internal system applies to groups of bioequivalent drugs. The internal system follows
the external system, whereby the first generic to be approved for a drug that was subject to the
external pricing system will generate the formation of an internal reference group. In this way, the
price of original branded drugs may be effectively forced down to the price of the lowest generic in a
group.
Some systems, notably that in Germany, assess the prices of new drugs in comparison to existing
generics. Under the German pricing rules, a medicine must have an added clinical benefit over
existing therapies in order to avoid being priced under the reference system. Germany is an example
of a scheme whereby drugs are grouped together if they are considered to be equally safe and
effective, rather than bioequivalent, creating a much larger reference group. For example, statins
(atorvastatin, simvastatin, rosuvastatin) are commonly grouped together despite having different
active ingredients, as they all reduce the level of low-density lipoprotein (LDL) cholesterol in the
blood.

July 2014 9
Fixed Generic Price Reductions

A number of countries fix the level of discount of the first and subsequent generics to enter the
market, in comparison to the originator product. In some, the price of the originator must also be
reduced when the first generic enters the market.
For example, in Croatia, the first generic to enter the market must be priced at 35% below the
originator; each subsequent generic is priced at 10% below the previous generic. In Estonia, the first
generic must be 30% lower than the originator; this sets the initial reference price. The next generic
on the market should be 10% below the reference price and the next two should be 5% lower.
Subsequent generics must either match or be lower than the reference price. Similarly, in Hungary,
the prices of the first three generics in a group should be at least 30%, 40% and 50% lower than the
originator drug, respectively. The prices of subsequent generics must be lower than the cheapest
generic available on the market.
A different type of price system operates in Egypt, where there is no distinction between the first,
second, third and subsequent generics. Instead, the price reduction of generic drugs in comparison
to the originator products is related to the licensing and ownership status of the manufacturing plant.
For generics manufactured in a plant licensed by the Ministry of Health and certified by international
agencies, the reduction is 30%. If the plant is licensed by the Ministry of Health alone, the reduction is
40% and, for companies that contract out manufacturing, the price reduction is 60%.
In Saudi Arabia, the price of the originator drug is reduced by 20% upon registration of the first
generic alternative, which itself is priced at 35% less than the originator. Subsequent generics are
priced at 10% less than the previous one.
Wholesale and Pharmacy Mark-ups

In some countries, the mark-ups available to wholesalers and pharmacies are controlled by the
government. This form of price control can apply to pharmaceuticals on the reimbursement list, or to
all pharmaceuticals, including non-reimbursed prescription pharmaceuticals and over-the-counter
(OTC) products.
In Poland, fixed wholesale and retail margins were introduced under the 2011 Drug Reimbursement
Act. For wholesalers, a fixed rate of 7% was applied in 2012, falling to 6% in 2013 and then 5% in
2014. Retail margins are accrued on the wholesale price of the drug, and are on an incremental scale
according to the price of the drug, ranging from 40% for the cheaper medicines up to 1.25% for the
most expensive.
In other markets, the percentage mark-up is regressive and dependent on the ex-factory price. In
2014, the Croatian amendments to the mandated profit margins that wholesalers could realise from
the sales of pharmaceuticals were published by the government. Previously, the wholesale margin
had been fixed at 8.5%. Under the new system, the rate of 8.5% applies to drugs with ex-factory
prices of less than HRK20, while the margin for higher priced products regresses in steps to just 1.0%
for drugs with an ex-manufacturer price of more than HRK1,000. Similarly, in Turkey, the wholesale
mark-up ranges from 2% to 9%; the higher the ex-factory price, the lower the percentage mark-up.
Similarly, pharmacy mark-ups range from 10% to 25% depending on the wholesale prices to which it
is applied, with the highest prices attracting the lowest percentage mark-up. Austria also employs a
system of regressive mark-ups for wholesale and pharmacy prices.

10 July 2014
Reimbursement Lists
Positive and Negative Lists
A number of countries have positive reimbursement lists, from which medicines are selected for use
in public healthcare institutions or for ambulatory prescription under national health systems. In
countries that do not have a standard unified health system, positive lists are often employed for use
by the major health insurers. Drugs that do not make it onto the positive list are generally not eligible
for reimbursement. While other drugs may be approved for marketing, these are less likely to be
available to the majority of patients, as they will usually have to be paid for out-of-pocket unless there
are special circumstances.
Australia operates a positive list of drugs that can be reimbursed under the Pharmaceutical Benefits
Scheme. South Korea adopted a positive list in 2006 for drugs that can be reimbursed under the
national health insurance system. Prior to the introduction of this list, all drugs could be reimbursed.
Croatia operates two positive lists for reimbursement. List A contains drugs that are 100%
reimbursed, while list B contains drugs that are subject to a patient co-payment. In addition, if a
patient opts for a drug from list B that costs more than the reference price for its group, the patient
has to pay the additional amount out-of-pocket.
In many countries, the positive reimbursement list is adopted at national level. However, things are
not always that simple. In Canada, for example, each province has its own formulary listing drugs that
are reimbursed. While inter-provincial harmonisation of standards is increasing in Canada, there is
currently no national listing and each province has its own criteria for approving and adding new
drugs to its formulary for reimbursement.
In some countries, negative lists are also employed for non-reimbursable drugs. In Germany and
Hungary, for example, positive and negative lists coexist. In Germany, if a drug is deemed to be
inefficient, it is added to the negative list and not reimbursed. In Hungary, if a drug exceeds the price
of the reference product by more than 20%, it can be removed from the positive list.
Greece abandoned its positive list for reimbursement in favour of a negative list of drugs no longer
eligible for reimbursement. The negative list, introduced under Greece’s austerity measures, contains
several hundred pharmaceutical products and was implemented in December 2012.
Essential Medicines
In some developing countries, government price controls are in place for a specified list of medicines
that are deemed to be essential to the public health programme. These are generally provided free of
charge or at a subsidised rate to the country’s poor population in public health institutions.
The World Health Organisation has drawn up a list of essential medicines, on which many national
lists are based. While following the WHO principle, however, national lists of essential medicines
(NLEM) are likely to take into account the particular health needs of the country and may exclude
some drugs and include others.
The prices of medicines on a country’s NLEM are generally subject to price controls. In Argentina,
prices are regulated under a series of agreements between government and industry. In Venezuela,
maximum prices are set by the government for defined categories of essential medicines.

July 2014 11
In China, the prices of medicines on the NLEM are set by the government, while most other drug
prices are set after negotiations between the government and manufacturers. While essential
medicines are listed at national level however, the reimbursement system is primarily regional.
Provincial/municipal lists are expected to reflect the national list, although local governments have a
wide degree of autonomy, both in terms of the products represented and the levels of
reimbursement given.

12 July 2014
AMERICAS
Pricing & Reimbursement in the Americas
Regulatory Authority Pricing Reimbursement

Argentina Ministry of Interior Trade Not officially regulated, although Various measures introduced to
in practice, price changes need fund essential medicines.
approval from Ministry of Interior
Trade. Mixture of formal and
informal agreements between
govt. and industry.
Brazil ANVISA, operating Producers suggest prices, which Prescription only medicines
through CMED (Camara must be approved by CMED. provided free of charge in public
de Regulaçao do Government price controls hospitals. Some medicines
Mercado de reintroduced in 2004, following a offered free through pharmacy
Medicamentos) period of liberalisation. system for chronic illnesses,
others subsidised for serious
conditions.
Canada Patented Medicines PMPRB operates a policy of Provincial formularies list drugs
Pricing Review Board voluntary compliance but has the for reimbursement. With the
power to reduce excessive prices. exception of Quebec, provinces
Generic drug prices are not only automatically reimburse the
regulated. lowest-priced drug available.
Chile Central Purchasing No price controls, but CENEBAST Public health insurance system
Agency (CENABAST - acts as reference centre for covers around 60% of population
Central de pricing. Drugs purchased in with free or subsidised drugs.
Abastecimiento del public sector are charged Private insurance usually covers
SNSS) according to CENEBAST price list. hospital drugs for a defined
Prices are among the lowest in the period of time and ambulatory
region. drugs in some cases.
Colombia National Price Direct pricing control for certain Positive list of drugs for
Commission of drugs used in institutions. Price reimbursement defined in Manual
Pharmaceuticals & increases in private pharmacy of Essential Drugs & Therapeutics
Medical Devices centre monitored by SISMED. (Manual de Medicamentos
(CNPMDM - Comision Esenciales y Terapeutica).
Nacional de Precios de Subsidised schemes that allow
Medicamentos y hospitals to provide free drugs to
Dispositivos Medicos) inpatients assuming enough
money is available in the budget.
Mexico Ministry of Economy Maximum retail price of patented Prescribed medicines included in
medicine must not exceed an the National Formulary and
estimated international reference Catalogue of Medicaments
price. Scheme covers relatively (Cuadro Basico y Catalogo de
few drugs - more than 95% of Medicamentos) are free of charge
prices are liberalised. in the public sector.
Peru n/a No national drug pricing system. There is no national system, so
Peru has some of the highest reimbursement is dependent on
prices in the region. private health insurance.
USA n/a No government control over All individuals must have some
pharmaceutical prices. Many form of health coverage, the cost
states are now actively looking at of which is subsidised by the
methods of pricing/ state, and contributed to by
reimbursement control. employers.
Venezuela Ministry of Development Maximum retail price for certain The public health system can only
(Ministerio de Fomento) drugs, with prices of other drugs prescribe drugs from a list of
monitored. essential medicines.
Source: BMI Espicom

July 2014 13
ARGENTINA
Pricing
Pharmacy drug prices are not officially regulated, so producers are not obliged to consult the
government if they increase drug prices. In practice, however, drug price changes must receive the
approval of the Ministry of Interior Trade. Prices of essential medicines are regulated under a series of
agreements between government and industry.
In November 2009, the government and the main pharmaceutical trade organisations CAEMe,
COOPERALA, CILFA and CAPGEN signed an agreement to reduce the price of nearly 600 medicines by
30%, including Viagra, Cafiaspirina, Prozac, Paratropina, Reliveran, Hepatalgina, Ibupirac, Lexotanil,
Amoxidal and Total Magnesiano. The list of medicines covered between 75% and 80% of the
Obligatory Medical Programme (PMO - Programa Medico Obligatorio); the PMO comprises 170 drugs
in 14 therapeutic classes.
The complete list was made accessible to the public and via the Internet. The agreement, which
covered the private pharmacy and public sectors, was valid until 1st July 2010; the implementation of
this agreement was smooth due to the active participation of pharmaceutical producers. In return,
the government implemented a strategic development programme to support the pharmaceutical
industry, similar to that run in Brazil, facilitating financing, goods acquisitions and exports
penetration.
Following this formal price cut regulation, government and industry agreements continued on an
informal basis. In August 2010, the drug price agreement was extended until 31st December 2010.
Under this agreement, the prices of 578 medicines were reduced by about 30%. These drug price
reductions were confirmed by CILFA and CAEMe to the Domestic Trade Minister, Guillerno Moreno.
The government and the pharmaceutical industry renewed their drug price agreement for a further
six-month period on 1st January 2011.
Following Argentina’s currency devaluation in January 2014, the average prices of approximately
20,000 medicines sold through Argentina's pharmacies increased dramatically. Some product prices
rose by nearly 50% due to the devaluation of peso. In early February 2014, the government tried to
negotiate with the pharmaceutical companies to roll back drug prices to their January 2013 levels.
However, none of the manufacturers complied, so the government had to suspend the price cuts on
the selected medicines until another round of negotiations could begin. On February 24, Argentina's
Minister of Economy and Public Finance, Alex Kicillof, finally announced that the government has
authorised an average increase of 4% in medicine prices after the Secretariat of Commerce entered
an agreement with the industry chambers representing laboratories. The decision became effective
from March 1, 2014 throughout the country’s 12,000 pharmacies.
Price Controls in the National Medicines Policy

Prior to 2002, drug prices in Argentina were completely liberalised, with pharmacy mark-ups of
around 20%. OTC drug prices were the first to be liberalised in 1990, with the remainder following
during 1991 and 1992. Due to the domestic industry's price stability commitments with the social
security system, pharmaceutical prices were expected to remain stable. In a country where innovative
drugs quickly replace old drugs, however, drug prices increased considerably, and the market stood
at similar values to previous years in spite of a drop in sales by volume.

14 July 2014
Argentina's drugs were among the most expensive in Latin America. Between 1991 and 2001, drug
prices increased by between 144% and 156%, resulting in a 20% decrease in sales volume. However,
the economic crisis pushed prices down in 2002. A lack of social security funding, increasing
uninsured population, increasing out-of-pocket drug expenditure, reduced spending power and
continuous drug price increases were all factors that prompted the government to declare a National
Sanitary Emergency in March 2002.
In order to improve access to medicines, the government introduced a National Medicines Policy
(Politica Nacional de Medicamentos) in 2002, which included a requirement for partial funding for
essential medicines, as well as reference prices for drugs covered by the social insurance system. Tax
was also deducted from essential drugs. The new generics law, 25,649/2002, which made it
compulsory for prescribers to use the International Common Denomination, had the immediate
effect of lowering prices.
Reimbursement
Approved by Resolution 201/2002, the Obligatory Emergency Medical Programme (PMOE - Programa
Medico Obligatorio de Emergencia) obliged the Obras Sociales Nacionales and Prepagas (national
insurance funds and private health insurers) to finance at least 40% of 216 essential drugs. This
backfired, however, as some Obras that were previously covering 50% or 60% of essential drugs
reduced their coverage to the minimum 40%. In addition, the government launched the REMEDIAR
programme, supported by the Inter-American Development Bank (IADB), which distributes cost-
effective essential drugs among primary care centres in the country, in order to improve access to
medicines among the Argentina’s less well-off population.
The Obras Sociales are mainly trade union-administered schemes covering some 10 million citizens. A
further major programme known as PAMI offers drug benefits for pensioners and the disabled, and
was expanded significantly during 2007. Privately run discount schemes for uninsured patients
include Vale Salud and Receta Solidaria.
These programmes were introduced to provide discounts at the point of sale in large pharmacies and
were primarily underwritten by pharmacies and manufacturers. However, due to cost and the
improving economic situation, the discounts offered for medicines were reduced from 40% to 20%,
from July 2007.

July 2014 15
BRAZIL
Pricing
Following Provisional Circular No. 123 and Decree No. 4,766, both issued in June 2003, the Ministry of
Health and the National Medicines Agency (ANVISA) took over full responsibility for drug pricing from
the Ministry of Justice. ANVISA operates mainly through the Chamber for the Regulation of
Medicines (CMED - Camara de Regulaçao do Mercado de Medicamentos), created in June 2003.
CMED regulates prices and establishes regulatory guidelines for the entire pharmaceutical sector,
including manufacturers, distributors and retailers. CMED replaced the former CAMED (Camara de
Medicamentos), whose authority was restricted to the regulation of manufacturers.
Drug Price Set-up

In order to establish drug prices, pharmaceutical producers suggest a list of ex-factory prices for every
drug, which needs to be approved by CMED. Apart from a list of ex-factory prices, the producer must
provide additional information, including:
• The price in other countries where the product is sold;

• The cost of raw materials used in the manufacture;
• The cost of the treatment per patient;
• The potential number of patients;
• The suggested ex-factory price and a description of how it works;
• A summary of the costs and projected expenditure, including marketing & sales; and
• A list of similar products with their respective prices in the market.
CMED has also adopted a reference pricing system of sorts, which bases its estimates on an 'adequate
price coefficient' of each drug in a basket of nine Western countries - Australia, Canada, Spain, the US,
France, Greece, Italy, New Zealand and Portugal - and the product's country of origin. The system
establishes that the manufacturer's price for a new, patented product may not be lower than the
lowest equivalent price in any of the countries in the basket.
Drug Price Control

Following liberalisation of drug price controls in 1994, the government re-introduced price control for
prescription drugs in January 2001. Regulation No. 123, issued in June 2003, converted into Law No.
10,742, issued in October 2003, fully re-established the control of drug prices in Brazil, originally
affecting nearly 18,000 presentations that did not have much competition. With the new regulation,
it was established that drug prices should be readjusted every year, starting on April 1 2004. Price
adjustments are based on price ceilings, which are calculated taking into account the National Broad
Consumer Index (IPCA - Índice Nacional de Preços ao Consumidor Amplo), productivity factors and
inter- and intra-sector factors. The adjustment formula is VPP = IPCA - X + Y + Z, where:
• VPP represents the annual percentage change for drug prices;

• IPCA represents the inflation rate;
• X represents the productivity factor;
• Y represents the adjustment factor between sectors; and
• Z represents the adjustment factor within the sector, taking into consideration generic
competition.
Since 2004, CMED has classified drugs subject to price adjustments in three levels. These were
covered by Resolution No. 1, issued in February 2005. The three levels work as follows:

16 July 2014
• Level 1 includes therapeutic classes where generics sales represent 20% or more of the total.
Level 1 comprises medicines such as antihypertensives, antibiotics, medicines for the
treatment of diabetes, hormones and contraceptives. They account for about 50% of total
marketed drugs. In this level, the Z factor is equal to the productivity factor.
• Level 2 includes therapeutic classes where generics sales represent between 15% and less
than 20% of the total. Level 2 comprises medicines such as eye drops and injectables. They
account for around 2% of total marketed drugs. In this level, the Z factor is equal to 50% of
the productivity factor.
• Level 3 includes therapeutic classes where generics sales represent less than 15% of the total.
Level 3 mainly comprises patented medicines. They account for around 48% of total
marketed drugs. In this level, the Z factor is zero.
CMED is responsible for defining all the criteria for the readjustment factors and the therapeutic
classes, taking into account a relevant product, market or group of markets. Each producer must
publish an annual list of ex-factory prices for every product on March 31. Price rises must not exceed
the average percentage in each level and are valid for a period of 12 months.
In 2014, CMED fixed the average price increase of medicines to a maximum of 3.35% - the lowest
price increase approved by CMED for five years. On March 27 2014, the CMED's Council of Ministers
published a resolution with manufacturers' ceiling price adjusted in the Brazilian Official Gazette.
Under the resolution, medicines are to be sold by pharmaceutical firms and distributors based on the
new prices as of March 31 as long as the companies follow the rules set out in the CMED's
pharmaceutical market report. The regulation applies to more than 9,000 drugs, and price
adjustments are allowed on three levels between 1.02% and 5.68% depending on the competing
product.
Resolution No. 3/2009, published by CMED in November 2009, enforced that the maximum retail
price (PMC - Preço Maximo ao Consumidor) cannot be published for medicaments of use restricted to
hospitals and clinics. Under this resolution, hospitals and clinics are unable to charge PMC prices to
health insurance plans. Additionally, pharmacies and drug stores that sell to the government (federal,
state or municipal administrations) will have to use the ex-factory price (PF - Preço Fabricante).
In April 2012, it was announced that to encourage the development of the local pharmaceuticals
industry, domestically manufactured medicines in Brazil would be purchased at a 25% price premium
(compared with imported medicines) through the SUS. There were 78 drugs and 44
biopharmaceuticals on the list. Additionally, various margins would be applied to different drugs -
imported finished drugs (8%), locally produced medicines (20%) and biopharmaceuticals (25%). The
federal government and state governments would invest BRL1 billion (US$550 million) each to cover
the margin difference and support the domestic manufacturing programme.
The government purchases pharmaceuticals through public bidding processes to get the best prices.
Pharmaceutical companies have to be qualified by ANVISA; this measure aims to ensure drug quality
and compensates for the high taxes that companies have to pay in Brazil.

July 2014 17
Reimbursement
Brazil directly reimburses medicines used in the SUS state hospital system for inpatients as well as for
essential and 'exceptional' medicines for outpatients in targeted disease groups, including HIV/AIDS,
cancer, diabetes and less common conditions such as Chagas disease and endometriosis, covering
around 400,000 people.
The exceptional medicines list is updated every two years. Medicines on the list are increasingly
becoming the subject of technology transfer deals. For example, the government signed a deal with
Pfizer and Israel-based Protalix, enabling Brazil to produce generic versions of Uplyso (taliglucerase
alfa) for Gaucher's disease within five years.
In November 2012, Brazil's health minister Alexandre Padilha signed agreements formalising 20 new
domestic production development partnerships involving 12 public pharmaceutical companies and
17 private companies during the third meeting of the Executive Committee and Council of
Competitiveness of Industrial Health Complex (Gecis). The deal included 21 medicines targeting 11
therapeutic areas, including neurology, respiratory diseases, immunology, haematology, HIV/AIDS,
and oncology. Most of these products were imported by the health ministry for the users of the SUS.
The ministry estimated that domestic production of these products would save the government
approximately BRL940 million (US$462.5 milion) per year, nearly 40% of what it has spent on these
medicines.
Under the agreements, multinationals are committed to make the full technology transfer to the
Brazilian manufacturers within a period of five years. In the meantime, the government has ensured
exclusivity in purchasing their products at a slightly lower price than that quoted in the global market.
Popular Pharmacy Programme

Decree No. 184, published in February 2011, updated the regulation of the federal government's
Popular Pharmacy Programme (PFPB - Programa Farmacia Popular do Brasil). Under PFPB, the
Ministry of Health provides medicines to the population via two distribution systems: its own network
(Rede Propria), launched in 2004; and a private network (Aqui Tem Farmacia Popular), operational
since March 2006. The Oswaldo Cruz Foundation (Fiocruz), which is an entity within the Ministry of
Health, executes Rede Propria, in co-operation with states, the Federal District, municipalities and
non-profit hospitals, whilst the Ministry of Health executes Aqui Tem Farmacia Popular in agreement
with private pharmacies and drug stores.
Under Rede Propria, which operates 555 pharmacies, PFPB offers 15 free medicines for the treatment
of diabetes mellitus and hypertension, and 97 subsidised medicines for the treatment of several
diseases. Under Aqui Tem Farmacia Popular, available in over 20,000 private pharmacies, PFPB offers
11 free medicines for the treatment of diabetes mellitus and hypertension, and a number of
subsidised medicines for the treatment of several diseases, including four for contraception, three for
dyslipidaemia, eight for asthma, two for rhinitis, two for Parkinson's disease, two for osteoporosis and
two for glaucoma. The subsidised medicines are up to 90% cheaper. Federal expenditure on Aqui
Tem Farmacia Popular was estimated at R$470.0 million (US$291.7 million) in 2011; free medicines for
the treatment of diabetes and hypertension accounted for around 60% of the total.

18 July 2014
The Saude Nao Tem Preço programme, operated by Aqui Tem Farmacia Popular, has become very
successful since its launch in February 2011. Under this programme, the population has access to 11
free medicines for the treatment of diabetes mellitus and hypertension. The programme supplied
free medicines for seven million people between February and November 2011; it was available to
853,181 people in February, compared to 3.1 million in November. Considering all people covered by
Aqui Tem Farmacia Popular, the number of people accessing 11 free and 14 subsidised medicines
passed from 1.2 million in January to 3.8 million in November 2011. According to Pro-Genericos,
generic sales in Aqui Tem Farmacia Popular have increased considerably since February 2011. In
August 2011, generic sales represented 65% of total sales, compared to 56% in February 2011 and
51% in January 2011.
CANADA
Pricing
The Patented Medicine Prices Review Board (PMPRB) was created in 1987 to ensure the pricing of
patented medicines is not 'excessive'. The PMPRB reviews the prices of all new and existing patented
products, whether they are prescription or over-the-counter (OTC) drugs, and has annually published
pricing guidelines for manufacturers since 1989. In making its judgement, the PMPRB refers to either
the prices of existing drugs in Canada, or for novel drugs, to prices in seven external reference
markets: France, Germany, Italy, Sweden, Switzerland, the UK and the USA.
While the PMPRB operates a policy of voluntary compliance, additional powers were given to the
board in 1993 under Bill C-91, whereby the Board can reduce excessive prices set by manufacturers,
return excess revenues to the federal government, and fine or imprison the violator. Manufacturers
are required to report introductory prices within 60 days of the first sale and continue to provide price
and sale information for each six-month period while the drug remains patented.
While there is no requirement for a manufacturer to seek the approval of the PMPRB before
implementing a price increase, the PMPRB expects manufacturers to comply with the Guidelines. The
PMPRB monitors prices as part of its regulatory mandate, to ensure this is the case. Under the PMPRB
Guidelines, price increases are limited to increases in the Consumer Price Index (CPI).
The prices of non-patented and generic drugs are not regulated as yet. However, a recommendation
was given by the C-91 review committee that the powers of the PMPRB should be extended to cover
the regulation of generic drug pricing. Although OTC products are not differentiated from
prescription medicines under current patent legislation, the OTC industry association, Consumer
Health Products Canada, has expressed its concerns to the committee that extending price controls
to cover generic OTC medicines would neither benefit the industry nor the consumer. Consumer
Health Products Canada believes that consumer choice is enough to ensure manufacturers provide
the best value for money, and to encourage continued innovation.
Retail prices of medicines vary widely across the country and its provinces. According to AESGP-
collated data, average wholesale mark-ups are in the region of 10% for prescription medicines.
Pharmacy margins are around 30%, with consumer prices then calculated by the addition of the
Goods and Services Tax (GST) of 5% and provincial taxes, which jointly average 13% on top of the
pharmacy price (excluding taxes). Provinces also impose different levels of sales taxes.

July 2014 19
Reimbursement
Provinces only automatically reimburse the lowest-priced drug available; Quebec is the only
exception. The province's regulations use a 15-year rule, whereby brand-name drugs are purchased
for 15 years on the province's formulary, irrespective of whether a cheaper generic is available.
Provincial Formularies
Each province has its own drug formulary, which lists prescription and non-prescription drugs that it
will reimburse under its drug benefit plan and the amount of reimbursement it will pay for each listed
product. Each province has a committee appointed to review new drugs and decide if they will be
added to the formulary listing.
Each formulary has two categories of drugs: full listing; whereby a doctor can prescribe the drug as
necessary and the province will pay for it (or part of it), and restricted listing; whereby a doctor must
obtain written approval from the province before prescribing the drug. If approval is given, the
province will pay for the drug (or part of it).
To some extent, pharmaceutical prices are kept in check by the provinces with provincial regulations
and formulary price freezes designed to keep prices as low as possible. In 1998, Ontario replaced its
25/10 rule, which stated that the first generic to enter the market had to be priced 25% lower than the
branded originator and subsequent products had to be priced 10% lower, with new regulations
requiring the first generic to be priced at 40% less than the branded product. The rule had
implications for pricing in other provinces, particularly in Quebec, where products must have the
lowest prices available in Canada. Some provinces, such as British Columbia, Newfoundland and New
Brunswick, operate variations on reference based pricing systems. Additionally, under the Drug
Interchangeability and Dispensing Fee Act, if a pharmaceutical is being bought under a provincial
drug benefit plan and the prescription does not directly identify a specific brand name, the
pharmacist must prescribe the cheapest generic version of the drug available.
While inter-provincial harmonisation of standards is increasing in Canada, there is currently no

national listing for pharmaceuticals. Each province has its own criteria for approving and adding new
drugs to its formulary for reimbursement. There have, however, been moves towards greater
collaboration. In May 2000, the provinces of New Brunswick, Newfoundland, Nova Scotia and Prince
Edward Island announced their intention to integrate their pharmaceutical approval systems and
prescription drug programmes.
Quebec is the fastest Canadian province to add new drugs to its formulary, and is likely to list most of
the new drugs entering the market. Of the provinces for which data is available, Ontario is the
slowest to list, while preliminary data for British Columbia, which only established a formulary in 1996,
reveals the province to be one of the slowest to list new products for reimbursement. British
Columbia is, however, the fastest province to list generic drugs, according to the Canadian Generic
Manufacturers Association (CGPA). The average post-federal approval time for generics ranges from
one month in British Columbia to eight months in Alberta. The average is five months in
Newfoundland, Nova Scotia and Quebec; six months in New Brunswick, Manitoba and Saskatchewan;
and seven months in Ontario.
Pharmacoeconomic evaluations are not yet mandatory for formulary listing, but where information is
provided it is always assessed. Companies should, however, be aware of provincial practices when
submitting economical data. If a generic formulation is the only version listed in the province, the
company should not compare its product with an unlisted branded alternative.
One way of improving the probability of being listed is risk sharing. Saskatchewan, for example, has
an agreement with respect to Merck Frosst's Proscar (finasteride) for prostatic hyperplasia, under
which the company will reimburse the province for the use of the product within agreed parameters
if it fails to prevent prostate surgery.

20 July 2014
Recent Developments
In December 2013, the province of New Brunswick in Canada launched a new prescription drug
coverage plan, which is designed to cover medicine cost for people who do not have insurance
through their employers. The plan will be implemented in two phases: during Phase I (From May 1
2014, to March 31 2015), any individuals in New Brunswick with a valid medicare card can choose to
enrol in the plan, and local residents who have private drug plans but still incur higher drug costs or
need access to a drug covered under the new plan but not through their private plan can also join the
Plan; in Phase II, which starts from April 1 2015, all individuals in New Brunswick will be required to
have prescription drug insurance. Those not insured by a private plan will join the New Brunswick
Drug Plan. After the first year of the program, employers will be forced to raise their coverage
standards to match the government plan, and people with plans from their employers will no longer
be allowed to join the government program. The plan will cover all prescription drugs on the New
Brunswick prescription drug program formulary. The formulary is reviewed by an advisory panel,
which looks at the benefit and price. Health Minister, Ted Flemming, estimated that 70,000 families in
New Brunswick have no drug coverage and are not eligible for existing provincial coverage.
In November 2013, the Supreme Court of Canada announced that Ontario's 2010 regulations created
to prevent pharmacy chains from selling their own generic versions of prescription medications are a
legitimate part of its efforts to control prescription drug costs. The court said: 'They fit into this
strategy by ensuring that pharmacies make money exclusively from providing professional health
care services, instead of sharing in the revenues of drug manufacturers by setting up their own
private label subsidiaries.' Two of the country's largest drug store chains, Shoppers Drug
Mart and Katz Group, have challenged the regulations, stating they should sell their own lower priced
generic drugs without government interference. However, the court said 'If pharmacies were
permitted to create their own affiliated manufacturers whom they controlled, they would be directly
involved in setting the Formulary prices and have strong incentives to keep those prices high'.
Drug Insurance Programmes

Drugs administered in hospitals are covered under Medicare, but the Canada Health Act currently
makes no provision for drug reimbursement outside of hospitals. The C-91 review committee
proposed the establishment of a national Pharmacare programme and, more recently, the
Commission on the Future of Healthcare in Canada has recommended that prescription drugs should
begin to be integrated in Medicare as part of a long-term strategy. However, the provinces currently
administer their own drug benefit programmes.
Around 90% of Canadians are currently covered by a drugs plan. Most people are covered by a
private drug benefit plan, often operated by their employer or an insurance company, although
around one in five Canadians are covered under a provincial drug benefit plan. Most provincial plans
cover certain sectors of the community, for example the elderly, social service beneficiaries or those
on low incomes, children and the chronically sick. Cover is, however, by no means universal and
public assistance in paying for medicines varies considerably.
National Pharmaceuticals Strategy

The National Pharmaceuticals Strategy (NPS) was set up in 2004 as part of the ten-year government
plan to strengthen healthcare. The overall objective is to ensure more timely, equitable and
affordable access to drugs for all Canadians and improve the management of drug costs across
Canada. All Canadian territories and provinces, except Quebec, are represented in the strategy.
The nine aims of the strategy are to:
• Develop, assess and calculate cost options for catastrophic drug coverage (e.g. high cost
drugs for cancer treatment);
• Establish a common National Drug Formulary based on safety and cost-effectiveness;

July 2014 21
• Accelerate access to breakthrough drugs for unmet health needs through improvements to
the drug approval process;
• Strengthen evaluation of real-world drug safety and effectiveness;
• Pursue purchasing strategies to obtain best prices for Canadians for drugs and vaccines;
• Enhance action to influence the prescribing behaviour of healthcare professionals so drugs
are used only when needed and the right drug is used for the right problem;
• Broaden the practice of e-prescribing through development and deployment of the
Electronic Health Record;
• Accelerate access to non-patented drugs and achieve international parity on prices of non-
patented drugs; and
• Enhance analysis of cost drivers and cost-effectiveness, including best practices in drug plan
policies.
In June 2008, the Statutory Parliamentary Review of the ten-year healthcare plan found that progress
had been slow and not very transparent on the National Pharmaceuticals Strategy. A 2008 Health
Council report found that progress on catastrophic drug coverage had stalled and that Canadians still
did not have a common drug formulary. In January 2009, the Health Council of Canada published a
status report entitled “The National Pharmaceuticals Strategy: A Prescription Unfulfilled,” which also
highlighted slow progress towards the strategy’s aims.
Orphan Drugs
In October 2012, the federal government in Canada introduced new regulations to enable faster
access to orphan drugs for patients suffering from rare diseases, the Canadian Press reported, citing
an announcement by Health Minister Leona Aglukkaq. The reform will improve the accessibility of
orphan drugs to the 1.8-2.8 million patients in the country who suffer from a variety of some 7,000
rare disorders. The government also launched a database called Orphanet for patients and
researchers to obtain and share information about treatment for rare diseases. The Canadian
Organization for Rare Disorders (CORD) welcomed the policy change, identifying the reform as a
precursor to new drug research and promotion of provincial orphan drug plans. Half of orphan
medications in Canada were deemed accessible to just 2% of people with a rare condition.
CHILE
Pricing
There are no price controls in Chile, although the Central Purchasing Agency (CENABAST - Central de
Abastecimiento del SNSS) acts a reference centre for pricing. Pharmaceutical prices are among the
lowest in the region, due to the presence of a well-developed domestic industry and generic
penetration.
Public Procurement
The Central Purchasing Agency (CENABAST) centralises public expenditure on pharmaceuticals and
medical products. It establishes buying agreements for a basket of around 2,400 products with 200
suppliers; 40 suppliers account for about 80% of CENABAST’s expenditure by volume.
Pharmaceuticals represent around 68% of CENABAST's activity. Drugs obtained under the public
system must be charged according to a valid price list, issued twice a month by CENABAST. For drugs
that are not listed, charges must be equivalent to the replacement cost.
Purchasing processes are managed through the Ministry of Finance's Public Procurement &
Contracting Bureau ChileCompra. ChileCompra provides a centralised platform to perform all
government purchases.

22 July 2014
In September 2011, the Ministry of Health reported that it had signed an agreement with PAHO/WHO
to acquire drugs via the Strategic Fund, also known as the Regional Revolving Fund for Strategic
Public Health Supplies (Fondo Rotatorio Regional para Suministros Estrategicos de Salud Publica),
founded in 2000. As a result, the government will be able to acquire medicaments for the treatment
of HIV/AIDS, tuberculosis, cystic fibrosis and orphan diseases at a lower price. Annual savings are
estimated at 16.0 billion pesos (US$33.7 million).
Reimbursement
Chile has a system of mandatory health insurance, which can be public or private. Public insurance is
through the national health fund, FONASA. Private insurance can be purchased from a number of
entities, collectively known as ISAPREs.
Under FONASA, there are four income groups for reimbursement purposes. Group A has the highest
level of reimbursement, whereas group D has the lowest. Health services are reimbursed as follows:
• In general urban or rural surgeries, or rural first aid posts, pharmaceutical products included
in the Essential Pharmacological Centres for Rural First Aid Posts and Health Centres are
100% reimbursed.
• In specialty surgeries, pharmaceutical products included in the National List of Essential
medicines are 100% reimbursed for patients in income groups A and B, 90% for group C and
80% for group D.
• Inpatients receive reimbursement for pharmaceuticals at 100% for income groups A and B,
60% for group C and 35% for group D.
Within the private ISAPREs system, levels of reimbursement vary between companies and individual
insurance schemes; not all companies reimburse prescription drugs. In general, ISAPREs usually cover
drugs required during hospitalisation for a defined period of time. Drugs required during ambulatory
care are covered in some cases, but are subject to an agreement between the ISAPRE and
pharmaceutical suppliers.
COLOMBIA
Pricing
The National Price Commission of Pharmaceuticals & Medical Devices (CNPMDM - Comision Nacional
de Precios de Medicamentos y Dispositivos Medicos) is the authority responsible for drug pricing in
Colombia. The CNPMDM forms part of the Ministry of Commerce, Industry & Tourism (MCIT -
Ministerio de Comercio, Industria y Turismo).
Price Regulation
At the end of February 2014, the government published the final list of medicines subject to price
controls and announced that it planned to save over CLP90 billion (US$160 million) from the scheme.
Earlier in the month, the Minister of Health and Social Protection had announced that as of February
13 2014, price cuts had been enforced on 523 active pharmaceutical ingredients (APIs) and that 95%
of the manufacturers complied with the regulations.
Under Resolution No. 01/2012, published in September 2012, the CNPMDM added 70 medicines to
the direct control system in the institutional sector, and fixed their maximum prices. Medicines for
the treatment of hypertension, heart failure, epilepsy, depression, acid reflux, Alzheimer's and arthritis
were included. With these 70 medicines, the CNPMDM added 151 medicines to the direct control
system between January and September 2012.

July 2014 23
Also under Resolution No. 01/2012, considering Decree No. 1,071/2012, Articles 87 and 90 of Law No.
1,438/2011, Resolution No. 01/2011, Resolution No. 04/2006 and Article 245 of Law No. 100/1993, the
CNPMDM undertook a drug price monitoring survey. The findings revealed that:
• Medicaments, which were excluded from mandatory health plan (POS – {Plan Obligatorio de
Salud), known as non-POS medicaments, but demanded in the institutional sector, were
offered at prices higher than the Maximum Reimbursement Value (VMR - Valor Máximo de
Recobro); under Resolution No. 4,316/2011, the Ministry of Health & Social Protection (MSPS -
Ministerio de Salud y Proteccion Social) established the VMR. As a result, the General Health
Social Security System (SGSSS - Sistema General de Seguridad Social en Salud) has to pay the
difference.
• Medicaments, which had a VMR regulated by Resolution No. 4,316/2011, had a higher value
when they were included in the POS.
Consequently, a number of measures were introduced:
• Article 1. The prices of drugs that require control and have an impact on SGSSS sustainability
will be included in the direct control system.
• Article 2. The CNPMDM will fix the maximum retail price (PMVP - Precio Máximo de Venta al
Publico), using the methodology defined in Decree No. 4,474/2010 by the Ministry of Finance
& Public Credit (MHCP - Ministerio de Hacienda y Credito Publico) and MSPS.
• Article 3. Some 40 non-POS medicaments, demanded by the institutional sector and offered
at prices higher than the VMR, will be included in the direct control system. The PMVP will be
used by the SGSSS in procurement and sale activities, and will be the maximum value
recognised and reimbursed by the Solidarity & Guarantee Fund (FOSYGA - Fondo de
Solidaridad y Garantia).
• Article 4. Some 26 medicaments with a VMR regulated by Resolution No. 4,316/2011, which
had a higher value when they were included in the POS, will be included in the direct control
system. The PMVP will be applied to the institutional sector.
• Article 5. The CNPMDM will continue to monitor drug prices in the institutional sector, and
will be able to extend these measures to the private retail sector, when it determines that it is
necessary to guarantee the system's sustainability.
• Article 6. Annex 1 of Resolution No. 001/2011 will be amended, in points 1, 2, 18 and 19.
• Article 7. Due to their impact on SGSSS drug expenditure, four medicaments are included in
the direct control system: eculizumab and three presentations of Factor VIII.
• Article 8. The deadline established in Article 8 of Resolution No. 002/2011 was extended until
March 31 2013. The same deadline was used to establish a methodology to enforce drug
price controls in the private pharmacy sector.
• Article 9. The new resolution became enforceable from its publication date and supersedes
previous resolutions.
Resolutions/Decrees Issued in 2010
The MSPS implemented price cuts for over 50 medicines in February 2010, in order to contain non-
POS pharmaceutical expenditure from the contribution scheme. The main regulatory measures were
contained in Resolution No. 649, which fixed maximum prices for a selected number of medicaments,
and Decree No. 1,313 and Resolution No. 1,424, which covered parallel imports. In short, these
measures were implemented to control non-POS pharmaceutical costs, and encourage parallel
imports in order to increase drug competition and bring drug prices down. The measures were
implemented following concerns raised by the former president.

24 July 2014
The Drug Observatory (OBSERVAMED - Observatorio del Medicamento), which is run by the
Colombian Medical Federation (FMC - Federacion Medica Colombiana), believed that these measures
were insufficient to control non-POS pharmaceutical expenditure; the target was to save 300.0 billion
pesos (US$141.1 million) in 2010. Drug prices had been frozen using prices recorded in the last three
months up to June 2010, when prices were at their highest. As a result, these measures contained,
but did not reduce, non-POS pharmaceutical expenditure. Also, some of the selected medicines were
not widely used; therefore they did not result in high savings. OBSERVAMED considered that parallel
imports were useful, but not sufficient, to reduce prices.
According to the FMC, the problem did not lie with Health Promotion Organisations (EPS - Entidades
Promotoras de Salud) alone but with all the intermediaries in the distribution channels, including
manufacturers, distributors, pharmacies, hospitals and EPS. Each of them added a margin to the
pharmaceutical and that meant that the retail product was extremely expensive compared to the
product at the manufacturers' price. The Colombian Association of Medical Companies (ACEMI -
Asociacion Colombiana de Empresas de Medicina Integral), which represents EPS, indicated that the
problem was that there were no rules to establish margins, as the government implemented a pricing
system based on market freedom in 2006, which was meant to regulate drug prices but did not do so.
The MSPS acknowledged that there might not be enough financial resources for FOSYGA to
reimburse non-POS pharmaceutical drug expenditure to EPS. This amount was estimated at over 3.0
trillion pesos (US$1.4 billion) in 2010, compared to previous estimates of between 2.4 trillion pesos
(US$1.1 billion) and 2.5 trillion pesos (US$1.2 billion). ACEMI had valued it at 2.8 trillion pesos (US$1.3
billion). This expenditure amounted to 1.9 trillion pesos (US$0.8 billion) in 2009, comprising 2.0
million requests, compared to 626.0 billion pesos (US$301.3 million) in 2007, comprising 835,000
requests.
The FMC believed that Resolutions No. 1,424, No. 1,499, No. 1,662 and No. 1,663, issued by the MSPS,
which implemented Decree No. 1,313 covering parallel imports, and Decree No. 03/2010, issued by
the CNPMDM, which transferred 925 products to the regulated freedom regime, would not result in
the amount of savings projected by MSPS. Decree No. 04/2010, issued in June 2010, listed maximum
retail prices for 25 reimbursable products and a price agreement for products excluded from the list
of parallel imports under Resolution No. 1,262. Decree No. 2,086/2010, also issued in June 2010,
established a fast-track system for the sanitary registration of medicines considered of public health
interest.
Resolution No. 04/2006
Resolution No. 04/2006 established a new drug pricing system based on a study undertaken by the
consultancy group Econometria Consultores. The study established that only products with 'market
problems' should be regulated. Products of public health interest, including vaccines and those for
the treatment of endemic and infectious diseases, should not be regulated, as they are part of the
public expenditure undertaken by the country. High-cost medicines, including those for the
treatment of cancer, HIV/AIDS, dialysis and CNS, should not be regulated but covered by the
insurance system. Finally, essential medicines covered by POS did not need regulation, but quality
controls should be in place, due to high generic and copycat competition.
The new drug price system established a new technical group, new technical requirements for drug
pricing, a new information system and new criteria for the four previous pricing categories; these
were direct control, regulated freedom, monitored freedom and freedom. In the new drug pricing
system, drug prices were classified as red for those to be regulated, yellow for those to be monitored
and green for those not to be monitored. Due to competition issues, prices for drugs classified as red
would be the highest whilst prices for drugs classified as green would be the lowest.

July 2014 25
Resolution No. 04/2006 eliminated the need to report Average Wholesale Prices (PPD - Precios
Promedio a Distribuidor) and Suggested Retail Prices (PSP - Precios Sugeridos al Publico). Instead, it
replaced them with Minimum Unitary Prices (pum - Precios Unitarios Minimos) and Maximum Unitary
Prices (PUM - Precios Unitarios Máximos). FMC undertook a number of studies to evaluate the
consequences of this measure and reached the following conclusions:
• PUM does not replace PPD and will not be available to the public.
• PUM does not replace PSP and cannot be used as a reference price.
• The health system requires real market pharmacological and economic information.
• The Estimated Wholesale Price (PDE - Precio Distribuidor Estimado) uses PPD data reported
until 2006 and estimates an increase based on the Manufacturing Price Index (IPP - Índice de
Precios al Productor). Regarding new products and high-cost products, the PDE can use
Surveyed Wholesale Prices (PED - Precios Encuestados del Distribuidor) or subtract the retail
margin of the Surveyed Retail Price (PPE - Precio Publico Encuestado).
• The PPE aims to eliminate any problems derived from the use of the former PSP. It uses real
retail price surveys and publishes the most acknowledged. It is expected to help to analyse
PUM.
• The Surveyed Institutional Price (PIE - Precio Institucional Encuestado) uses real data from
lists of institutional prices. PIE might be low as they involve high volume purchases.
Implemented in 2002, PPD was the average price considering the four major distribution channels
and PSP was used for medicines under the monitored or regulated free systems. Additionally,
maximum retail prices (PMVP) were used for medicines under the direct control system. Based on
prices reported by producers to CNPMDM in QIV 2004, wholesalers obtained a 37% discount at
manufacturers' prices and applied a 25% profit margin in 2004. Also, retail prices were 38.8% cheaper
than PMVP prices. The retail margin stood at 33% in 2004. In the institutional sector, price discounts
at wholesale prices were even higher in 2004.
Reference Pricing
Resolution No. 04/2006 also created a reference price system, based on the average of the three
lowest prices in eight reference countries: Argentina, Brazil, Chile, Ecuador, Mexico, Panama, Peru and
Venezuela. The reference countries were selected by similar Purchasing Power Parity (PPP) GDP per
capita, membership to the Worldwide Intellectual Property Organisation (WIPO), proximity to
Colombia and data availability.
According to the US industry association, PhRMA, as of the end of March 2013 Colombia’s basket of
countries would to be updated to exclude Venezuela and include Uruguay and the Organisation for
Economic Co-operation and Development (OECD) countries, and to cover products with three or
fewer competitors based on the same API. Other medicines would proceed at 'the arithmetic mean
of all the prices of all the competing products having the same active ingredient'.
SISMED
The Sistema de Informacion de Precios de Medicamentos (SISMED) aims to optimise drug price
information. It supports the drug regulation process, which is led by the CNPMDM. SISMED controls
any price increases in the private pharmacy sector. Additionally, FOSYGA can consult reference prices
to reimburse medicaments. SISMED's implementation has been gradual. The CNPMDM, the MSPS,
the MCIT and pharmaceutical producers were the first entities involved. Wholesalers, EPS, Healthcare
Providers (IPS - Instituciones Prestadoras de Servicios de Salud) and departmental/district health
directorates followed.

26 July 2014
Reimbursement
There is a positive list for reimbursement, defined in the Manual of Essential Drugs & Therapeutics
(Manual de Medicamentos Esenciales y Terapeutica). Drugs are listed by generic name and
pharmacological presentation. In addition, the MSPS, health departments, local directorates, EPS and
IPS are allowed to design their own therapeutic guides to cover drug prescriptions, frequency of use
of the service, etc.
An 'essential' drug must fulfil the following criteria:
• Be the most cost-effective drug to treat an illness, meeting pharmacological safety and
efficacy requirements;
• Provide a favourable answer to problems of morbidity/mortality within the community; and
• Be economically viable.
Within the Manual of Essential Drugs & Therapeutics, the following criteria are established:
• Reimbursable drugs for outpatient/ambulatory use;

• Reimbursable drugs for inpatients;
• Drugs for special programmes, which form part of the Basic Attention Plan (Plan de Atencion
Básica), are provided free to persons not affiliated to an EPS. The whole population are
entitled to free vaccinations under the Extended Programme of Immunisation (PAI -
Programa Ampliado de Inmunizaciones);
• Drugs for the treatment of chronic illnesses, which are high-cost and not covered for general
use, may be reimbursed by EPS in certain circumstances, through a fund or insurance
mechanism. Drugs must be prescribed by authorised personnel and the patient must be
eligible under the Integral Attention Guidelines (Guias de Atencion Integral); and
• Alternative essential drugs are included for patients who are hypersensitive or resistant to
drugs on the basic list. Alternative essential drugs for reasons of risk, sanitation or
convenience may be added. These drugs are subject to the approval of the National Health
Social Security Council (CNSSS - Consejo Nacional de Seguridad Social en Salud).
Under normal circumstances, only drugs that fall into the above categories are free or reimbursable.
Other drugs may be prescribed at the request of a patient, but these can only be covered under a
complementary health plan.
There are two broad systems for reimbursement in Colombia: the subsidised scheme for the poor,
and the contributory scheme. Drugs are provided free under the subsidised scheme, although the
introduction of moderating fees is under consideration in an effort to contain the current abuse of the
system. Under the contributory scheme, drugs are provided free for inpatients, providing the hospital
has sufficient funds in its budget. EPS are granted a budget from FOSYGA, which, together with co-
payments and moderating fees, constitutes their funding for social security healthcare coverage.
Drugs for outpatients are free in principle, though moderating fees are in place for excessive use of
the system at above defined limits or for what is considered to be elective treatment. EPS are free to
establish the limits for reimbursement within MSPS guidelines, but the frequency and amount of
moderating fees must be published at least once per year in a national newspaper.
Under national guidelines, patient contributions to prescription drugs under the contributory scheme
vary according to financial circumstances. For persons in income groups one, two and three, the
contribution is 10% of the total cost of the prescription, up to a maximum of 20% of the minimum
legal monthly salary currently applicable. For persons in income groups four, five and six, the
contribution is 20% of the total cost of the prescription, up to a maximum of 40% of the minimum
legal monthly salary currently applicable.

July 2014 27
MEXICO
Pricing
Private Sector
The Ministry of Economy (SE) has regulated the prices of patented medicines since 2005. The terms of
the regulation are defined by the Programme of Modernisation of the Pharmaceutical Industry in
Terms of Prices (PROMIF - Programa de Modernizacion de la Industria Farmaceutica en Materia de
Precios), agreed in October 2004. Pharmaceutical companies participate voluntarily. They must
report the maximum retail price for the patented drug and information about ex-manufacturers'
prices in the six most important markets where the drug has the highest sales. These six markets are
used to estimate the international reference price. The maximum retail price for the drug must not
exceed the estimated international reference price.
According to the SE, only 3.3% of the private pharmacy sector by volume has drug prices registered
under the pricing system. The remaining 96.7% have their prices liberated. Therefore, growth in the
private pharmacy sector by value has increased at a higher rate than by volume in recent years. The
industry has been dissatisfied with the existing pricing system since 2005. Some organisations
consider that other initiatives should be put in practice to bring patented drug prices down, including
the development of the national pharmaceutical industry and increasing consumption of generic
medicines. It has also been discussed whether wholesale margins are too high in the final cost of
pharmaceuticals at retail prices.
Public Procurement
Under a presidential agreement published in the Official Gazette in February 2008, the Commission to
Co-ordinate Prices of Medicines & Other Health Products (CCNPMIS) was launched in April 2008 and
started to operate in September 2008. The Ministry of Health (SS – Secretaría de Salud), the Ministry
of Economy (SE – Secretaría de Economía), the Ministry of Public Administration (SFP – Secretaría de
Funcion Publica), the Ministry of Public Health and Assistance (IMSS – Instituto Mexicano do Seguro
Social) and the Institute of Social Security and Social Services for Civil Servants (ISSSTE - Instituto de
Seguridad y Servicios Sociales de los Trabajadores del Estado) are commission members, but other
municipal, state or federal providers can join in. Regarding pharmaceuticals, the commission aims to
centralise the public acquisition of patented drugs used by the National Formulary of Medicaments
(Cuadro Basico de Medicamentos) in the primary care level and the Catalogue of Medicaments
(Catalogo de Medicamentos) in the secondary and tertiary care levels.
The Mexican Association of Pharmaceutical R&D Industries (AMIIF) asked for the savings obtained via
centralised purchases to be invested in additional drug purchases. AMIIF also asked for public
institutions to have an annual pharmaceutical expenditure plan, in order to help their members to
assess production and import needs. Public institutions mainly buy patented medicines by volume,
not by tender, as the patent holder is only one company. However, when the contract is going to be
signed, some public institutions reduce their volume needs, bringing prices up. AMIIF also requested
a clause for special market conditions, such as economic recession or devaluation, in order to reduce
the discount percentage if needed.
According to AMIIF, patented drugs represent between 13% and 15% of the public sector by volume.
By investing any savings obtained via centralised purchases, AMIIF believes that the market share of
patented drugs in the public sector would only increase by one or two percentage points. Some
specialists estimate savings of around 5.0 billion pesos (US$466.1 million) per year. However, the
impact will be minimal regarding the composition of the public sector. The commission will benefit
small providers particularly. Transparency is another reason to use the commission, as some state
and municipal institutions acquire their drugs from private pharmacies or small wholesalers, resulting
in drug overspending.

28 July 2014
Seguro Popular
In February 2014, Mexico's secretary of health, Mercedes Juan Lopez, stated that the federal agency
plans to reduce out-of-pocket spending on healthcare and improve the quality of service through
Seguro Popular (SP). The health secretary also announced plans to reform SP to address issues such
as the fragmented healthcare system and inefficient use of resources.
SP operates two purchasing systems, depending on whether pharmaceuticals are purchased for
primary and secondary or tertiary care levels:
• For the primary and secondary care levels, SP uses the Universal Catalogue of Health Services
(CAUSES), which includes 315 medicaments to cover the SP, the Medical Insurance for a New
Generation (SMNG) and the Healthy Pregnancy (Embarazo Saludable) strategies.
• For the tertiary care level, SP purchases medicaments for the Fund for Protection against
Catastrophic Expenses (FPGC).
In June 2011, the government published the "agreement by which guidelines are established for
medicaments used by CAUSES and FPGC, which have to be met by the states receiving funds derived
from the social premium (CS - Cuota Social) and the federal contribution of solidarity (ASF -
Aportacion Solidaria Federal) within SPSS" in the Official Gazette. This agreement updated the
reference prices that the states have to use, and also introduced a number of additional guidelines:
• States have to use the reference prices included in the guidelines, independently of how
drugs are purchased, i.e. tenders, direct purchases, etc.
• States can only acquire medicaments with a price higher than the reference price in
emergency cases.
• When purchasing patented drugs, states can join the CCNPMIS, in order to purchase them at
a lower price.
• States have to report price information regarding drug acquisitions throughout the year.

July 2014 29
Recent Developments
In October 2013, the Director of Financial and Enterprise Affairs of OECD, Carolyn Ervin, welcomed the
use of reverse auctions by IMSS in the procurement of medicines. In 2005, Mexico's pharmaceutical
prices were the highest amongst 12 countries sampled by OECD. Since 2008, IMSS has implemented
sole contracts (contratos únicos) to centralise the purchase of medicine and maintain stocks. The
Mexican government has tried to use reverse auctions to encourage bidders to compete on the
rebates they offer to IMSS to lower the medicine prices and improve its service system efficiency in
responding to health needs. According to the director of the IMSS, Daniel Karam Toumeh, by late
2011 the institute had saved MXN37bn (USD2.7bn) through the reverse auction scheme. In 2012,
Mexico's auction format was recommended by the OECD. Ervin stated that the potential for large
taxpayer savings from an improved procurement method is significant and reverse auctions could
help.
However, the OECD has also expressed its concern over the current public procurement regulation
and practice, saying that: it lacks a well-documented procurement strategy; procurement data in
IMSS is insufficient; the knowledge and capability deficiencies in IMSS hinder the development of
auction process; specific procurement strategies do not take into consideration all relevant
information and risks; flexible evaluation approaches are underused; IMSS should improve its
interaction with the suppliers to provide more sufficient resources.
Reimbursement
The General Health Council (CSG - Consejo de Salubridad General) is a state institution founded in
1841, under the auspices of the President and chaired by the Minister of Health (Secretario de Salud).
It claims to be the second leading health authority in Mexico, after the President. It regulates all the
public and private organisations that form part of the national health system, and all those related to
the system, including federal, state and municipal authorities. CSG creates, reviews and maintains all
the data and national formularies and catalogues of health products, and certifies all health providers.
CSG has gone through a period of modernisation in recent years. In April 2007, the number of CSG
members increased in order to represent all the important health decision makers. This was
particularly useful in April 2009, when Mexico had to declare a public health emergency due to the
spread of influenza A (H1N1).
Prescribed medicines included in the National Formulary and Catalogue of Medicaments (Cuadro
Basico y Catalogo de Medicamentos) are free of charge in the public sector; the National Formulary is
used in the primary care level and the Catalogue of Medicaments in the secondary and tertiary care
levels. The National Formulary and Catalogue of Medicaments are updated annually, according to
the epidemiological needs of the country. Since February 2003, it has been obligatory to present a
pharmacoeconomic study before a medicine can be included in the formulary.

30 July 2014
PERU
Pricing
Peru does not have a national drug pricing system. In the private pharmacy sector, companies are
free to set prices as they wish. As a result, drug prices in Peru tend to be some of the highest in the
region. In the public sector, the major providers; the Ministry of Health (MINSA – Ministerio de Salud),
Social Health Insurance (ESSALUD - Seguro Social de Salud), the armed forces (FFAA – Fuerzas
Armadas) and the Peruvian national police (PNP); contract suppliers that offer the lowest drug prices.
Public purchases are undertaken mainly through tenders and, to a lesser extent, through public sales.
In April 2013, the General Director of Peru's drug market regulator, DIGEMID, reported that medicine
prices in the country were still higher than in neighbouring Chile. The report stated that, for the
previous five years, the average price of generic drugs in Peru's private market was US$2, while in
Chile it was US$1. In the public sector, generic drug prices were more accessible, with an average
price of US$0.50 per unit during the same period. Patented drugs in Peru's private market cost US$8;
while in Chile they cost just US$5. DIGEMID announced plans to launch a campaign to promote the
use of generic drugs in the country.
Public Procurement
In March 2011, the Ministry of Health announced a proposal had been submitted to the government,
which aims to force all public establishments to acquire pharmaceuticals via a central procurement
process. This process is not currently obligatory. By purchasing pharmaceuticals together,
participating public establishments saved 434.0 million soles (US$158.5 million) between 2003 and
2011. The Ministry of Health would like to increase these savings, and use them to increase health
access.
In March 2011, the Ministry of Health revealed that the central acquisition of 221 pharmaceuticals for
the public sector in 2011 amounted to 214.0 million soles (US$78.2 million), which represented
savings of 130.1 million soles (US$47.5 million) over the budgeted 344.1 million soles (US$125.7
million). This acquisition involved the use of the reverse auction process; local producers were
granted 60.3% of the total value. The Ministry of Health, ESSALUD, the Armed Forces, the National
Police, the National Penitentiary Institute (INPE - Instituto Nacional Penitenciario) and Los Olivos
Municipal Hospital joined the central acquisition.
This central acquisition included drugs for the treatment of HIV/AIDS, diabetes and cancer. The
Ministry of Health indicated that their prices have not fallen since the elimination of import taxes (9%)
and VAT (19%), under Law No. 27,450, issued in May 2001. As a result, the Ministry of Health aims to
centralise the public acquisition of oncology drugs via the Andean Health Organisation (ORAS-
CONHU - Organismo Andino de Salud - Convenio Hipolito Unanue). In March 2011, the Ministry of
Health also announced the imminent publication of a Supreme Decree which maintains the
elimination of import taxes and VAT for these drugs, but also creates a new commission to monitor
their prices and update the list of these products, as some of them have been discontinued or
withdrawn from the market.
Reverse Auctions
The reverse auction process is a procurement option in which the government establishes the
specifications and quantity of goods required. Suppliers then enter a bidding process. The supplier
that offers the best price wins the bid. Importantly, the government must prequalify all the suppliers.
The reverse auction offers transparency and speeds up the procurement process. The aim is to save
money and purchase better quality drugs through the public drugs acquisition process. The Ministry
of Health and ESSALUD are the main public bodies participating in reverse auctions, but new health
entities continue to join every year.

July 2014 31
Public Monitoring
The Ministry of Health uses information from customs and the Integrated Drug Supply System
(SISMED - Sistema Integrado de Suministro de Medicamentos) to analyse drug prices in the public
sector. Additionally, the Ministry of Health uses data from IMS to track prices in the private sector.
Since 2009, the Ministry has been able to monitor the referential price of medicaments, which go via
customs, which means that the Ministry is able to establish the CIF (Cost, Insurance & Freight) prices
of drugs that are imported and exported.
In 2004, the Ministry added information about tenders to SISMED. This information is collected by the
Supervisory Body of Public Contracts (OSCE - Organismo Superior de las Contrataciones del Estado),
which replaced the former High State Council of Contracts & Acquisitions (CONSUCODE - Consejo
Superior de Contrataciones y Adquisiciones del Estado). SISMED was created in 2002.
OPPF
Following the implementation of a reliable system to track drug prices, DIGEMID created the Peruvian
Watchdog of Pharmaceutical Products (OPPF - Observatorio Peruano de Productos Farmaceuticos).
There are two main resolutions which regulate OPPF: Ministerial Resolution (MR) No. 157-2010-
MINSA, which modifies Article No. 4 of MR 040-2010-MINSA, issued on 26th February 2010; and MR
No. 040-2010-MINSA, issued on 15th January 2010. OPPF aims to create a national price information
system (SNIP - Sistema Nacional de Informacion de Precios) to monitor the private and public sectors:
• Pharmaceutical establishments have to be registered in the SNIP.

• Pharmaceutical establishments have to provide reliable information regarding
pharmaceutical drug prices.
• Manufacturers and wholesalers have to report the maximum, average and minimum price of
pharmaceuticals sold by wholesalers, pharmacy chains, pharmacies and drug stores.
• Pharmacies and drug stores have to report the retail price.
Reimbursement
There is no national drug reimbursement system in Peru, but ESSALUD and private health insurers
reimburse some drug costs. Depending on the insurance plan, patients can purchase prescribed
medicines in any pharmacy and then ask the insurer to reimburse the costs; however, this can take
some time.
PNUM
Under Ministerial Resolution No. 062-2010-MINSA, published in the official bulletin El Peruano on
January 27 2010, the Ministry of Health approved the National List of Essential Medicaments (PNUM -
Petitorio Nacional Único de Medicamentos Esenciales) in January 2010. With the PNUM, the Ministry
aims to guarantee the availability of essential medicines, improve access to essential medicines, help
to control pharmaceutical expenditure and promote the rational use of medicaments. Of around
16,000 registered medicaments, around 350 are considered essential. The Ministry of Health,
ESSALUD, the Armed Forces and the Police were responsible for drafting the new list of essential
medicines.

32 July 2014
USA
Pricing
The USA operates a free market in the private sector with regard to drug prices. There is no
government control over pharmaceutical prices, with manufacturers being free to set prices as they
wish. In practice, of course, manufacturers cannot charge what they like, but must negotiate prices
with private Health Maintenance Organisations (HMOs) and Pharmacy Benefit Managers (PBMs).
Most HMOs and PBMs use drug formularies, with around one third using 'closed' formularies that
prevent reimbursement of non-listed drugs.
HMOs also employ various indirect ways of controlling costs. Principal among these are generic
substitution, Drug Utilization Reviews (DURs), Step-care therapy (where more expensive treatments
are only prescribed once cheaper alternatives have been unsuccessfully tried), and Therapeutic
Interchange, where pharmacists substitute a drug for another in the same therapeutic class.
The Clinton health reforms of the early 1990s were intended to introduce government imposed price
controls. The plans would have heavily promoted the use of generic drugs at the expense of branded
alternatives. They would have reduced the price of branded drugs reimbursed through Medicare,
and required prior approval before certain drugs could be prescribed by physicians. These proposals
collapsed along with the rest of the Clinton health reforms in 1994, after strong political opposition
and industry lobbying.
Public Drug Procurement

While the vast majority of pharmaceutical sales are in the private sector, various levels of government
are closely involved with purchasing drugs. At a federal level, drugs are purchased by the Public
Health Service, Medicaid and, to a lesser extent, Medicare. Medicaid and Medicare are administered
by CMS (Centers for Medicare and Medicaid Services), formerly the Health Care Financing
Administration (HCFA), a division of the Department of Health and Human Service (DHHS).
Major Departments, such as the Department of Defence (DOD) and Department of Veterans’ Affairs
(DVA), are also responsible for their own pharmaceutical procurement. The DOD and DVA operate
their own drug formularies in an attempt to control costs.
Other specific Federal drug procurement programmes exist. These include the AIDS Drug Assistance
Programs, established in 1987, and the Vaccines for Children Program, established in 1994.
In addition, numerous schemes and plans are run by several State governments. These are primarily
intended to cover elderly and disabled people who do not qualify for Medicaid. Such plans are
currently operated by 11 States. Most require manufacturers to agree to rebates, of up to 17%, as a
condition of supply. State plans cover around 900,000 people.

July 2014 33
Average Wholesale Price (AWP)

The price at which manufacturers sell to wholesalers for distribution is generally the Wholesale
Acquisition Cost (WAC). This is a published list price. Wholesalers sell pharmaceuticals on to
pharmacies for a few per cent more than the WAC, or for 15-20% or more below the Average
Wholesale Price (AWP). The prices of drugs provided under public programmes are usually
determined under the AWP system. In short, the manufacturer establishes its AWP for each drug, and
a certain percentage of this is reimbursed when dispensed to a Medicaid/Medicare patient. The level
of reimbursement varies from state to state. For example, California Medicaid reimburses at AWP-5%,
while Florida Medicaid reimburses at AWP-13.25%. This is accompanied by a dispensing fee and, in
most states, a nominal co-payment.
AWPs are set at the discretion of the manufacturer, and are not defined by law. Competition between
manufacturers has led to widespread discounting, with the result that the market price of drugs is
generally below the AWP. The expansion of Medicare to cover outpatient prescription drugs has
huge spending implications, and the AWP system for Medicare was reformed as a result. The 2003
Medicare Prescription Drug, Improvement & Modernization Act provided for a flat AWP-15%
Medicare reimbursement rate in 2004. In 2005, AWP was replaced by the Average Sales Price (ASP)
plus 6%. The ASP is defined by law, and manufacturers will be required to submit data to the HHS.
The Secretary will have the authority to alter a drug's ASP if it is found to be out of line with market
prices.
Biologics Price Competition and Innovation Act

In May 2011, the FDA published details of its proposed user fee structure for the regulation of
biosimilar products. This would run for five years, from 2013 to 2017. Under the Biologics Price
Competition and Innovation Act (BCPIA), the FDA has been given the task of developing such a user
fee programme in order to support its activities in the area. The BCPIA creates a new category of
approval - a 351(k) - for biosimilars under the Public Health Service Act (PHS). To date, all existing
biologics are approved under the 351(a) procedure, for which user fees are already collected under
the Prescription Drug User Fee Act (PDUFA), first enacted in 1993. Fees are currently collected for all
original drug and biologic applications, but not for ANDA generic applications. In QI-QIII 2011, major
competitive strategies included Gilead's agreement to purchase one of Genentech's manufacturing
facilities; Omni Bio's stake acquisition in BioMimetix; Grifols' acquisition of Talecris Biotherapeutics;
Astellas' acquisition of Perseid from Maxygen; Sanofi's acquisition of Genzyme; Boehringer
Ingelheim's acquisition of Amgen's Fremont facility; Amgen's acquisition of BioVex; Gilead's
acquisition of Calistoga Pharmaceuticals; the alliance between Merck and Parexel to form a biosimilar
strategic alliance; Alexion's acquisition of Taligen; and Eli Lilly's agreement to acquire Alnara
Pharmaceuticals.
Reimbursement
Medicaid
The Medicaid scheme provides prescription pharmaceutical cover for those unable to pay through
other schemes. Since 1990, manufacturers of branded drugs wishing to supply drugs through
Medicaid have had to pay a rebate on the price of each drug sold, currently at least 15.1% of the
Average Manufacturer's Price (AMP) of the given drug. Generic drug manufacturers are required to
give rebates of at least 11% of the AMP.

34 July 2014
As well as having to agree to rebates, there are several other conditions for manufacturers wishing to
supply drugs through Medicaid. Manufacturers must agree to sell branded drugs to the Public Health
Service (PHS), including PHS grantees such as AIDS Drug Assistance Programs, the DOD, the DVA, and
the Coast Guard at prices that are 24% lower than the average price charged in the private sector.
Branded drugs must also be listed on the Federal Supply Schedule (FSS). The FSS is a list of products
for procurement by federal agencies. FSS drug prices are lower than those in Medicaid and the
private sector.
Other restrictions exist on the availability of drugs through Medicaid. These include the creation of
formularies, at state level, which lay down which drugs may or may not be prescribed, and the
limitation of the number of prescriptions a patient may be issued within a given timeframe. Many
States operate Drug Utilization Reviews (DURs) and Disease Management programmes. Many States
have contracted-out Medicaid coverage to private HMOs in recent years, although this has proved
difficult to do with the elderly and disabled, many of whom present an unattractive risk for the private
sector.
Medicare
Medicare, the US healthcare programme for the elderly, initially provided cover for prescription drugs
used by its members in hospitals, either as inpatients (under Part A) or as outpatients who required
physician administered medication, usually injectable (under Part B). It did not cover outpatient
prescriptions for small molecule drugs taken orally until 2006. Prior to 2006, Medicare beneficiaries
had supplementary insurance to cover the cost of outpatient drugs; failing that, they either paid the
full price or did without them.
Medicare Part D coverage is subject to a coverage gap, known as the ‘Donut Hole’, or ‘Doughnut
Hole’. The Donut Hole phase of Medicare Part D coverage begins when a patient’s total retail drug
costs reach US$2,970. This ceiling relates purely to the cost of drugs that are covered under Medicare.
A Medicare Part D beneficiary will pay a portion of the US$2,970 and their Part D plan pays a portion.
The total retail cost of prescription medications is calculated from the Medicare Part D plan's
negotiated retail drug price (NRDP) - and every Medicare Part D plan can have a different NRDP. This
system leads to variations, whereby one patient can reach the Donut Hole earlier or later than
another who uses the exact same prescription medications but is enrolled in a prescription drug plan
from another Medicare Part D plan provider.
Following changes in the Medicare law, a US$250 Donut Hole Rebate program was implemented in
2010. Anyone reaching the 2010 Donut Hole was automatically entitled to a rebate of US$250.
Efforts at closing the Donut Hole in 2011 meant that anyone reaching the Donut Hole received a 50%
discount on brand-name formulary drugs and a 7% discount on all generic formulary medications
during that year. In 2013, anyone reaching the Donut Hole will receive a 52.5% discount on brand-
name formulary drugs and a 21% discount on all generic formulary medications.
Beneficiaries remain in the Donut Hole until their true out-of-pocket (TrOOP) costs exceed US$4,750.
TrOOP is defined as actual personal spending, excluding Medicare premiums. If this ceiling is
reached, beneficiaries enter the last phase of Part D coverage, known as Catastrophic Coverage. From
this point forward, the beneficiary pays US$2.65 per month for generics, US$6.60 per month for name
brand medications, or 5% of the medication's retail cost, whichever is higher.
Legislative Background
The expansion of Medicare to cover all prescription drugs for its members was a contentious issue for
some time. Legislation to this effect was introduced in 1988, but almost immediately repealed, and
President Clinton's healthcare plans of 1993/94 also unsuccessfully mooted the idea.

July 2014 35
In June 1999, President Clinton again put forward proposals for the inclusion of drug benefits to
Medicare. In 2000, these proposals were sent to Congress under the name of the Medicare
Modernization Act, 2000. In essence, this would have superseded the increasingly expensive
'Medigap' pharmaceutical insurance that many Medicare members already have. The Clinton plans
ran out of time and were not implemented. In the 2000 presidential election campaign, both
candidates presented plans for the extension of Medicare to cover prescription drugs. George W Bush
presented a plan whereby Medicare beneficiaries would contract in to prescription drug benefit
schemes, operated privately but funded through Medicare, while the Democrats tended to prefer
more centrally organised schemes.
Bill H.R.1, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, was finally
signed into law by the President in December 2003. It covers a number of areas, the most important
of which, Title I, is the provision of a prescription drug benefit to Medicare.
Bill H.R.1
The drug provision made by H.R.1 is complex. It was drafted by the Republicans; it does not involve
direct government purchasing of drugs, nor any form of direct price control by Medicare. It will be
optional; seniors will have to opt in to it, or may choose to remain with current Medigap policies,
employer retiree coverage or continue to pay out-of-pocket. No new Medigap drug policies would
be issued after January 2006, although existing ones could be renewed.
Medicare beneficiaries have to choose from a range of insurance plans. These will all be provided by
private companies. There are three main types of private Medicare plan:
• A standalone prescription drug plan. These will be provided by private companies that will
contract with a new Medicare Benefits Administration (MBA), to be set up within the DHHS.
(Part D)
• Enhanced fee for service plans. These would provide an integrated benefit package, again
run by private insurers contracted with the MBA. (Part E)
• A plan that integrates prescription drug coverage with other Medicare services, similar to an
HMO. These will be named Medicare Advantage, and essentially replace the previous
Medicare + Choice option. (Part C)
In an attempt to ensure coverage and competition, the government split the country into ten regions,
and ensured that each region has at least one prescription drug plan and one integrated plan, or two
prescription-only plans if there are no integrated plans.
Early indicators on the scheme's progress were mixed. It certainly proved complex and confusing for
many people. Some saved money, while others claimed they were worse off.
State Pricing/Reimbursement Moves

In the absence of Federal reforms, many US state governments have begun attempting to create
various plans to control prices. Where controversial, these are currently subject to litigation, from
PhRMA and others. Moves towards price controls have been more advanced in northern states,
which are closer to Canada and its cheaper drug prices. Many states are now actively looking at
methods of pricing/reimbursement control; the activities of some of the frontrunners are detailed
below. Many states are also looking at re-importation plans, seeking cheaper drugs from Canada and
elsewhere.
Across the US, a number of states, including California, Colorado, Hawaii, Maryland, Massachusetts,
New Mexico, New York, Vermont, Washington and Wisconsin, are pursuing Medicaid prescription
drug plans. Massachusetts has gone even further, and is in the process of establishing a state-wide
compulsory health insurance system. As of July 2007, all individuals must have some form of health
coverage, the cost of which is subsidised by the state, and contributed to by employers. Those who
can afford private cover and do not take it out will be subject to tax penalties.

36 July 2014
VENEZUELA
Pricing
Regulation
Venezuela’s Fair Costs and Prices law was published in the Official Gazette of the Bolivarian Republic
of Venezuela in July 2011. The law applies to the production, import, distribution and sale of drugs
registered and/or authorised by the Ministry of Popular Power for Health (MPPS) for specialty
pharmaceuticals (EF), generic pharmaceutical specialties (EFG) and biologics (PB) in accordance with
the Drugs Act. Under this law, there was a fixed period for the registration and reporting of costs of
production, importation, distribution and marketing. This expired in November 2012, at which time
the National Registry of Prices of Goods and Services came into force under the national cost and
pricing regulatory body, SUNDECOP (Superintendencia Nacional de Costos y Precios).
In November 2012, the Venezuelan government announced that the pricing of 9,000 prescription and
OTC drugs would be regulated under the Fair Costs and Prices law. By lowering the price of
medicines in independent pharmacies, the government aimed to establish more affordable prices for
the population.
In February 2013, following its meeting with the social pharmacy network, Farmapatria, and
pharmaceutical industry representatives, SUNDECOP reported that the Comprehensive System of
Drug Control would have a new power to allow the verification of compliance with the future
regulation of prices in this sector. The relationship between SUNDECOP and Farmapatria is intended
to optimise monitoring of the pharmacy sector to prevent irregularities when fair prices are in force.
SUNDECOP's general manager, Karin Granadillo, reiterated that pricing is dynamic and revisions
would be made to keep prices adjusted to reality.
Background to Price Control
Until 1993, drugs were free of any price control, except a basic basket established by Decree No. 53 in
1989. However, as drug prices increased above the consumer price index, the former Ministry of
Development (Ministerio de Fomento) regulated drug prices from 1993 onwards. Some 4,599 drugs
had their prices regulated in January 1994. This number increased to 5,489 in July 1995 to fall to
1,011 in February 1996 and 761 in May 1996. In July 1997, the number of drugs with regulated prices
rose to 1,634. In October 1998, a new resolution fixed a maximum retail price on 1,354 drugs, which
stifled innovative drugs as drugs with fewer than three competing products had their prices frozen. A
new exchange control system established in January 2003 resulted in price controls over essential
goods, including drugs.
Under a new drug system published in July 2003, the list of medicines fell into five categories, loosely
based on definitions by the World Health Organisation (WHO). The government decided to fix a
maximum price for drugs included in the first three levels, and monitor the remainder. The maximum
retail price for drugs included in the first three levels is based on manufacturer's, distribution and
pharmacy margins defined by the government. For the remaining drugs, producers need to inform
the government of the price they give to wholesalers and distributors, and the cost structure. Also,
they need to notify the government 15 days in advance of increasing prices to distributors. Drug
prices, which were frozen in October 1998, were also adjusted by a price increase of 30% in 2003, and
liberated on 1st January 2004.

July 2014 37
The government is now responsible for fixing prices and margins, which increase manufacturers'
prices by around 30%. There is no longer any need to indicate a suggested price. Pharmacies are
obliged to mark the retail price for all the drugs, whether controlled or not by the government.
Manufacturers only mark the maximum retail price for controlled drugs. The government devalued
the national currency in February 2004, which threatened the prices already fixed on controlled
drugs. In 2005, the number of drugs with regulated prices amounted to 1,414, which represented
about 33% of the private pharmacy sector. The Venezuelan Chamber of Wholesalers (CAVEDRO -
Camara Venezolana de Droguerias) believes that the drug price regulation has had a negative effect
on the industry, as regulated drugs since 2003 have had their prices frozen, whilst liberalised drugs
have grown below inflation rates.
In May 2010, pharmaceutical industry representatives met up with the government in order to
increase the prices of regulated drugs, which account for around 33% of the private pharmacy sector.
The prices of these drugs had not been changed in seven years. As a result, their prices are between
30% and 40% below production costs. Most of these products are sera, injectables, solutions and
supplies used to perform medical tests. The retail price for some of these products is below VEF2.0
(US$0.8). In comparison, the prices of liberalised pharmaceuticals have increased by around 30%, due
to inflation rates and the currency devaluation.
When the President formalised the devaluation of the bolivar in January 2010, he guaranteed a
preferential rate of VEF2.6 to the US dollar for pharmaceuticals, compared to VEF4.3 to the US dollar
for most imported items. However, this preferential rate was not applied immediately. In effect,
pharmaceutical industry representatives asked for the application of the preferential rate for 69 items
in February 2010, and this was granted for only 48 items on 5th April 2010. The government decided
not to apply the preferential rate for some items because some of them, for instance packaging and
cartons, are used by other industries that should not have a preferential rate.
Foreign Exchange Controls

In the first half of 2010, the Foreign Exchange Administration Agency (CADIVI - Comision de
Administracion de Divisas) authorised funding of US$2,120.0 million for the health sector, which
represented a rise of 76.7% over US$1,199.4 million recorded in the same period in 2009.
Pharmaceutical sector imports were valued at US$1,736.8 million in the first half of 2010, which
represented a rise of 82.9% over US$949.6 million recorded in the same period in 2009.
CADIVI reiterated its compromise with the health sector, and waiting times to approve Authorisations
of Payment of Foreign Exchange (ALD - Autorizaciones de Liquidaciones de Divisas) had fallen in
2010. Nevertheless, some industry representatives believe that the system should be more flexible,
particularly in cases of emergency.
Between January and August 2008, CADIVI authorised US$2.8 billion for the health sector, which
represented a rise of 57.2% over the same period in 2007. The pharmaceutical sector imported
US$2.3 billion, equal to 82.9% of the total. Imports from countries associated to the Latin American
Integration Association (LAIA) (ALADI - Asociacion Latinoamericana de Integracion) grew quickly and
amounted to US$817.0 million, equal to 29% of the total. Normal imports from other countries still
represented the bulk of the total, equal to US$2.0 billion.
Reimbursement
MPPS, through the National Drug Committee (CTN - Comite Terapeutico Nacional) is required to issue
at least one list of essential medicines (FTN - Formulario Terapeutico Nacional) per year. This is
published in the Official Bulletin, and also in the official list by the National Drug Council (CONMED -
Consejo Nacional del Medicamento). Also, MPPS is developing a network of regional and hospital
drug committees. The public health system can only prescribe and dispense products included in the
list of essential medicines. Under Article 40, Law of Medicaments, the pharmacist can substitute the
prescribed medicine, providing the prescriber agrees and the patient is informed.

38 July 2014
In the public ambulatory sector, a basket of essential drugs is distributed free of charge (Barrio
Adentro Mission) via popular medical dispensaries and pharmacies. Drugs not included in the free
drugs basket are paid for out-of-pocket.

July 2014 39
ASIA/PACIFIC
Pricing & Reimbursement in the Asia/Pacific Region

Australia Pharmaceutical Price controls have resulted in Positive reimbursement list under
Benefits Pricing Australia having low priced Pharmaceutical Benefits Scheme
Authority pharmaceuticals. (PBS). Patient co-payment schemes
in operation.
China National NDRC's pricing policy is based on China has a national Essential
Development and the control of profit and sales Drugs List, although the
Reform Commission discounts within the industry. reimbursement system is primarily
(NDRC) Prices of drugs on the Essential a regional one.
Drugs List are set by the govt, Provincial/municipal lists are
while most other drug prices are expected to reflect the national list,
set after negotiations between the although local govts have a wide
govt and manufacturers. degree of autonomy, both in terms
of the products represented and
the levels of reimbursement given.
India National Prices are controlled for drugs on Free drugs may be provided to the
Pharmaceutical the national essential medicines poor in govt hospitals.
Pricing Authority list.
(NPPA)
Indonesia Ministry of Health Generic drug price rationalisation Public hospitals and community
policy is aimed at ensuring health centres are obliged to use
availability and affordability of drugs on the National Essential
essential medicines. Drug List (NEDL). Also public
health insurance scheme operates
for the poor.
Japan MHLW Prices of reimbursable drugs are Drugs sold by wholesalers to
set by the Central Social Insurance hospitals and dispensing
Medical Council (Chuikyo) under physicians are often discounted
the MHLW, taking into account below the official reimbursement
prices in selected markets. price, providing an important
source of income for healthcare
institutions.
Malaysia Pharmaceutical Free pricing, although the PSD Unknown.
Services Division of lists recommended retail prices on
MoH its essential drugs list.
New Pharmac The prices of reimbursable drugs Most medicines listed on the
Zealand in New Zealand are set by pharmaceutical schedule are fully
Pharmac in co-operation with reimbursed. Patients are required
District Health Boards (DHBs) to pay a prescription charge.
Pakistan MoH Drug pricing controlled by MoH, Patients pay fixed retail price,
aimed at supporting the needs of regardless of wholesale discounts.
the poor.
Philippines Department of Health Pharmaceutical prices regulated Govt health insurance scheme,
by DoH. A number of drugs are Philhealth, reimburses generic
subject to govt. Mediated Access prescriptions. Additional scheme
Price. in operation for the elderly under
the Expanded Senior Citizens' Law.
Singapore MoH, SingHealth Pricing policy unclear - WPM List of essential drugs for
CHSR profile info from old news. reimbursement.
South MoHW Mixture of reference pricing and Reimbursement of medicines on
Korea internal evaluation - criticised for positive list is through Korea’s
not being transparent. national health insurance system,
subject to a patient co-payment.

40 July 2014

Taiwan Bureau of National Reference pricing for branded Reimbursement based on a
Health Insurance drugs. Generic prices set at positive list with sliding scale of
percentage of originator. patient co-payments.
Thailand MoPH Price controls for essential drugs. Essential drugs list: MoPH may use
Free competition among generic no less than 80% of its govt drug
drugs, aimed at keeping prices budget for the purchasing of
down. essential drugs. Other health
institutions must spend 60% of
their drug budget on products
from this list.
Vietnam DAV Mix of prices set by govt, Reimbursement available under
tendering process for essential health insurance fund with rates
drugs, and price suggestions by from 80% to 100% depending on
manufacturers. status.
Source: BMI Espicom
AUSTRALIA
Pricing
Owing to strict and prolonged government drug price control, pharmaceutical prices in Australia
have consistently been among the lowest in the world. Numerous studies have been conducted
comparing drug prices obtained by companies in Australia, with prices received for the same
products in the EU and other developed countries. In general, the results have revealed that
Australian prices are on average almost 50% cheaper than those in comparable countries.
The government negotiates a price for each medicine with its manufacturer, based on
recommendations by the Pharmaceutical Benefits Pricing Authority (PBPA), and advice from the
Pharmaceutical Benefits Advisory Committee (PBAC), on the therapeutic importance of a product.
Pharmaceutical companies, which partake in government-sponsored R&D schemes, can receive
higher prices for innovative products. Branded products can apply for brand premiums, which are on
top of the reimbursement price and must be paid by the patient.
Drug Pricing Developments

PBS Drug Price Cuts
In accordance with division 3A of Part VII of the National Health Act 1953, a statutory price reduction
of 16% is applied to existing PBS-listed products when the first new brand or item that is
bioequivalent or biosimilar and has the same manner of administration as an existing brand or item
lists on the PBS. This reduction increased from 12.5% to 16% on February 1, 2011.
In an effort to make the PBS more sustainable, price cuts to more than 121 drugs came into effect on
April 1, 2014. It has been estimated that the price cuts will save taxpayers at least A$1.5 billion
(US$1.37 billion) over the next four years and will result in cost savings of around A$20 billion
(US$18.48 billion).

July 2014 41
PBS Medicine Bill Reforms
In November 2010, the Australian parliament passed the National Health Amendment or
Pharmaceutical Benefits Scheme Bill. The bill introduced price cuts to PBS medicines agreed in the
memorandum of understanding (MoU), between Medicines Australia and the government, signed in
September 2010. The MoU is effective from the date of its execution until 30th June 2014.
The aim of the MoU is to "promote the efficiency and sustainability of the PBS and support, by the
provision of a stable pricing policy environment, a viable and responsible medicine industry in
Australia".
The MoU outlined several price reductions:
• From February 1, 2011, price reductions applied to single-brand PBS drugs on listing of a
competitor brand will increase from 12.5% to 16%.
• On February 1, a 2% price reduction would be applied to all drugs listed on the F2A
formulary as at October 11, 2010. This was in addition to the 2% price reduction that
occurred on August 1, 2010.
• On February 1, 2011, a 5% price reduction would be applied to all drugs listed on the F2T
formulary as at October 11, 2010. Single-brand on-patent drugs listed on the F2T formulary
that are subject to staged 25% price reductions will have this 5% price reduction applied as if
the full 25% price reduction had already been applied.
Also from December 1, 2010, strengthened price disclosure arrangements applied. The methodology
and systems used to calculate price disclosure outcomes were made available to Medicines Australia
and representatives of other suppliers to the PBS, and independently verified by a third party.
These reforms to the PBS were estimated to reduce by as much as A$21.0 (US$20.5) the prices
patients pay, per script, per month. However, the Generics Medicines Industry Association (GMiA)
argued that the reforms would adversely affect the generics industry and may force drug
manufacturing abroad.
Reference Pricing System

Reference pricing for certain therapeutic groups was introduced in 1998. Previously, reference
pricing had been restricted to bioequivalent generics. The revised system applied to four therapeutic
categories: ACE inhibitors, calcium channel blockers, statins and H2 antagonists. Since 1998,
government subsidies for these four groups have been based on the price of the cheapest drug in the
group. If a more expensive product is prescribed, any price difference will be paid by the patient.
There are some limited circumstances in which higher priced drugs are subsidised, such as when
adverse effects are expected when the cheapest drug is used in combination with others.
The initiative was widely criticised by the pharmaceutical industry. According to Medicines Australia,
the combined value of the six therapeutic categories originally included in the scheme (beta blockers
and SSRI's were also originally included) represented around one third of total PBS expenditure.
Despite the government's view that the doctor and patient will continue to decide which treatment is
most appropriate, the association argued that patients' health may be compromised as a result of this
measure, owing to the fact that the cheapest product in a category is likely to be an older and less
effective product.
As a result, Medicines Australia claims that the measure discriminates against innovative products,
which, although more expensive, are often more effective, since they have had to meet strict cost-
effectiveness criteria before inclusion on the reimbursement list. Furthermore, as a generic can be
introduced into a category at a much lower price than an innovative product, the industry association
is concerned that the measure is adversely affecting R&D and will discourage companies from
launching innovative products on the Australian market.

42 July 2014
12.5% Price Reductions for New Market Entrants
Since August 2005, any new version of a drug that is already on the market must be priced at least
12.5% lower than the price previously paid by the government. Otherwise, it will not be listed on the
PBS. This generally applies to generic products, but new medicines are also affected if they are in the
same therapeutic group as an existing PBS medicine that is affected by a price reduction.
US Free Trade Agreement

The Free Trade Agreement (FTA), which came into force in January 2005, has provision relating to the
pricing and reimbursement of medicines in Australia. The issue has proved controversial, and the
government has repeatedly promised that the price of prescription medicines will not increase as a
result of the FTA.
Under the FTA, Australia has undertaken to make improvements to the transparency and timeliness
of PBS processes and provide more opportunities for companies seeking listing of new medicines on
the PBS to have input to the process.
Reimbursement
In order to qualify for reimbursement under the Pharmaceutical Benefits Scheme (PBS), the National
Immunisation Program (NIP) and the Medicare Benefits Schedule (MBS), or private health insurance
funding under the Prostheses List, medical interventions will need a positive outcome from a health
technology assessment (HTA) by the Australian government. Where the government decides not to
reimburse a new technology it can remain available on the Australian market as long as it is included
on the Australian Register of Therapeutic Goods (ARTG).
The Pharmaceutical Benefits Scheme (PBS) operates a positive reimbursement list which includes
those medicines considered both cost-effective and clinically necessary, and approved by the
responsible federal minister. The list, along with any prescribing restrictions, is published in the
Schedule of Pharmaceutical Benefits. The schedule is issued every three months (February, May,
August and September) to medical and dental practitioners and pharmacists. The PBS lists around
560 different medicines, sold as around 2,000 different products.
Applications for listing on the PBS are considered by the PBAC, which meets three times per year to
assess applications on the basis of clinical benefit and cost-effectiveness in comparison with other
treatments for the same condition or use. In order to be listed on the PBS, a PBAC recommendation is
required.
The mark-up for both wholesalers and dispensers is controlled by the government, while the
Pharmaceutical Benefits Remuneration Tribunal (PBRT) determines the amount at which dispensers
are reimbursed. This is at a level much lower than private dispensing rates. Wholesaler/pharmacy
mark-ups are set at around 10% of the ex-manufacturer price. The Health Insurance Commission
(HIC) reimburses pharmacists for the dispensed price of the pharmaceutical benefits: i.e. the price to
pharmacists, their mark-up and the professional dispensing fee, less any patient contribution. The
government subsidises the cost of the product to patients in cases where the price exceeds certain
limits. Subsidies are need-assessed, with a higher subsidy for concessional patients and a safety net
to protect high users of medicines.
Drugs considered eligible for benefits under the PBS must have been prescribed by either a general
practitioner, or, for certain drugs, a registered dental practitioner, and dispensed by an approved
pharmacist, or in some instances, an approved medical practitioner. An estimated 70% of
prescriptions are provided through the PBS and the Repatriation PBS. There are around 5,000
pharmacies approved to supply pharmaceutical benefits.

July 2014 43
PBS Formularies
Since August 2007, the PBS has operated two formularies:
• Formulary 1 (F1) contains single brand medicines, with the exception of those deemed
interchangeable at the patient level with multiple brand medicines. The latter include ACE
inhibitors, angiotensin II receptor antagonists, calcium channel blockers, H2 receptor
antagonists, proton pump inhibitors and certain HMG coenzyme A reductase inhibitors.
• Formulary 2 (F2) contains all multiple brand medicines and single brands excluded from F1,
as above.
No medicine can be in more than one formulary; where a formulation or strength of a drug has
multiple brands, then all forms of it will be listed on F2 even if those forms do not have alternatives. A
PBS reference price group may contain products from both formularies.
It is the government's aim for multiple brand products to move to a pricing system whereby the price
the PBS pays for a drug more closely reflects the actual price at which the medicine is sold. To this
end, the F2 formulary is further split into two subgroups:
• Formulary 2A (F2A) for medicines where competition is more limited.

• Formulary 2T (F2T) for medicines where competition is greater.
Different pricing measures have been applied to these two groups.
For F2A:
• From August 1, 2008, an annual 2% price cut was introduced each year for three years.
• The 12.5% price reduction for new entrants remained, where applicable, and applied to all
interchangeable products.
• Suppliers listing a medicine after August 2007 must agree to disclose the actual market price
as a condition of PBS listing. Based on this information, price reductions would be made,
where necessary, from August 2009.
• Pricing, based on manufacturer disclosure, would then be determined annually.
For F2T:
• A one-off price cut of 25% was applied on August 1, 2008. For certain patented medicines,
this would be phased in over the remaining life of the patent.
• The 12.5% price reduction for new entrants remained, where applicable, and applied to all
interchangeable products.
• Suppliers listing a medicine after January 2011 must agree to disclose the actual market price
as a condition of PBS listing. Based on this information, price reductions would be made,
where necessary, from August 2012.
• Pricing, based on manufacturer disclosure, would then be determined annually.
Patient Co-Payments
In 2014, patient co-payments are A$36.90 (US$33.55) for each prescription, or A$6.00 (US$5.46) if the
patient has a concession status. These charges are subject to an annual threshold, which applies to a
family’s expenses. The general threshold is A$1,421.20 (US$1,292.16), while for concession patients it
is A$360 (US$327). Co-payments and safety net thresholds are adjusted for inflation every January.

44 July 2014
Health Technology Assessment

HTA may be requested by a sponsor or manufacturer seeking public funding under the PBS, the NIP
and the MBS, or private health insurance funding under the Prostheses List. The choice of funding
programme is dependent on the nature of the health technology (that is, whether it is a medicine, a
medical procedure, diagnostic test or a medical device). Where a health technology is co-dependent
(for example, a drug/test combination) it may need to be considered for eligibility under two or more
funding programmes.
HTA for reimbursement assesses health technologies with regard to their comparative clinical and
cost-effectiveness, in order to support the healthcare interventions that achieve the maximum health
improvement at the lowest cost.
Current health technologies assessed in Australia include: medical services, surgical interventions,
medical procedures, diagnostic technologies, medical devices, vaccines and pharmaceuticals, as well
as combinations of health technologies, including hybrid and co-dependent technologies.
CHINA
Pricing
Overall control of drug prices is the responsibility of the National Development and Reform
Commission (NDRC), formerly called the State Development Planning Commission (SDPC). The
NDRC's pricing policy is based on the control of profit levels and sales discounts within the industry.
Prices of drugs on the Essential Drugs List are set by the government, while most other drug prices
are set after negotiations between the government and manufacturers.
By implementing the Essential Drugs List, the government aimed to change the reliance of hospitals
on drug prescriptions as revenue. Some 300 drugs have been identified as critical for common
illnesses and diseases, and should be made available to all patients. For drugs on the list, prices are
fixed and no commission is paid for their prescription. Prices for these drugs have come down by
30% to 50%, which has reduced the cost of inpatient and outpatient care. The vast majority of the
drugs on the list are made by domestic companies.
The aim of the pricing policy is to promote domestic production of drugs and reduce imports. For
example, higher margins are allowed for domestic products that use modern technology, or which
provide a ready and cheap alternative to imports. Overseas manufacturers making drugs in China are
allowed higher profits if their activities lead to transfers of technology to domestic firms, or if their
products are cheaper than imported alternatives. Joint ventures that manufacture products with
foreign patent protection are also allowed higher margins, to take into account the cost of R&D.
Drugs made by overseas firms have been allowed to set higher prices than their domestic
counterparts, although recent moves have been made to reduce this price gap.
Essential Drugs List

The Essential Drugs List was introduced in August 2009. In January 2011, the MoH announced that it
would be further expanded to cover nearly all government-sponsored health institutions, where
drugs would be sold with a zero mark-up by the end of the year. The MoH would also focus on
streamlining the centralised procurement and distribution of essential drugs, to bring down drug
prices at the supply end and thus lower drug prices for patients.

July 2014 45
In December 2010, at a Standing Committee meeting the NDRC deputy director Zhu Zhixin reported
that preliminary statistics showed the prices of basic medicines had dropped by approximately 30%.
This was attributed to the launch of the Essential Drugs List, which had been implemented in more
than 50% of primary healthcare institutions at that time. The system takes into account regional
differences and people's drug behaviours, and allows applicable drugs to be added to the list.
Effective on 22nd October 2009, the NDRC reduced the prices of 2,349 drugs by an average of 12%.
These drugs represented around 45% of drugs on the Essential Drugs List. The prices of 49% of drugs
on the list were not reduced, while the remaining 6% that were in short supply saw their prices
increased moderately in order to encourage their manufacture. The NDRC also said that basic
medical and healthcare facilities would no longer be able to sell medicines at a 15% mark-up, which
was expected to result in a 30% reduction of prices overall.
Price Reductions
In January 2013, the NDRC announced that with effect from February 1 2013, prices of 400 drugs in
more than 700 formulations classed under 20 different categories would be cut by an average of 15%.
Additionally, a number of higher priced drugs would fall in price by 20%. Some of the drugs included
Merck & Co's Singulair (montelukast), Pfizer's Zyvox (linezolid), Novartis's Trileptal (oxcarbazepine), Eli
Lilly's Humalog (insulin lispro injection) and AstraZeneca's Seroquel (quetiapine).
In September 2012, the NDRC announced an average 17% price cut for anti-cancer medicines,
immunological modulators and blood-related products, affecting 95 types of pharmaceuticals in
more than 200 different formulations. These changes were expected to be effective from October 8.
Previously, in May 2012, the NDRC adjusted the maximum retail price of 53 digestive drugs in more
than 300 formulations. The average price cut was 17%, with the cost of high-priced drugs being cut
by 22%. The move was expected to create savings of CNY3.0 billion (US$0.5 billion) per year.
The NDRC implemented two rounds of drug price reductions in 2011. In March 2011, 162 drugs had
their prices reduced by an average of 21%, which was expected to save consumers CNY10.0 billion
(US$1.6 billion). The majority of these were antibiotics and cardiovascular drugs. Most of the drugs
reduced were manufactured by multinationals, which had previously been eligible for independent
pricing and, therefore, exempt from pricing controls. A further reduction was introduced, whereby 82
drugs had their prices cut by an average 14%, effective from 1st September 2011. Most of these drugs
were also manufactured by multinational companies and included hormone, endocrine and nervous
system medications.
From December 12, 2010, 17 different drugs had their prices reduced by an average of 19%, and
included several antibiotics and cardiovascular drugs. According to the China Pharmaceutical
Industry Research & Development Association, the average price of nine foreign independently
priced drugs was 1,311% higher than domestic equivalents. The price reductions were expected to
save consumers around CNY2.0 billion (US$300.2 million) per year, and make the competition fairer
between domestic and foreign pharmaceutical manufacturers.
Retail Price Limits Eased

In April 2014, several departments of the Chinese government, namely the National Health and
Family Planning Commission (NHFPC), National Development Reform Commission (NDRC), China
Food and Drug Administration (CFDA), Ministry of Finance (MOF), Ministry of Industry and
Information Technology (MIIT), Ministry of Human Resources and Social Security (MHRSS), and the
Ministry of Commerce and State Administration of Traditional Chinese Medicine (SATCM), released a
statement announcing a policy that would secure the supply of commonly used low-price drugs.
The statement detailed that the eight government departments would essentially allow free pricing
of selected essential drugs in low supply. Key proposals included removing mandatory price ceilings,
suggesting this would allow firms to set their own pharmaceutical prices, so that they could profit at a
'reasonable' rate. Once drug supplies returned to normal, a new price ceiling would be set.

46 July 2014
Shortly afterwards, the NDRC eased mandatory retail price caps for 283 Western drugs, such as
antibiotic amoxicillin and for 250 types of traditional Chinese medicines with immediate effect. The
move aims to encourage more companies to manufacture commonly used medicines and prevent
supply shortages.
Mandatory Licensing
In July 2011, the MoH revealed that it might introduce a mandatory licensing policy to secure cheaper
drugs for HIV/AIDS patients, as part of the country's universal health coverage programme.
According to official statistics, there are around 740,000 people living with HIV/AIDS in mainland
China, and a further 100,000 AIDS patients who are on antiretroviral therapy provided free by the
government. Hao Yang, Deputy Director of the Disease Prevention & Control Bureau of the MoH,
announced that free drugs would be offered to couples where one partner has HIV/AIDS and the
other is negative. At the moment, only people who have developed AIDS receive this. Hao also
added that they might consider the introduction of mandatory licensing for patented drugs for
antiretroviral therapy.
Reimbursement
Faced with ever-increasing health expenditure, the Chinese government has actively tried to slow
drug spending since the mid-1990s. The first reimbursement list was unveiled in Shanghai in 1994.
The lists used in the large cities serve as models for the rest of the country, although there are no
requirements for standardisation between provinces. The drawn out debate over whether drugs
should be listed by their generic or brand names is a notable example.
Although China has a national essential drugs list, the reimbursement system is primarily a regional
one. In August 2009, the list included 307 essential medicines in their generic names; 205 were
Western medicines and 102 were traditional Chinese medicines. The list was effective from 21st
September 2009, and is reviewed every three years. Drugs will be removed from the list if:
• Product standards have been repealed;

• Product approvals have been revoked;
• Serious adverse drug reactions have been reported; and
• Products with more favourable benefit to risk ratio and cost-effectiveness have been
identified.
Provincial/municipal lists are expected to reflect the national list, although local governments have a
wide degree of autonomy, both in terms of the products represented and the levels of
reimbursement given. Officially, local lists are expected to be 90% similar to the national list,
although in practice, this appears not to be the case.
In order to gain reimbursement for products prescribed in hospitals funded and run at provincial level
or lower, drugs must be included on provincial/municipal reimbursement lists. Local governments
have all created reimbursement lists of their own, which differ in scope and the levels of
reimbursement offered. Negotiation is required with each provincial government in order to obtain a
listing; local governments may insist on price reductions, or in the case of some imported products,
may refuse to reimburse a drug at all.
Control of excessive consumption and spiralling drug bills is the main aim behind all reimbursement
lists, and expensive drugs will often experience difficulties in getting listed. Where a drug is non-
reimbursable, it may generally be prescribed, but the patient must pay the whole cost. Imported
drugs are often excluded unless the manufacturer agrees to large price cuts; discrimination in favour
of locally produced drugs is accepted practice.

July 2014 47
There is often a strong element of provincial favouritism involved. Provincial governments are keen
to promote their own industry, and will use reimbursement as a way of favouring their products over
those of other provinces, whether they are joint ventures or wholly domestic. Where a province has a
strong manufacturing capacity for a certain product, reimbursement may again be refused for
potential competitors.
To make matters more complex, the maintenance of provincial reimbursement lists rarely falls to a
single authority; it is not uncommon for three or more state bodies to be involved in the decision-
making process, as in Guangdong or Shanghai. Each of these, with their own agendas and rivalries,
must often be dealt with separately.
The 2009 edition of the China National Basic Medical Insurance, Industrial Injury Insurance and
Maternity Insurance Medicine Directory included a total of 2,151 medicines. There were 1,164
Western medicines in the directory, including 349 Category A medicines, 791 Category B medicines,
20 restricted work injury insurance agents and four maternity insurance agents. In addition, there
were 987 Chinese medicines included. The amount of reimbursement is based on a sliding scale, with
Category A medicines receiving full reimbursement.
Patient Contributions
In January 2011, the MoH announced the goal of reducing patients' contribution to their personal
healthcare by 30%, as part of the country's 12th Five-Year Plan 2011-15. The current average patient
pays around 38%. The MoH stated that lower drug prices would be the top priority of health
authorities in 2011 and therefore contribute to reducing patients' costs.
INDIA
Pricing
The National Pharmaceutical Pricing Authority (NPPA), which was set up under the administrative
control of the Bureau of Industrial Costs and Prices, with limited authority to fix, revise and rationalise
pharmaceutical prices under the Drug Prices Control Order (DPCO), 1995. The NPPA was expected to
begin working in 1996, but was caught up in a controversy over its precise role. The NPPA has,
however, been officially operational since August 1997. In addition to fixing and revising the prices of
controlled drugs, the NPPA monitors the prices of decontrolled drugs in order to keep them at a
reasonable level.
Drugs (Prices Control) Order, 2013

In May 2013, the government published the Drugs (Prices Control) Order, 2013 (DPCO-2013) in the
Official Gazette, superseding the Drug (Prices Control) Order, 1995. The new order followed the
publication of the National Pharmaceutical Pricing Policy, 2012 (NPPP-2012), which set out a new
system of price regulation based on market prices.
Under the DPCO-2013, ceiling prices are set for formulations included in the National List of Essential
Medicines, 2011 (NLEM-2011). In essence, the DPCO-2013 has introduced an internal reference
pricing system.
The ceiling price is fixed on the basis of weighted average price to the retailer (sum of prices to
retailer of all brands and generic version of the medicines having more than or equal to 1% of the
total market share)/(total of such brands and generic version of the medicines having more than or
equal to 1% of the total market share).

48 July 2014
A two-step process was set out for calculating the ceiling price. In step one, the average price to
retailer of a scheduled formulation, P(s), is calculated at follows:
P(s) = Pm{1-(Pi1+Pi2+…)/(N*100)}, where:
Pm = price of the highest priced formulation taken for calculating the average price to the retailer
for the formulation under consideration;
Pi = % reduction in average price to retailer of other scheduled formulations in the same

therapeutic category; and
N = number of such other scheduled formulations in the same therapeutic category.
Thereafter, the ceiling price of a schedule formulation is calculated as:
P(c) = P(s)*(1+M/100), where:
P(c)= ceiling price;
P(s) = average price to retailer for the same strength and dosage of the medicine; and
M = % margin to retailer and its value = 16.
For new product launches, manufacturers are free to set the price of a scheduled formulation equal to
or below the ceiling price. For existing products on the market, manufacturers selling branded or
generic versions of scheduled formulations at prices higher than the ceiling price (plus local taxes as
applicable) would be expected to reduce prices in line with the official ceiling prices within 45 days of
the date of notification.
The new pricing policy was introduced in a phased manner, with additional formulations being
added to the initial schedule during the second half of 2013. However, by early 2014 it had become
clear that the NPPA was facing a lack of resources and was struggling with major challenges,
including a lack of manpower. Meanwhile, the regulator has to depend on IMS data to set drug
prices, as it lacks the means to collect samples and oversee market forces.
In May 2014, NPPA plans to reduce the prices of expensive critical therapies for diseases such as
cancer and HIV, as well as medicines for chronic illnesses such as diabetes, cardiovascular diseases,
malaria, tuberculosis and asthma, were reported in the Economic Times. According to the report, the
regulator will benchmark the prices of the costliest brands in these therapeutic groups to the average
price of their respective groups. It will also stipulate that the prices of new medicines must not
exceed the price of the most expensive brand in a particular therapeutic group.
National Pharmaceuticals Pricing Policy, 2012

Background
In 1999, the Drugs Price Control Review Committee (DPCRC) was set up under the Chairmanship of
Secretary, Department of Chemicals & Petrochemicals, in order to review the current drug price
control mechanism. The recommendations of the DPCRC were taken into account by the
government while formulating the Pharmaceutical Policy, 2002. The government decided that the
span of price control over drugs and pharmaceuticals would be substantially reduced. However, the
government would retain the power to intervene in 'cases where prices behave abnormally'.
Under the 2002 policy, the principle for identification of specific bulk drugs for price regulation would
continue, as the DPCRC's recommendation: (a) mass consumption nature of the drug and (b) absence
of sufficient competition in such drugs.

July 2014 49
The 2002 policy was challenged in the Karnataka High Court, which issued a stay on the
implementation of this policy in November 2002. The court order was challenged by the government
and the stay vacated, but it was decided that a fresh Pharmaceutical Pricing Policy be formulated and
the 2002 Policy was never implemented.
NPPP-2012 and NLEM-2011
In 2011, the Ministry of Health revised the National List of Essential Medicines (NLEM). The
Department of Pharmaceuticals (DoP) subsequently drafted the National Pharmaceuticals Pricing
Policy, 2012 (NPPP-2012), which seeks to replace the Drug Policy of 1994. The NPPP-2011 is in
continuation of the Policy announced in 1994.
NPPP-2012 seeks to limit itself to the central objective of promulgating the principles for pricing of
essential drugs as laid down in the NLEM-2011, as declared by the Ministry of Health & Family Welfare,
Government of India communication of 8th June 2011.
The key principles for the regulation of prices in the NPPP-2012 are:
(1) Essentiality of drugs,

(2) Control of formulations prices only,
(3) Market-based pricing.
The NPPP-2012 would regulate the prices of formulations only, rather than the current system of
regulating bulk drugs and their formulations. The reason given for this change was that the bulk drug
may not fully reflect the 'essentiality' of the finished drug formulation. Of the 348 medicines listed in
the NLEM-2011, only 34 drugs are included among the 74 listed in the First Schedule of the DPCO,
1995. In addition, of the 74 notified bulk drugs, only 47 are currently under production in India. The
DoP has expressed concerns that manufacturers have moved away from producing listed bulk drugs
and that this has had an adverse effect on the availability of associated formulations for patients in
India. In addition, the DoP believes that pricing control of formulations will simplify a complicated
process as well as being more specific.
The headline major change is a move from the principle of cost-based pricing to a market-based
pricing model. The DoP argues that market-based pricing would result in more transparent and fair
pricing, as well as increasing competition in the marketplace.
Price regulation would be as per the dosages and strengths listed in the NLEM. Under the new policy,
drugs would have a fixed 'ceiling price' (maximum retail price) based on market data. The ceiling
price will be based on a simple average of all the brands having market share of at least 1% of the
total market for that medicine. Manufacturers would be able to fix prices at or below the ceiling price.
The National Pharmaceuticals Pricing Policy, 2012 (NPPP-2012) was published on 7th December 2012
and is available for download from the DoP website: http://pharmaceuticals.gov.in.
Reimbursement
The majority of retail prescription pharmaceuticals are funded through out-of-pocket payments, or
through private health insurance. Public health insurance schemes are generally aimed at India’s
poor population who live below the poverty line (BPL).
The Aarogyasri health insurance scheme was launched in Andhra Pradesh in 2007, with coverage
gradually being extended to cover catastrophic health needs to the BPL population throughout the
state. Similar programmes have been adopted in other states, based on the Aarogyasri model.
Aarogyasri provides families with benefits of Rs. 200,000 (US$3,625) per year, of which Rs. 150,000 is
provided on a floater basis. This means that it can be used by one patient or shared among a number
of patients in the family. The scheme covers treatment of serious diseases and accidents, inpatient
medication and ten days of post-discharge medication.

50 July 2014
In 2008, the Ministry of Labour and Employment (MoLE) launched the Rashtriya Swasthya Bima Yojna
(RSBY) programme at national level, to provide health insurance benefits to BPL populations. The
RSBY planned to cover the entire BPL population throughout India (around 300 million people) by
2012-13. The state MoLE provides a list of its BPL population to the insurer electronically and
beneficiaries are provided with smart cards, which indicate their entitlement and provide a
mechanism for electronic record keeping.
RSBY beneficiaries are entitled to hospitalisation coverage of up to Rs. 30,000 per year annually
(US$540) for a family of five on a floater basis. Beneficiaries pay a nominal Rs. 30 (US$0.55)
registration fee; the remainder is paid by central and state government. Central government pays
75% of the total premium, or 90% in Jammu & Kashmir and the northern states. The remainder is
financed by the states. Medicines are covered for inpatient care. Any medicines prescribed on an
outpatient basis must be paid for by the patient.
More recently, regional initiatives have been announced to provide free medicines to the poor. For
example, in March 2014, the district health administration of Kolhapur, Maharashtra, introduced a free
medicines scheme across its 20 sub-divisional and 73 rural primary health centres. The scheme, called
Prescription-Free Hospitals (PFH), is a state government initiative to ensure the provision of medical
treatments to poor patients in Maharashtra. Under the scheme, patients visiting rural hospitals will
get free medication provided directly by the health centre, rather than being given a prescription to
take to the pharmacy for medicines that they cannot afford. The initiative has been launched with
the aim of providing more than 430 free essential medicines, including medicines for heart ailments
and cancer at these centres, and will cater for around 300 million patients every year. The state
government of Maharashtra has sanctioned INR600 million (US$9.81 million) to the district health
administration to secure medicines.
Also in Maharashtra, Pune Zilla Parishad and Pune Doctors' Charitable Trust have started a medicine
donation bank project to provide free essential medicines to people in rural parts of Pune. Under the
project, doctors will collect medicines given by pharmaceutical companies as free samples and
donate them to the medicine bank for poor and the needy patients. The project is aimed at
improving access to quality medicines for rural people. Family physician Santaji Kadam, president of
Pune Doctors' Charitable Trust, reportedly told the Times of India in March 2014, “Sample drugs given
to doctors by drug manufacturing company's representatives usually remain unused. Our aim is to
gather all such medicines from doctors and build a bank which can be made use of for people visiting
PHCs in rural parts of Pune.”
INDONESIA
Pricing
Indonesia has a generic drug price rationalisation policy to ensure the availability, equity and
affordability of generic drugs. This policy was established by a Ministry of Health (MoH) Decree and
was based on consideration and input from the Drug Price Evaluation Team, whose members include
specialists, academics and non-governmental organisations, as well as the MoH. The policy was
determined by the Minister of Health (Kepmenkes) No.521/Menkes/SK/IV/2007 for 470 drugs,
subsequently amended by Kepmenkes No.302/Menkes/SK/III/2008 to include 455 drugs, and by
No.HK.03.01/Menkes/146/I/2010, which includes 453 drugs.
There is no official price regulation for patented drugs in Indonesia.

July 2014 51
Price Changes
The Indonesian Pharmaceutical Manufacturers Association (GP Farmasi) announced that 20 of its
members had increased the price of certain drugs by between 4% and 10%, at the start of 2011.
Anthony Sunarjo, Chairman of GP Farmasi, said some members of GP Farmasi raised their drug prices
in response to rising inflation, the decision by regional authorities to increase the minimum wage by
around 12% and the 5% import tax imposed on raw materials for drug manufacturing, introduced by
the Ministry of Finance in 2010.
In February 2011, the MoH announced that it would review the prices of generic drugs, in light of the
fact that the increase in tax on raw materials had prompted pharmaceutical companies to raise the
prices of branded drugs. Many pharmaceutical companies have stated that, in their view, the prices
of generic drugs are unreasonably low. The Businessmen Association (GP) of Indonesia Pharmacy
predicted that prescription and generic drug manufacturers would reduce their production volume if
the price margin continues to be squeezed by rising raw material costs.
The MoH gradually reduced the prices of generic drugs in 2006, starting with the reduction of non-
branded generics, by 5.0-30% in July, and branded generics by 10.0-80% in October. Following the
reductions, branded generics, which were six to eight times more expensive than non-branded
generics, became only three times as expensive. Non-branded generics are produced by
manufacturers owned by the MoH while branded generics are produced by private manufacturers.
The then Health Minister, Dr. Siti Fadilah Supari, said he hoped that the reductions would result in
more people being able to afford the drugs, especially those who relied on branded generics,
because they were not covered under the National Health Assurance for the Poor Programme
(Askeskin); now replaced by Jamkesmas. The prices of 85 non-branded generics were reduced, while
prices of 31 essential branded generics that were used in around 1,400 preparations produced by
various private pharmaceutical producers were also reduced. The Health Minister said the decision to
reduce prices was made taking both the interests of the population and that of the producers into
account, to ensure that while the move gave more people access to drugs, it did not affect the
survival of the producers.
Essential Drugs List

The Indonesia Essential Drug List (EDL) is revised every three years. The revisions are a result of
meetings and consultations organised by the Committee for Essential Drug List Formulation and
Revision, which is appointed by the Minister of Health. The Indonesia EDL is designed to reflect
requirements at different levels, such as hospital, primary health centre and village drug depots, while
the WHO EDL is not divided into different levels of healthcare. Compared to the WHO EDL, the
Indonesia EDL has fewer items. Public hospitals and community health centres are obliged to use
drugs on the National Essential Drug List (NEDL). Use of drugs outside of the NEDL is not allowed in
community health centres but is allowed in hospitals. This deviation must be approved by the
hospital director and reported to the National Committee on the NEDL. Due to budget limitations,
the value of these deviations should not be more than 25% of the total value. The private sector is
not obliged to follow the NEDL.

52 July 2014
Reimbursement
The Indonesian government introduced a mandatory public health insurance scheme, Askeskin, in
2004, under the first phase of its plan to achieve universal health coverage. In 2008, Askeskin evolved
into Jaminan Kesehatan Masyarakat, or Jamkesmas. The Jamkesmas scheme is run by the MoH and
covers more than 76.4 million of Indonesia’s poor. The scheme is funded by central government from
general tax revenue and provides free healthcare to its beneficiaries.
Jamkesmas covers both inpatient and outpatient care. The scheme contracts both public and private
hospitals, with ambulatory care reliant on public providers. In terms of medication, beneficiaries are
entitled to free generic prescription drugs from specific formularies. Expensive treatment is, however,
limited, particularly for cancer and cardiovascular problems.
JAPAN
Pricing
The prices of reimbursable drugs are set by the Ministry of Health, Labour and Welfare (MHLW)
through the Central Social Insurance Medical Council (Chuikyo). Japan's pricing system is complex
and often less than transparent; it has long been the subject of international criticism, from PhRMA
and others, for failing to adequately reflect the value of innovative, patented drugs. The Chuikyo will
take into account prices in selected foreign markets when making its decision. Since 1992, the
Chuikyo has accepted economic data from manufacturers in support of a preferred price. An appeals
system was created in October 2000.
For new drugs where there is no existing drug from the same category on the market, the price is
based on the cost calculation method. This calculation involves adding the administrative overhead,
operating profits and distribution cost to the manufacturing and marketing costs of the drug, as well
as an amount equivalent to the consumption tax and local consumption tax. According to ISPOR,
depending on the extent of innovativeness, efficacy and safety of the drug, the average operating
profit ratio, 19.2%, is adjusted in the range of ±50%. In reality, this means that operating profit ratios
can vary from 9.6% for drugs that are not considered to be superior to those already on the market,
up to 28.8% for novel drugs with superior efficacy.
In addition, the price of the drug is considered in France, Germany, the UK and the USA. If the
calculated price is three quarters of the overseas price, then the price is increased. On the other hand,
if the price is 1.5 times greater than the overseas price, the price is reduced. Findings of a 2014 EC
report suggest that, as a result, Japan’s prices can vary between 150% above or 75% below the
reference countries prices.
Where there are similar drugs available on the market, the similar efficacy comparison method is
employed. This is an internal reference-pricing scheme, whereby the basic price of a new drug is
determined so that the price for a daily dose may be the same as the existing drugs. However, if the
new drug has superior efficacy and/or safety, or is considered to more innovative than the
comparable drugs, or if a government policy provides special support for this type of drug, as in the
case of an orphan drug, or one for paediatric use, premiums may be applied to the basic price. There
are four types of premiums: innovativeness, usefulness, marketability, and paediatric use, the highest
being for innovativeness, which attracts a premium of 70-120%.
Pricing Premiums in Japan

Type of Premium Rate (%)
Innovativeness 70-120

July 2014 53
Usefulness I 35-60
Usefulness II 5-30
Marketability I 10-20
Marketability II 5
Paediatric use 5-20

Source: ISPOR
Price Reductions
Drug price reductions take place in April, usually every other year, but sometimes annually. In
pharmaceuticals, the new changes have affected foreign companies less than domestic
manufacturers, with some Japanese companies experiencing average price cuts of 7% overall, while
some individual drugs are cut by 15%. Foreign companies suffer average cuts of between 5% and
6.5%, according to the MHLW.
Overall, the cuts are part of the government's efforts to reduce the nation's healthcare spending by
US$59.0 billion by 2025. However, one of the side-effects is that healthcare companies are seeking to
manufacture more and more abroad, in countries such as China, Indonesia and Malaysia.
Reimbursement
In Japan, there is a difference between the price at which a drug is sold by wholesalers and its official
reimbursement price, which is always higher. In effect, a discount is offered by wholesalers; this price
difference is known as 'Yakkasa'. It has long been an important source of income for hospitals and
dispensing physicians, who are naturally not keen to see the current situation ended. The level of
discount allowed is known as the reasonable adjustment zone (R). This has been reduced in steps
since 1992.
National Health Insurance Drug Price List

The National Health Insurance (NHI) Drug Price List is a list of drugs for which medical providers can
be reimbursed under the health insurance programmes, as specified in the regulations for hospitals
and nursing homes. The rules used to calculate healthcare fees in accordance with the Health
Insurance Law state that the reimbursement price of drugs for medical institutions is determined
separately by the Minister of the MHLW. Thereby, the prices to be invoiced for drugs used in hospitals
are set by the Minister and shown in the NHI Drug Price List.
The actual reimbursement price revisions cover drugs sold in the month of September of a previous
year. A survey of all products in the NHI Drug Price List is conducted on about 4,000 retailers, all first-
class wholesalers, and about 3,400 purchasers consisting of hospitals, clinics and pharmacies. The
new reimbursement price is calculated by adding a reasonable adjustment zone (R) to the weighted
average marketing price obtained from these surveys in consideration of the consumption tax.
However, the new price cannot exceed the current reimbursement price. The calculation formula is
as follows:
New drug price = weighted average value of market prices in survey x (1 + consumption tax rate) +
current reimbursement price x R/100.

54 July 2014
MALAYSIA
Pricing
There is no price regulation in Malaysia and manufacturers and retailers are free to set their own
prices. The Price Monitoring Unit (PMU), which is part of the Pharmaceutical Services Division (PSD) of
the MoH, was established in December 2004 with the following objectives:
• To conduct a survey on the price of medicines in order to obtain information on the trend of
medicines prices in the market;
• To obtain the price structure of medicines in Malaysia;
• To create a medicines price database system; and
• To disseminate information on medicines prices to professionals within the health sector as
well as to consumers.
The current pricing services provided by the PMU and the PSD are more observational than
regulatory. The PSD publishes the National Essential Drugs List (NEDL), detailing the dosage form,
strength, and level of care for each drug (universal, secondary and/or tertiary). The third edition of
the NEDL was published in July 2012. A companion document is also published periodically, detailing
recommended retail prices for all drugs in the NEDL. The Recommended Retail Price (RRP) for NEDL,
2011, was extracted from the private sector Medicine Wholesale Price Survey 2011 publication and
covers 288 NEDL items from 28 different types of pharmacological grouping and 299 items of
different packaging and volume. Prices are reported in minimum, median and maximum price. Of
the 288 NEDL items, only 173 items (60%) have an RRP. The RRP list is not considered compulsory,
but is made available as a reference tool for price negotiation in the public and private sector
procurement process.
The PSD also publishes the complete Malaysian formulary, which contains all of the drugs approved
for use in MoH facilities in Malaysia. Version 3/2012 of the formulary was published in November
2012 and contains 1,578 items, not all of which are included in the NEDL.
A proposal to split prescribing and dispensation of drugs, presented in a bill in January 2013, has the
potential to alter drug pricing. If passed into law, patients would be able to decide on a treatment
based on price - as well as other factors - and this could encourage manufacturers of branded goods
to cut their prices in order to compete. Following general elections in May 2013, the government
announced that the MoH's pharmaceutical services division was reviewing pricing and
reimbursement, with the aim of making drugs more affordable for consumers, but still profitable for
manufacturers.

July 2014 55
NEW ZEALAND
Pricing
The prices of reimbursable drugs in New Zealand are set by PHARMAC in co-operation with District
Health Boards (DHBs), which hold the budget. They are set by using a mix of targeting mechanisms
(Special Authorities), risk-sharing agreements with suppliers (whereby expenditure above an agreed
level is rebated back to PHARMAC) and tendering. This authority also decides on which drugs will be
approved for funding each year. This budget covers both the Pharmaceutical Schedule (PS) and
hospital purchases. All subsidised medicines are listed in the PS.
In April 2014, PHARMAC announced its intention to test out a contestable fund for high cost
medicines for rare disorders, which could be seeking proposals from pharmaceutical companies by
the end of 2014. Chief executive, Steffan Crausaz, said that promoting competition among suppliers
could be the key to improving patients’ access to high cost medicines for rare disorders. Crausaz said
that up to NZ$5 million per year could be available, through funding that has already been budgeted
but not likely to be used for the NZ$8 million exceptions policy. Because this funding is already
budgeted, it would not limit PHARMAC's ability to fund other treatments for less rare conditions.
Should PHARMAC request commercial proposals by the end of 2014, funding could begin in early
2015.
Drug Tender Scheme

PHARMAC runs a drug tender scheme in association with Medsafe and the Pharmacology and
Therapeutic Advisory Committee (PTAC). The tender scheme invites companies to offer their drug to
be sold at a specified price, and if it wins the tendering process (normally the lowest-priced drug
wins), it is awarded sole supply rights in New Zealand for a fixed period of time. An updated
invitation to tender for 2013-14 was published on the PHARMAC website in November 2013. The
deadline for tender bids was December 19 2013.
PHARMAC also accepts alternative commercial proposals (ACP) from companies that do not wish to
tender their drug. This may include initiatives such as price reductions on one set of pharmaceuticals
in return for PHARMAC agreeing to defer tendering on another group.
Reimbursement
PHARMAC makes its funding decisions by gathering information from three separate sources: clinical
advice from a committee of experts; economic analysis and prioritisation; and public consultation. It
acknowledges that its decisions may be controversial, but insists it has to stay objective and allocate
resources available in a fair and reasonable way.
PHARMAC decisions on which medicines are listed on the PS are based on a number of criteria:
• The health needs of all eligible people within New Zealand;

• The particular health needs of Māori & Pacific peoples;
• The availability and suitability of existing medicines, therapeutic medical devices and related
products and related items;
• The clinical benefits and risks of pharmaceuticals;
• The cost-effectiveness of meeting health needs by funding pharmaceuticals rather than
using other publicly funded health & disability support services;
• The budgetary impact (in terms of the pharmaceutical budget and the Government’s overall
health budget) of any changes to the Schedule;
• The direct cost to health service users;

56 July 2014
• The Government’s priorities for health funding, as set out in any objectives notified by the
Crown to PHARMAC, or in PHARMAC’s Funding Agreement, or elsewhere; and
• Such other criteria as PHARMAC thinks fit. PHARMAC will carry out appropriate consultation
when it intends to take any such “other criteria” into account.
With effect from July 1 2013, the New Zealand government has given PHARMAC responsibility for
managing hospital pharmaceuticals. In response to the government’s policy of nationally funding
hospital pharmaceuticals, PHARMAC has developed a Hospital Medicines List (HML) in association
with clinicians and pharmacists. The HML is designed to deliver national consistency of DHB hospital
medicines offered to patients, wherever in New Zealand they are being treated. The HML is an
updated version of Section H of the Pharmaceutical Schedule. DHB hospitals began using the new
list for prescribing with effect from July 1 2013.
Prescription Charges
Most medicines listed on the PS are fully subsidised. Patients are required to pay a prescription
charge, which amounts to NZ$5.00 in 2014. Prescriptions for children under six years old are free.
Patients with chronic illnesses or families that require regular prescriptions may obtain a
Pharmaceutical Subsidy Card (PSC), also known as a safety net card. Under the PSC scheme, families
do not have to pay more than NZ$100 for fully reimbursed medicines during a 12-month period,
which runs from 1st February to 31st January each year.
Families on a low income may qualify for a Community Service Card (CSC), which can reduce the cost
of GP visits and prescription charges. For people who do not have a CSC but have on-going health
problems, a High Use Health Card (HUHC) is available to reduce the cost of prescribed medicines for
people who have visited the doctor more than 12 times in the last 12 months. For residents aged 65
or over, or people who qualify for a NZ Super or a Veteran’s Pension, a SuperGold Card is available.
For medicines that are not fully subsidised, there may be an additional charge. The final price paid
depends on the difference between the subsidy and the manufacturer’s price, and the size of the
mark-up the dispensing pharmacy charges. Some pharmacies charge higher mark-ups than others,
so the price of a partially reimbursed medicine can vary between pharmacies.
PAKISTAN
Pricing
The MoH controls the prices of drugs marketed in Pakistan and can also specify a certain percentage
of the profits of a manufacturer's drug to be used for the purposes of research. In Pakistan's public
sector, medicines are procured through large-scale tenders and prices are set very low to facilitate
access to healthcare. Centralised and decentralised tenders are run by the government.
Drugs in Pakistan are split into two categories, controlled and decontrolled, and priced accordingly.
The controlled drugs list was first published in June 1993, comprising 821 basic compounds for which
individual maximum retail prices were established. The drugs included are considered essential,
widely used, life-saving and life-enhancing medicines. Controlled drugs account for around 70% of
market sales.

July 2014 57
All other drugs are classified as belonging to the decontrolled drugs list. These drugs are considered
of less importance, such as vitamins and cough and cold remedies. It was intended that market forces
would determine the price levels of these medicines. However, this method of pricing proved only
temporary, as successive governments intervened with the pricing of drugs in this category. Hence,
the pricing of decontrolled medicines is as tightly controlled by the government as drugs on the
controlled list. Decontrolled drugs account for around 30% of market sales, with the majority, around
90%, produced or imported by domestic manufacturers.
Despite controls, prices are considered to be too high. This is for two main reasons; firstly, low official
prices have driven supplies onto the black market, where market prices prevail. Secondly,
manufacturers often offer deep discounts to wholesalers and retailers in order to get their drugs
stocked. Despite discounts, patients pay the official fixed retail price.
Drug Pricing Policy

In February 2011, Secretary of Health, Nargis Sethi, announced a new drug pricing policy at a meeting
with representatives from the Pakistan Pharmaceutical Manufacturing Association (PPMA). The PPMA
expressed concerns over issues related to the issuance of new licences and the renewal of existing
licences. Sethi revealed that the system of drug licensing would be updated to meet current
requirements, and that the entire process, from submission of applications to the issuance of licences,
would be computerised, therefore making it more transparent and efficient. Sethi stated that the
new drug pricing policy outlined by the MoH, and in consultation with the pharmaceutical industry,
will support the needs of the poor as part of the government's aim to provide better healthcare for
people who are economically deprived and have limited access to such services. Sethi also
emphasised the importance of corporate social responsibility of the pharmaceutical industry in
backing the government's plan.
Medicine Tariffs Abolished

In July 2006, import duty on all cancer medicines, kidney dialysis and transplant, vaccines and
interferon, along with hepatitis medications, was abolished. In addition, vaccines, antisera,
cardiovascular drugs, blood bags (CPDA1), HIV/AIDS medicines and thalassemia were made exempt
from import duty. Duty on eye drops and ointments was also reduced.
Illegal Price Increases

The cost of illegal price hikes for medicines by pharmaceutical companies in Pakistan is PKR90 billion
(US$842 million) a year, reported the Pakistan Observer (in September 2013), citing Mian Aftab, the
president of Health Watch. Aftab supported the Supreme Court's decision on notifying
pharmaceutical companies for overpricing medicines on false grounds, thereby making healthcare
unaffordable for millions of poor Pakistanis. Several domestic and international pharmaceutical
companies are exploiting the masses with the assistance of local healthcare authorities, which should
face strict action, Aftab added.
In the same month, Pakistan's Supreme Court issued notices to 22 pharmaceutical companies for
selling drugs at higher prices than the rates fixed by the Drug Regulatory Authority (DRA). The
notices were issued after Deputy Attorney General Sajid Ilyas Bhatti presented a list of 22 companies
that have taken stay orders from different high courts against the prices fixed by DRA. According to
the list, the biggest defaulter was Highnoon Laboratories, followed by Epla Laboratories, Pharmatec
Pakistan, Woodward and Roche Pakistan among others.

58 July 2014
Further to this, in December 2013 Pakistan's Ministry of National Health Services revealed that
pharmaceutical companies have managed to raise the prices of around 2,881 medicines since 2001
without any official notification, according to unnamed sources close to the development (Report
International, The News). The federal government exercises control on prices of 313 life-saving
medicines and the rest of the prices are allegedly managed by the manufacturers, a former senior
official of the ministry said. Citing an example, the official said that the government reduced the price
of 92 pharma products in July 2013, but a major pharmaceutical company refused to decrease prices
and continued selling Pegasys, used for treating hepatitis, at a much higher rate.
On this note, in January 2014 Health Regulations State Minister Saira Afzal Tarar announced that strict
action would be taken against pharmaceutical companies involved in unjust medicine price
increases. The minister cautioned that medicines' price and quality would be closely observed. In
response, in April 2014 Pakistan Today reported that the Drug Regulatory Authority of Pakistan
(DRAP) was directing its field offices and the provincial governments to remain vigilant on any
unauthorised increase in drug prices, and take appropriate legal action against defaulters. According
to official sources, DRAP was conducting market surveys to check drug prices and the sale of drugs at
prices over those prices fixed by the federal government. DRAP stated that over the previous two
years, 17 pharmaceutical companies had increased the prices of their drugs exorbitantly and received
stay orders from various courts.
Reimbursement
There is very little public reimbursement in Pakistan. Free medicines are available for the treatment
of thalassaemia, hepatitis, HIV/AIDS and certain cancers. However, in practice, limited volumes of
zero-cost pharmaceuticals are distributed in the country. Government employees receive free
medicines under public sector healthcare plans.
PHILIPPINES
Pricing
Pharmaceutical prices in the Philippines are regulated by the Department of Health (DoH), under the
Universally Accessible Cheaper & Quality Medicines Act 2008 (Republic Act 9502; RA 9502). Under this
act, the Secretary of Health has the power to implement: fair price of drugs for the purposes of public
health, any other measures to reduce the cost of drugs, and fines and penalties for violation of these
conditions.
Interventions introduced under the act to regulate prices are the Government Medicated Access Price
(GMAP) and the Maximum Retail Price (MRP) for medicines. The government recognises competition
as the primary way to ensure the best price for quality medicines and actively promotes generics.
Innovation is also viewed as important for the population to have access to newer and better drugs.
The introduction of price regulation is aimed at cases where a lack of competition results in higher
prices.
Government Mediated Access Price

In July 2009, former President Arroyo initiated the Government Medicated Access Price (GMAP) to
make reductions in the price of drugs, as part of RA 9502. The 2009 GMAP, signed by former
President Arroyo, was initially an executive order to slash the prices of five essential medicines by
50%, effective 15th August 2009. The prices of 22 other essential medicines, chosen by the
government, were also voluntarily cut before the deadline by the manufacturers.

July 2014 59
The Philippine DoH released the following statement on the Implementing Rules and Regulations
(IRR) for RA 9502:
Pursuant to the provisions of the Law, particularly on Chapter 3, Section 19 (F) which states that:
"Accordingly, within thirty (30) days from the effectivity of this Act and every December 31st
thereafter, every manufacturer, importer, trader, distributor, wholesaler and retailer of drugs and
medicines, whether included in or excluded from the list of drugs and medicines that are subject to
price regulation, shall furnish the Secretary of Health a list, containing on the minimum the
corresponding prices and inventory of all drugs and medicines it manufactures, imports, trades,
distributes, wholesales or retails data pertaining to the factors enumerated under Section 19 (A) (2),
and any and all necessary information that the Secretary of Health may require".
Further Price Reductions, 2010
In March 2010, it was announced that a further 97 drugs were to be reduced by an average of 50%,
bringing the total number of drugs whose prices had fallen since August 2009 to 200. This
represented 12-15% of the total market for essential drugs. It was estimated that this round of price
reductions would affect more than 2.0 billion pesos (US$43.8 million) of the market and, in turn, result
in 1.0 billion pesos (US$21.9 million) of public savings.
Price reductions under the GMAP were for a wide variety of treatments including hypertension,
glaucoma, bladder and prostate conditions, hepatitis, mental health problems and fluids for patients
on kidney dialysis. Key brand name drug price reductions included: Merck & Co/Schering-Plough's
cholesterol medicine Vytorin (ezetimibe and simvastatin), AstraZeneca's cancer drug Zoladex
(goserelin), and GlaxoSmithKline's prostate cancer drug Avodart (dutasteride).
The majority of drugs involved were new products in the market, whose prices were
disproportionately higher in the Philippines in comparison to the Asia-Pacific region. They also
tended to be drugs that were the expensive, top selling brands, with limited generic competition.
Eleven drug companies voluntarily offered their drugs at reduced prices, with only Pfizer having price
cuts imposed by the government. The reductions were either voluntary cuts to the cost of treatments
or in the case of more popular drugs, such as Pfizer's Lipitor, set price caps.
Former Secretary of Health, Esperanza Cabral, warned that GMAP compliance would be enforced
through the monitoring of retail outlets by the BFAD and increased public awareness, with harsh
penalties for those retail outlets that did not implement the price reductions.
DoH issues Cease and Desist Orders on retailers that violate the GMAP and MRP
As of 6th April 2010, 123 drugstores and pharmacies in Metro Manila and other regions had violated
the GMAP and the MRP, which were both implemented in August 2009.
Administrative fines ranging from 1,000 pesos (US$21.5) to 50,000 pesos (US$1,075) per drug
violation for the GMAP and MDRP were imposed. Repeated violations of the GMAP and the MDRP
incur penalties of between 50,000 pesos (US$1,075) and 5.0 million pesos (US$107,500), with
accompanying suspension or revocation of the owners' licences to operate, depending on the gravity
and extent of each violation. Penalties imposed on violators are based on RA 9502.
Former Secretary of Health Esperanza Cabral had warned the drug stores and pharmacies owners that
the DoH would not hesitate to enforce these penalties, should the GMAP and MDRP not be complied
with.

60 July 2014
Essential Medicines Price Freeze

In November 2013, the Health Secretary, Enrique Ona, announced the implementation of a price
freeze on some 200 essential medicines to ensure their availability in the wake of typhoon Yolanda. It
was expected that the price freeze would cover likely prevalent conditions among typhoon victims,
such as physical and mental trauma and injury, diarrhoea, pneumonia, skin diseases and other
infections such as leptospirosis and other endemic diseases in affected areas. Other essential drugs
covered by the price freeze include those that address common chronic diseases such as diabetes,
hypertension and asthma, which the DoH suggested were likely to be aggravated by the anxiety and
stress, as well as the difficult conditions faced on a daily basis by the victims.
The Price Act (Republic Act 7581) mandates the DoH to automatically freeze the prices of essential
medicines classified as basic commodities, or to impose maximum price ceilings, particularly in times
of calamity. The move is aimed at protecting consumers from profiteering, hoarding, cartels and
other such violations by traders who may take advantage of a calamity situation.
Reimbursement
The DoH has a number of Medicines Access Programmes (MAPs) to support cost-effective healthcare
delivery through the provision of essential medicines to patients in public health facilities. MAPs
cover inpatient and outpatient care, and special MAPs are in place for acute lymphocytic leukaemia,
breast cancer and rare diseases. MAPs also provide access to specific medicines, specifically insulin
and valsartan.
The government funded Philippine Healthcare Insurance Corporation, PhilHealth, provides members
with reimbursement coverage for drugs prescribed in hospitals, with a maximum ceiling rate per
period of treatment that varies according to the level of the hospital (primary, secondary, tertiary) and
type of illness (categorised by case types A, B, C or D).
The GMAP ensures a 20% discount and exemption from value added tax on drugs and medical fees
for elderly people under the Expanded Senior Citizens' Law. This discount is applied prior to benefits
under PhilHealth.
SINGAPORE
Pricing
In Singapore’s private sector, drug pricing is left to market forces. In the public sector, cost-
effectiveness is among the criteria for inclusion on the subsidised Standard Drug List (SDL).
In May 2009, the SingHealth Centre for Health Services Research (SingHealth CHSR) proposed the
initiation of innovative pharmaceutical pricing models (IPMs). Potential IPM structures discussed
included price-volume agreements, outcome-based performance models and capitation models. It
was decided that the actual IPM would be based on a combination of these three models, and would
be used for future breakthrough drug innovations. According to the SingHealth CHSR, the shift in
approach would be away from pharmaceutical companies viewing government as a barrier to
overcome, and instead as a potential customer amid more co-operation between the two parties.
SingHealth is the largest healthcare provider in Singapore. Pharmaceuticals are purchased by the
Group Procurement Office (GPO), which sources drugs for all of the public healthcare institutions in
Singapore. The SingHealth GPO operates a tendering process for pharmaceuticals, through which it
invites selected companies to submit proposals for various products, which it then evaluates.

July 2014 61
Reimbursement
Patients receive drug subsidies based on their paying status and the scheme under which the drug is
covered. These schemes include the SDL and Medication Assistance Fund (MAF), as well as subsidies
for inpatient drugs. Some drugs are subsidised only for specific clinical indications. According to
Singapore’s Ministry of Health, the list of drugs that are subsidised at public health institutions covers
up to 90% of prescription volume. The list is regularly reviewed and updated by the MoH.
The SDL comprises the essential drugs to meet the healthcare needs of the majority of the
population, and this formulary is used for the reimbursement of drugs and treatments. Additionally,
the MAF, in existence since 2010, supports eligible patients in paying for expensive drugs that are not
included on the SDL.
According to the SingHealth CHSR, the listing of new drugs on Singapore's formulary for
reimbursement, apart from the impact on the budget, is based on the considerations of efficacy and
costs of the drug over alternative drugs and treatments. As the price of generic alternatives available
in Singapore is often far lower than in Europe or North America, pharmaceutical companies continue
to submit analyses that are often inappropriate for policy decision-making in the Singapore context.
SingHealth CHSR also gives due consideration to the long-term safety of the new drug being
reviewed, the potential number of patients that would benefit if the drug were to be listed on the
formulary, as well as the potential for drug compliance and over-usage. Furthermore, inclusion into
the Standard Drug List needs to entail more careful deliberation, as this implies utilisation of
government funds to subsidise the drug and that the requirements to obtain a licence for market
entry are less stringent, since these are based mainly on safety, efficacy and quality, and not price or
cost-effectiveness healthcare considerations.
With effect from April 1 2013, the MoH added 17 new drugs onto the SDL and MAF, including second-
generation insulin products and atorvastatin. The estimated cost to the government is around S$5
million annually.
SOUTH KOREA
Pricing
Pricing and reimbursement decisions are made by two separate organisations, the National Health
Insurance Corporation (NHIC) and the Health Insurance Review & Assessment Service (HIRA). The
Ministry of Health and Welfare (MoHW) then reviews the organisations' assessments and authorises
the final pricing and reimbursement announcement. During the process, HIRA considers clinical
utility and cost-effectiveness, whereas NHIC evaluates comparative pricing, reference markets,
budgetary impact and incremental cost-effectiveness ratio of a new drug. The reference markets
considered during negotiations are Australia, France, Germany, Italy, Japan, Singapore, Spain,
Switzerland, Taiwan, and the UK. The NHIC also has a price negotiation system to determine if a new
drug should be listed/approved and at what price.
The South Korean pricing system is far from transparent and has come under severe criticism from
the pharmaceutical industry for many years. Dispute centres mainly on two issues: the standard retail
pricing (SRP) system and the reimbursement of imported drugs.

62 July 2014
In September 2013, the South Korea's Ministry of Food and Drug Safety (MOFDS) announced new
pricing rules. The government will reduce the price of a drug via discussion with the manufacturer, if
the insurance claim amount of the drug, including all the available strengths with the administration
route, is increased by KRW5 billion (US$4.6 million) or more and 10% or higher than the amount in the
previous year. The government will also decrease the prices of the drugs by 5% or less if their
insurance coverage gets expanded. The new pricing rules will in turn enable the government's
investment on prescription drugs to be decreased by KRW29.8 billion (US$27.6 million) annually and
the number of target drugs for price reduction will also drop to 44 from 85. The MOFDS scheduled
hearings regarding its recommended modifications for November 15 and the new rules were due to
be effective from December 27 2013.
In January 2014, the ministry announced its decision to postpone its newest price-volume agreement
(PVA) until January 2015. Under the new PVA, the listing prices of drugs would have been cut by up to
10%.
The country has introduced a number of price cuts over the years, which companies have complained
were discriminatory; the pricing policy has tended to favour locally made generics. For example, in
May 2006, prices were cut during negotiations of a free trade agreement (FTA) with the USA. US
pharmaceutical companies alleged the government’s new pricing policy discriminated against
patented medicines produced by foreign companies.
However, a breakthrough was achieved in July 2007, with the FTA finalised with the USA, in which
South Korea agreed to introduce a clear, transparent and objective process or system for the
reimbursement of drugs. In theory, this move would favour the manufacturers of original drugs,
which were expected to see a "fair" price or valuation of original drugs, which the US pharmaceutical
industry argued would also encourage innovation and drug discovery. The local industry, made up
mainly of manufacturers of generics, were expected to lose out under the changes brought by the
FTA, such as the removal of tariffs on imported drugs, making them more competitive in the Korean
market.
Key Developments
Drug Price Cuts to Encourage Generic Competition
In August 2011, the government and MoHW unveiled a set of plans to cut generic drug prices by up
to a third, beginning in 2012. These measures brought down the prices of some 8,776 of the total
14,410 drugs registered to the National Health Insurance system by around 17% on average. The cuts
would allow consumers to save around KRW 600 billion (US$538.4 million) in annual drug costs and
the government KRW 1.5 trillion (US$1.3 billion) in health insurance payouts. This was the largest
drug price reduction since the separation of medical dispensing and prescribing in 2000.
The MoHW also decided to scrap the system whereby drug prices are graded in the order they were
registered with the National Health Insurance system, in a bid to accelerate development of generic
drugs as soon as the patents of the original drugs expire. Instead, payments for the same drugs
would be capped irrespective of manufacturer to induce competition among pharmaceutical
companies to develop better quality drugs.
The ceilings for drug prices upon patent expiration of the original drugs would be lowered to 53.6%
of the price before expiration. Previously, once the patents expired, original drugs were sold at a
maximum of 80% of the pre-expiration price and generic drugs at 68%. Prices of newly registered
drugs, however, will be capped at between 59.5% and 70% of the pre-expiration price for a year after
registration to induce stable supply. Patented drugs and special drugs were exempt from these price
cuts.

July 2014 63
Preferential Drug Price-Cut Exemption Policy
In April 2011, it was reported that sixteen South Korean pharmaceutical companies would benefit
from preferential drug pricing by the government due to their large expenditure on R&D. The MoHW
first put forward an R&D Preferential Price-Cut Exemption Policy for pharmaceutical companies that
had a high R&D spending in 2010. Under the proposed Pharmaceutical Trade and Pricing
Transparency Plan, the government would grant 30-60% exemption from price-cuts for
pharmaceutical companies according to their annual R&D investment.
There were sixteen companies expected to benefit from this policy: Hanmi, LG Life Sciences, Dong-A,
Korea Green Cross, Yuhan, Chong Kun Dang, Daewoong, Hanall, Choongwae, United Pharm, Boryung,
Ildong, Jeil, Handok, Ahngook and Jinyang. To achieve the maximum exemption of 60%, companies
must have R&D expenditure of over KRW 50 billion (US$43.3 million) or equivalent to more than 10%
of total sales. Only Hanmi and LG Life Sciences met these requirements, and would therefore be
eligible for the maximum exemption from price-cuts.
Transacted Drug Price Control System
The MoHW has announced that, from October 2010, it would implement a market-driven price
control system based on actual transacted drug prices. The new system would ensure that if medical
institutions and pharmacies reported actual transacted drug prices to the MoHW, then they would
receive an incentive of 70% of the difference between the reimbursement prices and the actual
transacted prices. This would allow the MoHW to reduce the amount of reimbursement on drugs and
help to prevent illegal rebate payments by pharmaceutical companies to hospitals.
Separation of Prescribing and Dispensing
South Korea completed the protracted process of splitting prescribing and dispensing in 2000. For
the government, the objective of the split was to reduce reimbursement expenditure and to prevent
misuse and abuse of medicines. Previously, people had been able to obtain medicines directly from
pharmacies without a prescription.
The Pharmaceutical Affairs Act, amended in 1963, stipulated the principle of functional division
between physicians and pharmacists. However, it also permitted doctors to directly prepare
medicines, in direct contravention to the principle of division. In 1993, a dispute over the preparation
of Oriental medicines by pharmacists in 1993 led to a revision of the Pharmaceutical Affairs Act, which
explicitly provided for the separation of medicine dispensary from medical services. The new system
became fully effective from 1st July 2000.
The move was initially controversial and chaotic and the period is now widely referred to as a time of
medical turmoil. Doctors staged several strikes and the Korean government had little choice but to
appease them in the face of widespread unrest. The result was an increase in doctors' prescription
fees and diagnosis charges, as well as a 15% salary increase for hospital doctors, in an attempt to gain
the support of the profession. This in turn led to pressure on health insurance premiums, as the
government sought to raise the extra money needed to pay for the increased financial inducements.
Reimbursement
The South Korean government introduced a positive reimbursement list in 2006. Previously, all drugs
were reimbursed. Reimbursement for newly developed drugs is restricted unless 'clear therapeutic
benefit' is demonstrated. Since its introduction, the number of drugs included in the reimbursement
list has been reduced, from 20,775 presentations in 2006 to around 14,600 by 2012.
Reimbursement of medicines is available through Korea’s national health insurance (NHI) system,
subject to a patient co-payment. For inpatients, the co-payment is generally 20% of the total
treatment cost, including medicines. Registered cancer patients pay 5%, while patients with rare or
incurable diseases pay 10%.

64 July 2014
For outpatients, co-payments at the pharmacy are 40% of total care benefits in the Dong
administrative district or 35% in the administrative districts of Eup and Myeon. Co-payments are
subject to a ceiling of KRW2-4 million, dependent on the patient’s average health insurance fee per
year.
In March 2014, the MOHW announced that drugs involved in unethical business practices (e.g. illegal
rebates) and worth at least KRW100 million (US$95 million) would be excluded from NHI coverage. If
the same drug is caught again within five years, the drugs will be permanently excluded from NHI
coverage.
Actual Transaction Price Schemes

The actual transaction price (ATP) scheme was initiated in 1999 and essentially set drug
reimbursement levels at the actual price paid by health institutions under the NHIS, creating a 'zero-
profit' system. At the same time, the government increased the service and drug-handling fees for
doctors to discourage them from obtaining rebates from manufacturers. The system required health
institutions to report their purchase price for each drug to the National Federation of Medical
Insurance on a quarterly basis. Institutions that falsify drug-pricing data are subjected to sanctions.
While the introduction of the ATP system had limited success in reducing discounts and price levels in
the hospital sector, it removed the profit motive whereby hospitals retained the difference between
the discounted price from suppliers and the official reimbursement list price. As a result,
reimbursement prices were cut by an average of 30.7%, achieving considerable savings.
Since October 2010, the Market-Based Actual Transaction Pricing (M-ATP) (also referred to as
'incentives system for low price purchase') mandates that all hospitals, clinics and pharmacies disclose
the purchase price for the products they buy. If the actual purchasing price is lower than the official
maximum reimbursement price (MRP), the healthcare providers receives an NHI rebate, which is set at
70% of the difference between the purchase price and the MRP. Moreover, the authorities are
collecting data to determine the weighted average of ATPs, which will annually feed into the official
MRP.
However, PhRMA stated that the success from the policy was minimal and that it encouraged
hospitals to select drugs based on the quantum of rebate, 'undermining the ability of prescribing
doctors to choose the best available medicine for their patients'. The programme was suspended in
August 2011 until January 2014. In December 2013, the ministry announced that it would implement
the M-ATP system, effective from February 2014. Subsequently in February 2014, the government
announced that it will develop and legislate a new model to replace M-ATP following objections from
six pharmaceutical industry interest groups. The series of events highlighted the lack of options for
stakeholder input and the unpredictability of MOHW's policies.
The proposed new system was temporarily named 'incentive scheme to reduce total prescribed drug
expenditure'. In addition, the MOHW said it would develop an evaluation model to cover incentives
for outpatient prescriptions, incentives offering systems (for preventive drugs that are in short supply
and generic drugs) and drug expenditure for hospitalised patients. Amendment of the legislation
under the NHI act and related public notification would take about four to five months and,
consequently, the M-ATP system was expected to be abolished in July.

July 2014 65
TAIWAN
Pricing
The Bureau of National Health Insurance (BNHI) is the sole authority responsible for evaluating and
determining pricing and reimbursement policies for pharmaceuticals in Taiwan.
Under Taiwan's "Five Principles" drug pricing policy, the prices of original brand-name products are
set by the BNHI, after comparing the prices of the drug in ten different reference countries, called the
Advance 10 Countries (A10). These countries are believed to be Australia, Belgium, Canada, France,
Germany, Italy, New Zealand, Sweden, Switzerland and the US.
The prices of generic drugs, which are mainly produced by domestic manufacturers, are set at 80-
100% of the price of the original drug. This subsequently gives the domestic manufacturers an
advantage over foreign competitors. The price gap between generic and original drugs has tended
to narrow in recent years.
NHIA Price Cuts

In 2011, the BNHI introduced a price-cut revision, the 7th Price-Volume Survey, a move that was not
well received by the research-based pharmaceutical industry. In a White Paper, published in 2012,
the American Chamber of Commerce in Taipei (AmCham) said it hoped the BNHI and the DoH would
work in conjunction with the pharmaceutical industry to set a "reasonable" Drug Expenditure Target
(DET) for 2013, when the Second Generation National Health Insurance programme is implemented.
It believes setting a DET would make price adjustment decisions more transparent to all stakeholders.
Under a DET system, the BNHI and the pharmaceutical and medical industries would negotiate an
annual drug expenditure target based on the historical data of actual drug expenditures. That said,
AmCham praised the pricing and reimbursement for new drugs under the new system. It said the
average price of new drugs approved during the 12-month period between April 2011 and March
2012 increased slightly to 50.6% of the median price of the A10 used as a reference, compared to
47.8% the year before. AmCham argued that a fairer pricing system was needed due to the already
low prices of comparative medications.
Under the second generation NHI, the NHIA was to carry out a trial of the DET in 2013 and 2014, using
the previous year's annual spending to calculate the following year's budget, and set the budgeted
market growth rate. According to the administration, if the target was set at TWD140 billion (US$4.8
billion) and actual spending was TWD143 billion (US$4.9 billion), the excess expenditure of TWD3
billion (US$102 million) would be taken as the amount by which the following year's drug prices
would be adjusted.
In 2013, actual NHIA drug expenditure reached TWD143.7 billion (US$4.8 billion), which was more
than the target of TWD 138.0 billion (US$4.6 billion). As a result, the NHIA raised the prices of 3,364
drugs while reducing the prices of 7,583 drugs from May 1, 2014, resulting in an average adjustment
of 3.9%. The NHIA also stated that with effect from July 1, 2014, drugs that have been on the market
for 15 years or more would be subject to the same reimbursement prices from the NHIA as drugs with
the same ingredient.

66 July 2014
Reimbursement
The reimbursement system is best described as opaque. Since the introduction of the National
Health Insurance (NHI) system in 1995, the BNHI has had a monopoly over drug pricing and
reimbursement. This has caused major problems for manufacturers, both domestic and overseas, as
there is little co-ordination between the BNHI and the Bureau of Pharmaceutical Affairs. The BNHI has
exhibited a tendency to erode reimbursement prices, especially in the light of its budgetary
difficulties. The multinational industry has urged drug price rises, although the BNHI is still keen to
cut them further.
As part of the Second Generation National Health Insurance programme, which became effective
from 2013, a new system has been established called the Drug Reimbursement Item and Payment
Scheme (DRIPS). The American Chamber of Commerce in Taipei (AmCham), in a White Paper
published in 2012, said it hoped the new system would not become so complicated as to cause
delays in patient access to innovative new drugs.
The BNHI states that all medicines and medical devices must be reimbursed 'at cost'. In practice this
means that hospitals and clinics are able to claim full-price reimbursement on items that have been
sold at a discount. This is often a lucrative source of income for hospitals and one, which arguably
discriminates against the international pharmaceutical industry in favour of domestic producers.
There are around 20,000 drugs listed on the BNHI's reimbursement Reference List. However there is
often a substantial delay between a drug's approval and its inclusion on the list. The BNHI aims to
gradually replace any branded drugs on the list with generic equivalents. It is also worth noting that
each major hospital maintains its own drug formulary, and may require its own trials to be conducted
before a drug is allowed on it.
For the purposes of reimbursement, drugs are classified according to the following system:
A) Compound prescription and specially regulated drugs:
• Water, saccharides and/or electrolytes, supplementary solutions;

• Amino-acids & injectable nutritional solutions;
• Multivitamins;
• Common cold preparations;
• Antacids.
B) Other prescription drugs:
• Drugs from the originating R&D company;

• Products manufactured by the developer company;
• Products manufactured in Taiwan under licence;
• Generic drugs that have successfully undergone bioequivalence studies;
• Other generic drugs.
C) New drugs:
• New drugs are those that are not recorded on the reimbursement drug list or have not been
submitted for reimbursement approval.

July 2014 67
Co-payment system
Under the BNHI's drug co-payment system, there is no payment for prescriptions under NT$100.0
(US$3.0), and there is a sliding scale for prescriptions up to a cost of NT$1,000.0 (US$30.0). Anything
over this incurs a payment of NT$200.0 (US$5.9). For those requiring frequent prescriptions, a second
sliding scale operates. For the 25th to 48th prescription, those aged over 65 pay nothing, while those
under 65 pay NT$50.0 (US$1.5) each time. Everyone pays NT$50.0 (US$1.5) for the 49th to 156th
prescription. Beyond this, there is a flat co-payment of NT$100.0 (US$3.0) per prescription. There are
four categories of exemption from co-payment: those with certain conditions such as chronic
illnesses and childbirth, patients in remote mountain/island areas, veterans, those on low incomes
and emergency service users.
THAILAND
Pricing
Pricing controls in Thailand are limited to the public sector and are centred on Act BE 2539, The Main
Price List of Essential Drugs. The Act stipulates that the Ministry of Public Health (MoPH) may use no
less than 80% of its government drug budget for the purchasing of essential drugs. The drugs must
be purchased from the Government Pharmaceutical Organisation (GPO). Other health institutions are
required to use no less than 60% of their budget for purchasing drugs on the aforementioned list.
A further piece of central legislation is Act BE 2522, The Price Fixing and Antimonopoly Act. Under the
Act, the Central Committee on Price Fixing and Antimonopoly, with the approval of the Council of
Ministers, is empowered to place products, including drugs, under price control in times of economic
crisis. The Act is enforced by the Ministry of Commerce, and is designed to prevent unfair price fixing
or trading practices.
There are also market mechanisms allowing free competition among generic drugs and among drugs
that are in the same category.
Reimbursement
A drug is only entitled to reimbursable status if it is included on the National List of Essential
Medicines (NLEM). The NLEM was first published in 1981. In 1999, the list was expanded from around
370 essential drugs to include 835 products, covering all levels of care. At this time, it was first used as
the reimbursement list for the Civil Servants Medical Benefits Scheme (CSMBS).
Following the introduction of the Universal Coverage (UC) scheme in 2002, Thailand has three health
insurance schemes: the CSMBS, UC and the Social Security System (SSS). Subsequently, the NLEM has
been regularly updated and is used as a reimbursement reference for all three schemes.
In 2008, “Jor 2” was appended to the NLEM to promote rational access to very high cost medicines for
specific patients through an authorisation system. Hospitals can reimburse “Jor 2” drugs in addition
to the capitation budget under the UC scheme.

68 July 2014
Prior to inclusion on the NLEM, a medicine will be assessed with regard to its clinical benefit and
safety. In addition, it will be subjected to a pharmacoeconomic evaluation (PE) and budgetary impact
analysis. Under the auspices of the MoPH, the Thai Food and Drug Administration (FDA) is
responsible for selecting experts and institutions to work for the NLEM committee, which collects all
the evidence and endorses the list. An ISPOR article published in 2012; Drug Reimbursement decision-
making in Thailand, China and South Korea; suggests that the FDA’s decision-making criteria include a
safety and efficacy score and cost index, a cost-effectiveness threshold, which is based on GDP per
capita for each quality-adjusted life year (QALY), and its budgetary impact. Only those drugs with a
cost per QALY below the average GDP per capita are considered to be cost-effective. This basic
calculation would exclude high-cost biologicals and anticancer drugs from the NLEM, although some
are listed with recommendations if they are considered to be cost-effective for certain groups.
However, as a result of violations, an auditing system for expensive drugs has been used for the
CSMBS and UC schemes for reimbursement, to ensure rational drug use and control costs.
VIETNAM
Pricing
Pricing of pharmaceuticals is regulated by the Drug Administration of Vietnam (DAV) through its Drug
Price Management Division. After years of little or no price control measures, the government has
started coming down hard on firms that inflate prices of drugs without prior approval.
Drug Price Regulation

In September 2007, the MoH issued a decree on drug prices, which contained several regulations
introduced to stabilise rising costs. The decree split the drug market into three pricing segments.
The prices of drugs purchased by the government are set by the MoH and the respective provincial
committee. The second category, for drugs considered "essential" and dispensed in state-owned
clinics, distributors would be invited to tender for contracts, the lowest automatically winning. The
last category, drugs sold in the open market, would be regulated by government agencies. Retailers
would have the right to propose prices in this last category. As a means to control prices, vendors
would be required to provide public listings of both a drug's retail price and cost.
Under the 2007 pricing decree, Vietnam's pharmaceutical companies must report import costs and
set fixed prices that are not higher than those found in neighbouring countries of similar economic
status. The requirements aim to help Vietnam keep a close watch on domestic drug prices.
Companies are required to fix their prices after reporting the cost-insurance-freight (CiF) expenditure
of the drugs they import. The MoH also seeks to bolster co-operation with ASEAN countries to
improve the management of drug quality and prices.
The MoH's Drug Management Bureau would be deputed to oversee foreign firms' drug prices while
provincial and municipal health departments would be tasked with monitoring local businesses in
the same regard. The MoH would ask violators to reset their prices or see their distribution and
import licences revoked.
Methods adopted to calculate the profits for each kind of drug are regulated by the MoH. The
Ministries of Finance, Industry and Commerce, and Health set up a task force to oversee drug prices
and punish companies selling at unreasonable prices.

July 2014 69
In April 2012, the DAV stated that it would heavily fine organisations that violated medicine price
regulations from June 2012. The Ministries of Health, Finance and Industry and Commerce have
established new price regulations, enabling the MoH to disapprove the documents of a medical
trader violating price regulations, which would remove conflicts in pricing. According to the inter-
department circular, traders will be wholly responsible for their product's original, listed and selling
prices, which will be strictly monitored by the price management authorities. Manufacturers will have
to record both import prices and original prices of foreign drugs and domestic medicines. They also
need to register the wholesale and retail prices offered to the DAV, the MoH and local health centres.
Cuts in Tax & Import Duties

Vietnam's Pharmaceutical Management Department announced in October 2006, that the general
tax rate levied on pharmaceuticals had to be gradually reduced to remain at 0-5%, against 0-10%.
The department expected that within five years of Vietnam's official admission to the World Trade
Organisation (WTO), the average tax on pharmaceuticals would be 2.5%.
Since January 2009, foreign drug manufacturers have been authorised to import and export
pharmaceuticals directly. It is hoped that this incentive, along with the reductions in tax and import
duty, will help make Vietnam attractive to overseas investment.
Price Adjustments
According to the Vietnam Pharmaceutical Companies Association (VPCA), the results of an April 2012
survey of pharmacies showed that the prices of 65 locally produced medicines had increased. Some
prices, such as those of cardiovascular drug Trafedin, rose by as much as 40% on a month-on-month
(m-o-m) basis. The prices of imported treatments also rose, with GlaxoSmithKline (GSK)'s Augmentin
(amoxicillin clavulanate) 500mg now selling at VND175,000, a 9% increase. The VPCA survey of raw
materials found that their price only rose by 5.5% on average, which seems to suggest that drug
producers and importers arbitrarily increased the prices.
Prior reports by the VNPCA indicated that the pharmaceutical market and the prices of both imported
and domestically produced pharmaceuticals remained stable during the first six months of 2012.
The previous significant adjustments in prices were reported by the VNPCA during 2011. For
example, in July 2011, the prices of both imported and domestic drugs increased. Among the nearly
4,200 drugs surveyed in Hanoi, 97 drugs saw price increases of 6.2% on average, and 19 drugs saw a
4.4% decrease, accounting for 2.3% and 0.4% of total surveyed drugs, respectively. Drug prices
remained stable in Danang and HCMC. The VNPCA forecasted higher sales prices for both imported
and domestic drugs in 2011 due to higher input costs and rising world prices.
In January 2011, the DAV had warned that drug prices could rise slightly in 2011 due to volatile raw
material prices and the VND-US$ exchange rate. Indeed, some local drug manufactures import up to
90% of raw materials for production from abroad. To review the local pharmaceutical market and
prevent large drug price increases, the DAV announced several measures. Accordingly, the DAV
would step-up the inspection of drug price quotations by pharmaceutical companies through health
workgroups and would promptly publish the results. The DAV would also supervise the enforcement
of state regulations on drug price management and exercise sanctions on violators.

70 July 2014
Regional Price Comparison
In July 2012, the MoH stated that the prices of some drugs with the same commercial names, active
substances, concentrations and contents were 1-6 times higher in China and Thailand than in
Vietnam. The drugs surveyed included Rocephin and Zinat in 250mg and 500mg strengths
respectively, Augmetin BD, Pulmicort (budesonide), Diamicron MR (gliclazide), Vastarel MR, Adalat LA
(nifedipine), Crestor (rosuvastatin calcium), Xeloda (capecitabine), Cellcept (mycophenolate mofetil),
Durogesic (fentanyl transdermal system) and Smecta (Diosmectite). However, the results of the survey
have been called unconvincing, as out of about 10,000 products available in the market, the ministry
only looked at 36 products.
Recent Developments
In January 2013, Vietnam Health Minister Nguyen Thi Kim Tien stated that, due to inadequate bidding
management, there are many instances of the same drug being sold at different prices in different
provinces. For example, India-based Parex Pharmaceutical's Perabact (cefoperazone) is priced at
VND18,000 (US$0.90) in Mekong Delta Dong Thap Province, but costs VND30,000 (US$1.50) in Can
Tho. The minister also stated that some pharmaceutical companies work with hospitals to push up
drug prices.
Local media, Vietnam News, reported that new regulations would be enforced to prevent such
disparity in prices. Health departments in provinces and cities would conduct drug bidding centrally,
while hospitals would negotiate contracts based on the bidding results. The winning price of each
drug product is not allowed to exceed the ceiling price approved by the health department in their
bidding plan.
In March 2013, Nguyen Thien Nhan, the deputy prime minister of Vietnam, instructed for a fast set up
of an inter-ministerial team that would be responsible for drug pricing and managing production and
retailing. This came up as several price management violations were discovered in hospitals. The
team would guarantee transparency and effectiveness of governmental management of the drug
sector, Nhan added. The team might also offer assistance in estimating the demand for drugs,
thereby helping manufacturers to target their activities, Nhan mentioned. The health ministry
directed that under the tender process for drug supply, for a year, state hospitals should be engaged
in purchasing their drugs.
In July 2013, Vietnam Insurance Agency stated that some pharmaceutical firms allegedly produce
medicines with a higher drug content in bid a to sell their products at a higher price. These claims
were made following inspections of medicines supplied to public hospitals. At least 20 types of
medicines, mainly antibiotics and analgesics were detected to have unusually high drug content in
nine provinces and cities. The Drug Administration of Vietnam will review all the drugs with
abnormally high content and will report the situation to the Ministry of Health's Medicine Approval
Council.
Reimbursement
On 1st January 2010, the Vietnamese government's new Health Insurance Law came into force. It
stipulates that the contribution to health insurance will be 4.5% of salary, wage, retirement pension,
or invalidity allowance, and 3% of students' living wages.
Under the Law, reimbursement for patients with health insurance, when they use medical services at
its registered clinics, is as follows:
• The Health Insurance Fund (HIF) will pay 100% of costs for officers, non-commissioned
officers, those deserving the credit for the revolutionary cause and children under six years
old;

July 2014 71
• 95% of costs for beneficiaries of retirement wage, invalidity pension and monthly social
allowance, members of poor households, and ethnic minority people residing in
disadvantaged areas; and
• 80% of costs for others.
In March 2010, the MoH decided to provide additional medications and supplements to children
under six for no charge, reported Vietnam News. The head of the ministry's Health Insurance
Department announced that 58 more medicines were included on the list of treatments for heart
diseases, blood pressure, cancer, diarrhoea and mental illness, among others.
The medicines, which are to be provided under the national HIF, would be distributed at all health
clinics and hospitals across the country. According to the Minister of Health, some 600 medicines are
already covered by government reimbursement through the national health insurance programme.
Children younger than six are entitled to subsidised treatments and medical services, regardless of
whether or not they hold national insurance cards.
Health Insurance Fund Deficits

In August 2013, in an online meeting held by the Vietnamese government electronic portal,
chinhphu.vn, the implementation of the Health Insurance Law in 2010-2011 compensated the deficit
in 2009 and had a surplus. However, due to the increase in health services fees, Vietnam Social
Insurance calculated that if such adjustments are applied in 2013, the fund could run a VND10 trillion
deficit.
In August 2012, it was revealed that Vietnam's social health insurance funds were running a deficit.
According to local media, Thanh Nien news, statistics showed that Ho Chi Minh City had the largest
shortfall in 2011. During 2001, the city's insurance premiums reached VND3 trillion (US$144 million),
but it overspent by more than VND300 billion (US$14.5 million). In the first quarter of 2012, the deficit
in Ho Chi Minh City had grown by more than VND10 billion (US$480,302). Officials blamed the
excessive spending on inappropriate prescribing by doctors. As seen in many other countries in Asia,
overuse of antibiotics is common in Vietnam.
Increase in Hospital Fees

In line with Decree 85/2012/ND-CP, Pham Le Tuan, Deputy Minister of Health, stated that public
hospital fees would increase progressively until 2018. In 2012, the government increased the prices
of three out of seven cost elements incurred by patients, which included the cost of medicines,
chemicals, consumable materials, electricity, water, equipment maintenance and others. Under the
plan developed by the MoH on increasing hospital fees, this will cover the remaining four out of
seven cost elements (beds, medical equipment, salaries, and other hospital operation costs). The
government had previously covered these four elements.

72 July 2014
CENTRAL AND EASTERN EUROPE

Pricing & Reimbursement in Central and Eastern Europe

Belarus MoH Government controls and voluntary Means tested reimbursement from
pricing agreements. state pharmacies.
Bulgaria MoH, Pricing Reference price system for Positive list, from which public
Committee prescription drugs based on lowest health institutions may purchase
price in reference countries. drugs. Reimbursement rates of
75% to 100%, depending on drug
category.
Croatia Chamber and the Prices of prescription drugs set Reimbursement system for
Croatian Insurance through negotiation; free pricing for prescription drugs - no details in
Institute (HZZO) OTCs. profile.
Czech SÚKL SÚKL determines maximum prices Reimbursement determined by
Republic for reimbursed products, based on SÚKL on case-by-case basis. The
basket of drugs among reference basic reimbursement level is set at
states. the lowest price for which the
medicament in the reference
group is sold in any of the EU-27
countries.
Estonia Ministry of Social Maximum mark-ups for wholesalers Pharmaceuticals are reimbursed
Affairs and pharmacies, free pricing for non- on the basis of diagnosis and rates
reimbursed drugs, including OTCs. are set at 100%, 75% or 50%.
Hungary Social Insurance Price Drug prices, including wholesale and List of reimbursed drugs. Patient
and Subsidy retail margins, are regulated. Price co-payments based on percentage
Committee negotiations for the outpatient of drug cost.
sector take place between the
producers and a governmental
committee.
Latvia State Medicines Pricing for reimbursable drugs set by Positive lists (A, B, C) with
Pricing and pharmaco-evaluation and reimbursement rates of 50%, 75%
Reimbursement negotiation. Pricing of non- or 100%.
Agency reimbursed and OTC drugs is free.
Lithuania MoH, Department of Pharmaceuticals Cost Management Two positive lists: A & B. A list rates
Pharmacy Division of the Department of 50%, 80% or 100%. B list 80% or
Pharmacy sets fixed retail and 100%.
maximum wholesale prices of
reimbursed pharmaceuticals.
Poland Drug Management Retail prices for drugs on the Drug Reimbursement Act limits
Committee, MoH reimbursement list are set in reimbursement to 17% of total
consultation with industry. healthcare spending. Payback
system requires industry to pay
back 50% of anything over 17%.
Romania Ministry of Health Reference price system based on Drugs are placed on one of three
lowest price among reference lists, by INN. Reimbursement rates
countries - free pricing for OTCs. are: List A - 50%, List B - 90%, List C
- 100%.
Russia Ministry of Economics, Price regulation of essential drugs. Schemes for vulnerable members
MoHSD of the population. Reimbursement
unclear from profile.
Serbia MoH, Ministry of Trade Reference price system for all Lack of transparency in system,
medicines, regardless of whether which has been criticised for
they are reimbursed. favouring domestic companies.

July 2014 73

Slovakia MoH MoH determines maximum retail Positive list. Pharmaceuticals fully
prices for reimbursable reimbursed in hospitals, fully or
pharmaceuticals and maximum partially reimbursed in ambulatory
manufacturers' prices for care.
pharmaceuticals that are used in
hospitals only. Free pricing for OTCs
at manufacturer level, but wholesale
and pharmacy margins are
regulated.
Slovenia Agency for Medicinal Reference price system based on Positive and intermediate lists.
Products lowest price for all publicly-funded Drugs on positive list reimbursed
pharmaceuticals. Drug prices are 75% or 100%. Drugs on
regulated at producer level and intermediate list reimbursed 25%
wholesale margins are fixed. by health insurance.
Ukraine n/a No state regulation of prices for Prescription drugs provided free of
most common drugs. charge to some minority groups.
The remainder of the population
expected to pay whatever they can
afford.
Source: BMI Espicom

74 July 2014
BELARUS
Pricing
The government operates strict controls for pharmaceutical prices and uses various measures to
contain costs. In addition, the government has responded to currency volatility by obtaining
'voluntary' pricing agreements. In November 2011, the Ministry of Health (MoH) took over pricing
regulation from the Ministry of the Economy.
The government maintains a Vitally Necessary Medicines List (OZhVLS), which is based on WHO
recommendations and is geared towards generic drugs. Pharmacies are required to stock all of the
drugs on the list.
In June 2009, the MoH signed a voluntary memorandum with 41 pharmaceutical enterprises agreeing
to freeze costs and establishing a mechanism whereby manufacturers would seek approval from the
ministry before increasing prices. The move was made in the wake of a devaluation of the Belarusian
ruble earlier in the year.
A renewed pact to freeze prices was signed by 75 manufacturers in May 2010, according to state-
backed media. Of the 75 companies to sign the agreement, 60 were described as foreign
manufacturers and 15 as local manufacturers, although - as with the 2009 pricing agreement - it
would appear the pact covered distributors and retailers. The pledge locked in price freezes until the
end of 2011. The Ministry of Health subsequently announced that 39 foreign companies had signed
up to a new price freeze for 2012.
However, the continued devaluation of the ruble has forced some price rises. In late May 2011,
Belbiopharm asked the Ministry of Economy to increase the prices it could charge for pharmaceutical
products manufactured in the country. Independent news sources have published accounts of sharp
price rises on the wholesale and retail level. The prime minister said in October 2011 the government
would provide members of certain disease groups with financial aid if they needed it but excluded
any general government aid for the wider population.
Wholesale and Retail Mark-ups

The government has also sought to contain prices by supplying state pharmacies with medicines
without wholesale mark-ups. The government has been active in lowering maximum wholesale and
retail margins over the course of the last few years. Trade mark-ups are regressive and are capped at
30%. Drugs costing above US$100 carry a 2% margin. These margins were lowered as a result of a
presidential decree.
State ownership of a key distributor, Belpharmatsiya, also acts as a curb on prices and increases the
bargaining power of the wholesaler.

July 2014 75
Reimbursement
While treatments provided in hospitals are fully reimbursed by the government, access to
reimbursable drugs in primary care is means-tested, as per policy introduced in 2008. Prior to this,
reimbursement was instead given to patients with certain chronic diseases, those aged over 70 or
under three years of age, those with disabilities and military veterans. Free or reduced-price drugs
can only be obtained at state pharmacies.
In March 2012, President Lukashenko said children under the age of three would receive free
medications from the state's 400-strong list of 'major medicines'. He also said people with certain
severe disabilities should receive a 50% discount on medicines for their conditions. Lukashenko
reiterated his vision that domestic medicines should account for 50% of the market by 2015.
Tendering Procedures
The Ministry of Health operates a central purchasing scheme for major disease areas, using these
medicines to supply state programmes and inpatient facilities. The tendering system includes both
reimbursed and non-reimbursed treatments. Tenders are used for district budget purchases that are
estimated to account for over 80% of drug purchases.
Tendering maintains low prices within the country and favours the domestic industry. Foreign
manufacturers are often restricted to participation in tenders for drugs not produced domestically. In
April 2009, the government seemed to move to liberalise aspects of the tendering system under
pressure from the Russian government, which had sought equal representation for its companies. In
contrast, in July 2009, new regulations appeared to say that local companies would receive
preference in state tenders.
However, the Russian government has reportedly put pressure on the Belarusian authorities to
provide equal treatment to its companies under local tender rules within the framework of the
Russian-Belarusian Union and Customs Union. In addition, Russia's role as the country's prime
creditor will likely enhance its leverage in getting equal treatment for Russian companies in the
tender process.

76 July 2014
BULGARIA
Pricing
The government controls the prices of both reimbursed and non-reimbursed medicinal products. In
April 2013, the National Reimbursement and Pricing Council became operational, replacing the
Reimbursement and Pricing Committee, under the Ministry of Health (MoH). The establishment of
the new agency was introduced to ensure more efficient regulation of drug prices and
reimbursement policies. In addition, it was intended that the new Council would be able to complete
the majority of procedures under the terms of the national regulation, which allows 60 days for
pricing approval and listing for new prescription products subject to reimbursement (30 days for
generics); 30 days for price approval for prescription products not subject to reimbursement; and 30
days for price registration for OTCs.
The prices of medicinal products placed on Bulgaria’s positive list and the ceiling prices of
prescription-only medicines are regulated under the Medicinal Products in Human Medicine Act. The
Act does not specifically mention the regulation of OTCs, but their prices are registered by the state.
The system has been criticised in the past because newer drugs were often arbitrarily classified with
their older and generics for pricing purpose. The government has also used the price approval
mechanism to regulate the market for newer products, with bureaucratic barriers often limiting
patient access to novel drugs.
Reference Pricing
A prescription-only drug price is fixed in accordance with the price proposed by the manufacturer;
this will not be any higher than the reference price. Wholesale and pharmacy mark-ups are then
added and the ceiling price is approved by the PC and the MoH. Producers, wholesalers and
pharmacies must not sell the drug at a price higher than the authorised one. Manufacturers or their
authorised representatives may apply for a price increase once a year; there is no limit for the
frequency of price reductions. Amendments to the Pricing Ordinance, adopted by the Council of
Ministers in August 2006, permit Bulgarian authorities to lower the price of an international drug as
soon as a price decrease takes place in one of the reference countries. The process has been criticised
for its lack of transparency; cuts can occur without notifying the manufacturer and there is no
mechanism in place to verify the information on which the authorities base the cuts.
The reference price was originally set at the lowest manufacturer price of the same product in eight
reference states. In late 2011, the original list was amended, and comprised Estonia, France, Greece,
Lithuania, Portugal, Romania, Slovakia and Spain. More recently, the list of countries has increased to
12, with the addition of Denmark, Finland, Italy and Slovenia. It has also been suggested that
countries outside the EU, including Serbia, Macedonia and Turkey, could be referenced.
In April 2013, the Public Health Council in Bulgaria urged the health ministry to remove Greece from
the list of reference countries. The council's request followed in the wake of complaints from
representatives of pharmaceutical associations about numerous errors in the Greek drug-pricing
bulletin, making the country's drug prices unsuitable for referencing. The ministry agreed to analyse
the possible effects of removing Greece from the list before coming to any conclusion. Meanwhile,
the Bulgarian Association for the Protection of Patients wanted to use Belgium in place of Greece.

July 2014 77
Reimbursement
Pharmaceuticals for which reimbursement is not sought are ready to be sold on the market one
month after the MoH has published an Order in the Official Journal. Drugs requiring reimbursement
status need to be included on the positive list. Inclusion on the list, however, does not guarantee
reimbursement.
The positive list came into force in January 2004. The list includes medicines that have proven to
contribute significantly to the treatment of a given disease, cost-effectively. The public funds of the
National Health Insurance Fund (NHIF), the MoH, and state and municipal hospitals can only be used
to purchase drugs on the positive list.
International associations have raised concerns over the time it takes to place a drug on the positive
list. As the list is only updated once a year, in June, the application process can take from four to 16
months. Not all drugs that proceed onto the positive list will attain reimbursement status.
Negotiations with the NHIF over prices for drugs that are reimbursed can cause further delays, as
these negotiations only take place once a year. According to PhRMA, delays are caused by an overly
bureaucratic process that requires multiple approvals and a lack of objective criteria for inclusion in
the positive and reimbursement lists. The association also argues that the criteria used to assess a
medicine's inclusion on the list are non-transparent.
The NHIF sets the criteria for selecting medicines and determining reimbursement levels. These
criteria are approved by the Transparency Commission. The reimbursement list is updated twice a
year, in January and July, and pharmaceuticals are grouped into three categories:
• Category I drugs are for the outpatient treatment of diseases that register low morbidity and
mortality, but lead to the disability or significant deterioration of a patient's health status.
• Category II drugs are for the outpatient treatment of common diseases that require long and
continuous treatment, including cardiovascular, mental, neurological and metabolic
diseases. The reimbursement rate for Category I and Category II drugs is 100%.
• Category III drugs are for the outpatient treatment of all other diseases specified by the MoH
which are to be covered in part by the NHIF. The reimbursement rate for Category III drugs is
75%.
In addition to the NHIF reimbursement list, the cost of some pharmaceuticals is covered by the
republican budget, through the MoH. The MoH will cover 100% of pharmaceutical expenditure
relating to the treatment of 12 groups of diseases and conditions, including cancer and AIDS. The
treatment following organ or tissue transplantation and costs related to haemodialysis are also
covered. In accordance with the War Veterans Act, a further list of reimbursed pharmaceuticals has
been drawn up exclusively for veterans. Within this list, 75% of expenses are covered by municipal
budgets, whilst the remaining 25% is paid by the patient. Pharmaceuticals in hospitals are paid for
out of the state budget or through the NHIF. Drugs are included in the cost of the treatment, so in
theory, patients should not have to pay for them.
In 2014, the NHIF warned that it expected a shortfall of funding for hospitals of up to BGN300 million
(US$180 million). Nevertheless, the NHIF reported a 6% increase in reimbursement spending for
2013, reflecting the overall trend of increasing pharmaceutical expenditure, even as the healthcare
system struggles to balance revenues and expenditures.

78 July 2014
CROATIA
Pricing
The Chamber and the Croatian Health Insurance Fund (Hrvatski zavod za zdravstveno osiguranje –
HZZO) are responsible for pricing and reimbursement regulation. The HZZO is responsible to the
government and is reviewed by the State Audit Office. The HZZO holds negotiations with
pharmacists and/or pharmaceutical manufacturers regarding setting the price of medicines in
Croatia; the Chamber determines the method for forming the price of medicines that are not the
subject of negotiations by the HZZO. The Chamber also approves the setting of prices that are put
forward by voluntary insurance groups, as well as giving initial opinions to the HZZO before its
pricing negotiations.
Reference Pricing
At manufacturer level, only the prices of reimbursable medicines are controlled. Croatia has an
external reference pricing policy, which was modified in 2013. The main countries of reference
changed to Czech Republic, Italy and Slovenia. France has previously been a main reference
company, but was removed and the Czech Republic, which had been used as a backup reference
country, took its place. This had the effect of reducing the price of most drug products, as medicines
in the Czech Republic are generally cheaper than those in France.
The choice of Slovenia as a reference country is significant for the authorities, since that country
introduced a mechanism setting local wholesale prices at an 85% discount on the price of new
pharmaceuticals in France, Germany and Italy (now replaced by Austria) - all of which have attempted
to reduce drug prices in recent years. Consequently, Croatian prices effectively import Slovenia's
cost-containment mechanisms.
The use of health technology assessments is a more recent development, but it is expected to gain
ground in the coming years as the government comes under more pressure to offer new medicines at
affordable prices.
Croatian prices are determined as a percentage of the average wholesale prices in these countries.
An article in the Croatian Medical Journal explains that in the Croatian reference price system,
clustering is “based on a broad definition of a reference group, taking into consideration identical and
similar products at ATC 5, 4, and 3 level.” (Vogler, et al. 2011; 52(2): 183–197) This criteria is wider
than most European reference price systems, which typically group products with the same active
ingredient.
For products that are already reimbursed, original products with no competing products are priced at
90% of the reference benchmark. This is reduced to 80% in situations where a generic parallel is
available in Croatia. Meanwhile, first generic products are priced at 65% of the reference price.
For new market entries, original drugs with no class parallels at ATC level 4 are priced at 100% of the
reference prices. Prior to a revision in 2003, this had been set at ATC level 3. Patented products with
class parallels are given 90% of the reference price (100% in the first year), while originals with a
generic parallel are set at 80%. The first generic available must be priced at 35% below the originator;
each subsequent generic is priced at 10% below the previous generic on the country’s positive list.
VAT
The VAT rate on non-reimbursed medicines increased to 25% from March 2012 up from 23%
previously.

July 2014 79
In July 2013, the Ministry of Health indicated that if a manufacturer offered lower prices for
government procurement tenders, it would automatically reject submissions for higher priced
products. While this measure was enacted to deliver cost savings, the assistant minister of health
admitted that because of rising consumption and VAT increases, pharmaceutical expenditure would
rise in 2014 from 2013 levels.
Price Cuts
In March 2013, the health minister, Rajko Ostojic, announced an across-the-board price cut of 15-20%
for medicines on Croatia’s positive reimbursement list. The minister also announced unified public
procurement would enable cost savings of HRK600 million (US$103 million).
Beginning in October 2013, the prices of medicines on the HZZO’s reimbursement list would be
lowered significantly. However, local manufacturers warned that they would be burdened with most
of the cost savings realised by these moves, whereas foreign manufacturers selling expensive,
patented drugs would see relatively smaller cuts in pricing.
Some local pharmaceutical companies have argued that the HZZO has been acting unfairly in cutting
prices unilaterally without allowing them the right of reply. Companies are usually granted 30 days
from the publication of the new reference prices to challenge the decision; manufacturer
representatives have complained that appeals against price changes were met with a company's
products being moved off the full reimbursement list and onto the supplementary list. As such, some
manufacturers were reportedly considering launching administrative proceedings against the HZZO.
Wholesale Margins
In January 2014, the Croatian government published amendments to the mandated profit margins
that wholesalers could realise from the sales of pharmaceuticals within its official gazette. The
amendments introduced differentiated margins based on the ex-manufacturer price. The new
wholesaler margins are outlined below.
Profit Margins For Wholesalers in Croatia

Ex-Manufacturer Drug Price (HRK) Wholesaler Margin (%)
<20 8.5
20-100 6.0
100-500 4.0
500-1000 2.0
>1000 1.0
Source: Croatian Chamber Of Pharmacists
The Croatian Chamber of Pharmacists has indicated that these new profit margins are insufficient to
cover operating costs for wholesalers, and that many pharmacists feared that their supply chains
would be disrupted, as business between retailers and wholesalers may not be enough to provide
solvency for the wholesale side. There may be some respite over the near term, with the Croatian
Chamber of Commerce stating it had directly spoken to the MoH on the 1% margin issue; the
Chamber of Commerce was confident that there would be considerable amendments to the margins
set within the year.
Reimbursement
The HZZO is responsible for drug reimbursement, whether from hospitals or from pharmacy
prescriptions. The Committee for Medicinal Products within the HZZO holds monthly meetings on
the criteria for drugs included on the basic and supplementary lists of the HZZO. The basic and
supplementary lists are published on the HZZO website.

80 July 2014
Under the HZZO, reimbursement for medicines on the positive lists (A and B) is based on the
reference price. Medicines on the A list are 100% reimbursed. For medicines on the B list, a co-
payment is required. If a patient chooses a medicine from the B list that is priced higher than the
reference price for the same group, the difference is payable out-of-pocket. In addition to any co-
payments, a prescription charge is payable for reimbursable medicines. Specific medicines, such as
orphan drugs for rare diseases are exempt from co-payments and are paid for through a special
government budget. The cost of non-prescription medicines is to be covered entirely by the patient.
Prescription medicines are divided into 41 clusters with reimbursement levels corresponding to the
lowest-priced product, as defined for each of them. New generic medicines can only become
reimbursed if their price is 10% lower than the least expensive bioequivalent generic drug already
reimbursed.
The criteria for reimbursed expensive medicines have been tightened and all applications for
innovative medicines must now contain a budget impact analysis that aligns with the guidelines of
the ISPOR. The HZZO and market authorisation holders then negotiate the conditions for their
purchase. Similarly, following measures in other austerity-hit European countries, the Croatian health
minister announced measures to increase the usage of generic drugs, namely through requiring
medical staff to prescribe on the basis of international non-proprietary names (INN), and where
possible, the cheapest alternative possible.
Foreign firms have protested against the country's reimbursement structure. Products are typically
added to the list only after a period of two years, which constitutes a significant market barrier. After
inclusion on the reimbursement list, lengthy delays in repayment due to budgetary constraints have
effectively obliged manufacturers and wholesalers to act as creditors to the government.
A new policy introduced in 2011 by the HZZO provided doctors with an indicative list of the most
often consumed medicines in Croatia, as a means of education for doctors. The list has been referred
to as the 'restricted list' and contains the generic drug names of 50 of the most consumed reimbursed
drugs in the country. The guide defines the funding that doctors are not permitted to exceed.
The HZZO is reluctant to add imports to the list, demanding that applications be made by a local
subsidiary or wholesaler, and it openly favours domestically produced medicines. Due to its
dominant market share in prescription medicines, the organisation also effectively controls drug
prices and has been imposing regular cuts.
As part of the HZZO's transition to an independent legal entity, detached from the Croatian
government, the insurer will gain greater control over purchases of pharmaceuticals and medical
equipment. In October 2012, a joint procurement by central authorities was initiated to reduce
pricing differentials between hospitals and the HZZO. The aim was to save HRK200 million (US$34
million) through the unified procurement process.
CZECH REPUBLIC
On 1st January 2008, new regulations concerning pricing and reimbursement came into force,
bringing the system into line with the EU Transparency Directive. In accordance with the
amendments to Law 48/1997, responsibilities regarding the setting of maximum prices and
reimbursement were transferred from the Ministry of Finance to the State Institute for Drug Control
(SÚKL). In addition, unilateral decisions on reimbursement by one state institution have been
replaced by the possibility of all concerned parties becoming involved in the proceedings, where they
can submit evidence and appeal against decisions. Such parties include the marketing authorisation
holder and the manufacturer.

July 2014 81
Pricing
There is statutory drug pricing for all reimbursable pharmaceuticals in the Czech Republic. Prices of
non‐reimbursable pharmaceuticals are not regulated.
The final consumer price of a medicinal product is calculated as the ex-factory price plus the
maximum profit margin under the MoH’s price regulation, plus VAT at 15%.
Reference Pricing
Since January 2008, maximum drug prices have been based on prices in EU countries with similar
purchasing power parity. The Czech Republic uses both internal and external reference pricing. For
external pricing, the Ministry of Health (MoH) is responsible for establishing the reference basket
countries. It also decides whether or not a product is subject to the maximum price regulation; the
decision will be positive if the product is fully or partially covered by the national health insurance
system. The SÚKL, however, will determine maximum prices. Pricing is regulated by the Public
Health Insurance Act, Law 48/1997; and subsequent Decrees: No. 376/2011 and No. 384/2007. Since
June 2009, the SÚKL has regulated hospital-only drugs, by fixed maximum ex‐factory price and a
mark‐up scheme.
The ex‐factory price of a pharmaceutical is set as the average of the three lowest ex‐factory prices of
the product found in the reference basket of countries. This includes all 27 EU countries with the
exception of Austria, Bulgaria, Cyprus, Czech Republic, Estonia, Germany, Luxembourg, Malta and
Romania. With the exception of highly innovative drugs, if the pharmaceutical is not on the market in
at least three reference basket states, an agreed price can be used in the evaluation. If none of the
aforementioned procedures is applicable, the price is set as the maximum ex‐factory price of the
closest therapeutically comparable pharmaceutical available in the Czech Republic or in the reference
basket countries. For highly innovative drugs it is possible to set the ex‐factory price as the average
manufacturer’s price found in at least two reference states.
According to the SÚKL, around half of the medicinal products reimbursed from public health
insurance are regulated by the maximum price. Manufacturers can decide to supply pharmaceuticals
for lower prices than the stipulated maximum ex‐factory price, in order to reduce or fully eliminate
the difference between the price and the reimbursement paid by the patient, thereby increasing the
sale of its product.
Internal reference pricing applies to generics. The first generic of a reference group (a group of
medicinal products which have the same or similar efficacy, safety and clinical use and may be
replaced by each other) to enter the market has its maximum price set at 32% below the maximum
price of the original product. For biologics, the price and reimbursement has to be 15% lower than
the originator.
Price Application Procedure
Applications for setting a maximum price can be submitted by the marketing authorisation holder,
domestic manufacturer or importer. A separate application is required for each pharmaceutical form.
Application forms can be downloaded from the SÚKL website. Proceedings are initiated upon
submission of an application; the SÚKL will make a decision no later than 75 days after the initiation.
Appeals should be filed with the MoH. Once the decision has taken effect, the applicant is obliged to
provide the SÚKL with any information that could affect the conditions of the maximum price.

82 July 2014
Reimbursement
The level of reimbursement of a medicinal product is determined by the SÚKL, on a case-by-case
basis. Law 48/1997 stipulates the criteria for making decisions on the levels and conditions of
reimbursement. Several factors are taken into account during the assessment, including the
product's therapeutic efficacy and safety, the severity of the disease it is used to treat, cost-
effectiveness, public interest, dosage, the treatment period and possibility of replacement. The SÚKL
will allocate products to reference groups.
Reference groups are groups of pharmaceuticals that have similar effectiveness, safety profile and
clinical use, and are considered to be therapeutically interchangeable. In general these are based on
ATC5 level, but this is not always the case. All pharmaceuticals within a particular reference group
have the same reimbursement price. It is also possible to give a premium reimbursement price when
a drug has better effectiveness, better safety profile or better compliance rate than the reference
product.
The basic reimbursement level of medicaments is set at the lowest price for which the medicament in
the reference group is sold in any of the EU-27 countries. If the EU lowest price is more than 20%
lower than the average of two other lowest EU prices of the same product, then the reimbursement
price is set as the average of the two other lowest EU prices of the reference product.
For example, if the price of a medicament is set at CZK 1,000 (US$50) in the Czech Republic and the
SÚKL discovers that the medicament is sold for the equivalent of CZK 300 (US$15) in the UK or
Romania, and that this is the lowest price in the EU, then Czech patients will have to pay the
difference of CZK 700 (US$35). The daily cost of other therapeutic approaches (including non-
medicinal therapies e.g. surgical, radiotherapy) will also be taken into account during the decision-
making process. As part of the first stage of healthcare reforms passed in September 2011, drugs
worth less than CZK50 (US$2.8) are no longer covered by public health insurance.
Each reference group should contain at least one completely reimbursed product. Where this is not
the case, the SÚKL will make adjustments to provide complete coverage for the least expensive
product. In the case of public interest, a highly innovative product may obtain temporary coverage
for a period of 12 months, which could be repeated up to three times.
In general, the cheapest out of a defined group of pharmaceuticals (in most cases a generic, often a
locally manufactured one) is fully reimbursed. All other pharmaceuticals are partly or fully paid for by
patients: the sickness funds only reimburse up to the reference price.
Generics and biosimilars are treated differently when the maximum price and amount of
reimbursement is being set. First of all, their maximum price and reimbursement is always set up to
85% (in the case of biosimilars) or 68% (in the case of generics) of the maximum price or
reimbursement of the original drug. The price of generics is thus always lower than the price of
original pharmaceuticals, ensuring that generics provide a cheaper alternative for consumers.
The SÚKL regularly publishes updated lists of reimbursed products on its website. Medicinal products
used only in institutional care are listed separately. As of June 13 2014, the reimbursement list
comprised more than 8,700 medicinal products and foods for special medicinal purposes.

July 2014 83
ESTONIA
Pricing
Pharmaceutical pricing and reimbursement is governed by the Health Insurance Act of 2002, and the
regulations of the Ministry of Social Affairs (MoSA). Pharmaceuticals are grouped on the basis of ATC
codes and route of administration.
Price regulation is only applicable to reimbursed products. However, while manufacturers may set
their own prices for non-reimbursed drugs, wholesalers and pharmacies must adhere to a system that
fixes maximum mark-ups for both reimbursed and non-reimbursed pharmaceuticals, including OTCs.
There is no specific price regulation for hospital-only medicines.
For some products, price agreements are made between the MoSA and industry. These include
patented pharmaceuticals where there is no generic competition, and the two cheapest
pharmaceuticals in every generic group. Agreements specify the maximum price and the marketing
authorisation holder’s commitment to ensure continuous availability of the product at a wholesale
level. Agreements are valid for one year and automatically renewed, unless changes are proposed by
either side.
Reference Pricing
Estonia operates a reference pricing policy that includes both external reference countries and
internal referencing with drugs that are already available in the same therapeutic class. Under the
external reference system, prices are compared to other EU states, mainly Latvia, Lithuania and
Hungary, with the lowest or average prices being considered by the Pharmaceutical Committee. If
the price of a reimbursed pharmaceutical is lowered in one of the reference countries, the
manufacturer may be forced to also reduce the price in Estonia.
Internal reference pricing applies to off-patent drugs, where a reference price is set for the product
group. The price of the first generic must be 30% lower than the originator and this sets the initial
reference price. The next generic on the market should be 10% below the reference price and the
following two generics should each be 10% cheaper than the previous product. Subsequent generics
must either match or be lower than the cheapest alternative. The reference price is set as the second
cheapest product within the group.
Parallel-traded pharmaceuticals must be 10% cheaper than the product already available in Estonia.
VAT
In July 2009, the government increased VAT on medicines from 5% to 9%, in line with a general rise in
the reduced rate. At the same time, the standard rate increased from 18% to 20%.

84 July 2014
Reimbursement
Reimbursement is available for medicinal products on the Estonian Health Insurance Fund’s (EHIF)
positive list. The list is adopted by the Ministry of Social Affairs and reviewed every three months, in
January, April, July and October. Reimbursement is based on reference prices and price agreements
where they exist; or in some cases, on the retail price. Medicinal products are reimbursed on the basis
of diagnosis, at rates of 50%, 75%, 90% or 100%. In all cases, there is a small patient co-payment. As
of June 2014, the EHIF website shows this as EUR3.19 for products reimbursed at the 50% rate or
EUR1.27 for products reimbursed at the higher rates.
• For products reimbursed at the highest rate, the EHIF covers 100% of the sum that exceeds
the EUR1.27 patient co-payment and is below the reference price or price agreement. In
addition to the co-payment, where the cost of the product is higher than the reference price,
the patient is required to pay the difference.
• For products in the 90% reimbursement category, the patient pays EUR1.27 plus 10% of the
remainder up to the price agreement/reference price, and everything that exceeds the
reference price.
• Similarly, for products included in the 75% reimbursement category, the patient contribution
is EUR1.27 plus 25% of the remainder up to the price agreement/reference price, and
everything that exceeds the reference price.
• For products subject to 50% reimbursement, the patient contribution is EUR3.19 plus 50% of
the remainder up to the price agreement/reference price, and everything that exceeds the
reference price.
In October 2012, the limit on reimbursement for pharmaceuticals dispensed under the 50% category
was lifted. Prior to the changes, the HIF reimbursed the patients for half of the medicine's cost, but
only up to the EUR12.79 limit per single prescription. The change was made in order to improve
access to medicines for the treatment of Alzheimer's disease, some antidepressants, cardiac therapy
medicinal products, antifungal medication and contraceptives. The move was calculated to have
made an average prescription some 22% cheaper.
Certain patient groups qualify for a compensation rate of 90% for medicinal products included in the
75% category:
• Children aged 4 to 16 years;

• People in receipt of a pension for incapacity for work under the National Pension Insurance
Act; and
• Insured people over 63 years of age and those who have been granted a pension under the
State Pension Insurance Act.
For children under the age of four, a reimbursement rate of 100% is applied for all medicinal products
included on the positive list.
In 2012, the latest year for which data are available, the HIF reimbursed 7.4 million prescriptions,
around 7% more than in the previous year. The average cost to the HIF per reimbursed prescription
was EUR13.3, while the average cost per patient was EUR6.6.
Supplementary Benefit for Pharmaceuticals

Since January 2003, additional compensation for medicinal products has been available through the
HIF, based on the out-of-pocket contributions of patients in a calendar year. The supplementary
benefit is designed to help cover the cost of pharmaceuticals for people with chronic conditions who
need to use medicines over a long period on time, those whose treatment plans include expensive
medicines, and those who use several medicinal products at a given time. The amount of
compensation varies according to the level of patient contributions.

July 2014 85
• If the contribution is between EUR384 and EUR640, the HIF will compensate 50% of the
amount exceeding EUR384.
• If the contribution is between EUR640 and EUR1,300, the HIF will additionally compensate
for 75% of the amount exceeding EUR640.
• The Fund will not additionally compensate for amounts beyond EUR1,300.
The Health Insurance Fund makes the payments of this benefit four times a year: in January (for the
previous calendar year), April, July and October.
Reimbursement Application Process

In order to apply for reimbursement status for a medicinal product, manufacturers should send an
application form, along with clinical and pharmacoeconomic data, to the Ministry of Social Affairs.
The application form should be in Estonian but supporting documentation can be in English or
Russian. The EHIF will then assess the cost-effectiveness, necessity and possibility of including the
drug on the list. The State Medicines Association (Ravimiavet) will evaluate the drug's safety and
efficacy and compare it with alternative treatments. Written reports are sent to the ministerial
committee, which advises the Ministry on reimbursement decisions. Having received approval from
the Ministry, the committee will then negotiate a price with the manufacturer.
The whole process should take no longer than six months to complete, excluding any time taken to
request and examine additional information. A manufacturer may change the price of a drug once it
has been added to the list, but must inform the Agency of the new price and reasons for change, if it
is an increase, 120 days prior to the proposed price change.
HUNGARY
Pricing
In Hungary, drug prices, including wholesale and retail margins are regulated for reimbursable drugs.
Manufacturers of non-reimbursable and OTC drugs are free to set and change prices.
Price negotiations for reimbursable prescription drugs take place between the producers and a
government committee. Representatives of the Ministry of Health (MoH), the Ministry of Finance and
the National Health Insurance Fund Administration (NHIFA) take part in annual negotiations. During
the negotiations, the parties agree on the amount of any subsidies a drug will receive and its
consumer price.
Since December 2006, companies marketing certain non-reimbursable medicines have been able to
determine their prices without prior negotiation with the Ministry of Health or with the Social Security
Fund. The conditions are stipulated under the Ministry of Health Decree No. 25/1997 (VII.22).
Sales of OTC drugs, which are not reimbursed, account for only some 15% of the total drug market. In
the case of OTCs, both wholesale and retail prices have been liberalised, but manufacturers may cap
the prices. Any manufacturer or wholesaler's rebate must be passed on to the customer to promote
real price competition. Price changes for OTCs can be introduced at any time.

86 July 2014
Reference Pricing
Although prices for new drugs are initially suggested by the manufacturers, Hungary operates an
external reference pricing system. The reference countries are: Austria, Belgium, the Czech Republic,
France, Germany, Greece, Ireland, Italy, Poland, Portugal, Slovakia, Slovenia, Spain and other EU
member states, although greater importance is given to the price of the product in France, Greece,
Portugal and Spain. The system incorporates the lowest European price at launch and allows a 20%
threshold over the average of the three lowest European prices post-launch. Under an amendment
to the Medicines Act, since 2010, the OEP may revise, at least annually, the prices of products within a
reference group for reimbursement, compared to the price of the products in reference countries.
For generic drugs, the prices of the first three generics in a group should be at least 30%, 40% and
50% lower than the originator drug, respectively. The prices of subsequent generics must be lower
than the cheapest generic available on the market.
The pricing system includes delisting, through an electronic blind bidding system for type one
(generic) and type two (therapeutic) reimbursement groups. The bidding system forces
manufacturers to lower the price to avoid delisting. During the August 2012 round, for example, the
prices of 485 different drugs covered by the Hungarian Chamber of Pharmacists (MGYK) were
reduced by between 65.01% and 0.02%.
Pricing Developments
In June 2012, a new bill was passed, amending the Medicinal Thrift Act XCVIII of 2006 and the
Medicines Act XCV of 2005 and increasing the rebate paid on some reimbursed drugs to 30%. This
additional rebate applies when the medicinal product is reimbursed and marketed in Hungary for at
least six years; the medicinal product's price exceeds HUF1,000 (US$4.30) and there is no subsidised
generic version of the product marketed in Hungary. The amount payable shall be calculated
separately for each product and subsidy type. Previously, the rate had been increased from 12% to
20% as of July 1 2011.
The initial 12% rebate was introduced under the Pharma Economic Act, which was approved by
Parliament in November 2006 and came into force in January 2007. Known as a subsidy-volume
agreement, the rebate was calculated on the basis of manufacturers' sales of reimbursed medicines.
Companies could be exempt from the rebate if they reduced their prices or agreed not to modify
them over a three-year period. Manufacturers were also required to pay an annual HUF4.8 million
(US$21,730) licence fee on each of their sales representatives. At the time, there were around 2,000
pharmaceutical sales people in Hungary.
In 2009, companies carrying out R&D were eligible for a deduction from the combined amount of
obligations (i.e. 12% rebate and medical representative fee) of up to 20%. This rate could rise to a
maximum of 100% from 2010 onwards, as approved by Parliament in June 2009.

Wholesale margins fall in the 6% to 8% range, while retail margins are typically twice that. According
to figures quoted in the 2011 AESGP publication, the 'Economic and Legal Framework for Non-
Prescription Medicines', the average pharmacy mark-up dropped to 13.13% in 2010, compared with
20.47% in 2000. From 2004, a fixed amount of HUF850 (around US$4) is the maximum wholesale
mark-up if the wholesale price of a preparation exceeds HUF5,000 (US$24).
VAT
Following EU accession, the government introduced a 5% VAT rate on pharmaceutical products
(which was previously zero) that applies equally to all medicines including reimbursed, OTC and
hospital drugs. Hungary's standard VAT rate is 27%, which increased from 25% in January 2012.

July 2014 87
Reimbursement
Hungary has both positive and negative reimbursement lists. Both retail pharmacy and hospital-only
drugs are included. Reimbursement rates have been reduced as part of healthcare reforms designed
to change consumption habits and reduce the drugs budget deficit. Under the Pharma Economic
Act, which came into force in January 2007, rates were changed from 90% to 85%, 70% to 55%, and
50% to 25%. In April 2009, the 85% reimbursement rate was further reduced to 80%, increasing the
amount patients have to pay for drugs in that category. Drugs for some specified conditions are
100% reimbursed, although patients are required to pay a prescription charge of HUF300 (US$1.3).
Under amendments to the Medicines Act that came into force in 2010, products containing an active
ingredient or indication that has not previously been reimbursed may only be authorised for
reimbursement within the framework of a subsidy-volume agreement. Subsidy-volume agreements
may not exceed four years in duration.
Under a pricing mechanism introduced in January 2007, manufacturers can continuously bid to lower
their prices. The lowest priced medicine among those with the same active ingredient will be
reimbursed. If other drugs containing the same active ingredient exceed the reference product's
price by more than 20%, they will be removed from the reimbursement list. Reference products are
announced quarterly.
From January 2012, further efficiency gains were expected as a result of a change in the financing of
high-value therapies. Under the changes, the state or the insurer provides financing based not on the
results of clinical trials but on proven results achieved in practice in Hungary among the patient
group in question. If it is not able to provide such proof, the manufacturer is obliged to pay back the
support received. In addition, only the healthcare insurer's preferred reference medicines are made
available for Prescription Exemption Certificate holders in areas where setting up fixed groups of
medicines is possible. The use of biosimilars was also expected to result in cost savings.
Further cost savings were expected under a requirement for improved patient co-operation. In
certain disease groups, patients who do not reach set targets will receive reduced reimbursement, as
their failure to change their lifestyle reduces the effectiveness of the medicines they are taking. The
financing of medicines through the hospital with a tracked procedure (patient registry) using state
procurement is also expected to provide significant savings.
Under the 2012 Széll Kálmán Plan 2.0, reductions in expenditure on reimbursed pharmaceuticals was
anticipated through the prioritisation of reference products, thereby providing an incentive for
distributors to reduce prices in order for their products to become reference products. The system
provides preferential treatment not only for reference products, but also for other products that are
5% more expensive, still falling into the reference price range fixed group, and for products in the
therapy fixed group that are 10% more expensive than the reference product at a maximum. In
addition, the time period after which a generic product can become a reference product was reduced
from six months to three months.

88 July 2014
LATVIA
Pricing
The State Medicines Pricing and Reimbursement Agency (SMPRA) of the MoH is the institution
responsible for determining which pharmaceuticals are to be included in the reimbursement system
and the prices of those drugs.
Manufacturers of non-reimbursed prescription drugs and OTCs are free to set prices as they like. This
applies to both domestic and imported products. The manufacturer must declare the price to the
Stage Agency of Medicines (SAM) when placing the product on the market. The price should be re-
declared twice a year and when the price is changed by the manufacturer. For hospital products,
prices are in general free, but there are exceptions. For instance, the prices of expensive products
that are used in state provision programmes, such as tuberculosis or HIV, are fixed in tenders
organised by the State Compulsory Health Insurance Agency (SCHIA).
Reference Pricing
During the evaluation process, the price of a new pharmaceutical product in other EU countries is
taken into consideration. Under the system of therapeutic referencing, the pharmaceutical is also
compared to products that are already on the positive list, in terms of its effectiveness and treatment
costs. If the treatment costs are higher, this has to be justified in the evaluation. If the evaluation is
unable to do this, a price decrease is negotiated between the SMPRA and the manufacturer. A
wholesale price is then agreed by all parties.
Reimbursable parallel-traded pharmaceuticals should be 15% cheaper than other drugs on the
positive list.
Since the beginning of 2011, there has been a requirement for manufacturers' prices of medicines to
be communicated to SAM twice a year by the manufacturers, wholesalers or pharmacies, or the
products risk losing their marketing authorisation. All price increases by the manufacturer or an
authorised agent must be reported to SAM and justified.
VAT
Both prescription drugs and OTCs incur a 12% VAT levy. This was increased from 11% at the start of
2011 and from 5% at the beginning of 2009. However, it remains significantly lower than the
standard VAT rate of 21%. Medical services are exempt from VAT.
Reimbursement
The reimbursement system covers a relatively limited range of medicines, even by CEE standards, and
remains hindered by a lack of government financing. The government, through the SMPRA,
maintains a small positive drug list, which is reviewed on a quarterly basis.
The reimbursement system is governed by Regulation No. 418 of June 2005. Drugs may only be
placed on the reimbursement list if they have received marketing authorisation by the State Agency
of Medicines or have been approved through the EU Centralised Procedure.

July 2014 89
Drugs on the positive list were eligible for reimbursement of 100%, 90%, 75% or 50% up until early
2009, when medicines categorised in the 90% band were reduced to 75%, while the 75% category
was lowered to 50%. Despite its small size, with those drugs on the list being predominantly for
chronic illnesses, maintaining the list has been financially problematic for the government.
The reimbursement category that a drug is assigned to depends on the character and severity of the
disease that it is used to treat, the therapeutic value of the product, its cost-effectiveness and the
impact it has on the healthcare budget. Pharmaceuticals for the treatment of life-threatening
diseases or disease causing irreversible disability such as diabetes, cancer and schizophrenia, are
reimbursed at the higher level. The lower rates apply to pharmaceuticals that are required to
maintain or improve a patient's health, including hypertension and asthma medication; and to
vaccines or drugs that are required to improve the patient's health.
The positive list comprises three parts, List A, List B and List C. List A contains groups of
interchangeable pharmaceutical products, and Lists B and C contain drugs that are not considered to
be interchangeable. Pharmaceuticals are considered to be interchangeable if they are clinically
similar to other drugs, i.e. they have the same indications, method of administration, are intended for
the same patient group and exhibit no differences in effectiveness and side-effects. Products are
grouped according to their presentation, dosage and package size. The price of the cheapest product
in each group is adopted as the reference price. Drugs are placed on List C if they are not
interchangeable and the cost per patient per year exceeds 3,000 lats (US$6,276).
Reimbursed pharmaceuticals are prescribed by family doctors or other specialists who have an
agreement with the Compulsory Health Insurance State Agency. Special reimbursable prescriptions
are issued and then processed at pharmacies, where patients make the relevant co-payment.
LITHUANIA
Pricing
The Department of Pharmacy within the Ministry of Health (MoH) is responsible for developing
pricing policy for pharmaceuticals. The MoH approves the prices by issuing an order. Prices are
calculated twice a year according to the centrally imported price (CIP) plus standardised trade mark-
ups. The Pharmaceuticals Cost Management Division of the Department of Pharmacy sets fixed retail
and maximum wholesale prices of pharmaceuticals. Mark-ups for wholesalers and pharmacists are
fixed, with non-reimbursed medicines also covered by the pricing system. In addition, price-volume
agreements have been obligatory for all new pharmaceuticals since 2008.
As a result of the economic crisis, the government approved a Plan for the Improvement of
Pharmaceutical Accessibility and Price Reduction in July 2009. The main objectives of the Plan were
to contain the growth of National Health Insurance Fund (NHIF) expenditure on pharmaceuticals, to
improve the provision of information to patients and increase choice, and to make the
pharmaceutical sector more ethical and transparent. The MoH was also concerned about rising out-
of-pocket expenditure on pharmaceuticals, so reintroduced price regulation for non-reimbursed
pharmaceuticals. As a result, non-reimbursed products are now subject to similar price controls to
those subsidised by the state.

90 July 2014
Since May 2010, pharmacies have been obliged to install computer screens in order to provide
patients with information about the prices of medicines, according to an article in Eurohealth (Vol 17:
1, 2011). New prescribing rules were also introduced in 2010, requiring doctors to write the generic
name of a medicine on a prescription beside the brand name, thereby preventing the promotion of a
particular brand name drug. The pharmacist will then show the patient the options available,
including the cheapest medication. Pharmacists are also required to stock the cheapest available
generic. It was hoped that the patient would select a generic medicine, which would result in a lower
premium for the patient and reduced costs for the NHIF.
Reference Pricing
Lithuania has an external price reference system, which takes the average price of the drug in a
basket of eight reference countries and reduces it by 5% for reimbursable medicines. The reference
basket includes the original six countries: Czech Republic, Estonia, Hungary, Latvia, Poland and
Slovakia; together with Bulgaria and Romania, which were added in April 2010.
New requirements for generic pricing were also introduced in 2010. The first generic must be priced
at 30% below the originator product, while the second and third generics must be priced at least 10%
below the first generic to be reimbursed. In addition, where more than three products with the same
INN are reimbursed, the originator must not be priced at more than 60% higher than the cheapest
generic in order to stay on the reimbursement list.
VAT
VAT on medicines increased from 5% to 19% from July 1 2009, as the government abolished the
preferential rate previously applied in order to boost fiscal revenue. The high proportion of out-of-
pocket payments required by patients, despite the presence of a reimbursement scheme, means that
patients' abilities to pay were also affected by the VAT hike. The VAT increase led to strong
inflationary pressures, compounded by exchange rate considerations in the same year. Nevertheless,
drug price inflation has largely stabilised since.
Reimbursement
Just over one third of all pharmaceuticals on the market are reimbursed. The reimbursement amount
is calculated from the cheapest product within the specified therapeutic group. Patients are required
to pay an additional co-payment for a more expensive product.
Drugs that have been awarded reimbursement status are assigned to one of the positive lists, either
List A or List B. List A contains drugs that are designed to treat specific diseases and are reimbursed at
rates of either 50%, 80% or 100%, depending on the level set for the disease. Children up to 16 years
of age are entitled to 100% reimbursement. List B contains drugs that may be reimbursed at either
80% or 100%. Children up to three years receive 100% reimbursement and children between three
and 16 years, pensioners and disabled patients are eligible for 80% reimbursement.
In order to obtain reimbursement status for a registered drug, manufacturers must submit an
application to the MoH. A number of details are required for determining the reimbursement level
and the most suitable list for the drug, including:
• Details of the drug that make it unique;

• Possible side-effects;
• Comparison of the drug with similar products currently on a reimbursement list;
• Reasoning for why reimbursement of the drug is important;
• A list of indications registered in Lithuania; and
• Suggestions for the discontinuation of rival pharmaceuticals.

July 2014 91
Pharmaceuticals may be added to a reimbursement list if their addition leads to the exclusion of other
drugs from the lists. Pharmaceuticals which are likely to have an adverse effect on NHIF expenditure
may be included on a list if they have been designed for the treatment of severe diseases, are
recommended for use in children or will reduce other costs borne by hospitals in treating the disease.
OTC products tend not to be added to the positive lists.
Reimbursed drugs must indicate the purchase cost, compensation rate and retail prices approved by
the MoH. The MoH will revoke the reimbursement status of a drug if a cheaper alternative is found, if
health insurance spending to reimburse the drug is unjustifiably high or if the State Medicines
Control Agency (SMCA) prohibits its use due to inadequate levels of safety, efficacy or quality.
POLAND
Pricing
Poland's pricing and reimbursement system is similar in structure to many others in CEE, but among
the most rigorous in terms of controlling expenditure. Reference pricing has a major bearing on the
overall prices of reimbursed pharmaceuticals, while a tiered reimbursement system results in only a
small selection of medicines being readily available to patients with no co-payments. OTCs are not
reimbursed.
The Drug Management Committee, which includes representatives from the Ministry of Health
(MoH), Ministry of Finance, Ministry of Economy and the National Health Fund, assists the MoH in
making decisions on the reimbursement list and setting statutory wholesale and retail prices of drugs.
A decision on reimbursement applications can be expected within 90 days.
Prices of reimbursed medicines are decided through negotiation between manufactures or their legal
representatives with the Drug Management Committee. Multiple criteria are taken into account
when deciding the final prices, including production costs, costs of treatment, risk-benefit ratios
compared with alternative therapies, the economic impact on national healthcare funds, expected
sales and prices in similarly economically advanced countries. A decision on pricing may take an
additional 90 days on top of the reimbursement decision. Prices of non-reimbursed and OTC drugs
are determined by the manufacturer.
In May 2011, President Komorowski signed the controversial Drug Reimbursement Act (Ustawa
Refundacyjna) into law. The Act made significant changes to drug pricing and reimbursement in
Poland, with effect from January 1 2012.
Reference Pricing
Two reference price lists have been established for reimbursement: one defined by active substance
and the other by therapeutic class. The latter system groups both patented and non-patented
products for reimbursement purposes, with the reference price being determined by the cheapest
generic product within the class. The system can also refer to prices elsewhere in the EU-27 and EEA.

For reimbursed products, prior to the introduction of fixed margins, which came into effect in 2012,
average pharmacy mark-ups were in the region of 15%, rising to 19% for non-reimbursable drugs.
OTC mark-ups are considerably higher, at over 29.7%, according to the Association of the European
Self-Medication Industry's 2011 'Economic and Legal Framework for Non-Prescription Medicines'
publication.

92 July 2014
Pricing measures under the 2011 Drug Reimbursement Act included applying fixed, official wholesale
and retail prices to reimbursed medicines following negotiations with pharmaceutical companies.
Fixed margins for wholesalers were introduced; a fixed rate of 7% was applied in 2012, falling to 6% in
2013 and then 5% in 2014.
Pharmacy margins depend on therapeutic groups. Under the Act, pharmacies were requested to sign
an agreement with the National Health Fund (NFZ) to maintain mark-ups below the maximum.
VAT
VAT on all medicines is 8%, having been increased from 7%, effective from the beginning of January
2011.
Reimbursement
The Drug Reimbursement Act was designed to curb the growth of drug reimbursement expenditure,
with measures that included limiting drug reimbursement expenditure to 17% of total public
healthcare spending (in 2009, drug reimbursement accounted for 18.9% of healthcare expenditure),
and forcing pharmaceutical companies to cover 50% of any drug reimbursement expenditure that
exceeds the 17% limit, through a payback system. The Senate initially chose to make manufacturers
responsible for covering 100% of any overspend, but the figure was amended to 50% following
warnings from the industry that the move could result in reduced R&D spending and bankruptcies. A
further proposal to tax companies 3% of their sales of reimbursed medicines was also withdrawn by
the Senate, in April 2011.
Physicians working for two or more healthcare providers are now required to sign separate contracts
with the National Health Fund (NFZ), for prescribing reimbursed medicines. Pharmacies that sell
reimbursed medicines are also obliged to sign contracts agreeing to sell medicines at the official,
fixed price. Fines will be issued for errors and violations.
The government hoped to reduce expenditure on reimbursed medicines through preventing waste -
people reportedly stockpile medicines when pharmacies run promotions - and by preventing
reimbursed drugs from being sold to patients at prices lower than those paid by the NFZ. However,
there have been concerns that the elderly and those on low incomes would not be able to afford
treatment when charged at the new official prices.
The list of reimbursable medicines is updated every two months. Reimbursement depends on the
categorisation of the medicine. Drugs for certain serious conditions are provided free of charge, for a
flat fee, or are subject to a payment of 50% or 30% of their funding limit. Medicines provided during
hospital treatment are free of charge.
Medicines are classified into groups, attracting 100%, 70% or 50% reimbursement, or a lump sum.
• Medicines in the highest group are dispensed free of charge up to the reimbursement limit.
However, if the retail price exceeds the limit, the patient is required to pay the difference.
Medicines in this group include those to treat cancer, psychosomatic disorders, development
disorders, or infectious diseases if a special epidemiological threat for the population has
been proved.
• For medicines in the 30% group, patients are required to pay 30% of the cost of the medicine
up to the reimbursement limit (equivalent to 70% reimbursement). If the retail cost is higher,
the patient is required to pay the difference.
• For medicines in the 50% group, reimbursement of half the cost is available up to the
reimbursement limit. If the retail cost is higher, the patient is required to pay the difference.

July 2014 93
• A lump sum payment may also be available for medicines on the reimbursement list,
particularly for chronic and long-term conditions, where the medicine is required for more
than 30 days and the monthly cost of their use for a patient with a co-payment of 30% of the
reimbursement limit would exceed 5% of the minimum wage; or where a 50% contribution
would exceed 30% of the minimum wage; or medicines that were dispensed against the
lump sum payment before the date of entry into force of the Reimbursement Act, providing
that – according to the current medical expertise – they are used for more than 30 days.
Where cheaper generic alternatives are available, the pharmacist is obliged to inform the patient of
these, providing the physician has not annotated the prescription “not to be replaced”.
In 2012, the NFZ reduced the drugs list to 3061, and increased the number of drugs whose cost must
be met by the patient fully. This has meant that patient co-payment levels in 2012 shot up to 37.9%,
the highest in the European Union. Similarly, IMS Health reported in 2012 that the number of
prescriptions requiring full payment by patients had increased from 3% in 2011 to 6.6% in 2012.
Recent Developments
In January 2014, the NFZ’s reimbursement list update added 114 new pharmaceutical products that
would be partially or fully reimbursed by the national health insurer. At the same time, the NFZ
trimmed the list of older and out-dated medicines, thereby freeing up funding for newer, more
effective drugs. Some 297 drugs were removed, although pharmaceutical manufacturers indicated
earlier in the year that they would not submit drugs for consideration, as the price set by the NFZ was
unprofitable.
Prices of commonly prescribed medicines, such as omeprazole and candesartan, have been lowered
with the MoH negotiating volume discounts with pharmaceutical companies. In 2013, as co-
payments rose, underfunding of hospitals continued and patients were put off from visiting doctors
due to stringent reimbursement requirements, the NFZ ended up in a position of a net surplus; as a
result, the government and the NFZ decided to employ the surplus to lower patient co-payments on
174 drugs. Similarly, co-payments for some other medicines have risen. According to primary
research firm IMS Health the changes in co-payments would see a net decrease in patient
contributions towards prescription drugs of around PLN38.4 million (US$12.2 million), assuming 2013
consumption patterns in pharmacies continued into 2014.
In January-February 2014, NFZ's drug reimbursement expenditure increased 4% year-on-year (y-o-y)

to PLN1.56 billion (US$516 million), as reported by ceepharma.com, citing data published on April 4
2014. NFZ's spending on medicines reimbursement, foods for special nutritional needs and medical
devices sold by pharmacies upon prescription, rose 0.8% y-o-y to PLN1.19 billion (US$393 million)
during the period, while its spending on drug reimbursement through medicine programmes
increased 20.8% y-o-y to PLN303.8 million (US$100.5 million).
ROMANIA
Pricing
Pharmaceutical pricing is a major area of contention between the government and research-based
pharmaceutical firms operating in Romania. With the exception of OTCs and nutritional supplements,
the Ministry of Health sets maximum pricing levels of both domestically produced and imported
products under Ministry Order 612. This covers all pharmaceuticals that are fully or partly reimbursed.
The cost of medicines is determined on a quarterly basis under the CANAMED scheme, which uses
foreign exchange rates and takes into account the involvement of importers, distributors and
pharmacies, as well as VAT.

94 July 2014
Prices for OTC products are established and amended freely under a system set up in 2002, with the
manufacturer notifying the MoH of any alterations (on a quarterly basis).
Reference Pricing
The prices of all medicinal products, whether new or already on the market, are not permitted to
exceed the lowest price found in the 12 reference countries: Austria, Belgium, Bulgaria, the Czech
Republic, Germany, Greece, Hungary, Italy, Lithuania, Poland, Spain and Slovakia. The price of a
generic drug may not exceed 65% of the price of the originator drug.
An imported product can only be marketed in Romania once the Ministry of Health has agreed on its
price. The authority establishes how much the product costs in other countries and then matches the
lowest price. Where a product launched in Romania was packaged differently in the referenced
countries, analysis of prices most similar to the Romanian form would be made. All price applications
and authorisations would be made in lei, with currency conversion rates set at the rates used to
compile that year's budget.
The prices for domestic and foreign drugs are usually revised annually. Sixty days prior to the price
expiry, manufacturers are required to submit new documentation so that the MoH can devise a new
price. The ministry would also carry out a yearly macroeconomic price review to assess the viability of
introducing or maintaining price freezes.
The first generic launched on the market cannot exceed 65% of the price of the originator product,
even if the product cannot be referenced properly.

Importers may make an 8.5% margin, compared with 7.5% for wholesalers, in order to cover import
procedure costs. Pharmacy margins range from 12% to 24%, depending on the wholesale value of
the medicine (lower pharmacy margins are applied to expensive products).
VAT
VAT of 9% is applicable to all medicines.
Reimbursement
Each year, the Ministry of Health and the NHIF determine which prescription drugs are to be covered
by health insurance funds, based on advice from the College of Physicians and the College of
Pharmacists. Only drugs that have been subject to bioequivalence tests will be considered for
reimbursement. Non-prescription medicines are not reimbursable.
Drugs are placed on one of three lists, by International Non-proprietary Name (INN). Drugs on List A
are 50% reimbursable, with patients having to pay the remainder of the cost. Drugs on List B are 90%
reimbursable and those on List C are completely covered by health insurance. List C is further split
into three sub-lists, C1, C2 and C3.
In 2013, List C1 contained 100% reimbursable drugs for 30 categories of medical conditions, including
cardiovascular disease, hepatitis, chronic liver disease, leukaemia and lymphoma, epilepsy,
Parkinson’s disease, myasthenia gravis, multiple sclerosis, schizophrenia, dementia, rheumatoid
arthritis, ankylosing spondylitis, diabetes, chronic kidney disease, glaucoma, Gaucher disease,
specified sexually transmitted diseases and chronic inflammatory bowel disease. List C2 comprises
fully reimbursed medicines used in national health programmes with curative intent, either in
hospitals or for outpatients. List C3 comprises medicines not included on the other Lists that are
100% reimbursed for children up to 18 years; young people aged 18-26 who are students or have no
income; and pregnant and nursing mothers.

July 2014 95
If a doctor provides the generic name of a drug on the prescription, the pharmacist must dispense the
cheapest drug available and the patient is made aware of the alternatives. Patients who want a more
expensive product have to pay the difference between the price of the lowest-priced product and the
drug that is dispensed.
In July 2010, the Romanian Health Insurance House (CNAS) approved a new method of calculating
reimbursement for partially reimbursed prescription-only drugs, which was expected to lead to
patients paying on average 40% more for their medication, and in some cases, nine times more.
Under the new system, reimbursement is calculated on the basis of therapeutic class, rather than on
the generic reference product (INN). As the cheapest generic medicine in each therapeutic group will
be reimbursed, the amount patients will have to pay for all other products will increase. While the
cheapest and most popular drugs will be almost completely reimbursed, the majority of the cost of
the more expensive, modern drugs will have to be covered by the patient, saving the state around
US$426.6 million per year.
At the beginning of September 2011, the MoH introduced a new approach to calculate
reimbursements for drugs on the C2 list. According to the new approach, the reimbursement of C2-
listed drugs would be limited to 120% of the retail price of the corresponding low-priced substitute in
the same therapeutic group. However, the new method is not applicable to drugs that do not have a
respective substitute. Therefore, reimbursement of those drugs with no substitutes remains 100%.
The CNAS predicted savings of around RON150 million (US$47 million) per year in health
programmes would result from the change. The C2 list comprises of over 1,400 drugs, for outpatients
and inpatient care, used in national programmes.
Generally speaking, greater use of generic drugs on schedules A, B, C1, and C3 is expected to
generate greater savings. For the C2 schedule, the authorities have been developing procedures and
mechanisms that will lead to a reduction in the spending on these drugs, including settlement prices
and wherever possible, a revision of the list of compensated and free drugs, and switching to generic
medicines.
RUSSIA
Pricing
In establishing a long-term strategy for healthcare, which includes pilot programmes and a full-scale
pricing and reimbursement system, the Ministry of Health is viewed to be attempting to assert further
direct control of drug pricing. However, the vital and essential medicines list (ZHNVLP), a list of
medicines that all pharmacies must stock, is rarely updated, and was last changed in 2011 - despite
the law On the Circulation Of Medicines instituting yearly updates to the list. Furthermore, only
domestic companies are allowed to request annual price adjustments (inflation or otherwise linked).
Russia also employs an international reference pricing mechanism that looks at prices in countries
such as China and India, ignoring the macroeconomic differences between the three countries and
artificially deflating drug prices.
The rouble devaluation in early 2009 spurred the government to adopt rigorous pricing controls after
nearly two decades of relative liberalism. In August 2009, Russian Government Decree No. 654, On
the Enhancement of State Regulation of Prices of Essential Medicines, was adopted, with a subsequent
amendment later that year. The 2009 decree introduced significant measures that have had a
sizeable impact on the pricing process.
Firstly, the sale of medicines on the essential medicines list at unregistered prices was prohibited from
April 1 2010, so companies have been required to register prices of essential medicines since this
date.

96 July 2014
Secondly, the price registration process for imported medicines was modified. As a result of this
amendment, an applicant for registration of a maximum price for the medicine included in the VEML
must submit data on the selling price of the medicine in other foreign markets where the drug is
registered.
Thirdly, Decree No. 654 confirmed the rule of Decree No. 239, “On Measures for Arranging of State
Regulation of Prices (Tariffs”), dated March 7 1995. The Federal Tariff Service established the methods
for how the regional authorities are to determine the maximum wholesale and retail mark-ups.
Federal Law Number 61-FZ, “On the Circulation of Medicines”, of April 2010, came into force on
September 1 2010. The Law reiterated the mechanics of pricing regulation that were in force under
previous legislation, as well as introducing the main price regulation rules for vital and essential
medicines at the federal level. Manufacturers must register and justify maximum selling prices for
essential pharmaceuticals. The law does not contain provisions to establish state regulation of the
price for non-essential medicines.
A decade earlier, in 1999, price regulation was introduced for the first time since the collapse of the
Soviet Union, as part of the government's efforts to reduce drug prices. Decree No. 347, on “Measures
for State Control over Pricing on Medicines”, was issued in March 1999. Initially, the regulations covered
around 400 essential domestic and imported medicines.
Vital & Essential Medicines List

In October 2011, the MoHSD approved a new vital and essential medicines list (ZHNVLP) for 2012,
which was based on the list approved by the WHO in March 2009 and recommendations made by
MoHSD advisors. The list specifies the minimum range of pharmaceuticals for pharmacies and other
pharmaceutical outlets. The list is available from the Association of International Pharmaceutical
Manufacturers, or on a Ministry of Health and Social Development (MoHSD) sponsored website,
www.drugreg.ru, in Russian.
The approved 2012 ZHNVLP included 567 drugs listed by INN. Of those listed, only 93 drugs (16.4%)
were produced by domestic companies, 207 (36.5%) were produced only by foreign companies and
267 (47.1%) were produced by Russian and foreign pharmaceutical companies.
The list included an additional 29 medications compared to the previous year. A number of
innovative oncology medications were added to the list, including Novartis' Afinitor (everolimus) and
Tasigna (nilotinib), Eli Lilly's Alimta (pemetrexed), GlaxoSmithKline's Atriance (nelarabine), Merck
KGaA's Erbitux (cetuximab), AstraZeneca's Iressa (gefitinib), Bayer's Nexavar (sorafenib), Celgene's
Revlimid (lenalidomide), Bristol-Myers Squibb's Sprycel (dasatinib), and Pfizer's Sutent (sunitinib).
The announcement in late November 2011 that essential medicine prices would not increase came as
a surprise to the industry. For local manufacturers whose portfolios are more aligned to the list of
essential medicines, we note that insufficient price increases affected their revenues and returns in
2012 and could result in revisions to their investment plans, such as modernising their facilities, in the
coming years.
In August 2013, however, a draft law to list drugs by both their INN and branded name on the
ZHNVLP list was viewed as a positive development for the industry as it would prevent a repeat of the
Glivec (imatinib) debacle, whereby Novartis lost the right to supply its own patented drug to the
Russian state.

July 2014 97
Reference Pricing
For drugs listed on the ZHNVLP, the Russian MoH sets maximum mark-ups based on the European-
style reference pricing system. The reference basket contains around 20 countries and has
traditionally included markets such as Spain, Bulgaria, Germany and the Czech Republic. However,
PhRMA has expressed concerns that the recent addition of India and China to the reference pricing
mechanism has artificially deflated prices. Prices are set at the lowest among comparable prices
among the reference countries.
Prior to the addition of India and China to the reference basket, concerns had been expressed that the
disparity in pharmaceutical expenditure per capita between European countries and Asian
economies would lead to manufacturers in Russia seeing their drug prices drop significantly.
Mandating pricing between European and Asian levels would make production of drugs on the
ZHNVLP list unprofitable for all but the biggest producers in the country. While this could cut the
price of exclusively imported drugs such as Herceptin (transtuzumab) and Glivec (imatinib), it would
also slash the price of generic drugs, which the domestic industry mainly revolves around.
However, the domestic industry retains some price advantages over foreign companies, since the
Russian government grants local manufacturers a 15% price preference at federal and municipal
procurement contracts.
As yet, Russia has not implemented internal reference pricing, other than a partial system for
vaccines. However, a presentation for the ISPOR Central-Eastern European Network Forum at ISPOR’s
annual international meeting held in New Orleans in May 2013, suggested that new external and
internal reference pricing models were being developed and would become operational from 2015.
Cost saving will remain a key principle.
Wholesale and Retail Mark-ups

Wholesale & retail mark-ups are determined by executive authorities of the Russian Federation,
depending on local market conditions. Wholesale & retail prices are then established by adding the
locally set mark-ups to the centrally registered price of the medicine. If a wholesaler or retailer
receives medicines at discounted prices, the set mark-ups apply to the actual delivery price of the
product. In this way, any discount can be passed on to the consumer.
Maximum Prices
In November 2010, the MoHSD, in collaboration with the Tariff Agency, drafted measures to identify
the maximum retail pharmacy prices of pharmaceuticals. The measures include different approaches
in calculating maximum retail prices (MRP) for vital drugs. Calculations take into consideration the
delivery charges as well as other price components submitted by manufacturers. The average prices
of pharmaceuticals over the previous year and the volumes sold play an important part for domestic
manufacturers. Transportation, packaging and custom duties are relevant to foreign companies.
The recommended retail prices of both domestic and foreign pharmaceuticals cannot exceed the
average price registered for the previous year. According to the MoHSD, state regulation of drug
prices resulted in reductions in the prices of vital drugs in both the outpatient and hospital sectors in
2010.
Wholesalers are permitted to revise prices once a year but the increases must not exceed inflation.
Prices must also take into account the average prices for the previous six months, meaning that prices
could in fact fall. Price hikes related to the rising costs of production, substances and rent are not
permitted.

98 July 2014
The government’s new pricing policy was introduced to ensure affordable prices for pharmaceuticals
and followed steady price increases in 2008 and 2009 across the country. The rise in prices largely
occurred during the economic crisis. In 2009, the increase in prices for vital drugs prescribed on an
outpatient basis reached 11% and, in the hospital inpatient sector by 16%. However, by November
2010, prices in the outpatient sector had fallen by 2.7% and in the inpatient sector by 2.5%.
In the first 12 months of the government registering maximum retail prices for vital drugs, prices fell
by an average of 2.6%. Some prices fell by as much as 6%. The use of differential maximum trade
mark-ups resulted in significant price reductions of about 3.9-6.5% for drugs priced between R 50
(US$1.6) and R 500 (US$15.5) and a 0.4% reduction for drugs priced below R 50 (US$1.6). The cost of
imported OTCs 3.6% by 3.7% in hospitals. The prices for domestically manufactured OTCs fell by 1.5%
and by 1.2% in hospitals.
Decree No. 654 enforced the compulsory registration of the maximum manufacturers’ prices of vital
drugs by April 1 2010. Pharmaceuticals not registered by April 1 2010 were taken out of circulation,
causing pharmacies to lose 8% of their product range. As of June 23 2010, the Russian Supervisory
Committee had registered prices for 7,400 vital drugs. Of these, 54% were domestically produced
and 46% were of foreign origin. The prices registered in accordance with the new rule were on
average 25.5% lower than the prices for the same period in 2009.
According to the MoHSD, foreign pharmaceutical suppliers were deliberately sabotaging the price
registration system. It was thought that due to the fall in sales in worldwide markets, some producers
were reluctant to register their prices in Russia. Others tried to register prices that were four times
higher than those in leading pharmaceutical markets, in order to compensate their shortfall. It was
feared that the increase in prices would adversely affect the most vulnerable groups of the
population.
Changes to State Tenders

In March 2014, the Deputy Chairman of the State Duma, Olga Borzova, introduced a draft
amendment to article 101 of the federal law related to the procurement of drugs in Russia. Borzova
proposed that drug procurement of expensive treatments for diseases should be moved from the
state level. The deputy chairman believes that decentralisation in drug procurement leads to
inefficient usage of budgetary funds, as it increases trade by at least 83 times, leading to an increase
in overhead costs for customers.
This view is reflected in a recent study of the Russian pharmaceutical sector, which found that the
price of government procurement for HIV/AIDS and hepatitis B and C treatments varied significantly
during auctions held in 2013. According to reports, the money allocated for the purchase of
expensive drugs in different parts of the country is sometimes spent very recklessly. Maria
Onufriyeva, the acting director of Community of PLHIV, suggested that if this profligacy continued in
2014, many patients would be unable to access life-saving treatments. The study gathered data from
5,000 auctions in 83 different regions of Russia.
For the multinational industry, an ongoing concern regarding tenders revolves around changes that
effectively mandate discrimination against foreign medicines in state tenders. Proposed changes
were included in draft resolutions submitted by the Ministry of Industry in February 2013 and made
official in April 2014, restricting foreign-made drugs from entering state tenders for medicines.
The Ministry of Industry conducted a public review of the draft resolution, entitled “On the
Establishment of Additional Requirements to Bidders”. Another draft order submitted by the Ministry of
Industry defined the criteria under which a drug would be considered 'Russian-origin'. When
combined, the two pieces of legislation would effectively grant Russian pharmaceutical firms that
perform the full manufacturing spectrum of drug production a significant advantage over foreign
manufacturers in state procurement bids.

July 2014 99
The resolution effectively discriminates against importers of foreign-made drugs and prevents their
inclusion in tenders for buying medicines for the public healthcare system. If a foreign-made drug
were listed on the Registry of Medicines under two locally registered companies, Russian or an
international subsidiary, the drug importer would be automatically barred from placing bids.
Over the last few years, the authorities have been actively promoting the domestic pharmaceutical
industry under the Pharma 2020 strategy, and trying to convince foreign companies to localise
production and research, with some success. Complying with the Pharma 2020 rules has proven to
be difficult for multinational firms but also for Russian companies. Officially, some 26% of Russian
pharmaceutical demand is derived from locally produced drugs, in volume terms, but this figure is
inflated, as 'local production' in many cases involves simply packaging pharmaceutical goods within
Russia.
The government has decided to change the classification of what constitutes ‘locally produced’ to
include products undergoing the full manufacturing cycle and this will come into effect in 2016.
Multinationals have anticipated these moves and broken ground on manufacturing sites in the
country. Partnerships and joint ventures between local companies and multinationals are likely to
become more important in the future in order to comply with the evolving regulatory environment.
The geopolitical aspect will act as a spur to this trend as pharmaceutical companies attempt to stay
ahead of further regressive import measures.
Medicines Financing
In terms of longer-term policy goals, the government announced its intention to create a 'single
channel' for healthcare financing using the existing Federal Mandatory Medical Insurance Funds
(FFOMS) and their subordinate regional funds. Paid from a mix of payroll contributions and top-ups
from general taxation, the plan would replace various programmes and medicines provision funds
with a single funding source. This funding model was to be introduced gradually, with a target of
70% of healthcare funding being channelled via FFOMS, compared to around 20% in 2008. In late
2008, the government announced plans to launch a universal mandatory medicines insurance
programme in 2010 within the framework of the FFOMS. This was later postponed to 2016.
Along these lines, in July 2009, the Duma adopted a law replacing the previous Unified Social Tax
with earmarked social insurance contributions for mandatory medical insurance, social security and
pensions. Under the legislation, the cap on income contributions to mandatory medical insurance
funds was to rise 1% to 2.1% for the Federal Fund for Mandatory Medical Insurance, and 3% for
regional funds. It was hoped that the new rules would make contributions to funds more transparent
as well as improving their solvency.
After an initial 2010 deadline, in late 2010, Putin set a 2013 deadline for implementing the
programme. Speaking with representatives of the pharmaceutical industry in August 2012 Health
Minister Skvortsova said that at the beginning of December 2012 the Ministry of Public Health would
present its strategies for the full implementation of the Medicines Insurance System in the country by
2020. She sketched out some important details of the project for the first time.
The main thrust of the policy is that the state compensates half the cost of prescription medicines
and, will “only cover those citizens who care for their health”. BMI notes that defining whether ill
patients are “caring for their health” sufficiently is vaguely worded and could provoke controversy
and even court challenges in the future.
The ministry planned to limit producer prices through offsetting the costs of drugs by central
procurement and the proposed methodologies included reimbursing the costs of the drugs based on
the manufacturers' “margin price” and co-payments based on the income level. Measures to control
the producer prices of medicines would be of greatest concern to pharmaceutical manufacturers and
the initial details of the pricing policies seemed vague.

100 July 2014
Reimbursement
DLO Programme
In January 2005, the federal drug supply system (DLO) came into force, replacing a number of
subsidies previously available. The aim of the DLO is to improve access to pharmaceuticals for
vulnerable members of the population. It is also known as additional pharmacological support (APS)
or beneficiary drug coverage.
The DLO programme was split into two subsections in 2008; the VZN programme, covering rare
diseases that are expensive to treat, and the ONLS programme, covering the provision of necessary
medicines. The separation of the DLO was carried out to improve access to medicines for patients
with high-cost illnesses, such as haemophilia, cystic fibrosis, pituitary dwarfism, Gaucher's disease,
myeloleukaemia, multiple sclerosis and transplant patients. The VZN programme covers the seven
costliest diseases and these are funded by the federal government. The drugs covered by the ONLS
are funded by the regions or municipalities.
The number of participants in the scheme has been falling annually. In 2006, approximately 14.5
million people were eligible for DLO support. Benefit recipients were given the choice to opt out of
the scheme and received monthly benefit payments instead; around 46% of these opted to receive
cash benefits rather than services such as free outpatient prescription medications, public transport
and sanatorium treatments.
DLO Budget
The DLO programme works by a doctor writing a prescription and the prescription being fulfilled at a
pharmacy that is later reimbursed by the regional government. At the start of the DLO programme,
there were few controls on the number or type of prescriptions written. There were also incentives
for doctors to overprescribe. With the introduction of the DLO system, the volume of expensive
drugs prescribed increased.
The DLO budget was decided by the number of beneficiaries rather than disease categories. This,
coupled with overprescribing, led to overspending on the DLO budget by mid-2006. Overspending
in 2006 and 2007 resulted in delayed payments to distributors. The suppliers were effectively
bankrolling the system in 2007. Eventually, the suppliers refused to issue more drugs until the debts
owed to them had been cleared; this led to widespread shortages of medicines across the country.
The government increased the DLO budget, distributors agreed to long-term payment plans and
others cancelled the government debt. The debt was paid off by the end of 2007.
Following the increase in pharmaceutical costs under the DLO, prescribing practices have come
under scrutiny. Doctors are now encouraged to prescribe generics, domestically produced
medications and less-expensive treatments. In mid-2010, the Ministry for Economic Development
proposed that the government move to purchase all medicines by INN, not trade name, with a few
exceptions.
There are around 80,000 people covered by the VZN programme, while the ONLS covers over four
million. In 2010, the number of beneficiaries on the ONLS programme fell by 13.5% compared with
2009. In 2010, the federal budget allocated for the ONLS was R 43.3 billion (US$1.4 billion) and for the
VZN was R 41.6 billion (US$1.4 billion). In 2008, the federal budget allocated R 28.0 billion (US$1.1
billion) to the ONLS and R 33.0 billion (US$1.3 billion) for the VZN.

July 2014 101
DLO Procurement
At the beginning of 2008, part of the responsibility to purchase drugs was delegated to the regional
authorities. The MoHSD purchases expensive pharmaceuticals intended for the VZN programme.
Regional authorities are responsible for purchasing all other prescription drugs. The authorities have
to work out a list of pharmaceuticals and the necessary quantities to cater for existing requirements.
The drugs are paid for with funds transferred from the federal budget on a quarterly basis.
Auctions for expensive pharmaceuticals take place biannually. The objective of an auction is to
ensure an uninterrupted supply of medicines for the most seriously ill patients at a competitive cost.
A total of R 45.9 billion (US$1.5 billion) was allocated from the federal budget for the procurement of
expensive medicines in 2010. The government proposed the allocation of R 49.3 billion (US$1.7
billion) from the federal budget in 2011 and R 54.2 billion (US$1.9 billion) in 2012. The government
also intends to enter two-year contracts with the suppliers of the required pharmaceuticals.
At the end of 2013, government subsidised drug purchases under the DLO programme rose year-on-
year by 8% in rouble terms to RUB86.5 billion (US$2.77 billion) in contract prices.
Cancer Treatments
In February 2013, the Russian State Duma Committee on Healthcare held a roundtable discussion on
budgetary spending on cancer treatments. Citing concerns over the effectiveness of targeted cancer
therapies, the committee discussed with oncologists and health economists the need to qualify the
efficacy of cancer therapies and medical technologies. Although a different phrase, 'improving
efficiencies', was used, the committee's discussion effectively mirrored a European-wide focus on
cost-effectiveness of drugs and value for money. Moreover, the application of European-style 'risk-
sharing' schemes, whereby manufacturers refund payers for unsuccessful treatments, was also
discussed. The discussion underlined that the Russian authorities had yet to develop a consistent
approach for making decisions on the rational use of costly medicines and treatments.
Russia lacks a functioning health technology assessment agency. Prices at state tenders are often
negotiated on the basis of bulk discounts and do not account for drug efficacy and value for money.
At the Committee meeting, the director of the non-governmental organisation National Centre for
Technology Assessment in Healthcare (NCTAH), Vitaly Omelyanovskii, highlighted the need for post-
marketing clinical studies analysing the effectiveness of drugs sold in Russia, and the necessity of
introducing a ceiling on drug pricing in state tenders.
Proposed Orphan Drugs Programme
In March 2011, the Russian government announced rules allowing people enrolled in a mandatory
insurance fund in any region to receive treatment in any facility in any other region. This made the
positive step of allowing patients to seek out better levels of care, but also underlined the huge
regional disparities of care between regions, with high-technology care and medicines clustered in a
few urban centres. These rule changes however were the underlying cause of the Moscow and St
Petersburg medicines budget being stretched in 2013, as thousands of patients unable to receive
treatment or medicines in their home regions bought property or moved to Moscow and/or St
Petersburg to receive free medication from the local budget. Because of this, regional healthcare
authorities asked that the federal budget cover spending on rare diseases and specialty medicines in
order to use regional healthcare funds on maintaining hospitals and raising salaries.

102 July 2014
In January 2014, a member of Russia's parliament, Andrey Ozerov, introduced a bill that proposed to
amend a Federal Law that detailed funding of special, federally funded healthcare programmes. The
MP's bill introduced an amendment that would create a separate, federally funded programme for
providing drugs for patients with orphan diseases, such as atypical haemolytic uremic syndrome,
mucopolysaccharidosis, paroxysmal nocturnal haemoglobinuria, pulmonary hypertension and
paediatric rheumatoid arthritis. The Russian government already funds the purchasing of expensive
medicines through ONLS and VZN programmes, but this legislation would expand the number of
diseases fully subsidised through federal funds, presenting a market opportunity for multinational
and biotech companies.
The ONLS and VZN programmes have been relatively successful over the past few years, but there are
continued concerns and challenges that hamper the effectiveness of these programmes. Firstly,
funding for these programmes is distributed on a regional level and is, therefore, tied to population
and economic pull. As a result, Moscow and the Russian economic heartland tend to receive the
biggest share of funding from these programmes. Indeed, the success of these drug coverage
programmes has been limited in the Russian peripheral regions, with regional health ministries
asking the Federal government to take over the funding and provision of care to patients with orphan
diseases.
There are other systemic issues within the provision of care for rare diseases, although one
considerable hurdle to orphan drug registration was removed earlier in 2013. Previously, orphan
drugs had to be evaluated in clinical trials within Russia to gain drug registration (and therefore,
reimbursement status in programmes), but amendments to the Medicine Law mandated accelerated
approval for orphan drugs and waived the requirement for pre-clinical and early stage (Phase I/II)
clinical trials to be conducted in Russia; these may now be undertaken elsewhere, although, it
remains necessary for Phase III trials to be carried out in Russia.
Owing to legacy issues within the Russian healthcare system, the rate of diagnosis of rare diseases is
low, especially outside the heartland of the country. This is primarily due to a lack of specialists and
institutes focusing on rare diseases outside of large population centres. Similarly, the system for
reviewing and updating the list of orphan diseases and drugs is circuitous, which is why the issue has
been raised in parliament.
SERBIA
Pricing
Serbian government pricing policy appears to be evolving along the lines of precedents set by pricing
and reimbursement agencies in other parts of Eastern Europe, such as Poland and the Czech
Republic. Legislation relating to pharmaceutical pricing is published in article 58 of the Law on
Medicines and Medical Devices, which has itself been published in the Official Gazette of the Republic
of Serbia, number 30/2010 of May 7 2010.
The government establishes the criteria for price formation of medicines that have been granted
marketing authorisation for human use, and which are available on prescription, as well as the
highest prices of such medicines, based on the joint proposal of the Minister responsible for health
affairs and the Minister responsible for trade affairs.
The prices of over-the-counter medicines (OTCs) do not have such controls and are determined by
the holder of the market authorisation. However, market authorisation holders are still required to
submit the data about the prices of the medicines at least once a year.

July 2014 103
Pricing regulation does not provide for the possibility of company-initiated currency-related price
adjustments. However, the government has been forced to address this issue on a number of
occasions to prevent cessation of production of unprofitable drugs.
In October 2012, Serbian Minister of Health Slavica Dukic Dejanovic urged the government to change
drug laws. Dejanovic said the government should determine quarterly rates for new drugs that have
been granted marketing approval and all prices for drugs should be reviewed annually. Dejanovic
wanted to reduce the number of drugs available in the market that do not have marketing approval,
in line with EU directives to reduce the time taken for providing market authorisation for a drug.
Reference Pricing
The maximum reference price of pharmaceuticals (whether reimbursed or not) is set at the average
wholesale price in Croatia, Slovenia and Italy. For innovative drugs, the adjustment factor is 100%, in
comparison to 95% for original medicines, which relates to those drugs with no
pharmacological/therapeutic parallel in Serbia and the EU.
Locally made generic products are priced at around 35% of the reference price, which reportedly
favours cheaper generic imports, the reference price of which is often twice as high.
VAT
Since 2005, consumption tax averaging 8% has been charged on medicines (normal VAT rate is 18%).
Medicines Shortages
In December 2013, Serbia was reported to be facing a shortage of medicines, as some retailers and
pharmacists were unable to earn profits from the sale of these medicines. The shortage of essential
drugs, especially the cytostatic drug fluorouracil, was affecting patients. The shortage was mainly
attributed to low prices and the small pharmaceutical market in the country, due to which
manufacturers did not find it profitable to register their preparations in Serbia. The law in Serbia
requires manufacturers or distributors to provide regular six months supply of drugs; however it is
generally not respected. The shortage is mainly because manufacturers and distributors are putting
their profits above the interests of the patients, according to Vukosava Stevanovic from the
association 'Pharmaceutical Core'.
Previously, on August 16 2012, the Serbian government made a decision on 'the highest prices of
drugs for use in human medicine on prescription'. The decision was supposed to prevent problems
with medicine shortages in the market, contribute to the normalisation of drug markets in Serbia and
provide better and safer healthcare for citizens. According to the government, the policy would also
increase overall supply and ensure greater competitiveness. The decision applies to 531 new
medicines, a third of which are patented medicines. The government said this was the first in a series
of measures to ensure the provision of cheaper medicines in Serbia.
Reimbursement
The government is the main buyer of pharmaceutical products. The Ministry of Health issues a
Positive Drug List (PDL) of approved medicines grouped under their Anatomical Therapeutic
Chemical (ATC) code, while the health fund publishes the reimbursement list. Products with cheaper
but equally effective equivalents are rejected for reimbursement.
The state health insurance fund partly or fully reimburses about 1,500 products, jointly valued at
around US$150 million. Hospitals are responsible for the purchase of a further US$25 million worth of
drugs.

104 July 2014
The PDL was last revised in September 2008, having previously been updated at the end of 2005. It
reportedly included all socially significant major diseases, such as oncological, cardiovascular,
neurological, psychiatric, allergic and respiratory diseases, and metabolic disorders.
The PDL comprises five main categories:
• A - prescribed medicines fully reimbursed by the Health Insurance Fund, although they incur
a flat fee of RSD50. (The poorest sections of society are exempted from co-payment for
pharmaceuticals and check-ups);
• A1 - prescribed medicines incurring a 5-75% co-payment, namely those that have an

alternative to the drug listed in A;
• B - hospital drugs covered by the state;
• C - drugs with specific prescription procedures, such as oncology products; and
• D - non-registered drugs used for diagnostics, which cannot be obtained in retail

pharmacies.
In 2009, the government increased the co-payment for drugs in category A from RSD20 to RSD50,
after also increasing the amount spent on co-payments to RSD1.5 billion from RSD813.5 million in
2008. The government also transferred a number of drugs from the A1 category to the A category.
However, this had the impact of actually reducing the total amount spent by consumers on co-
payments, as A1 drugs can have higher variable co-payment rates.
The country's health insurance fund - the Republic Institute for Health Insurance (RZZO) - produced a
reworked drugs list in March 2010, including 250 new generic drugs, of which around 90 were
covered by the A and B lists, respectively. Three more oncology treatments were also added to the C
list.
In early 2012, the RZZO extended the list of subsidised medicines to cover a number of treatments for
asthma, cardiovascular, neurological and psychiatric conditions. The new list contained 612 products
with different names, covering a total of 1,939 strengths, packaging and formulations. Nine novel
medicines were also reportedly included in the list, while glaucoma treatments are to be fully
subsidised.
RFZO reduced the prices of 650 prescription medicines in Serbia from June 1 2013. The move
reduced prescription drug prices by an average of 2% in pharmacies across the country. The price
cuts were made for the medicines present in the A list (that cater to prescription drugs), A1 list (for
prescription by percentage share) and B list (which caters to medicines given to hospitals).
In November 2013, Serbia's National Health Insurance Fund started the process of amending the
reimbursement list of generic drugs, while excluding branded drugs. The initiative aims to make
prescription drugs more accessible to patients aged 65 years and above. The implementation of the
revised list of drugs began at the beginning of September 2013. The revised list includes drugs for
the treatment of prostate cancer, osteoporosis and blood lipids. As part of the initiative, an insured
person will obtain medication from a pharmacy at the lowest reference price and the pharmacy may
issue a more expensive drug only at the request of the insured person. The difference between the
base price and the expensive drug will be borne by the insured person.
In December 2013, Dragan Bogdanic, Minister of Health and Social Welfare of the Republic of Serbia,
signed an agreement with the members of civic associations of patients with leukaemia and
lymphoma to purchase the drugs required to treat the diseases. The two parties agreed to procure
Tasigna (nilotinib) for the treatment of leukaemia, and to reimburse the cost of the drug for patients.

July 2014 105
SLOVAKIA
Pricing
The pricing and reimbursement systems in Slovakia were reformed in 2004. Decision-making powers
were transferred from the Ministry of Finance to the Ministry of Health (MoH) and the regulatory focus
shifted from ex-factory to retail prices. The legal framework for pricing is set out in Act 18/1996 (the
1996 Act on Prices) and Act 577/2004 (the 2004 Act on Scope of Healthcare Covered by Public Health
Insurance). The latter also covers the legal basis for reimbursement.
The MoH determines maximum retail prices for reimbursable pharmaceutical products and maximum
manufacturers' prices for pharmaceuticals that are used in hospitals only. There is free pricing for
OTCs and non-reimbursed pharmaceuticals at manufacturer level, although the wholesaler and
pharmacy margins for these products are regulated.
Manufacturers and importers may submit their pricing proposals to the Ministry of Health up to four
times per annum. The system uses an internet-based pricing proposal bid system, which increases
transparency in the sector.
Reference Pricing
There have been several changes to Slovakia’s reference pricing system over the last few years. At the
beginning of 2012, the prices were based on the two countries with the lowest prices in the EU.
However, this was changed later in the year under an amendment to the Act on Medicines, and the
mechanism now calculates the price as the average of the three lowest prices in the EU.
Previously, the system introduced in January 2009 had been based on the average of the six lowest
prices in the EU member states or the price in the state where the registration holder is based, if it is
outside the EU. This replaced the earlier system where the maximum price was calculated as the
average of the three lowest prices in nine reference countries, plus 10%. Although the same rules
apply to both generic and original products, generics tend to be 20-80% cheaper than their original
equivalents.
A fast-track reimbursement process is in place for pharmaceuticals with a proposed price that is at
least 10% lower than the reference product on the positive list. However, the manufacturer must
accept a reduced reimbursement rate.

The maximum mark-ups for wholesalers and pharmacies are set at 13% and 21%, respectively.
VAT
VAT is applied to the ex-wholesaler's price: prescription medicines incur a reduced 10% VAT levy, with
OTCs charged a standard 19% levy, according to the Association of the European Self-Medication
Industry (AESGP).

106 July 2014
Reimbursement
On July 7 2011, the Slovakian parliament (known as the National Council) approved, on the first
reading, the draft act on the Scope and Conditions on the Reimbursement of Medicines, Medical
Devices and Dietary Foods. The act introduced conditions for faster entry of medications in the
country's pharmaceutical market. The legislation, demanding a monthly update of the list of
reimbursed products, regulates the reimbursement levels and prices of specialty medical equipment.
The act also introduced temporary reimbursement and a reimbursement mechanism based on the
payback system. The legislation amended the Medicines Law Act 140/1998, which initially came into
force in June 1998.
In August 2011, Slovakia introduced pharmacoeconomic analysis of publicly funded drugs, which
aimed to further rationalise spending on medicines. However, the capability of Slovakian authorities
to undertake such a large and complex task was questioned. The MoH considered it necessary to
define the bidding price for pharmaceuticals by quantifying the price per QALY (quality-adjusted life
years).
The formula was written into Slovakia's drug reimbursement legislation and sets a hard limit of
EUR26,000 per QALY gained. Pharmaceutical companies claimed that due to the QALY formula, the
number of innovative drugs registered had fallen and fewer innovative medicines were included in
the reimbursement list. Slovak patients can assess some innovative drugs via special treatment
programmes, but access to these programmes is assessed individually by health insurance companies
on a case-by-case basis.
Pharmaceuticals administered within inpatient facilities are fully covered by public health insurance.
Pharmaceuticals used in outpatient care are either fully or partially reimbursed.
In February 2014, the Slovakian health ministry introduced a new drug reimbursement list, under
which 2,529 drugs from the list (51%) are offered to patients at no cost or for a symbolic fee of up to
EUR1 (US$1.37). Around 1,771 drugs, or one third of the medicines on the list, will require no co-
payment from the patient. The new list will also help patients to gain access to three new drugs, two
of which are used to treat allergic rhinitis and painful chronic pancreatitis/cystic fibrosis, while the
third constitutes hormone therapy for postmenopausal women.
Previously, the 2012 drug reimbursement list comprised 5,515 products and patients were not
required to make a financial contribution for 1,835 (33%) of drugs listed. These included exenatide,
vernakalant and fingolimod, for the treatment of patients with Type II diabetes, atrial fibrillation and
multiple sclerosis, respectively.
When seeking reimbursement for a pharmaceutical product, manufacturers should submit an

application proposing a maximum retail price, together with a request for the Categorisation
Committee of the MoH to determine the reimbursement level. The Categorisation Committee
consists of three representatives from the MoH, three from the Slovakian Medical Chamber and five
representatives of health insurance funds. The Committee meets four times a year.
Applications should include information about the pharmaceutical, such as the name, manufacturer,
pharmaceutical form and strength, as well as the daily defined dose of the active substance, the
number of defined daily doses per pack, daily treatment costs compared with alternatives at ATC-4
level and the proposed price and level of reimbursement. Price proposals are published monthly on
the website of the MoH. Two weeks after publication, the applicant may submit a second and final
price proposal, but this cannot be higher than the original proposed price. The Categorisation
Committee will then set the maximum retail price for the pharmaceutical.
The reimbursement level will be decided by the Categorisation Committee once the maximum retail
price has been set. A decision will be reached within 180 days of the application being submitted for
retail products and within 90 days for hospital-only products.

July 2014 107
SLOVENIA
Pricing
The prices of all publicly funded pharmaceuticals are determined by the Agency for Medicinal
Products and Medical Devices of the Republic of Slovenia. Drug prices are regulated at producer level
and wholesale margins are fixed. This makes the regulation of prices of drugs before they reach a
hospital or pharmacy simple and transparent.
Prices are fixed on the basis of negotiations between industry and the National Health Insurance
Institute (ZZZS), with both general and individual agreements being applicable. Under general
agreements, the innovative pharmaceutical industry contributes an additional 6% discount to the
ZZZS on its entire drug portfolio. Companies are also allowed to adopt additional discounts. For new
products, the ZZZS negotiates reimbursement prices individually.
From January 2012, an additional 3% discount was agreed for patented products. For original
products without patent protection, the agreed additional discounts were 2% for chemical drugs and
1% for biologics that had biosimilars available on the market.
Reference Pricing
Slovenia’s reference price countries are currently Austria, France and Germany. The price of a
patented drug has been capped at 100% of the lowest price of an identical or similar product in these
three countries. However, a 2012 study by the Forum of International Research & Development
Pharmaceutical Companies, EIG, suggested that price levels of innovative products were around 9%
lower in Slovenia than the lowest comparable price among the reference countries.
In late January 2012, the MoH published new regulations on the prices of medicines in the Official
Gazette; these came into effect in March 2012. The changes reduced the relative prices of original
and generic drugs and changed the system of calculating margins for wholesalers. The reference
price for patented medicines (originator medicines) changed from 94% of the reference to 91%,
which is implemented in an agreement between the HIIS and drug manufacturers.
In 2012, the reference price of generic medicines was changed from 74% to 72%. This change
followed rules established in late 2010, which had stated that from January 1 2012 the generic
comparative price would be 74%, down from the 78% level introduced for 2011, so the amendment
from the start of 2012 pushed the price down 2% further than previously expected. Prior to the 2010
amendments, generic drugs were referenced at 82% of the comparative country reference.
The interchangeable drugs list (IDL) was introduced in 2003, under which the reference pricing
system uses the cheapest product in the ATC group to set the price ceiling for other products in the
group.
Wholesale Mark-ups
When calculating the build-up of prescription pharmaceutical prices for pharmacies and consumers,
each pharmaceutical company establishes its own discount policy in agreement with each
wholesaler. The wholesale margin is determined by the Slovenian Chamber of Pharmacy for
prescription and synthetic non-prescription medicines, or by average margins of 2.5-10.0% in the case
of herbal medicines and food supplements.

108 July 2014
VAT
An 8.5% VAT on pharmaceuticals applies to the wholesale price. This is lower than Slovenia's
standard VAT rate of 20%, but is around the average for an EU member state.
Reimbursement
The ZZZS is responsible for the reimbursement of prescribed pharmaceuticals. The Drug Committee
has 16 members, including eight medical doctors of different specialities (including a GP), three
representatives from the Agency for Medicinal Products, one representative from the Institute of
Public Health and two representatives from the Health Insurance Institute (a medical doctor and a
pharmacist).
New reimbursement regulations on medicinal product listings were introduced on December 23

2010. The rules define detailed procedure and criteria for the listing of medicinal products, detailed
procedure and criteria for the exclusion of medical products from the reimbursement list and
conditions and procedure for determining the restrictions on prescribing or dispensing individual
medicinal products. The rules also define the manner, procedure and criteria for determining the
maximum recognised value for each group of interchangeable medical products, as well as
establishing the criteria, conditions and procedure for reaching an agreement on the prices of
medical products with the ZZZS.
There are three reimbursement lists in operation:
• The Positive List, contains drugs that are either fully reimbursed or 70% reimbursed, in which
case 30% must be paid by the patient (with the exception of certain persons and conditions
defined in Article 23(1)(1) of the Health Care and Health Insurance Act, in which case
coverage is 100%);
• The Interim List, containing drugs from which patients generally pay 90% of the price; and
• For medicinal products on the Negative List patients must pay the full price.
In the event of inpatient treatment, medicinal products are provided free of charge as an inherent
part of the treatment.
As of June 2014, there were 2,549 products on the Positive and Intermediate Lists. On the Positive
List, 249 drugs are listed as fully reimbursable with another 166 listed as 100% reimbursable subject
to prescription limitations and 200 listed as fully reimbursable to a maximum declared value. A total
of 710 drugs listed were eligible for 70% reimbursement, among which 247 had prescription
limitations imposed, and a further 363 were eligible for 70% reimbursement up to a maximum
recognised value. The Intermediate List comprised a total of 862 products.
In October 2013, the Slovenian government in conjunction with the ZZZS announced it would
introduce reimbursement limits for specific therapeutic classes, beginning with proton-pump
inhibitor drugs for acid reflux. Rather than decide drug coverage by INN, drugs grouped within the
same ATC group would have a price ceiling in terms of how much the insurance system would
reimburse patients, regardless of their cost to manufacture or dosage. Patients wishing to purchase
drugs more expensive than the reimbursement ceiling would have to cover the difference out-of-
pocket. The proposal came as the government continued to pile pressure on pharmaceutical
expenditure while shielding other services and healthcare worker salaries from cuts. Several
pharmaceutical companies had already slashed medicine prices to ensure their products remain
under insurance coverage. However, patients who are prescribed medicines outside the
reimbursement limit face the possibility of having to pay unless their doctor switches their
prescription - which clinicians have argued oversteps the boundary of a clinician determining how to
use medical resources.

July 2014 109
In recent years, the government has removed a number of imported medicines from its
reimbursement lists, opting to use cheaper and mainly locally produced generic medicines instead.
Foreign firms have questioned the safety and efficacy of many drugs on the national reimbursement
list, which is being expanded every six months without using clear transparency criteria.
UKRAINE
Pricing
Since the deposal and removing from power of former President Viktor Yanukovych, the interim
Ukrainian government has implemented, drafted and discussed numerous laws that govern
healthcare and the pharmaceutical market in the country. These include the introduction of a new
reference pricing system for pharmaceuticals, which was actively under discussion in April 2014.
Since January 2013, a new mark-up level has been applicable to products included in the National List
of Medicinal Products and Medical Devices. The restrictions specify a 10% purchase price for
wholesale mark-ups. For pharmacies and other retailers, a range of maximum mark-ups was set that
is dependent on the wholesale price at which they purchase stock.
The extension of the mark-up policy to the list of publicly necessary medicines and medical devices
significantly expanded the list of price-regulated pharmaceutical products and medical devices in
Ukraine. The MoH has also expanded the list to include specific imported medicines and medical
devices. Therefore, it is likely that some foreign manufacturers will delay the release of innovative
drugs in the Ukrainian pharmaceutical market in the face of these regressive measures.
Prior to this, a January 2011 government decree set the maximum margins for pharmaceuticals on
the national list of essential drugs. According to the decree, margins in the wholesale sector could
not exceed 12%, while in the retail sector the limit had been set at 25%. A limit of 10% had been set
for medicines purchased by the state directly, as the government continued to develop a price list
setting maximum prices on the most common drugs. The authorities carried out an ongoing
crackdown on wholesalers and pharmacies judged to have violated rapidly changing rules.
Previously, medicines were subject to pricing restrictions defined by a government decree dating
from the end of 2001 - No. 480/29 - which created a basic reimbursement structure for certain
medicines; equivalent to around 16% of pharmaceuticals registered in Ukraine at that time. The
government set national upper limits on mark-ups for pharmaceuticals whose prices were subject to
state regulation;. This was previously the responsibility of regional authorities, but large geographical
differences in retail drug prices occurred under this system. Pharmacies were allowed to add 35% to
manufacturer's prices and public health facilities could add 10%. As a result of the government
ruling, the average level of retail mark-ups for the most commonly used pharmaceuticals fell from
40% to 23%. The loss of profit consequently reduced the capacity of many health facilities that were
funded by the extra revenue.
Other lists include a more comprehensive Basic Medicines List, created by Decree No. 400 in 2006 and
which includes some 135 patented medicines and around 1,400 trade names. Complicating the issue
is the multitude of lists in effect. On a national level, there is a medicines list, a price list and a 'budget
list' covering the retail sector, hospital purchases and government tendering.

110 July 2014
VAT Exemption
Since 1997, sales of pharmaceuticals and medical devices registered in Ukraine have been exempt
from VAT. The introduction of VAT on drugs seems to be unlikely at present, but the possibility has
been discussed. Parliament has proposed a number of initiatives aimed at strengthening the state
regulation of drug prices.
Price Ceilings and Mandatory Price Change Notification

As of June 2014, there is ongoing parliamentary debate over a draft resolution "On Declaration Of
Change Of Wholesale Prices For Drugs Dispensed By Prescription", which would, in effect, enable the
State Register to dictate prices of drugs as set by its own reference pricing calculation. Similarly, the
draft resolution would introduce price ceilings and margin thresholds on prescription drugs within
the supply chain, to prevent price escalation from manufacturer to supplier. This law would apply to
retail and government procured items.
Reference Pricing Proposal

In the wake of the sudden depreciation for the hryvnia, the Prime Minister Arseny Yatsenuk accused
some wholesalers and importers of price gouging. In response, a draft resolution was written up that
heavily drew from reference pricing mechanisms throughout Europe. The European Business
Association (EBA) complained that pharmaceutical manufacturers’ recommendations and concerns
were not addressed in the draft resolution. Indeed, the biggest issue raised was that manufacturers
could only sell their products once the state had confirmed and set their reference price. According
to the EBA, some multinationals would find this unacceptable and potentially withdraw products
from the market. Similarly, the law was unclear on how it defined 'similar drug' (for the purpose of
defining a reference basket); it did not list whether similar would be defined by therapeutic class or
active ingredient.
The countries listed in the reference basket include Bulgaria, Moldova, Poland, Slovakia, the Czech
Republic, Latvia, Hungary and Serbia.
At the beginning of March 2014, a working group had been established, with the expectation that it
would lay out the conditions for a transition to the reference pricing system and, separately, to
determine how Ukraine could implement procedures for partial reimbursement to cover the costs of
medicines.
Reimbursement
Prescription drugs are free for war veterans, diabetics and Chernobyl victims, amongst other
minorities. The remainder of the population is expected to pay whatever they can afford for the
drugs that they require.
In 2001, the government approved a national list of essential pharmaceuticals and medical devices.
This positive list includes over 700 efficient and safe pharmaceuticals for treatment of the most
common conditions. The list forms the basis for a basic medical entitlement package and indicates
the drugs that should be available at health facilities.
In addition to the national list, three special lists have also been approved: the list of domestic and
imported pharmaceuticals and medical devices whose prices are subject to state regulation (600
pharmaceuticals from nine pharmacological groups); the list of domestic and imported
pharmaceuticals that may be purchased by public health facilities using the state/local budget (1,500
domestic and 800 imported drugs); and the list of mandatory pharmaceuticals for the pharmacy
network (418 drug names, of which 300 are domestic and 118 imported). Technically, these three lists
were developed before the positive list, so there is some duplication. There are plans to merge all the
lists to one in order to simplify the system.

July 2014 111
In June 2011, a working group was established to prepare proposals regarding the development of
the reimbursement system in Ukraine. As a result, a number of pilot schemes for reimbursement
have been put in place. According to a report by the Ukraine News Agency, Interfax-Ukraine, the
MoH issued a press release in November 2012 that provided details of a reimbursement scheme for
anti-hypertensive medication. Under the scheme, prescriptions must include the INN for the
molecule. Pharmacies are then able to provide the drug at a discounted price, for which they will be
reimbursed. The scheme covers seven molecules that are currently subject to state price controls:
amlodipine, bisoprolol, enalapril, lisinopril, metoprolol, nebivolol, and nifedipine. Reimbursement is
based on a wholesale reference price for each molecule, regardless of the brand dispensed. Patients
are expected to pay the difference between the reference price and the pharmacy retail price. In the
future, the scheme may be extended to cover other diseases.
Pilot Project for Hypertension Patients

In mid-2013, the MoH published an updated draft order that amended the cost setting mechanism
for wholesalers and reference pricing for medicines purchased by the state for its reimbursement
pilot programmes for hypertension patients. The draft document provided details of which generic
drugs would be reimbursable and to what extent; the first class of drugs for the treatment of
hypertension would be reimbursed at 90% of the drug's consumer price. The second class would be
reimbursed at a rate lower than 90%, and a third group comprised drugs that would not be
reimbursable but whose price are sufficiently low enough to be affordable by patients.
The aim of this draft was to spur generic manufacturers into lowering their wholesale prices so as to
achieve a reimbursable status and therefore greatly expand their consumer base. The draft would
also increase the number of patients with hypertension or cardiovascular diseases who could claim
refunds on reimbursable medicines. Lastly, the draft would establish maximum wholesaler prices, as
well as a reference pricing mechanism to introduce deflationary pressures on drug prices.
According to the Ministry of Health, regional authorities only utilised some UAH23.5 million (US$2.89
million) to mid-August 2013, accounting for only 12.3% of the total reimbursement budget. Doctors
issued some 9.3 million prescriptions for partial reimbursement of the cost of drugs listed in the pilot
project (covering hypertension and diabetes patients). However, a major issue so far has been that
the number of prescriptions has outweighed the amount of funding set aside for the project,
suggesting either that health ministry officials underestimated the number of eligible patients or that
the Treasury was unable to provide more financial support for these projects.

112 July 2014
MIDDLE EAST/AFRICA
Pricing & Reimbursement in the Middle East and Africa
Regulatory
Authority Pricing Reimbursement
Egypt Central Reference price system. Positive list of drugs available for
Administration for reimbursement in hospitals and
Pharmaceutical primary care units.
Affairs
Israel NHI Reference pricing based on the Drugs in NHI health basket are
Dutch average price system. subsidised, subject to patient co-
payment.
Kuwait MoH, Drug and Food Decision based on the price in the Public medicines list reimbursed in
Control country of origin and CIF prices. public sector.
Administration
Morocco MoH, Drugs & Two pricing structures, for Positive list, although most
Pharmacy calculation method of pricing pharmaceuticals are privately
Directorate domestic drugs and for imported funded.
drugs.
Saudi Arabia SFDA Reference price system. Pharmaceuticals listed on
government formularies are fully
reimbursed, although there is no
national policy.
South Africa DoH Pricing Single exit price set by Essential drugs list. Drugs used in
Committee manufacturers, incorporates public sector primary care are
wholesale and distributor fees. 100% reimbursed by the
Dispensing fees set separately. government. For drugs used in
hospital care or those obtained on
prescription, patient co-payments
may be required.
Turkey MoH, Department of Reference price system based on Positive list. Since November
Pharmaceutical lowest price among reference 2011, prescribed medicines have
Pricing; countries for reimbursable drugs. been reimbursed at up to 10%
Reimbursement For products not valid for above the lowest priced drug in
Commission, Ministry reimbursement, pricing is set at their category.
of Finance. 100% of the highest reference
country.
United Arab MoH The MoH has implemented a Reimbursement through
Emirates unified pricing system. compulsory private health
insurance. Expatriates can receive
50% discount for treatment in the
public sector on production of a
contributory health card.
Source: BMI Espicom

July 2014 113
EGYPT
Pricing
The Central Administration for Pharmaceutical Affairs (CAPA) is responsible for pharmaceutical
pricing decisions. Two prices are set for each drug: a mandated public government price and a
tender price for authorised drugs included in the Tender Drug List for reimbursement.
Reference Pricing
Decree 373/2009 established two pricing systems for new medicines registered in the market, one for
branded pharmaceuticals and one for generic drugs. The reference pricing system was enforced in
2012.
The price of branded drugs is set at 10% lower than the cheapest retail price of the drug in the
countries in which it is available; the decree uses 36 reference countries. However, the drug does not
need to be registered in all 36 countries. Reference countries include Canada, European states and
countries in the Persian Gulf.
The price of generic drugs is a fixed percentage markdown on branded drugs, and was expected to
increase as a result, as generic drugs were previously between 80% and 90% cheaper than branded
drugs. Under the new rules, the prices should be:
• 30% lower for generic drugs manufactured by a plant licensed by the Ministry of Health and
Population (MoHP) and certified by international agencies.
• 40% lower for generic drugs produced by a plant licensed by the MoHP alone. This category
will only be valid until 2020, by which time all plants must have received quality certification
by international agencies.
• 60% lower for generic drugs made by companies that do not own their own plants; instead,
they contract out manufacturing.
The decree also established a unified price for all generic drugs and does not make distinctions
between the first, second, third or subsequent generic drug registered. Under the new rules, generic
drug prices are unlikely to fall as a result of competition among local producers.
In May 2011, the Supreme Administrative Court ratified a ministerial decree to tie local
pharmaceutical drug prices to international rates, overturning the previous suspension of the
scheme. The decision was only enforced on new, patented drugs, not generic drugs. Pharmaceutical
prices were high compared to average income; therefore the MoHP believed that the new price
system would bring patented drug prices down by around 40%.
Pharmacists, however, expressed concerns that the new price system would cause more problems as
existing drug prices would not go down. While prices are initially set at 10% lower than the lowest
international price, they are only revised after three years, so patients do not benefit from any price
drop when international drug prices fall over the period. They also believed it to be unfair to tie local
drug prices to international drug prices of countries that have very different incomes compared to
Egypt. The issue of "fair" pricing remains in Egypt.

114 July 2014
Previously, in September 2010, the fourth circuit of the Cairo Court of Urgent Affairs had ruled that it
had no jurisdiction to hear the Ministry of Health's motion No. 2246/2010 against the Court of
Administrative Justice's ruling suspending work under the new drug pricing system, established
under Decree No. 373/2009. In April 2010, the Court of Administrative Justice had issued a stay
against the decree, but the Ministry had filed the aforementioned motion, as well as appeal No.
25178/56 with the Supreme Administrative Court. In September, the first circuit of the Supreme
Administrative Court had adjourned the appeal to December 6 2010 so that the Court's State
Commissioners could submit a legal opinion on the matter.
The reference pricing system replaced the previous cost-plus system, established under Decree
314/1991. Pharmaceuticals were priced on the basis of a cost-plus formula. The profit margin ceiling
was 15% for essential drugs, 25% for non-essential drugs and 40% more for over-the-counter drugs.
The Pricing Committee was the body responsible for setting drug prices. It reviewed the cost sheets
presented by pharmaceutical companies to determine ex-factory prices. The cost sheet was topped
by a wholesaler mark-up of 12.4%, a pharmacy mark-up of 25% and a sales tax of 5%. The retail price
was about 45.5% above the ex-factory price. Once a price was set, it was rarely re-evaluated to
account for any adjustments in cost, and had to be approved by the Prime Minister.
Recent Pricing Issues

In December 2013, the Vice Chairman of Novartis Egypt, Salah El Sharkawy, called for new regulations
to the registration and pricing of pharmaceuticals in Egypt, according to The Daily News Egypt. He
stated that the Egyptian pharmaceutical industry suffers from three major problems obstructing
growth and further investment in the sector. The biggest of these was low pharmaceutical prices,
which, according to El Sharkawy, had not been increased in over 10 years. This was in addition to a
slow registration process (of at least three years) and an absence of intellectual property protection
for innovative medicines. PhRMA has also expressed concerns that drug prices in Egypt are relatively
low.
HoldiPharma, one of Egypt's largest state-owned pharmaceutical companies, stated in March 2014
that medicine pricing restrictions set by the MoHP were pushing the company towards financial
insolvency. The company said that a considerable number of drugs it supplies to the MoHP were loss-
making.
According to HoldiPharma management, the devaluation and volatility of the Egyptian pound
catalysed a rise in prices of imported raw materials, imported active pharmaceutical ingredients and
labour costs. With drug prices remaining fixed and the government unwilling to let prices rise in
tandem with higher costs of production, domestic pharmaceutical manufacturers have come
extremely close to entering unprofitability. A representative of HoldiPharma quoted by Egyptian daily
Al Masry Al Youm said that almost 640 drugs were supplied below cost to the Ministry of Health, with
the resulting losses totalling almost EGY250million (US$36.8million) over a two-year period. The
representative further asserted that almost all of Egypt's state-owned pharmaceutical businesses
were loss-making enterprises owing to the pricing restrictions on medicines.
In June 2014, Ali Auf, the head of Egypt's trade union of medicine producers, called for
pharmaceutical companies engaged in the production of medicines in Egypt to be exempt from
paying sales tax for a period of three years. Currently, around 70% of medicines in the country are
being sold below cost price. Auf highlighted the need for government support for the local
pharmaceutical industry, albawabhnews.com reported. He stated that the MoHP and manufacturers
needed to agree to develop a system to change medicine prices without compromising on the
profitability of companies. Auf urged the health ministry to increase the prices of medicines by 10%
per annum for three years in the country.

July 2014 115
Reimbursement
The list of approved medicines for reimbursement by MoHP hospitals and primary care units, the
Tender Drug List (TDL), is published by the Procurement Department. Drugs on the list are then
available for purchase by these healthcare facilities for the price specified on the list, which is not
negotiable. Procurement committees in other Ministries operate the same system as the MoHP, while
private sector providers have their own regulations.
The TDL includes all essential drugs and biologicals required by MoHP healthcare institutions. In
addition to the main TDL, there are two add-on lists, allowing healthcare institutions to reimburse
drugs that are not on the main list.
The TDL and add-on lists are formed by the Procurement Department’s tender process. Each year, a
list is drawn up of the average number of medicines required by the MoHP hospitals and primary care
units. This list is then sent out to manufacturers and wholesalers, who are invited to submit bids. The
price offered by companies must be lower than the mandatory public price and must not exceed the
Procurement Department’s estimated value (which is not regulated). To be listed on the TDL, a drug
must be effective, safe and cost-effective. However, it is generally the lowest priced medication in
each active ingredient group that is added to the list for reimbursement. Once approved, the product
is added to the TDL for two years.
In case of a projected negative reimbursement decision, the Procurement Technical Committee

informs the applicant about the designated negative decision. The applicant may then apply for re-
evaluation prior to the issue of the official reimbursement decision. Arguments for re-evaluation can
include price adjustments or additional data.
The time frame for a product to be listed for reimbursement depends on the meeting schedule of the
Procurement Technical Committee, although this generally takes around eight months.
As of 2012, not all of the drugs reimbursed under the Health Insurance Organisation (HIO) were
covered by the Procurement Committee at MoHP, so the Medical Supply Department at the HIO
covered the remainder through an additional TDL, with drugs added according to HIO local needs.
This system resulted in separate lists being used by MoHP and HIO providers. However, according to
the ISPOR Global Health Systems Road Map for Egypt, which was updated in May 2012 and validated
by the Head of the Procurement Department at the CAPA, it was expected that there would be one
TDL by 2013 that covered both MoHP and HIO.
ISRAEL
Pricing
Israel's pricing and reimbursement regime is a sensitive area, both domestically and in terms of the
international pharmaceutical community. Authorities remain reluctant to add novel products to the
basket of centrally funded life-saving treatments, an attitude criticised by both local and foreign
manufacturers. All new pharmaceutical products registered in the country are covered by the
reference pricing system. Over-the-counter (OTC) pricing has been free since 2006.
The drug price must be agreed prior to the launch. However, a major problem is that the official price
applies only to the private sector (representing only 5% of the market), and producers of new drugs
are obliged to negotiate separately with the sick funds, which, due to their strong bargaining power,
usually offer a lower price than that given on the official list. Private Israeli patients are able to obtain
special approval for the personal import of unregistered drugs if a doctor files an application, at no
cost to the government-run reimbursement system.

116 July 2014
Reference Pricing
Israeli pricing regulations state that the retail prices of pharmaceuticals cannot exceed the average
price in seven European markets: the UK, Germany, France, Belgium, Spain, Portugal and Hungary (or
Poland if the product does not exist in any of the last three countries). The prices in the last three
countries are generally low, which drives down the price of pharmaceuticals in Israel; this system is
based on the Dutch model for setting maximum prices.
In December 2012, the Supervisor of Prices in the Ministry of Health, Yair Assaraf, CPA, announced
that the maximum prices of prescription drugs would be reduced by an average of 3%. Contributing
factors to the price reduction included currency fluctuations and a reduction in the price of drugs in
the reference countries.
Prescription drug prices have been following a downward trend for some time. Over a three-year
period, up to December 2012, the cumulative reduction in prescription prices was 24%. In a press
release, the Director General of the Ministry of Health, Prof. Roni Gamzu, noted that, in 2012, the
supervision of drug prices was extended to unregistered prescription drugs, which are imported
under regulation 29 to the Pharmacists Law (Preparations), 1986.
The government has reportedly been considering changing the system to the purchasing power
parity model, which would reduce retail prices by up to 35%, according to some estimates. The
proposal would take into account Israel's purchasing power relative to that found in Europe, based on
the current price divided by a ratio of Israel's price level to the average price level of Belgium, France,
the UK and Germany. However, such calculations would be extremely complicated, not least because
of the delays in obtaining OECD price data. To date, there appears to be no progress in this direction.
Reimbursement
Reimbursement falls under the 1994 National Health Insurance Law, which has been in operation
since 1995. Insured citizens are entitled to coverage for medicines, which are provided at a
subsidised rate if they are included in a list issued by the Ministry of Health. A committee is in charge
of recommending drugs to be included in the health basket, and all such medicines are subject to a
co-payment. The MoH publishes a list of prescription drugs on its website, indicating the pharmacy
margin and the consumer price. Individuals must cover the full cost of prescribed medications that
are not included in the health basket.
The health ministry's 'basket' of reimbursable drugs effectively constitutes the entirety of Israel's
pharmaceutical formulary. For inclusion in the national formulary, the MoH initially assesses the drug
before it is passed to a health economist group. It then moves to a secondary committee, before
passing to the health basket committee and finally the public advisory committee on health services.
The sick funds are not mandated to provide patient access to products not included in the basket, in
addition to being allowed to negotiate a new (and usually significantly lower) effective wholesale
price with the innovator. The sick funds have also been accused of pressuring doctors to issue
prescriptions for non-innovative products.
The health basket is available to all citizens, rather than solely the 65% of Israelis who have some form
of supplementary health insurance, and is therefore designed to be as broad as possible to ensure
most diseases can be treated.
By law, the health basket is to be updated annually according to the health cost-of-living index. This
is weighted as follows, by various indexes published by the Central Bureau of Statistics:
• The Average Wage Index for the health sector: 36%

• The Average Wage Index for the public sector: 22%
• The Cost-of-Living Index: 23%
• The Wholesale Drug Price Index: 17%

July 2014 117
• The Construction Inputs Price Index: 2%
The basket effectively works as a state subsidy from health insurers. Within the basket, drugs are
either classified as essential ('List A'), or less essential and usually cheaper ('List B'). The separation of
products within the basket is increasingly determined according to price rather than clinical need.
Some OTCs are also reimbursed, if recommended by a doctor, incurring a regular co-payment of
around ILS15. If a product is switched to OTC status (the process of which has been described by
industry stakeholders as slow), it remains reimbursed. However, OTCs cannot be added to the health
basket. Figures from the Association of European Self-Medication Industries (AESGP) suggest that
around 75% of all OTCs are reimbursable.
The limited coverage offered by the essential drugs basket has been harshly criticised by patients.
There were complaints that the list lacked adequate coverage for innovative cancer therapies, which
usually account for about 35% of the scheme's annual cost.
In December 2012, the MoH announced the approval of an expansion to the medical services basket
for 2013. An additional 88 drugs and technologies were added to the health services basket for 2013,
at a total cost of ILS 300 million (US$81 million). According to the MoH, these would focus on
preventive medicine.
KUWAIT
Pricing
The main regulatory agency in Kuwait is the Drug and Food Control Administration under the
Ministry of Health. The government operates a system of medicine price and profit controls, as well
as a fixed margin for wholesalers and retailers, but mark-ups are high.
Foreign manufacturers are required to provide a price certificate issued in the country of origin,
containing the ex-factory price, the wholesale and retail price in the country of origin, the cost, import
& freight (CIF) unit price for Kuwait, the CIF unit price for the Gulf Co-operation Council (GCC)
countries and the retail price in UAE.
Kuwaiti drug prices remain among the highest in the Gulf. Part of the reason for the high prices is the
limited penetration of generic drugs in the private sector. When generic medicines are available, they
are often only 10-15% cheaper than the innovator brand, owing to a lack of competition, and so do
not offer significant savings. Increasing the availability of low-cost generic products, and using public
procurement to source more cheap drugs, would significantly reduce medicine prices in private
pharmacies.
According to product pricing data from the country's statistics agency the prices of many drugs have
not changed significantly since 2000. This goes against the anecdotal evidence from local news
sources. However, without a breakdown of the basket of pharmaceutical goods it is difficult to
elucidate the truth in the statement that average drug prices have only increased by 7.1% since the
start of the millennium.
This could be possible, however, as the mark-up on cost, insurance and freight prices in private
pharmacies fell from 70% in 2004 to 50% in 2010/2011 and was reportedly about to fall to 45% in
January 2012. On top of that, in April 2010 the government lowered prices for 5,000 essential drugs
by 5%, adding that prices in the sector will be reviewed every six months. Despite these promises,
there has been almost no correlated fall in the country's drug price inflation basket in these
timeframes. One explanation could be that, while prices in the country are high, there is little
motivation for international firms to increase them and they remain stable as a result.

118 July 2014
A common GCC-wide pharmaceutical import policy has been proposed by the Kuwaiti government
to alleviate cost pressure. To push forward the initiative to increase access to medicines, private
pharmacies would be required to reduce their prices.
Regional Harmonisation
In July 2005, the GCC approved a mechanism for unifying the price of medicines in the private sector
market of each member state (Qatar, Saudi Arabia, Kuwait, Bahrain, the UAE and Oman). While drug
supply in the GCC region has traditionally taken place through the extensive public healthcare
systems, the private sector market for drugs has grown rapidly, largely because of the compulsory
private health insurance packages for non-nationals. Although the tariff structure remains different,
with Oman and Bahrain, for example, charging a 5% customs duty, in contrast to Qatar's 4%, the
formation of a GCC common market of the six member states since the beginning of 2008 will mean
gradually standardising various procedures across the region.
In March 2011, Kuwait called on the members of the GCC to consider implementing a single cost,
insurance and freight (CIF) charge for pharmaceuticals across the region, in a bid to standardise drug
prices and use collective bargaining power to lower the purchasing price for pharmaceuticals across
the GCC.
Reimbursement
The public medicines list of reimbursed drugs is known as the 'Circular 365'. Medicines on this list
comprise around 70 active ingredients and drugs are prescribed in the public sector only on the basis
of a valid prescription from a medical practitioner.
According to some estimates, unaffordable medicines are a major barrier to adequate healthcare for
approximately one third of the population. Universal insurance covers basic medical care and the
cost of drugs - which are distributed through Central Medical Stores (CMS) - but high-cost, specialist
treatments have limited availability. To circumvent the problem, many patients, especially
expatriates, travel to neighbouring countries, often purchasing supplies for six to 12 months;
although this is actively discouraged by the government. The government is aiming to address this
problem through a reduction of essential drug prices.

July 2014 119
In March 2012, a local news story highlighted the plight of foreign workers in Kuwait, who have to pay
for health insurance but are not entitled to completely free medical treatment and some essential
medicines, which they can buy only in private pharmacies at exorbitant prices. If a drug is not
covered by their healthcare plan, they are not able to buy it at state facilities and must pay the high
prices of private pharmacies.
Public Procurement of Medicines

Administrators from the CMS determine the public sector medicine list in collaboration with the
health ministry. The CMS procures drugs principally through competitive tenders and the GCC bulk
purchasing scheme, whereby member states have unified the acquisition of basic medicines in order
to reduce overall purchasing budgets. There is no special dispensation for local or regional
manufacturers, with the winning bid going to the lowest offer. In the private sector, medicines are
imported through registered pharmaceutical agencies.
The public procurement of medicines is efficient, although industry sources claim that an increase in
generic provision could lead to a more cost-effective utilisation of resources. A limited policy of
generic substitution exists for public pharmacies. Under this scheme, if a generic product is present
in the pharmacy and the prescribed branded drug is not, the generic medicines should be dispensed.
However, there are no incentives for generic prescribing or dispensing in general, although this is an
area that may be addressed in the future.
MOROCCO
Pricing
Pharmaceutical pricing is controlled by the Director of Medicine and Pharmacy (DPM), which operates
under the auspices of the Ministry of Health. The National Health Insurance Agency - Agence
Nationale de l'Assurance Maladie(ANAM) is responsible for setting official reference prices for
treatment provided under the national health insurance system (AMO and RAMED), in consultation
with doctors and healthcare providers.
Morocco's pricing environment has traditionally been considered unattractive due to high levels of
government control and open favouritism for locally produced medicines. Locally manufactured
products are usually 30-50% cheaper than imported ones due to lower manufacturing costs. In the
past, the Moroccan government protected the local industry by imposing a tax of up to 35% on
imported pharmaceutical products in competition with locally manufactured drugs. This was in
addition to a 12.5% customs duty levied on all imported pharmaceuticals. However, the local
industry can no longer expect this type of protection, since Morocco has committed itself to the
establishment of a free trade zone with the European Union (EU), with the free trade agreement (FTA)
covering industrial products between the two in force since March 2012.
Reference Pricing
Following the publication of a Parliamentary report in November 2009, the government launched a
new regulation in February 2010 to bring pharmaceutical prices down. Among the measures
introduced under the new scheme were reference pricing; the regular review of pharmaceutical
prices; a limit on the number of generic medicaments by International Common Denomination (ICD);
and a limit of one generic per manufacturer. Based on the French pharmaceutical system, the new
Moroccan pricing system established three levels:

120 July 2014
• When introducing an innovative drug, manufactured locally or imported, the price is

established according to an external price referencing system. This is based on wholesalers'
prices excluding tax (PGHT - Prix Grossiste Hors Taxe) in seven reference countries: Spain,
Portugal, France, Belgium, Greece, Turkey and Saudi Arabia. The price is aligned to the
lowest PGHT in these countries.
• When introducing the first generic in the pharmaceutical market, the price must be 45%
cheaper than that of the reference product, providing the retail price in Morocco (PPM - Prix
Public au Maroc) is lower than or equal to DH 250.0 (US$31.5). This price becomes the
reference for the first nine generics introduced to the market. The following 10-15 generics
must be priced 20% lower than the first nine.
• If the reference drug has a price higher than DH 250.0 (US$31.5), the first nine generics are
priced at up to 50% of the price of the original drug. The price for the following five generics
will be 20% lower that the first nine generics.
For reference medicaments that are generic in their country of origin, the price is based on a
comparison level with generic medicines. Generally, the PPM will have to come down. The price
decrease will be 20% and applicable to reference medicaments meeting one of two conditions: either
the patent has expired or the first generic version has been introduced in the market of the country of
origin or other countries. The new regulation also covers price increases.
When importing original and generic medicaments, the price review will depend on two conditions:
the exchange rate, when it varies by 10%, and the result from annually benchmarking the PGHT in the
reference countries.
Pharmaceuticals are generally subject to a sales tax (VAT) of 7%, a wholesaler's mark-up of 10% and a
pharmacist's mark-up of 30%, although some categories of medicines are exempt from VAT.
Parliamentary Drug Pricing Report

In November 2009, the Parliament, via the Chamber of Representatives, released a report about
pharmaceutical prices in Morocco (RMISPM - Rapport de la Mission d'Information sur le Prix du
Medicament au Maroc). The report aimed to increase access to pharmaceuticals and ensure the
viability of the AMO and RAMED systems.
Key findings of the report were:
• Pharmaceutical prices were too high. For instance, original drug prices in Morocco were
between 30% and 189% higher than in Tunisia, and between 20% and 70% higher than in
France.
• Marked price differences were found for different presentations of the same medicament.
• The most expensive brands were the bestselling medicaments.
• Pharmaceutical prices could be brought down.
Key recommendations to reduce pharmaceutical prices were:
• To create a new government body to regulate drug prices. This would comprise the MoH,
health insurance bodies, trade associations and providers.
• To encourage the implementation of a new drug pricing system.
• To review the reimbursement rate used by AMO in order to encourage the use of less
expensive drugs.
Key recommendations to reduce the price of expensive pharmaceuticals were:
• To use compulsory licences for medicaments protected by a patent; and

• To exclude expensive medicaments from the reimbursement list used by AMO, when
cheaper equivalent medicines are available.

July 2014 121
Price Reductions
On June 9, 2014, new drug prices were implemented in Morocco, in accordance with the new list of
essential medicines published in the official gazette on April 18 2013. Price reductions have been
focused on medicines used in the treatment of various heart diseases, metabolic diseases and cancer.
Consequently, the prices of medicines used for treating patients with heart diseases have been
reduced by 50-78%.
Drug prices were revised on the basis of prices for public sale (PPV), instead of the prices offered for
the public market (PPM). According to the vice president of the National Federation of Trade Unions
of pharmacists in Morocco, this was expected to result in confusion in the dispensing of medicines for
citizens due to the difficulty of supplying pharmacies from distributors.
Reimbursement
The system of reimbursement has undergone major changes following the introduction of
compulsory health insurance (AMO) in 2006. The ANAM is responsible for drawing up a list of drugs
that are reimbursable under the new scheme. An initial list of 1,200 reimbursable drugs was
approved in September 2005, under Decree 2517-05, and published in the official journal in January
2006. Subsequent revisions have expanded the list to 3,364 presentations as of June 2014. The full
list of reimbursable drugs with products listed under their international non-proprietary and brand
names can be found on the ANAM's website: http://www.assurancemaladie.ma.
Under the AMO, treatment (including medicines) falls under seven groups, with different rates of
coverage. Drugs administered to outpatients under Group I, which covers general medical and
surgical specialties, are reimbursed at 80% of the national reference price. Under Group II, which
covers hospitalisation, reimbursement is at 90% of the national reference price, or 100% if treatment
is provided by public hospitals or healthcare institutions. Medicines eligible for reimbursement under
Group III are covered at 70% of the Moroccan retail price.
Pharmaceuticals administered during treatment in public health institutions are provided free of
charge to the poor and vulnerable sections of society under the RAMED medical assistance. Under
the pilot phase of the scheme, RAMED covered around 255,000 people. The RAMED scheme was
rolled out to all of the country’s poor in March 2012, covering some 26% of the population, or 8.5
million people.
SAUDI ARABIA
Pricing
Since July 2009, the Saudi Food and Drug Authority (SFDA) has been responsible for pharmaceutical
pricing; previously, this was the responsibility of the Ministry of Health (MoH).
Factors affecting pharmaceutical pricing include:
• Therapeutic significance;
• Pharmacoeconomics studies;
• Prices of similar, alternative registered drugs;
• Ex‐factory, wholesale and consumer prices in the country of origin;
• Proposed cost, insurance and freight (CIF) price to Saudi Arabia;
• Export price to countries where the drug is registered; and

122 July 2014
• Drug prices in the official basket of reference countries (if available).
Manufacturers have the right to appeal the SFDA’s pricing decisions. The price approved by the SFDA
is considered to be a ceiling price. The actual purchase price by healthcare providers is subject to
negotiation, tendering process and purchasing power.
Reference Pricing
Prices for imported drugs are calculated by the country's pricing committee, which considers
manufacturers' wholesale and retail prices in the 'country of origin' along with export (CIF) prices to
Saudi Arabia and 30 other countries. In most cases, the lowest price is accepted.
The reference countries include: Algeria, Australia, Argentina, Bahrain, Belgium, Canada, Cyprus,
Denmark, Egypt, France, Germany, Greece, Hungary, Ireland, Italy, Jordan, Kuwait, New Zealand,
Netherlands, Oman, Portugal, Lebanon, Japan, South Korea, Spain, Sweden, Switzerland, Turkey, UAE
and the UK.
Following patent expiry, the price of an innovative drug is reduced by 20% upon registration of the
first generic alternative. The first generic is priced at 35% less than the originator. Subsequent
generics are priced at 10% less than the previous one.
In its 2013 Special 302 Report, US industry association, PhRMA, commented on the 2011 price
regulation, particularly with regard to the aforementioned automatic 20% price reduction of
originator products:
“The regulation does not focus on market-based principles that promote competitiveness. Instead, it
appears to put in place a system for automatic price reductions on medicines, irrespective of the
significant amount of research and development costs undertaken by innovative pharmaceutical
companies in the development of these medicines.”
Pricing System Reform
Proposals to change the reference pricing system to include an additional 11 countries have caused
further frustrations for PhRMA. The association has claimed that drug prices in Saudi Arabia are
already among the lowest prices in the GCC region, and adding 11 more countries to the reference
price basket is unnecessary, especially when the proposed countries do not share a similar level of
development of per-capita income to Saudi Arabia. The proposed new countries are Bosnia and
Herzogovina, Brazil, Bulgaria, Czech Republic, Malaysia, Mexico, Morocco, Poland, South Africa,
Tunisia and Turkey.
Additionally, the association is concerned over the lack of transparency regarding which product
categories would be impacted by price cuts, as well as the authorities' failure to disclose
pharmacoeconomic criteria that may be used in the process of price determination. Finally, the
proposed 'post-patent pricing' has not been defined by the draft document, while fluctuation of
exchange rates has not been taken into account properly.
While the proposed system may not be implemented, due to concerns raised by the foreign
pharmaceutical industry in general, downward pressure on prices - in some shape or form - is likely to
remain. In the meantime, given that the authorities are likely to attempt to encourage local
production and the use of generic drugs, prices of imported products will remain under scrutiny,
although this could also lead to shortages of certain medicines on the market and thus major
disadvantages to patients. The public sector already uses a unified purchasing method, with the
absence of cheaper medicines possibly forcing public institutions to opt for more expensive, novel
drugs, pushing up overall public sector expenditure, in contrast to the aims of the proposed changes.

July 2014 123
On the other hand, the proposed system could further increase collaboration between local and
foreign companies in the field of local manufacturing, with the trend in this direction already
becoming evident. This would also play into the government's desire to encourage local
manufacturing of medicines.
Tendering Procedures
The government plays a prominent role in the purchase of pharmaceuticals, negotiating with the
leading drug companies to buy large quantities of product and deciding upon the supply schedule.
Prices are decided at the beginning of each year. The two principal buyers of pharmaceutical
products in Saudi Arabia are the MoH and the Secretariat General of Health (SGH) for the Gulf Co-
operation Council (GCC).
The GCC members practice collective purchasing of pharmaceuticals and vaccines through the
Secretariat-General of Health (the SGH Tender). The system allows the GCC countries to buy in bulk
and gain significant cost savings from multinational pharmaceutical companies. It has also enabled
the continual supply of specialist products that had been difficult to obtain, due to high prices and
the small quantities required. If companies wish to take part in the tender, firms must have products
already registered in at least three GCC member states, or be directly registered with the GCC-DR.
Tenders are to be awarded to the proposal that offers the lowest price.
The largest percentage of government tenders is hospital supplies (33%), with oral hygiene (28%) in
second place, followed by vaccines (15%). Saudi Arabia accounts for the largest share of the SGH
tender, followed by the UAE. At a national level, procurement is undertaken by the National Unified
Procurement Company for Medical Supplies.
National Unified Procurement Company for Medical Supplies
The National Unified Procurement Company for Medical Supplies (NUPCO) was established in 2007
under Royal Decree No. M/71 and is owned by the Public Investment Fund. It is the largest company
of its kind in the Middle East, centralising procurement, warehousing, distribution, and re-exporting
of pharmaceuticals, medical equipment and supplies for all public hospitals and healthcare facilities.
The company follows the policies set by the Health Services Council and standards set by the SFDA in
collaboration with suppliers.
NUPCO's major customers are:
• The MoH;
• The Ministry of Defence & Aviation's medical services department;
• The National Guard Health Affairs;
• The Ministry of Higher Education's university hospitals and healthcare centres;
• King Faisal Specialist Hospital and research centres; and
• The Ministry of Finance's Public Investment Fund.

124 July 2014
Reimbursement
Pricing and reimbursement is not directly linked in Saudi Arabia and there is no national unified
strategy for reimbursement. Registration and pricing of a drug by the SFDA does not guarantee
reimbursement by the healthcare sectors. Decisions on formulary listing and reimbursement are
made by Pharmacy and Therapeutics Committees in the various healthcare sectors. The
organisations involved in reimbursement decisions include the MoH, National Guard Health Affairs,
Ministry of Defence & Aviation, Ministry of the Interior, Ministry of Higher Education (University
Hospitals), and the private sector and health insurance companies.
Factors influencing reimbursement decisions include clinical efficacy and safety data, the availability
of alternative treatments, comparative effectiveness and cost-effectiveness. Reimbursement
decisions can differ from one health sector to another. For example, a drug reimbursed by the MoH
might not be reimbursed by the National Guard Health Affairs (NGHA).
Pharmaceuticals that are listed on government formularies are fully reimbursed. Patients can opt to
pay privately for drugs that are not reimbursed by the government health sectors.
SOUTH AFRICA
Pricing
The Pricing Committee of the Department of Health is responsible for monitoring and controlling the
price of medicines and charges throughout the supply chain.
The regulatory system, including pricing policy, was revised under the Medicines and Related
Substances Amendment Act (Acts 90 and 59) of May 2003. Under the revised system, international
tendering is permitted, allowing the government to source cheap drugs from abroad. The
regulations were designed to produce a more accessible healthcare system for the country's vast
poor population, most notably to HIV/AIDS antiretrovirals and other essential medicines.
Government regulations, which came into force in May 2004, were intended to create a transparent
pricing system, make medicines more affordable and improve practices relating to the manufacture
and sale of medicines. A "single exit price" (SEP) was set by manufacturers for every product and a
professional fee for dispensing services replaced the previous system of commercial mark-ups.
Mandatory disclosure of information relating to pricing was also put in place.
The SEP is set at 50% below the official listed price and is determined on a product-by-product basis.
Since 2005, all products have had an SEP based on an international price set by the government.
Wholesalers' and distributors' charges are incorporated into the SEP whereas pharmacist's dispensing
fees are based on percentages and flat rates.
Prices were supposed to be increased/reviewed every year, but this has happened fairly sporadically.
The government increased prices by 5% in 2006, and 6% across 2007 and 2008, but the industry
complained these increases were below the rate of inflation. In January 2009, the DoH increased
prices by 13.2%, a move that was welcomed by the Pharmaceutical Industry Association of South
Africa (PIASA). In January 2013, the increase for SEP products was set at 5.8%. Citing local currency
depreciation and the sharp increase in utility costs as barriers to growth, local companies expressed
their disappointment at the decision and described the price hike as lower than the expected 7% to
counter the economic situation. In February 2014, the DoH said it would consider changing its
mechanism for determining price increases for private sector medicine sales; i.e. the annual SEP
adjustment.

July 2014 125
The DoH is reviewing the current mechanism in order to help support local manufacturers hard hit by
the depreciation of the rand, which makes imported ingredients more expensive. The department
proposes replacing the current formula used to determine annual price increases with three different
price inflators for fully imported generic drugs, locally produced generic drugs and originator
medicines. The current formula is weighted 70% consumer price inflation, and 15% each for the
rand-dollar and rand-euro exchange rates.
Reference Pricing
According to the WHO/HAI Project on Medicine Prices and Availability (2011), South Africa has an
external reference pricing system where medicines are benchmarked against equivalent medicines in
four countries - Australia, Canada, New Zealand and Spain. The lowest price is adopted.
Dispensing Fees Charged by Pharmacists

In December 2010, an amendment to the Medicines and Related Substances Act (101/1965):
Regulations: Transparent pricing system for medicines and scheduled substances was published in
the Government Gazette, with regard to the dispensing fees charged by pharmacists, exclusive of
VAT. This amendment simplified the fees published earlier in the year, indicating just two levels:
• Where the SEP of a medicine or scheduled substance is less than R78, the dispensing fee
must not exceed 30% of the SEP;
• Where the SEP of a medicine or scheduled substance exceeds R78, the dispensing fee is
capped at R23.40.
The amendment states that these provisions may be reviewed annually. The regulation also requires
every retail pharmacy to inform patients of the dispensing fee structure by means of a notice clearly
displayed in the dispensary.
A previous amendment, published in the Gazette in July 2010, set out a significantly more complex
schedule of fees, as follows:
• Where the SEP of a medicine or scheduled substance is less than R75, the dispensing fee shall
not exceed R6 plus 46% of the SEP;
• Where the SEP of a medicine or scheduled substance is greater than or equal to R75 but less
than R200, the dispensing fee shall not exceed R15 plus 33% of the SEP;
• Where the SEP of a medicine or scheduled substance is greater than or equal to R200 but less
than R700, the dispensing fee shall not exceed R51 plus 15% of the SEP;
• Where the SEP of a medicine or scheduled substance is greater than or equal to R700, the
dispensing fee shall not exceed R121 plus 5% of the SEP.
Reimbursement
The structure of South Africa’s reimbursement system remains basic. In the public sector, drugs used
in primary care are 100% reimbursed by the government, under its policy of extending free primary
healthcare to the whole population. For drugs used in hospital care or those obtained on
prescription, patient co-payments may be required, although this often depends on the financial
circumstances of the hospital or health authority in question.
During 2012, trials began of a new National Health Insurance system, which is aimed at providing
essential healthcare to all citizens of South Africa. The NHI will offer a defined range of health services
to all citizens, to be finalised following the pilot schemes, which are expected to last for five years.

126 July 2014
Essential Medicines List

In 1996, the government launched an Essential Medicines List (EML), to be used by public sector
primary healthcare facilities and hospitals, as a core of reimbursable medicines; those drugs not on
the list will generally not be available. All state clinics would receive a package of around 200 drugs in
place of the random selection of nearly 3,000. National tender prices would be compared with
international prices and, while a 15% price advantage is given to local manufacturers to encourage
them to manufacture drugs on the list and move towards national self-sufficiency. Centralised
procurement aims to secure the lowest prices available.
The EML Programme is intended to:
• Develop a reliable supply of safe and effective drugs, especially to rural areas;
• Encourage a more rational and appropriate use of drugs;
• Give healthcare professionals a greater understanding of the working of a smaller number of
drugs;
• Provide better healthcare for the entire population; and
• Reduce the cost of medicines.
In 1999, the government reiterated its intention to ensure complete availability of EML medicines as
part of its five-year Health Priorities Plan. In 2003, international tendering was introduced to allow the
sourcing of cheaper drugs from abroad and create a supply route to boost the availability of essential
medicines. To further this initiative, health workers would be trained on the EML in order to improve
stock management and improve the reliability of drug distribution.
As of February 2014, the EML contained 520 medicinal products. In 2013, the EML for the Tertiary and
Quaternary Level was published, as well as version two of the Standard Treatment Guidelines and
EML for Hospital Level list for paediatrics. This followed the 2012 Edition of the Standard Treatment
Guidelines and EML for Hospital Level list for adults. The Fourth Edition of the Standard Treatment
Guidelines and Essential Medicines List for Primary Care Level was published in 2008. The lists are
available for download from the DoH website: http://www.doh.gov.za.
TURKEY
Pricing
Prices are set by the Department of Pharmaceutical Pricing in the General Directorate of
Pharmaceuticals and Pharmacy (IEGM), which is part of the Ministry of Health (MoH).
Following the initial licence registration of a product, the licence holder needs to apply to the MoH
with the price declaration form and supporting documentation for the determination of the price.
The relevant transaction shall be conducted in the light of all information and documents submitted
by the relevant company to the MoH. Applications for receiving an initial price are usually concluded
within 60 days. Once the sales price to wholesalers is determined, wholesale and pharmacy sales
prices are calculated based on a progressive scale of respective profit, also fixed by the Decree.
In October 2013, it was announced that the Turkish health ministry planned to introduce a new drug
pricing list due to a shortage of drugs in the country, according to Hakki Gürsöz, the Vice President of
Economic Research from the Turkish Medicines and Medical Devices Agency of the Ministry of Health.

July 2014 127
Under the 2014 flexible pricing practices, the health ministry will cancel drug licences if they are not
available in the market for one year. Meanwhile, the number of unavailable drugs had reportedly
increased by around 50% since October 2013, to 471 from 310 items, according to the Istanbul
Chamber of Pharmacists. Of the total of unavailable medicines, 60 were cancer drugs. Deposil (used
to treat heart rheumatism), Genhevac hepatitis B vaccine, polio-Hib meningitis vaccine and Hiberix
ACT medications were among the major drugs not being supplied to the market.
Reference Pricing
In February 2004, a reference price system was introduced, which was based on the price of products
registered in France, Greece, Italy, Portugal and Spain; the lowest-priced equivalent product in these
five EU states is used as the reference price. The lowest price in the reference countries is taken as the
maximum ex-factory price of an original product. For products not valid for reimbursement, pricing is
set at 100% of the highest reference country. Price increases are not usually possible. If the product
in question is a vital one, an increase can be submitted for evaluation by the Price Evaluation
Commission.
Once a generic is on the market, the reference price of the original product cannot be more than 60%
of the cheapest reference price and generics cannot be more than 60% of the original price.
In February 2013, the Turkish authorities signalled their intention to remove Greece from the list of
reference countries when determining drug prices on the domestic market. In response to the
economic depression, the Greek government had implemented significant cuts to pharmaceutical
expenditure for its public healthcare system, as well as imposing strict pricing controls and levies on
the pharmaceutical sector.
The removal of Greece from the list of reference countries was a significant concession to the
pharmaceutical sector by the Turkish authorities, as it effectively dissipated deflationary pressure on
drug prices in Greece from entering the Turkish market. While the Turkish authorities still instituted a
significant discount on publicly procured medicines for the Social Security Institution (SGK), the new
basket of reference countries would enable manufacturers to negotiate better pricing for generic and
original drugs.

Once the ex-factory prices of pharmaceuticals have been determined, the rates for wholesaler and
pharmacy mark-ups are applied. The wholesale mark-up ranges from 2% to 9%, depending on the
ex-factory price of the product. The higher the ex-factory price, the lower the percentage mark-up.
Similarly, pharmacy mark-ups range from 10% to 25% depending on the wholesale prices to which it
is applied, with the highest prices attracting the lowest percentage mark-up. The retail sale price of a
pharmaceutical is determined after adding VAT of 8% to the pharmacy sale price.
Hospital prices are either at ex-factory or wholesaler prices as both producers and wholesalers can
supply hospitals. These prices are also subject to VAT of 8%. Public hospitals purchase their
pharmaceuticals through tendering processes, which often provide discounts.
Price Cuts
In November 2011, the MoH issued a Decree on Amendment of the Decree on Pricing of Medicinal
Products for Human Use, which detailed the reduction of drug prices. It was prepared by the MoH
and approved by the Cabinet of Ministers. The government-imposed price cuts were compounded
by the exchange rates and concerns were raised that the new regulations would further delay patient
access to innovative medicines in the country.

128 July 2014
Reimbursement
Reimbursement policies are determined by the Reimbursement Commission under the co-ordination
of the Ministry of Finance. A new system of reimbursing healthcare costs was implemented in 2006,
which saw the three main social security institutions, SSK, BagKur and Emekli Sandigi, merged to form
a single entity, the SGK, as part of the government's Social Security Reform.
The Reimbursement Commission is formed of officials representing the MoH, Ministry of Finance and
SGK. Reimbursement is based on a positive list of pharmaceuticals and on the rules set out in the
Budget Implementation Guidelines (BIG), which is prepared annually by the Ministry of Finance.
Since November 2011, prescribed medicines have been reimbursed at up to 10% above the lowest
priced drug in their category.
Manufacturers and importers can apply for a drug to be added to the reimbursement list once
marketing authorisation has been granted and a maximum ex-factory price has been set by the MoH.
The Reimbursement Commission has the sole power in reimbursement decisions. The decisions on
inclusions to the positive list are not clear and there are some concerns that the budget impact is the
main criteria for a decision. However, pharmacoeconomic assessments can be requested from both
the company and other organisations for reimbursement decisions.
Manufacturers and importers are obliged to grant the SGK a discount from the ex-factory price of all
reimbursed medicines. According to the Pharmaceutical Manufacturers Association of Turkey,
following amendments in November 2011, the producer discounts for state drug purchases are as
follows:
• 4% for those with a retail price equal and/or smaller to TL3.56;

• 41% for originator products having no generic competition with an ex-factory price greater
than 3.56TL (except the first year from launch of products with new molecules); and
• 28% for the generics and originator products having generic competition.
Pharmacy discount rates in public medicine are determined by annual pharmacy sales revenue,
excluding VAT:
• 0% on revenue up to TL350,000;
• 1% on revenue of TL350,000-600,000;
• 1.5% on revenue of TL600,000-900,000; and
• 2.5% on revenue of more than TL900,000.
UNITED ARAB EMIRATES

Pricing
The MoH is responsible for setting medicine prices in the UAE. The increasing toughness of the
pricing environment is based on the government's desire to balance concerns for 'affordable'
healthcare, the sustainability of the domestic manufacturing sector and its international obligations
to uphold patents and product quality.
Wide differentials in pricing between the private healthcare sector and the public sector are present
in both patented and generic drugs; on average reimbursement prices in the public sector are five
times lower than in the private sector.

July 2014 129
Importer and Pharmacy Mark-ups

The government has been keen to control pharmaceutical prices and has reduced margins for
importers (from 20% to 15%) and pharmacies (from 24% to 18%), meaning that increasing prices have
to some extent been balanced out and the overall pricing environment in the country is currently
relatively contained.
Price Reductions
From January 1 2014, the MoH stated it would reduce the price of 192 drugs by up to 80%. Prevously,
in June 2013, the MoH implemented a unified pricing system that would results in price reductions of
up to 40% applied to 6,610 drugs - over 80% of the total registered drugs in the UAE. The move
aimed to bring UAE drug prices in line with those of its regional counterparts, and would see fixed
profit margins for distributors and private pharmacies. Drugs would be priced in US dollars to avoid
the impact of currency fluctuations.
The MoH found that the UAE's drugs were much more expensive than those in neighbouring
countries, and that exchange rate differences were partly the reason for this. As the GCC moves
towards a unified pricing regime, then the UAE will see its drug prices fall - currently, medicines are
much more expensive than in larger countries, such as Saudi Arabia.
Regional Harmonisation
The GCC meets annually to discuss medicine lists and the region is moving towards harmonisation of
drug pricing, which the Council hopes will be a reality by 2017. There have been calls for the UAE to
play a larger role in these negotiations, particularly since it stands to gain considerably from lowering
medicine prices. Like its emerging market peers, it should have a pro-generic import policy, as we
note that significant cost savings can be made through the GCC body.
At the 72nd session of the GCC's Health Ministers Council, held in January 2012, a unified regional drug
pricing unit was launched - to set pharmaceutical prices for branded drugs across all countries so the
maximum profit margins for distributors and retailers combined would not exceed 45% of the cost,
insurance and freight (CIF) import prices. In February 2013, the MoH approved this unified drug
pricing system in the UAE, to be implemented over a three-month period.
The GCC aimed to present a mechanism that member states could use to begin to implement a
unified pricing system by the end-2013, with health ministers from across the region meeting to
endorse the price list in early 2014. Once adopted, any pharmacy or wholesaler that overpriced drugs
would be considered legally accountable.
Pharmaceutical Tenders
The Gulf Co-operation Council (GCC) runs joint pharmaceutical tenders for its members. Public sector
drug procurement is carried out through closed international tenders, GCC bulk procurement and
direct purchasing. GCC members practice collective purchasing of pharmaceuticals and vaccines
through the Secretariat-General of Health (the SGH Tender), which began in 1978 and allows for
significant cost savings from multinational companies, although it is mostly applied to essential
drugs, rather than those that are very expensive or needed in small quantities.
Apart from operating private sales outlets, pharmacies in most of the Gulf countries also participate in
government tenders. Emergency supplies are provided directly from local pharmaceutical
distributors to government hospitals. Government purchasing is predominantly branded-product
based, but the share of the generic drug market is increasing.

130 July 2014
Reimbursement
Pharmacy Benefit Management
In May 2012, the National Health Insurance Company (Daman) in the UAE announced the first full
implementation of the Pharmacy Benefit Management (PBM) initiative for pharmacies that are part of
the al-Noor Medical Company group, which operates three secondary care hospitals, three primary
care clinics and 10 pharmacies.
The system effectively automates approval from insurers for the reimbursement of prescription drugs
through Shafafiya, the Health Authority of Abu Dhabi (HAAD)'s dedicated transaction platform for
healthcare operators and insurers. The HAAD mandated that all health insurers in Abu Dhabi were
required to implement PBM in 2012, using PBM systems that have been accredited. In Daman's case,
the PBM system was accredited by the Utilisation Review Accreditation Commission. It was then up to
the individual hospital and pharmacy groups to integrate their own administrative procedures into
this platform, which should improve prescription safety, quality and the convenience of patient care.
PBM also forms the base for Daman to introduce an e-prescription service that will allow patients to
renew their prescriptions and access other services online without visiting a doctor.
Daman's PBM system aimed to save patients time, reduce administrative costs and allow the
company to monitor and alter prescription patterns allowing for a pharmacoeconomic analysis. A
report for the Pharmaceutical Care Management Association, called PBMs: Generating Savings for
Plan Sponsors and Consumers, on the implementation of PBM systems in the US, said: “From 2012 to
2021, PBMs will save plan sponsors and consumers almost US$2 trillion, or about 35%, compared with
drug expenditures made without a PBM.”
The savings from introducing the scheme vary according to how many of the best practices are
adopted by the plan sponsor. The report stated that the reduction in drug spending could be
between 20%, if not all recommendations are adopted; and 50% if they are. The report suggested
that the key areas where a PBM system could reduce the costs of medicines are:
• Negotiating Rebates From Drug Manufacturers: PBMs negotiate rebates from manufacturers
of brand drugs that compete with therapeutically similar brands and generic drugs.
Manufacturers typically provide a rebate if their product is preferred, which means it is
assigned a co-pay amount lower than competing products.
• Negotiating Discounts From Drugstores: Retail pharmacies provide discounts to be included
in a plan's pharmacy network. The more selective the network, the greater the discount,
since each pharmacy will gain business.
• Offering More Affordable Pharmacy Channels: Mail service and specialty pharmacy channels
typically give plan sponsors larger discounts than retail pharmacies do. These channels also
help to encourage the use of preferred products for additional savings.
• Encouraging The Use Of Generic Medicines And Affordable Brands: PBMs use several tools to
encourage the use of generic drugs and preferred brands. These include: formularies and
tiered cost sharing, prior authorisation and step therapy protocols, generic incentives,
consumer education, and physician outreach. As PBMs and plan sponsors strive for greater
savings, the drug mix becomes even more important.
• Reducing Waste And Improving Adherence: PBMs use drug utilisation reviews to reduce
waste and implement patient adherence programmes to help patients stick to their
prescription regimens. Both programmes improve clinical outcomes and influence
prescription volume and expenditures.

July 2014 131
• PBM System Will Increase Generic Drug Uptake: Because private health insurance in Abu
Dhabi is compulsory and all insurers are obliged to implement a PBM scheme, it is apparent
that PBM will lower drug expenditure and increase the uptake of lower-priced drugs
according to the scheme's preferred drug list. However, this will not happen overnight as the
preference for branded drugs remains extremely high in the UAE. Furthermore, the
reduction in prices is likely to be accompanied by an increase in the volume of medicines
bought due to rising levels of chronic disease and increased access and affordability.
Health Card for Expats

According to a decree published in August 2013, expatriates now have to pay EUR500 (US$136) a year
to obtain a health card. The card provides foreigners with a 50% discount on the cost of healthcare in
public hospitals and clinics.

132 July 2014
WESTERN EUROPE
Pricing & Reimbursement in Western Europe

Austria Pricing Committee Prices are regulated in The HVB is responsible for
(Preiskommission) accordance with the Price Act. making decisions on
There are two systems; the reimbursement status, advised
statutory price system (based on by the HEK. Reimbursed drugs
EU average prices) applies to are on the Reimbursement
reimbursable pharmaceuticals Code (Erstattungskodex, EKO).
and the price notification system Prescription charges apply.
applies to non-reimbursable
pharmaceuticals.
Belgium Pricing Division of the Maximum permitted prices apply Healthcare system reimburses a
Ministry of Economic for both reimbursable and non- percentage of drugs on
Affairs reimbursable drugs. Ministry approved list compiled by the
takes into account the European Minister of Social Affairs. Three
average price and the relative categories with different
value of a drug compared to reimbursement rates, up to
others already on the market. 100%.
Denmark Danish Medicines Agency Pharmacy retail prices are Reimbursement for
calculated using a scale devised pharmaceuticals granted
by the Ministry of Interior and reimbursement status by the
Health, which ensures uniform Danish Medicines Agency. At
prices throughout the country. the pharmacy, the patient only
pays his/her share according to
the reimbursement status of
the product.
Finland Pharmaceuticals Pricing Prices are regulated for products There are three levels of
Board (HILA - that are reimbursed. Internal and reimbursement: basic (35%),
Lakemedelsprisnamnden) external reference systems used. lower special (65%) and higher
special (100%).
France Economic Committee for Prices set for reimbursable There is a positive list of
Healthcare Products pharmaceuticals through reimbursable pharmaceuticals,
(CEPS - Comite negotiation between CEPS and which is determined by the
Economique des Produits industry, in line with the level of Ministry of Health, Youth,
de Sante) improvement of clinical benefit in Sports and Associations after
comparison to other products in receiving technical advice from
the same therapeutic area. the Transparency Commission
and the price decision from
CEPS.
Germany Ministry of Health The price of new medicines is Germany operates both
determined by the added benefit positive and negative lists for
they bring to patients under the reimbursement. There has been
AMNOG system. Since 1989, a trend towards greater
Germany has made increased use restrictions on what can be
of internal and external reference reimbursed, as well as greater
pricing. patient co-payments.
Greece Directorate of Medicinal Pharmaceutical pricing is The majority of marketed
Products Prices, within controlled by the govt, and prescription drugs are eligible
the Ministry of Greece has some of the lowest for reimbursement from the
Development (YPAN) prices in Europe. In September social insurance funds. Prior to
2010, a reference price system May 2006, Greece operated a
came into force, under which a positive list for reimbursement,
product is priced at the average but this was abolished. More
of the three lowest prices in the recently, a negative list has
EU. been compiled of drugs no
longer eligible.

July 2014 133

Ireland Health Service Executive Reference pricing system for Only the drug selected by the
(HSE) reimbursed pharmaceuticals. HSE from a group of drugs will
be reimbursed. Other drugs in
the group may be available, but
the patient will have to pay the
difference in price between the
two.
Italy AIFA Reimbursed pharmaceuticals are Class A pharmacy and hospital
regulated, class-C are freely drugs are 100% reimbursed.
priced, although pricing is AIFIA has instigated a risk-
monitored. sharing scheme with industry
for some expensive cancer
drugs.
Netherlands Ministry of Health, Ministry of Health, Welfare and Medicines deemed
Welfare and Sport Sport sets the maximum price for therapeutically equivalent are
each pharmaceutical grouped into clusters and a
classification, which is reviewed reimbursement limit set for
every six months. A each cluster. Where this price
pharmaceutical may not be limit is exceeded, the patient is
offered or sold for more than the responsible for paying the
maximum price. The Netherlands additional costs.
operates a reference pricing
policy.
Norway Norwegian Medicines Reference price system. NoMA NoMA compiles a list of
Agency (NoMA) sets the maximum price for each pharmaceuticals eligible for
POM. All suppliers of prescription general reimbursement, and
pharmaceuticals must apply for a updates it at least once a
maximum price, whether or not month. Reimbursement is
they are seeking reimbursement automatically granted for
for the product. The medicines on the
pharmaceutical may only be sold reimbursement list. If a
at or below the maximum price medicine is not on the
level. reimbursement list, the patient
must apply to the Norwegian
Labour and Welfare
Administration for individual
reimbursement.
Portugal National Authority of Reference price system for Reimbursement is either 5% or
Medicines and Health reimbursed prescription and non- 10% lower than the lowest
Products, INFARMED prescription medicines. priced generic in a group.
Spain MoH Reference pricing system now Reimbursement decisions
based on lowest price; changed made nationally but regions
from average price in 2010 can add restrictions or cost-
reform. containment measures. Co-
payment scheme in operation.
Sweden Dental and Prices proposed by Reimbursement rates between
Pharmaceutical Benefits manufacturers; if accepted by 50% and 100% with patient co-
Agency (TLV) TLV, drug may be reimbursed. payments, subject to maximum
There is no negotiation. Free cost ceiling.
pricing for OTCs and non-
reimbursed drugs.
Switzerland Swissmedic, BSV Reference pricing system for Positive and negative lists.
reimbursed pharmaceuticals.
Country list appears variable.

134 July 2014

UK Pharmaceutical Price The PPRS does not regulate prices NICE provides guidance in
Regulation Scheme directly, but limits individual England and Wales, Scottish
(PPRS), under the company profits. Manufacturers Medicines Consortium operates
Department of Health are free to set specific drug prices in Scotland. The NHS is obliged
where they wish, but must not to prescribe drugs approved by
breach their overall profit limit. NICE.
Value-based pricing could be
introduced from September
2014.
Source: BMI Espicom
AUSTRIA
Pricing
Pharmaceutical pricing is the responsibility of the Federal Ministry of Health, Family and Youth
(Bundesministerium fur Gesundheit, Familie und Jugend, BMGFJ), advised by the Pricing Committee
(Preiskommission, PK).
The BMGFJ sets pharmaceutical prices based on recommendations from the PK. Prices are regulated
in accordance with the Price Act. There are two systems; the statutory price system applies to
reimbursable pharmaceuticals and the price notification system applies to non-reimbursable
pharmaceuticals.
Reference Pricing
The statutory price system is based on the average price of the pharmaceutical in the European Union
(EU). This external reference price system was introduced in 2004. The EU average price is set
according to the Regulation on Procedural Rules for Calculation of the EU average price (Regelung fur
die Vorgehensweise der Preiskommission bei der Ermittlung des EU-Durchschnittspreises), published
by the BMGFJ in October 2005.
The EU average price can be calculated if a patented medicine is marketed in at least half of the EU
member states, or in at least two member states for generics. Otherwise, the EU average price cannot
be established and a price evaluation will take place every six months. If these criteria are not met at
the second re-evaluation, the EU average price will be established on the basis of the countries
available.
In addition, the Main Association of Austrian Social Security Institutions (HVB) may negotiate
wholesale prices of pharmaceuticals included in the Reimbursement Code (Erstattungskodex, EKO)
with pharmaceutical companies. Therefore, prices of some reimbursable pharmaceuticals,
particularly those in the ‘green box’ of the EKO, may be considerably lower than the EU average price.
There are different pricing rules for generics. In order to be approved, the price of the first generic
version of a pharmaceutical must be at least 48% below the price of the original branded medicine.
For other generic copies, there are pre-determined price differences compared to the previous
generic and the original. For example, the second generic needs to reduce its price by 15% compared
to the first generic, and after three months of the first generic coming onto the market, the original
has to reduce its price by 30%.

July 2014 135
Price Notification System

Under the price notification system, manufacturers must inform the BMGFJ of the wholesale price of a
new pharmaceutical, and must also notify them of any price changes. This system has been in place
since 1999, and is applicable for all non-reimbursable pharmaceuticals, including OTC medicines. If a
notified price is considered to be too high, the BMGFJ has the opportunity to start an official price-
fixing process, although this has not occurred in recent years. If such a process has not begun in six
weeks, then the notified price becomes effective.
Hospital Medicines
Prices for hospital medicines are set in a different way. Once a price application has been submitted
by the manufacturers, the BMGFJ sets the prices at the wholesale price level and the hospitals then
purchase the pharmaceuticals at the maximum wholesale price level. However, there are some
pharmacy purchasing committees, which obtain some pharmaceuticals via tendering processes and
individual negotiations.
Wholesaler and Pharmacy Mark-ups

Wholesaler and pharmacy margins are variable, but the state imposes limits on their extent;
wholesale margins vary between 9% and 17.5% for non-reimbursed medicines and between 7% and
15.5% for reimbursed products.
Pharmacy margins vary between 12.5% and 55% for non-reimbursed products and 3.9% and 37% for
reimbursed products. Pharmacies with larger than average revenues have different margin limits and
are generally much narrower than smaller pharmacies. Finally, if a medicinal product is not
reimbursed by the state, an additional 15% mark-up is added by the pharmacy as a private sale
additional charge.
VAT
Prior to January 2009, pharmaceuticals were subject to value-added-tax (VAT) at 20%; this rate has
since been reduced to 10%.
Reimbursement
The Main Association of Austrian Social Security Institutions (Hauptverband der österreichischen
Sozialversicherungstrager, HVB) is responsible for making reimbursement decisions, on the basis of
recommendations from the Pharmaceutical Evaluation Board (Heilmittel-Evaluierungskommission,
HEK).
Decisions are based upon pharmacological analysis, therapeutic evaluations and economic
considerations, in accordance with the Austrian Social Insurance Law (Allgemeines
Sozialversicherungsgesetz, ASVG). Pharmaceuticals are either fully reimbursed or not at all.
Erstattungskodex (EKO)
There is a list of all pharmaceuticals that qualify for general reimbursement: the Reimbursement Code
(Erstattungskodex, EKO). Manufacturers need to apply to the HVB, which must decide within 90 days
from the application, on the recommendation of the HEK, whether the pharmaceutical qualifies for
inclusion in the EKO.
If a pharmaceutical is refused inclusion on the EKO, the manufacturer can consult the Independent
Pharmaceutical Commission (Unabhangige Heilmittelkommission, UHK), which functions as an
appeal court.

136 July 2014
The EKO is divided into three groups, or boxes:
Green Box
The green box comprises pharmaceuticals that automatically qualify for general reimbursement and
can be prescribed by any contract doctor. The price of medicinal products in the green box must be
below the EU average price. Generics are usually included in the green box and there are special
pricing rules for these.
Yellow Box
The yellow box includes pharmaceuticals that exhibit an essential additional therapeutic benefit for
the patient but are not included in the green box for medical and/or reasons of health economy. The
maximum price for medicinal products in the yellow box is the EU average price. The yellow box is
split into two categories, the light yellow box and the dark yellow box.
Light Yellow Box. In the light yellow box, the pharmaceuticals may be freely prescribed, but ex-post
volume control takes place, i.e. the doctor has to keep a record of the reason for such prescriptions.
Dark Yellow Box. For pharmaceuticals in the dark yellow box, ex-ante approval of the head physician
(Chefärzt) of the insurance fund is necessary and must be sought by the prescribing doctor for
reimbursement to be given.
Red Box
The red box comprises all pharmaceuticals that apply for reimbursement status. Pharmaceuticals stay
in the red box for a period of 24 to 36 months; a maximum of 24 months for pharmaceuticals with an
EU average price, and a maximum of 36 months for pharmaceuticals for which no EU average price
can be established. A decision is then made on whether the pharmaceutical will be transferred to the
yellow or green box. The costs of medicinal products in the red box are only reimbursed if approval
from the Chefärzt of the insurance fund has been obtained by the prescribing doctor.
The EKO and the system of different boxes were introduced in 2005. Those pharmaceuticals listed in
the old reimbursement list (Heilmittelverzeichnis) are now included in the green box of the EKO. A
print version of the EKO is published at the beginning of every year (containing the green and yellow
boxes) and monthly changes (also including the red box) are published online at: www.avsv.at.
If a pharmaceutical is not listed in the EKO, it is not eligible for general reimbursement because it has
been deemed unsuitable for outpatient medical care. In certain cases, individual reimbursement of
such medicinal products may be granted, if there is no alternative treatment available, but ex-ante
approval from the Chefärzt of the insurance fund is necessary. However, individual reimbursement is
only rarely granted (less than 1% of prescriptions).
The EKO is only relevant for outpatient care. In hospitals, pharmaceutical costs are included in the
diagnosis-related remuneration system.
Rational Use of Pharmaceuticals

There is no fixed prescribing budget in Austria. Instead, the volume of prescriptions given out by GPs
is monitored by the individual sickness funds to ensure their compliance with HVB's Guidelines on
Economic Prescribing (Richtlinien uber die okonomische Verschreibweise von Heilmitteln und
Heilbehelfen, RoV). These guidelines encourage doctors to prescribe the most economic
pharmaceutical out of therapeutically similar alternatives.

July 2014 137
Patient Co-payments
Patients must generally make co-payments towards the cost of prescription medicines. These may be
fixed-rate prescription fees, or based on a percentage of the cost. For example, a 20% co-payment for
persons insured with certain health insurance funds. The average prescription fee per package of
medicines was EUR5.40 (US$7.32) in 2013. In addition, OTCs and health services that are not included
in the benefits catalogue of the relevant health insurance fund must be paid for out-of-pocket,
although the latter may be partially reimbursed.
Since January 2008, prescription charges have been linked to income. The Austrian social security
authority maintains an individual prescription charge account for each insured person. This is used to
document the person’s net annual income and to register the prescription charges paid by that
person during the year. When total prescription charges paid are equivalent to 2% of their net
income in a calendar year, the individual’s e-card will indicate that they are exempt from paying
prescription charges and they will not be asked to do so at the pharmacy.
Individuals whose income is below a defined monthly threshold are exempt from paying the
prescription fee. In 2010, the threshold was set at EUR784.0 for single persons, rising to EUR901.6 if
they were suffering from a chronic illness. In addition, exemptions exist for individuals with certain
notifiable infectious diseases such as tuberculosis.
In hospitals, no additional co-payment is charged for pharmaceuticals used with inpatient treatment.
BELGIUM
Pricing
Once a product has received marketing authorisation, the manufacturer must submit a pricing and
reimbursement dossier to the Ministry of Economic Affairs, which has 90 days to fix a maximum
allowed price for the drug. Maximum permitted prices apply for both reimbursable and non-
reimbursable drugs. When making its decision, the Ministry takes into account the European average
price and the relative value of a drug compared to others already on the market.
The agreed maximum price is subject to several margins. The wholesale margin is fixed at 13.1%, up
to a maximum of EUR 2.18(US$3.20) per package. The pharmacy margin amounts to 31% of the
wholesale price, to a maximum of EUR 7.44(US$10.94). Pharmaceuticals sold in retail pharmacies are
also subject to VAT of 6%.
Reference Pricing
A reference price system was introduced in 2001 to encourage wider dispensing of generic drugs; at
the time of its introduction generics accounted for only 2% of the drug market, but their share has
since risen to around 10%. Under the reference pricing system, drugs are reimbursed on the basis of
the price of the generic.
Reference pricing is only applied to off-patent pharmaceuticals with generic alternatives. In July
2005, the reference price system was extended. While initially an original pharmaceutical only
entered the system when a reimbursed generic alternative existed with an identical composition and
a comparable pharmaceutical form, the extended system only takes into account the active
ingredient of the generic alternative.
Since November 2005, pharmaceuticals that belong to a therapeutic group of pharmaceuticals

containing at least one generic pharmaceutical have been subject to a higher maximum co-payment.
This measure aims to encourage patients to switch to generic alternatives where possible.

138 July 2014
Since January 2007, the reference price system has also been extended to include post-patent
molecules without generic alternatives, at the request of the CTG. The reference price system is
reviewed every six months by the National Institute for Sickness and Invalidity Insurance (INAMI).
Cost Control Policies

Price freezing is no longer applied by the Ministry of Economic Affairs, and instead regulated price
cuts for old pharmaceuticals are applied. Once an original pharmaceutical with an active ingredient
has been reimbursed for more than 12 years, the retail price and the corresponding reimbursement
basis are reduced by 14%. Once the pharmaceutical product has been reimbursed for 15 years, the
retail price and reimbursement basis are reduced by a further 2.3%. If a pharmaceutical contains
more than one active ingredient, each active ingredient must be reimbursed for more than 12 years.
This measure is applied every six months to the original pharmaceuticals listed in chapter I, II or IV of
the list of reimbursed pharmaceuticals. However, it excludes: blood substitutes and derivatives,
insulin, anti-haemophilia factors, contraceptive medicines, vaccines, immunoglobulins and
glycosides.
The industry has continually expressed its concern at the growing cost of various containment
measures; in particular the payback system. The Belgian government has sought to reduce its drugs
budget in recent years, placing pressure on companies over pricing, but reflecting a wider regional
trend.
In the meantime, pharmaceutical industry association, Pharma.be has been working on negotiations
over a longer-term pricing framework that would provide a degree of stability for the drug industry.
From the start of April 2010, a number of reimbursable off-patent medicines were reduced in price,
with the government targeting EUR59.25 million in savings during the year (rising to EUR79 million
from 2011). The price cuts ranged between 1% and 42%, and were applied on an ex-factory basis.
The price cuts, which had been worked out in consultation with the industry, were applied gradually
from July 2010.
Generic drugs have been subjected to regular price cuts, in line with cost-cutting initiatives. In April
2013, all generic drugs faced a 3.2% price decrease (with all reimbursed drugs facing - on average - a
1.95% price cut), and in May 2013, some generic drugs, including antidepressants, faced an additional
price cut of 1.5%.
In 2013, price cuts were introduced for reimbursed, patented medicines, which had been on the
market for at least five years, based on the prices in a defined set of countries: Austria, Finland, France,
Germany, Ireland and the Netherlands. The pharmaceutical company could either accept the
proposed price cuts or suggest their own price cuts, assuming these had the same budgetary impact.
Reimbursement
The Belgian healthcare system reimburses patients a percentage of the price of most prescribed
drugs, provided the drug has been accepted onto an approved list compiled by the Minister of Social
Affairs. For a new drug to be accepted onto the approved list, an application must be filed with the
Reimbursement Committee (CTG). This application is normally made at the same time as a pricing
application is filed with the Pricing Division of the Ministry of Economic Affairs.
The CTG has 150 days to decide whether the product should be reimbursed, and at what level, before
the application automatically passes to the Minister of Social Affairs, who has 30 additional days to
make a definitive decision, otherwise the reimbursement conditions requested by the manufacturer
take effect. This reimbursement procedure must take a maximum of 90 days for parallel traded
pharmaceuticals.

July 2014 139
The Budget Ministry retains a right of veto, which it has already exercised on at least two occasions
with regard to two innovative drugs. These drugs were approved for reimbursement by the Ministry
of Social Affairs, but the Budget Ministry subsequently decided that the products were too costly for
reimbursement.
Around 60% of all drugs approved for human use are eligible for reimbursement. There are four main
reimbursement categories:
• Category A - Life-saving drugs, e.g. anti-cancer drugs, insulin, drugs to treat other serious
illnesses. These products are usually reimbursed 100%.
• Category B - Other major drugs used to treat non-threatening illnesses. These drugs are
normally reimbursed 100% for hospitalised patients, and 75-85%, depending on the patient's
insurance status, for non-hospitalised patients; drugs may be dispensed in a hospital
pharmacy or an independent pharmacy.
• Category C - Minor drugs and products deemed to promote good health or to have a
prophylactic effect, including oral contraceptives. These drugs are normally reimbursed at
50%. Austerity measures have led to the creation of sub-categories Cs and Cx, which are
reimbursed at 40% and 20%, respectively.
• Category F – This new category, subdivided into Fa and Fb, was introduced by the
government with effect from April 1 2012.
In addition, drugs are divided into chapters according to reimbursement criteria as follows:
• Chapter I: no specific restrictions on reimbursement with all approved indications eligible.

• Chapter II: reimbursement restricted to a specific group of patients. However, doctors do not
need prior approval to prescribe (control a posteriori).
• Chapter III: liquids and perfusion solutions.
• Chapter IV: reimbursement requires prior approval from a health insurer doctor (control a
priori).
The overwhelming majority of new drugs that are approved for reimbursement fall into the Chapter
IV category, meaning reimbursement can be restricted to a very limited number of patients, despite
the drug having received market approval for a range of indications.
According to Pharma.be, reimbursable pharmaceuticals accounted for 74.5% of the ambulatory

market by value and 50.6% by volume in 2011. In the hospital market, reimbursable pharmaceuticals
accounted for 94.5% of the total value. This is equivalent to around EUR 3.6 billion (US$4.7 billion) in
total, of which EUR 2.4 billion (US$3.1 billion) is ambulatory. The vast majority of drugs eligible for
reimbursement fall into Category B. These drugs account for around 80% of the value of
reimbursable products dispensed by pharmacies, excluding hospital pharmacies.
The municipal CPAS in the 19 districts of the Brussels-Capital region have signed an agreement
approving a common list of reimbursable medicines. The agreement comes after years of
campaigning by health professionals to simplify the reimbursement system. Previously, as well as
drugs reimbursable under INAMI, each district within the region had its own list of additional drugs
that were eligible for reimbursement for patients receiving municipal aid. These drugs were primarily
basic products such as analgesics, cough preparations, mucolytics, gastrointestinals, dermatologicals,
antiseptics and certain oral contraceptives. The list will be updated every six months to include new
products where necessary and to take into account any changes in the reimbursement status of
products reimbursed by INAMI.
Patient Co-payments
Since April 1 2010, co-payments for non-hospitalised patients have been calculated based on ex-
manufacturer prices. For drugs in categories B, Cs, Cx and Fb, patients pay a percentage of the cost of
the drug, subject to a maximum fee. Different tariffs apply for preferential beneficiaries (PB) and
ordinary beneficiaries (OB).

140 July 2014
The maximum fees applicable from 2013 for Category B drugs are either EUR 7.70 or EUR 9.60 for PBs,
or EUR 11.60 or EUR 14.50 for OBs, with large packages that contain more than 60 units attracting the
higher price. Category C maximum fees are EUR 9.60 (PB) or EUR 14.50 (OB), except where the drugs
are classified as Cs or Cx, in which case there is no co-payment maximum. Category Fb maximum co-
payment rates are the same as those for category B. The maximum charge is designed to make
medicines more affordable.
For hospitalised patients a different system is in operation. Patients are charged a flat maintenance
fee of EUR 0.62 per day.
DENMARK
Pricing
Pharmaceutical pricing in Denmark is market oriented and companies are free to set their own prices.
Nevertheless, pricing is an important issue for reimbursement cases and various temporary
restrictions have been placed on the industry since the mid-1990s.
Pharmacy prices are calculated using a scale devised by the Ministry of Interior and Health, based on a
wholesale resale price, or pharmacy purchase price (PPP) set by the manufacturer, plus a fixed
amount and percentage profit. A dispensing fee is added to the consumer price for prescription
pharmaceuticals and OTC products sold on prescription.
Pharmaceutical companies must report their PPP for all pharmaceuticals to the Danish Medicines
Agency, which calculates the pharmacy retail prices (PRP). The medicines price list, Medicinpriser, is
distributed to all pharmacies, which must comply with them.
The Competition Council is responsible for monitoring the price of all products, including
pharmaceuticals. Since 1983, however, special consideration has been given to intensive research
and development based industries, such as the pharmaceutical industry. Since the 1983 Act was
passed, the Council has not had cause to intervene against prices of medicinal products set by
manufacturers and importers.
Reference Pricing
For all reimbursable products, a fixed reimbursement price (reference price) is used to calculate
reimbursement and co-payment levels. The reference price is set by the Danish Medicines Agency
when several products contain the same active substance.
Reference pricing was introduced in Denmark in 1993. Prior to April 2005, there was a price freeze on
pharmaceuticals and reimbursement levels were based upon reference prices in other northern
European countries. Since then, the reference price has been the price of the cheapest product in the
reimbursement group. Reimbursement groups contain products with the same active ingredient
(including generics) in the same amount, and different formulas are grouped together if they are used
in the same way and there are no therapeutic differences, e.g. tablets and capsules.
Medicine Prices
The Danish Medicines Agency publishes ‘Medicine Prices’ (Medicinpriser), which provides information
about prices, pack sizes, strengths and reimbursement, as well as details of which medicines can be
dispensed as interchangeable medicines (substitution). The list includes medicines dispensed by
pharmacies, as well as over-the-counter (OTC) medicines sold outside pharmacies in authorised sales
outlets. Prices of OTCs are not fixed.

July 2014 141
Pharmaceutical companies are obliged to notify the Danish Medicines Agency of any price changes
and the list is updated every two weeks. Pharmacies must comply with the listed prices for
prescription-only pharmaceuticals in order to unify costs throughout the country.
The price list is available as an electronic document or in printed form. The electronic version of the
price list includes a wide range of information on medicinal products marketed in Denmark. The
information is intended to:
• Ensure identical prices of medicinal products at all Danish pharmacies;

• Contribute to correct handling and dispensing of medicinal products at Danish pharmacies;
• Be used by all general practitioners when issuing electronic prescriptions; and
• Function as the foundation for the medicine modules in hospitals' electronic patient records.
The price list can be viewed on the website: http://www.medicinpriser.dk.
Price Index
Every month the Danish Medicines Agency calculates two different price indexes for medicinal
products:
• An index that shows the development in the average price of treatment (price per defined
daily dosage [DDD]); and
• An index that shows the development in the average price of packaging.
In the DDD-based index, medicinal products are sorted according to constituents, route of
administration and the pharmaceutical form. The index can therefore show changes that are due to
the introduction of new medicinal products, which correspond to medicinal products that already
exist, including parallel imported drugs. These changes do not appear in the packaging-based index.
The Danish Medicine Agency's price index is based on private pharmacies' reports to the Register of
Medicinal Product Statistics on the sale of medicine to individual people. The base year for
comparison is 1995.
VAT
In Denmark, VAT is added to the consumer price of pharmaceuticals, currently at 25%, the same as
any other commodities. Compared to other Nordic countries, the Danish VAT on pharmaceuticals is
relatively high.
Pharmacy Prices Decline

According to the Danish Pharmacy Association (Danmarks Apotekerforening), patent expiries and
generic substitution contributed to a significant fall in pharmacy prices in 2012. For example, Eli
Lilly’s patent for its antipsychotic drug, Zyprexa (olanzapine) expired at the end of 2011, resulting in a
price reduction of 92.3% in 2012. In its report on pharmaceuticals in Denmark 2012 (Lægemidler i
Danmark 2012), the association indicated that olanzapine alone contributed 2% of the 9% overall
price fall during the year and generics now account for almost 100% of the market. Similarly, the
patent on Pfizer’s Lipitor (atorvastatin) expired in May 2012, resulting in a price drop of 65.7%. The
Danish pricing system, combined with pharmacy substitution to the cheapest alternative, has
resulted in generic medicines gaining a large market share in Denmark.
The expiration of 14 patents contributed to an overall decline in PPP of 9.6% in 2012. Retail prices fell
by around 7% due to slightly higher pharmacy margins in 2012, compared with the previous year.
The full report is available from the association’s website (in Danish) at:
http://www.apotekerforeningen.dk/pdf/Laegemidler_i_Danmark_2012.pdf.

142 July 2014
Reimbursement
In accordance with the Danish Health Act, the regions provide reimbursement for the purchase of
pharmaceuticals that have been granted reimbursement status by the Danish Medicines Agency. At
the pharmacy, the patient pays his/her share according to the reimbursement status of the product,
and the pharmacy obtains the reimbursement amount from the region. Pharmaceuticals are
reimbursed at the reference price. If the patient purchases a more expensive product, the difference
between that and the reference price must be paid out-of-pocket. The reimbursement rate is
calculated as a percentage of the reference price.
The Ministry of Interior and Health set up the Reimbursement Committee to advise the Danish
Medicines Agency in matters of reimbursement for medicinal products. However, the
Reimbursement Committee acts only in an advisory capacity; it is the Danish Medicines Agency that
makes the final decisions in reimbursement cases.
Decisions on reimbursement are reassessed periodically, every five years or so. The reassessment will
decide whether the assumptions underlying the original decision on granting or refusing
reimbursement are still valid.
There are two main types of reimbursement:
• General reimbursement - applies to any drug approved for reimbursement by the Danish
Medicines Agency; and
• General conditional reimbursement - applies to medicines approved for reimbursement only
in specific cases when the medication is prescribed for the treatment of specific diseases. In
this case, the patient’s GP must mark the prescription with ‘tilskud’ (reimbursement) when
issuing a prescription to a patient who qualifies for general conditional reimbursement.
In special circumstances, the Danish Medicines Agency may grant individual reimbursement for
products not approved for general reimbursement. The patient’s doctor must apply for individual
reimbursement on behalf of the patient. The Danish Medicines Agency evaluates an individual
reimbursement application on the grounds of whether the medicinal product plays a special role in
the patient’s treatment, including:
• Whether the effect of the treatment has already been observed or the expected effect is very
likely to occur; and
• Whether other relevant methods of treatment have been found to be insufficient or
inappropriate in a particular case.
If a patient is not able to use the cheapest pharmaceutical in a reimbursement group for medical
reasons, such as an allergy caused by the additives, the patient’s doctor can apply for enhanced
reimbursement. Enhanced reimbursement means that the price is calculated on the basis of the
actual price of the product prescribed instead of the reimbursement price.
Supplementary reimbursement is provided by the municipalities for pensioners, those on low

incomes and disabled people. A health allowance may be given to pensioners to cover 85% of
expenses for reimbursable medicines, depending on the pensioner’s financial situation. A further
supplement can be given to help those in a very poor financial position, and these are evaluated on a
case-to-case basis. Those on benefits, those with low incomes and students may apply for financial
aid if they are unable to cover the expenses themselves. Disabled people may also be given
compensation for any extra expenses they require as a result of their reduced functionality, and the
same applies to those with disabled children.
Executive Order
In accordance with the Executive Order on Reimbursement (Bekendtgørelse om medicintilskud),
reimbursement is granted for pharmaceuticals:

July 2014 143
• If the product has a certain and valuable therapeutic effect when used on a well-defined
indication; and
• If the price of the product is proportionate to the effect of the product.
Therefore, despite there being no formal price regulation in Denmark, pricing is particularly important
in relation to reimbursement decisions. Companies can include a pharmacoeconomic evaluation
with their application in order to justify a high price of a pharmaceutical, although this is not
compulsory.
The Executive order also lists reasons why reimbursement should not be granted, and this is the case:
• If treatment with the product requires special examination and diagnosis (e.g. Alzheimer's
disease);
• If there is a risk of use outside the product’s approved indication (e.g. bisphosphonates);
• If there is a risk that the product will be used for purposes which cannot expect to be
reimbursed by the authorities (e.g. antismoking products);
• If the effect of the product is not clinically documented (e.g. traditional herbal medicines);
• If there is a risk that the product will be used as a first choice though the Danish Medicines
Agency does not find it desirable (e.g. products for obesity);
• If it is not clarified whether the product should be used as a first choice (e.g. some new
arthritis products);
• If there is a risk of abuse (e.g. tranquillisers);
• If the product is primarily used in hospitals (e.g. cancer products); or
• If it is impossible for the patients to take the products themselves (e.g. products for
injection).
Reimbursement Thresholds
In March 2000, the reimbursement system was fundamentally changed. Up until then,
pharmaceuticals were reimbursed at a rate of 50% or 75%, and insulin was reimbursed at a rate of
100%. Now, all reimbursable products have an equal status from the point of view of the
reimbursement rate. The system is needs-based, allocating reimbursement to those patients who
have the largest consumption of pharmaceuticals and, consequently, the largest expenses. The
reimbursement rate depends on a patient’s consumption of pharmaceuticals over a period of 12
months.
All pharmaceuticals with market authorisation are eligible for reimbursement, as long as they meet
certain criteria. The generic version of a product is automatically granted reimbursement status, as
long as its price does not exceed the price of the branded product.
In 2014, the thresholds for general reimbursement are as follows:
• For annual personal expenditure on reimbursable medicines of less than DKK915 (US$167),
reimbursement is 0% for adults and 60% for children under 18;
• For expenditure of DKK915 to DKK1,495 (US$167 to US$273), reimbursement is 50% for
adults and 60% for children;
• For expenditure of DKK1,495 to DKK3,235 (US$273 to US$590), reimbursement is 75% for
adults and children; and
• For expenditure exceeding DKK3,235 (US$590), reimbursement is 85% for adults and
children.
• For chronically ill patients, the threshold for 100% reimbursement is DKK17,468 (US$3,187)
for adults and DKK21,515 (US$3,926) for children and adolescents under 18. For adults and
children, this is equivalent to a patient co-payment of DKK3,775 (US$689).
Reimbursement is granted to terminally ill patients for all pharmaceuticals at a rate of 100%. All
hospital pharmaceutical treatment is free of charge for the patient.

144 July 2014
Additional subsidies for medicine costs are available to members of the private insurance company,
Sygeforsikringen danmark.
FINLAND
Pricing
Reference Pricing and Generic Substitution
Finland operates both internal and external reference pricing systems. Pharmaceutical prices are only
regulated for products that are reimbursed.
Following an amendment to the Medicines Act, an internal reference price system for medicines
came into force on April 1 2009, in an effort to reduce rising costs of healthcare. Internal reference
pricing applies where an originator product has at least one generic available on the market.
Medicines are classified into reference groups according to their active ingredient and
bioequivalence. The retail price of a pharmaceutical is then calculated from the wholesale price
presented by the pharmaceutical company, and includes VAT.
The reference price is calculated based on the cheapest product in the reference group, as follows:
• If the price of the cheapest product in the reference group is below EUR40 (US$54), then the
reference price is equal to the price of this product plus EUR1.50 (US$2.00);
• If the price of the cheapest product in the reference group exceeds EUR40 (US$54), then the
reference price is the price of this product plus EUR2.00 (US$2.72).
Finland also has an external reference price system that refers to the prices in a basket of EU
countries. The reference price is set by the Pharmaceuticals Pricing Board (HILA -
Lakemedelsprisnamnden), a subsidiary of the Ministry of Social Affairs and Health (STM - Sosiaali-Ja
Terveysministerio), based on price notifications from pharmaceutical companies. For originator
products with no generic alternatives, the Pharmaceuticals Pricing Board confirms whether the
company’s proposed price is a reasonable wholesale price for the medicine, based on an assessment
of its therapeutic value.
The amendment to the Medicines Act also included extending generic substitution to medicinal
products protected by analogy process patents, which were excluded from the 2006 amendment.
This effectively means that patented original products enter the generic price competition phase
several years before product patents expire in other European countries.
Generic substitution was initially introduced in 2003. Under the scheme, a prescribed medicinal
product can be replaced in a pharmacy by the cheapest, or close to cheapest, generic alternative. A
product is considered to be close to the cheapest alternative if its price is within EUR2.00 of the
cheapest generic if the product is less than EUR40.00, or within EUR3.00 if the product costs more
than EUR40.00. Interchangeable products must contain the same active substance in equal amounts
and pharmaceutical form, and be bioequivalent. An interchangeable product group includes
generics and parallel imported products. It is possible for the prescribing doctor or the patient to
forbid substitution.

July 2014 145
Price Cuts and Trends

According to the national pharmaceutical industry association, Pharma Industry Finland (PIF), the
prices of reimbursable medicines tend to decrease annually, almost without exception. Price
competition is boosted by the reference price system and by generic substitution. In addition, prices
were forced down in 2013 by the government’s 5% price cut on medicines that were excluded from
the reference price system. PIF follows medicine price trends on an annual basis, based on the
wholesale index. The index is prepared by Statistics Finland and is based on medicines that have
been available on the market for at least two years. On this basis, PIF report a downward trend in
reimbursable medicines since 2005, using 2005 as the base year. The prices of self-care (OTC)
medicines have, however, increased roughly in line with the consumer price index over the same
period.
Reimbursement
The Pharmaceuticals Pricing Board decides which pharmaceuticals are eligible for reimbursement
under the Health Insurance Act. Reimbursed pharmaceuticals are generally prescription
pharmaceuticals, although some OTC products may be reimbursed if they have been prescribed by a
doctor and the Pharmaceuticals Pricing Board has confirmed the reimbursement and reasonable
wholesale price of the product. Around 60% of medicines in Finland’s pharmacies are reimbursable.
Reimbursement is granted by the Social Insurance Institution of Finland (Kela - Kansanelakelaitos).
This applies only to outpatient drugs, as drugs in hospitals are paid for using the hospital budget.
Reimbursement Categories
There are three levels of reimbursement:
• Basic reimbursement - 35% of the pharmacy retail price of the pharmaceutical.

• Lower special reimbursement - 65% of the pharmacy retail price. Included in this category
are pharmaceuticals for ten chronic conditions where drug treatment is necessary to
maintain the patient’s health status, such as hypertension, asthma, coronary heart disease
and rheumatoid arthritis.
• Higher special reimbursement - 100% of the pharmacy retail price of the pharmaceutical,
subject to a fixed co-payment of EUR3.00 per prescription. This category covers
pharmaceuticals for 34 severe chronic conditions and life-threatening diseases where drug
treatment is necessary to maintain the patient’s health status and where the drug restores or
replaces normal bodily functions, such as diabetes, glaucoma, breast cancer and epilepsy.
Basic Reimbursement
Basic reimbursement applies to most prescription drugs and some OTC products, depending on the
product’s therapeutic value.
Basic reimbursement status is not granted if:
• The pharmaceutical is used for the treatment of a disease of a temporary nature or with mild
symptoms;
• A pharmaceutical has minor therapeutic value;
• A pharmaceutical is used for purposes other than treatment of a disease; or
• It concerns a herbal medicinal product, a homeopathic product or an anthroposophic
product.
HILA may also restrict the basic reimbursement status of a pharmaceutical to explicit defined
indications if the use of and research on a pharmaceutical has shown significant therapeutic value in
certain diseases and:

146 July 2014
• The product is particularly expensive and indispensable in the treatment of a severe disease
and its medically justified use would, with basic reimbursement status, entitle the insured to
the additional reimbursement; or
• Extensive use of the product would cause unreasonable costs in relation to the benefit
gained.
Pharmaceuticals in this group are only reimbursed if the illness fulfils the criteria. Doctors have to
state medical reasons for the prescription of such pharmaceuticals and document them individually
for each patient.
Special Reimbursement
Special reimbursement is granted for the treatment of severe, long-term diseases. When making
decisions on special reimbursement status, HILA takes the following considerations into account:
• Type of disease;
• Necessity and cost-effectiveness of the product;
• Proven therapeutic value of the product; and
• Funds available for special reimbursement products.
A decision on special reimbursement status can be restricted to apply only to a specific form or
degree of severity of a disease as defined by the Government Decree. In order to receive
reimbursement under the special reimbursement category, the patient must submit a doctor’s
certificate to Kela stating the illness, its severity and the medication needed to treat it.
New regulations regarding reimbursement were established in 2004, after the European Court of
Justice found Finland guilty of breaching the EU Transparency Directive 89/105/EEC in June 2003. It
ruled that the procedural regulations and timelines involved in the special reimbursement category
contravened the Transparency Directive.
Those dissatisfied with a decision of HILA may appeal to the Supreme Administrative Court as laid
down in the Administration Judicial Procedure Act (586/1996). Notwithstanding any appeals, the
decision of HILA shall apply until a final judgment is made.
Patient Co-payments
The patient co-payment is based on a percentage of the pharmacy retail price. Reimbursement rates
are between 35% and 100%. A patient with basic reimbursement status will, therefore, be expected
to pay the remaining 65% of the cost, up to a maximum annual ceiling rate, beyond which medicine
expenses are reimbursed in full, apart from a small co-payment of EUR1.50 (US$2.00) for each
prescription. In 2013, the annual threshold was EUR670.00 (US$911).
Since April 2009, the patient has been able to substitute a different product priced at the maximum
reference price, or have a more expensive product but pay the difference. However, the difference
does not count towards the annual threshold, which is based on the reference reimbursement price.
The patient is only entitled to full reimbursement of an expensive product if the physician expressly
forbids generic substitution.

July 2014 147
FRANCE
Pricing
Prices for reimbursable pharmaceuticals are set by the Economic Committee for Healthcare Products
(CEPS - Comité Economique des Produits de Santé). The CEPS also sets reference prices (TFR - Tarif
Forfaitaire de Responsabilité) and a price list of hospital products outside the fee-for-service payment
scheme.
For reimbursable products, prices are negotiated between the CEPS and pharmaceutical
manufacturers in line with the level of improvement of clinical benefit (ASMR - Amelioration du
Service Medical Rendu) provided by the product in comparison to other products in the same
therapeutic area. The ASMR is assessed by the Transparency Commission (Commission de la
Transparence) and rated on a scale of levels I to V:
• ASMR I: major improvement such as a new therapeutic area or a reduction of mortality;

• ASMR II: important improvement in efficacy and/or reduction in side effects;
• ASMR III: moderate improvement in efficacy and/or reduction of side effects;
• ASMR IV: minor improvement; and
• ASMR V: no improvement.
The price of highly innovative pharmaceuticals, which are rated as ASMR levels I to III, must be
consistent with the prices of similar pharmaceuticals in other European countries.
If an agreement is not reached during negotiations, which very rarely happens, the price is set by the
ministers for social security, health and the economy after consultation with CEPS. In such cases, the
product is not included on the positive list. Prices are set at a wholesale price level, but retail prices
for reimbursable pharmaceuticals are regulated as well.
A number of factors are taken into consideration when setting a price. These include:
• The ASMR level;

• The price of local comparators;
• The price in other EU markets, mainly Germany, Italy, Spain and the UK;
• Sales forecasts for the next three years;
• Predictable or real conditions for use; and
• The size of the target population.
Prices are set at a wholesale price level, but retail prices for reimbursable pharmaceuticals are
regulated as well. There is a free pricing system for non-reimbursable pharmaceuticals, most
pharmaceuticals approved for hospital use and OTC pharmaceuticals.
Internal Reference Pricing

The CEPS is responsible for a reference price system that lists around 207 generic groups. The
reference price (TFR - Tarif forfaitaire de responsabilité) is usually the same as the generic price; so all
pharmaceuticals in a generic group have the same level of reimbursement.
Formal Medico-Economic Assessment

From October 2013, new pricing regulations came into force, under which formal medico-economic
assessment will be applied to drugs whose manufacturers request an ASMR rating of I to III, and/or
drugs that are expected to have a significant impact on public insurance expenditure.

148 July 2014
The commission for the economic evaluation of public health (CEESP - Commission d’évaluation
économique et de santé publique) has had its role redefined and will be in charge of producing
medico-economic assessment. The requirement for medico-economic assessment and the
conditions under which it will be performed are defined under the October 2012 decree no. 2012-
1116. CEESP assessments will rely on economic data submitted by the manufacturers of the products
undergoing review. For products falling under the new reform, CEPS will make pricing decisions
based on advice from both the CEESP’s medico-economic assessment and the CT’s clinical evaluation.
In an interview with eyeforpharma in March 2014, the President of Haute Autorité de Santé (HAS),
Jean-Luc Harousseau, explained that the first dossier for assessment was submitted in October 2013
and the first analysis began in January 2014. Cost-effectiveness assessments are being performed in
parallel medical assessments and are expected to take 90 days. The outcome will be in the form of
either positive or negative advice. Subsequently, the pricing committee will make a decision based
not only on the ASMR, but also on the cost-effectiveness analysis. He explains that pharmaceutical
companies will have the opportunity to talk to the pricing committee after the HAS
recommendations have been made, but also to have feedback and discussions earlier in the process.
VAT
The VAT rate is 2.1% for reimbursable pharmaceuticals and 5.5% for non-reimbursable
pharmaceuticals.
Government Cost Saving Measures

In April 2014, France's new prime minister, Manuel Valls, unveiled details as to how the government
aims to extract EUR50 billion (US$69 billion) in savings between 2015 and 2017, including proposals
to slice EUR10 billion (US$14 billion) of healthcare spending. The National Health Insurance
Expenditure Target (ONDAM) rose by 2.4% per year in 2012 and 2013, as opposed to 4% on average
over the past 15 years. For 2014, government health expenditure has been capped at EUR179.1
billion (US$246.2 billion) (a growth rate of 2.4%) and health expenditure growth for 2015, 2016 and
2017 has been capped at 2.1%, 2.0% and 1.9%, respectively.
• Savings of EUR3.5 billion (US$4.8 billion) are to come from lowering drug prices and the
increased consumption of lower value generic medicines. The government is aiming for
spending on generic medicines to account for 25% of the French pharmaceutical market by
2017.
• Savings of EUR2.5 billion (US$3.4 billion) are to come from the cost-effective consumption of
medicines and making treatment more appropriate in order to reduce the use of
unnecessary interventions.
• Savings of EUR1.5 billion (US$2.1 billion) are to come from organising patient pathways
better by strengthening primary care, developing outpatient surgery, making it easier for
patients to return home after hospitalisation and improving follow-up for elderly people who
risk losing their independence.
• Savings of EUR2.0 billion (US$2.7 billion) will also come from hospitals improving and sharing
their purchases and to reduce the excessive use of temporary physicians, which are too
costly for public hospitals.
Reimbursement
There is a positive list for reimbursable pharmaceuticals, which is determined by the Ministry of social
affairs and health (Ministère des Affaires sociales et de la Santé) after receiving technical advice from
the CT and the pricing decision from the CEPS. Only pharmaceuticals that provide additional medical
benefit or savings in the cost of treatment are eligible for reimbursement by the health insurance
funds. The reimbursement rate is based on SMR (Service Medical Rendu). There are five SMR levels,
four of which qualify for reimbursement at various rates:

July 2014 149
• Major: 100% reimbursement for drugs that are recognised to be irreplaceable and
particularly expensive;
• Important: 65% reimbursement;
• Moderate: 30% reimbursement; and
• Weak: some medicines qualify for 15% reimbursement.
Under the drug regulatory reform announced in June 2011, new rules are applicable for drugs of
insufficient clinical value (SMRI - Service Medical Rendu Insuffisant), and no reimbursement will be
granted, unless approved by the Minister of Health. According to an article published in the Journal
of Market Access & Health Policy in 2013 (DOI: JAMHP.v1i0.20891), the criterion of drug efficacy is
increasing in importance for establishing SMR levels, to the detriment of disease severity.
Health insurance funds pay 100% of the expenses for a list of 30 chronic and costly diseases. Certain
other diseases may also be free of charge if they constitute a progressive or disabling disorder, if they
are costly or if there are multiple diseases present for more than six months. Exemption from co-
payment is only valid for long-term illnesses (ALD - Affection de Longue Duree), whereas for other
diseases normal reimbursement applies.
In hospitals, the majority of pharmaceuticals are included in the fee-for-service payment system.
However, for some highly innovative pharmaceuticals, which are on a list for hospital use and have
regulated prices, hospitals can claim reimbursement from the health insurance funds from 70% to
100%.
Patient co-payments
There is no flat prescription fee in France, but there is a fixed out-of-pocket payment of EUR0.5
(US$0.6) per prescription, with an annual ceiling of EUR50 (US$64). Co-payments make up the
difference between the retail price and the rate of reimbursement.
Index Thérapeutique Relatif

In its 2011 annual report, the HAS introduced a new five-level index, known as the Index
Thérapeutique Relatif (ITR), which rated products from inferior to highly superior. The ITR was to
replace the ASMR and the SMR with a single index that would apply to both pricing and
reimbursement. Products rated inferior to the comparator would not be reimbursed; identical
products would have no reimbursement or a reduced reimbursement rate versus comparator; and
products rated slightly, moderately or highly superior to the comparator would be reimbursed at
either the same or higher rates depending on the degree of improvement. The ITR remains under
discussion and has yet to be introduced.
GERMANY
Pricing
Evidential Requirements Under AMNOG
In January 2011, the act on the reform of the market for medicinal products, AMNOG
(Arzneimittelmarkt-Neuordnungsgesetz) became effective in Germany for the mandatory pricing
assessment for newly introduced drugs in the German healthcare system. Under AMNOG, the price of
medicines is determined by the added benefit they bring to patients. Previously, manufacturers had
been free to set their own prices for new medicines. The German Ministry of Health expected
AMNOG to contribute to savings in the statutory health insurance system amounting to EUR2.2
billion (US$3.07 billion).

150 July 2014
When a product with new active ingredients has been approved for the German market,
manufacturers are required to provide evidence of the added benefit for patients. Companies must
submit a dossier to the Gemeinsame Bundesausschuss (G-BA, or Federal Joint Committee) based on
the authorisation documents and clinical studies. The dossier must prove that the new drug has an
additional benefit over the appropriate comparator therapy, which is specified by the G-BA. The G-BA
may delegate the benefit assessment of the drug to the Institut für Qualität und Wirtschaftlichkeit im
Gesundheitswesenis (IQWiG, or Institute for Quality and Efficiency in Healthcare) or third parties.
If the G-BA agrees that a prescription medicinal product has an added benefit and that it qualifies for
reimbursement by the statutory health insurance funds, the reimbursement price is negotiated based
on the evaluation of this benefit. The level of benefit is assessed on a scoring system ranging from
one to six, where the first four levels concern drugs that are perceived to have added benefits over
the comparator product and levels five and six represent either no added benefit or a product that is
considered inferior to the comparator. If a product falls within levels one to four, it qualifies for price
negotiations between the central federal association of health insurance funds (GKV) and the
pharmaceutical company. The negotiated price takes the form of a rebate on the retail price
originally set by the company. If no agreement is reached, an arbitration board determines the
reimbursement price using European pricing levels as its standard.
If a medicinal product is considered to have no added benefit over the appropriate comparator
therapy, it will be included in the reference price system within six months of market launch. If the
product cannot be allocated to a reference price group, a reimbursement price will be agreed on. The
annual treatment costs must not exceed those of the appropriate comparator.
Amendment to the Law on Medicines Regarding Comparator Therapies
In June 2013, Germany’s parliament passed the third act on the amendment to the law on medicines,
at its second reading of three. According to an IHS blog article, this included some important
changes to AMNOG, particularly with respect to the choice of appropriate comparator therapies. This
has been one of the most controversial aspects of AMNOG since its introduction. Where there have
been several appropriate comparators for innovative drugs, particularly older drugs and low-cost
generics, the requirement has been to select the cheapest. This has meant that the price negotiated
with the GKV has been based on a low-priced comparator.
Under the reform, where a number of comparator therapies are equally appropriate according to
statutory criteria, the additional benefit can be assessed against any of these therapies, regardless of
price. In future, for innovative drugs assessed as having an additional benefit, price will only become
an issue during negotiations on the reimbursement price between the manufacturer and the GKV.
However, if a medicine is not deemed to have an additional benefit, its reimbursement price cannot
exceed the price of the cheapest alternative.
IQWiG
The IQWiG is an independent scientific institute, established with the healthcare reform of 2004 and
financed by contributions from members of the Gesetzliche Krankenversicherung (GKV). The IQWiG is
responsible for producing independent, evidence-based reports on the quality and efficiency of
drugs and other health interventions, based on international standards.
In January 2011, the IQWiG received its first commission from the G-BA with regard to the early
benefit assessment of new drugs under AMNOG. The IQWiG has also started undertaking cost-benefit
assessments.
Following the expiry of the transitional regulation of the AMG on December 31 2012, manufacturers
are now able to apply to the IQWiG for “a new benefit assessment if the added benefit is not regarded
as proven due to incomplete submission of the necessary evidence”. In July 2013, the IQWiG
presented its first dossier assessments for the established drug market, dealing with drugs from the
group of gliptins. In October 2013, the IQWiG published its first health economic evaluation, on
antidepressants.

July 2014 151
Industry Concerns
According to the US industry association, PhRMA, by October 2013, the rapid benefit assessment
including final GBA decision had been completed for 57 drugs, almost three quarters of which were
found to have no or marginal additional benefit. Seventeen drugs have gone through the complete
process with rebate negotiations between manufacturer and GKV SV and final determination of the
reimbursement price. Some 88% of the reimbursement prices lie under the average and 59% under
the lowest of the European reference country basket.
Anticipating an unfavourable result, some companies had decided not to market their new products
in Germany because of concerns about inappropriate comparator therapies assigned by the G-BA.
Manufacturers argued that the G-BA was making companies compare their new drugs to lower-
generic medicines in an effort to drive down medicine prices Germany. The selection of comparator
therapies by the GBA seemed to be guided by economic rather than medical considerations.
However, the modification of the law in 2013 allows more flexibility for the manufacturer to
determine the comparator therapy and has improved the process.
Reference Pricing
Germany has made increased use of internal and external reference pricing since 1989. The basket of
countries used for external reference pricing includes: Austria, Belgium, Czech Republic, Denmark,
Finland, France, Greece, Ireland, Italy, Netherlands, Portugal, Slovakia, Spain, Sweden and the UK.
While external reference pricing does not apply to all medicines, the scheme has been criticised for
including countries within its reference basket that have introduced austerity measures to reduce
drug prices, such as Greece, which effectively reduces prices in Germany. As Germany is widely used
as a reference country, the result is a knock-on effect on prices in other countries.
While there have been various moves to exclude some or all patented products from reference
pricing, these have generally not been successful and an increasing number of drugs are now subject
to reference prices. Generics can be included alongside patented products when determining
reference prices, in so-called ‘jumbo groups’.
Under the system, prices of generics are essentially set by the market, and any generic drug which
rises in price too much will fall foul both of competitors and of the reference pricing system itself. The
branded industry in Germany tends to claim that the inclusion of generic drugs in the reference price
system leads to higher generic prices, but this appears doubtful. German generic prices are not
notably higher than elsewhere in Europe, although it must be admitted they are generally higher
than in the UK. However, price competition among generic manufacturers is growing.
Generic Substitution Policies

Generic substitution by pharmacists is allowed in Germany, but is not required by law. Equally,
physicians are not required by law to prescribe by INN, unlike the UK. However, physicians are
generally happy to prescribe generics.
Pressure to substitute comes from the reimbursement system. For example, where a physician has
prescribed a more expensive branded drug, the pharmacist should inform the patient of the cheaper
alternatives; the patient will have to pay the difference if he/she does not wish to take the generic.
Pharmaceutical Discount Contracts

Rules introduced in April 2007 allow German health insurers to negotiate drug price contracts directly
with manufacturers. The Allgemeinen Ortskrankenkassen (AOK) is the largest of these, with 18.2
million members and a further seven million dependants. It has moved to negotiate discount
contracts (Rabattverträge).

152 July 2014
In November 2007, the AOK announced the first agreement with 23 companies to cover two years
and this has since been expanded. For 2009/10, the AOK signed contracts with 58 companies by
November 2008, dealing with 44 out of a total of 64 generic products. These contracts again lasted
two years, beginning in March 2009. According to the AOK, the 64 products in the 2009/10 round
had sales of EUR 2.3 billion in 2007. The tendering process was a Europe-wide one, for the first time.
On June 1, 2013, the tenth and the eleventh instalments of the AOK discount agreements for a total
of 91 active ingredients and combinations entered into force. The two tranches include a sales
volume of EUR1.9 billion on the basis of pharmacy sales price and replace the contract that expired
on May 31, 2013. As of June 2013, AOK nationwide discount agreements for more than 230 active
ingredients were in force.
The 13th instalment contract runs from October 1, 2014 to September 30, 2016 and replaces contract
expiring from tranches eight and nine. According to the lead AOK, Baden-Württemberg, 504
contracts for 56 drugs and drug combinations have been concluded with 27 pharmaceutical
companies.
Not all manufacturers are involved in every state (Länder); the system is organised on a provincial
basis. Likewise, the drugs covered under the arrangements vary from Länder to Länder. The system
of contracts has not been universally welcomed by generic companies, which have argued that it
limits competition by favouring a set number of companies. Nevertheless, most have been keen to
negotiate such deals with the AOK and other insurers.
A regional database of participating manufacturers and products is maintained by the AOK at

http://www.aok-gesundheitspartner.de/bundesverband/arzneimittel/rabatt/index.html.
VAT
Pharmaceuticals are subject to VAT in Germany at the same rate as other commodities, currently 19%.
Reimbursement
Reimbursement has proved every bit as controversial as pricing in Germany, and arguments between
the government, manufacturers and insurers are common. Germany operates both a positive list and
a negative list for reimbursement. There has been a trend towards greater restrictions on what can
be reimbursed, as well as greater patient co-payments. Drugs that are considered to be inefficient
can be added to the negative list and not reimbursed. In addition, drugs for trivial illnesses are legally
excluded from the insurance benefits package for adults over 18 years of age.
The G-BA guidelines allow for the reimbursement of OTC medications only if they are indicated for
chronic conditions. Products that the health insurance funds must reimburse include: paracetamol
for chronic pain; antihistamines for emergency allergic reactions; gingko extracts for dementia;
metixhydrochloride for Parkinson's disease; and vitamin K for people who cannot maintain normal
levels though diet alone.
Reimbursement is operated by the Krankenkassen (GKV), the various health insurers. There are a
large number of these, serving particular regions and industries. The largest is the AOK, which covers
23.7 million people and has a market share of 34.2%.

July 2014 153
Patient co-payments
Prescription medicines for adults aged over 18 are usually subject to patient co-payment charges
amounting to ten per cent of the cost of the medication, subject to a minimum payment of EUR5 and
a maximum payment of EUR10. However, Germany operates a two-tier reference pricing system,
whereby prescription drugs that are priced at 30% or more below the appropriate reference price are
free from patient co-payments for people covered by the statutory public health insurance system.
The list of more than 5,000 medicines for which no co-payment is necessary is regularly updated and
is available from the AOK website: http://www.aok-
gesundheitspartner.de/bund/arzneimittel/zuzahlungen/index_02634.html
GREECE
Pricing
Greece has historically failed to tackle irrational consumption and has been slow to adopt non-
branded generic drugs, which were quickly identified elsewhere in Europe as an area of cost savings.
The Greek government has, over the last few years, introduced measures to reduce pharmaceutical
expenditure dramatically, mandating a revenue tax on the industry to shore up differences in
budgeted and actual spend, and reducing drug prices across the board.
Greece's ongoing discussions with its creditors have drawn attention to its relatively high
pharmaceutical spending per capita. A cut in public spending on drugs is among the conditions
attached to Greece’s bailout, supported by EUR240 billion (US$331 billion) in loans from the euro-area
member states and the International Monetary Fund. The former health minister, Adonis Georgiades,
stated, during an interview with Bloomberg in March 2014, that drug prices would see semi-annual
declines in 2014 to spur reductions in pharmaceutical expenditure, without risking a decline in
volumes.
Pricing Regime Developments

In January 2014, the Greek government adopted a new pricing amendment to keep the country's
drug spending within EUR2 billion (US$2.72 billion) in 2014. The new regulation sets limits on the
costs of prescribing for each doctor affiliated with the Greek National Organisation for Healthcare
Provision (EOPYY), the body responsible for reimbursement. Under the new rules, the monthly cost
of all prescriptions for each physician should not be more than 80% of the average monthly
expenditure during 2013. The regulation also calls for the EOPYY to set up a new committee to
monitor pharmaceutical spending.
In December 2013, the Greek parliament approved legislation aiming to reduce the prices of dozens
of state-subsidised medicines. The legislation was introduced by Georgiadis and approved by a
margin of 164-72. However, the country's main opposition party, Coalition of the Radical Left
(SYRIZA), vehemently opposed the bill, as it felt it would not lower the prices of more expensive drugs
and would damage Greek pharmaceutical companies, while benefiting big pharmaceutical
companies.
Georgiadis introduced new pricing regulations for medicines in Parliament in November 2013. One
amendment would set a maximum price for generics at 65% of the off-patent drug price; however,
originator drugs that face patent expiry would see price cuts of 50%, compounding the price cut seen
by generic firms. At the same time, the health minister also proposed a dynamic pricing system; if
newer generics were introduced to the market, they would be mandated to institute a 10% price cut
over the prevailing generic drug price. The impact of this would be to eventually domino a reduction
in pharmaceutical expenditure as more producers entered the market.

154 July 2014
If this amendment were to become law, generic drug prices would fall to 32.5% of the patented drug
price; accounting for claw-back, rebates and the dynamic pricing mechanism, generic drug prices
could fall to as low as 25% of the original, on-patent drug price. To Greek drug manufacturers this is
unacceptable, as it would not cover the costs of production; product withdrawals or a refocus
towards exports will follow, according to industry representatives, adding even further to the drug
shortages witnessed throughout Greece during 2013.
Reference Price System

Greece has operated a reference price system for some years, under Article 13 of Law 3408/05.
Initially, two of the reference countries had to be from Western European (EU members prior to 2004
or Switzerland), while the third was selected from the Eastern European countries that joined the EU
in 2004. The price system was amended in August 2009, to take into account costs of importing and
compulsory discounting. Where a product was not marketed elsewhere in the EU, the price was
determined by looking at the cost of production, and then adding an 8.5% net profit margin.
In September 2010, a simplified reference price system came into force, under which a product is
priced at the average of the three lowest prices within the EU. This change in pricing, which was
designed to save EUR1.2 billion (US$1.7 billion) annually, led to average price cuts of 20%. The new
system replaced temporary price cuts that had been enforced in May 2010.
The revised drug price list, published by the General Secretariat of Commerce, included a total of
7,154 products, of which 324 were new drugs. While the new system resulted in lower prices for the
majority of medicines, 1,370 products increased in price and 613 remained the same.
To obtain a price for a new medicinal product, pharmaceutical companies must submit an application
to the Directorate of Medicinal Products Prices within the Ministry of Development (YPAN). The
application must include details of the package (form, pack size, strength) and the prices of the
product in relevant European countries. The Directorate of Medicinal Products Prices then calculates
the wholesale price, from which the hospital and retail prices are calculated using the applicable
margins. Prices become effective when they are published in the Price Bulletin.
The prices of new pharmaceuticals are reviewed annually and adjusted accordingly for the first four
years after a price has been set. This review period can be extended in certain circumstances.
Wholesale and Retail Margins

Margins for wholesalers and retailers are determined by the government. Wholesale prices are set at
the ex-manufacturer price plus 8%. The retailer's margin is set at the wholesale price plus 35%. For
drugs sold to hospitals, the price is set at the wholesale price minus 13%. Manufacturers, importers
and wholesalers are required to provide a discount of 4% when supplying pharmacies in remote
areas.
VAT
VAT is applicable to pharmaceuticals at a reduced rate, currently 13% according to VATlive
(www.vatlive.com). The standard rate for VAT in Greece is 23%.
Reimbursement
Reimbursement developments have resulted in Greece periodically adopting both positive and
negative lists.
In December 2012, a negative list was implemented, containing several hundred pharmaceutical
products that are no longer eligible for reimbursement, including some prescription products. This
list was introduced as part of the government’s cost-containment measures.

July 2014 155
In October 2013, the MoH published its positive drug reimbursement list, which entered into effect
on October 10. The pharmaceutical sector in Greece was led to believe that, with pharmaceutical
expenditure under control, the positive reimbursement list would be updated to include new
medicines that had entered the Greek pharmaceutical market. Indeed, for the first five months of the
year, the pharmaceutical expenditure of the National Organisation for Healthcare Provision (EOPYY),
posted a small deficit of EUR50 million (US$65.5 million), suggesting that a hard target of EUR2.44
billion (US$3.20 billion) would be achievable for the full year. The trade body Hellenic Association of
Pharmaceutical Companies (SFEE) wrote in June 2013 that, having enabled the government to meet
its targets the MoH should speed up reimbursement of new medicines, presumably as a favour for
the industry's cooperation with the state.
The new positive reimbursement list therefore came as a surprise, as the list included no new
innovative drugs, despite some new drugs undergoing pricing consideration by the MoH in August.
In fact, no innovative medicine has been added to the positive reimbursement list for almost three
years, despite Greece's significant chronic disease burden and its increased incidence of cancers. The
ministry stated that a supplementary positive list would be published that would evaluate the
innovative drugs for reimbursement. The new list covers some 7,600 products - including 1,223 new
generics which are now automatically included in the positive reimbursement list upon approval of
their prices.
The previous positive reimbursement list came into effect on January 1 2012. Pharmaceuticals are
classified into therapeutic categories based on ATC classification. The average price of the
pharmaceuticals in each of these therapeutic categories is then used as the reference price and the
maximum reimbursement price paid by the social security funds for a medicine in that category. Each
therapeutic category can include innovative medicines, as well as generic or off-patent medicines. As
of July 2013, 100 original drugs had been added to the positive reimbursement list.
Social Insurance and Reimbursement Categories

Around 99% of the population is covered by some sort of medical insurance, and around 90% are
covered by the three largest schemes: IKA, OGA and TEVE. These social insurance funds are
controlled and managed by the Ministry of Labour and Social Protection, apart from the fund for civil
servants, which falls under the jurisdiction of the Ministry of Economy and Finance.
• IKA (Institute of Social Insurance) - covers 50% of the population, mainly in urban areas.
• OGA (Organisation of Agricultural Insurance) - covers 25% of the population, mainly in rural
areas.
• Civil servants - covers 7% of the population.
• TEVE (Fund for Merchants, Manufacturers and Small Businessmen) - covers 13% of the
population, who are merchants, manufacturers and shop-owners.
• Utilities and banks - covers 2.5% of the population, those working in telecommunications,
electricity and banking.
There are three reimbursement rates:
• 100% - applies to drugs to treat cancer, epilepsy, depression, multiple sclerosis, growth
hormone deficiency, insulin products for diabetics and drugs used in pregnancy.
• 90% - applies to chronic conditions such as osteoporosis, Parkinson's disease, Crohn's
disease, coronary heart disease, hepatic cirrhosis, etc. The rate also applies to low-income
pensioners who receive a supplementary cash benefit for all categories of pharmaceuticals.
• 75% - standard rate of reimbursement, applies to the majority of pharmaceutical products.
OTC pharmaceuticals and prescription-only medicines for some minor indications are excluded from
reimbursement.

156 July 2014
The task of deciding which drug falls into each reimbursement category falls to EDAF, a sub-
committee of the EOF. This was established in 2006, at the same time as the introduction of the
reimbursement system. EDAF groups medicines based on criteria such as therapeutic value,
pharmacoeconomics, cost of daily treatment, safety and budget impact. All new medicines are
categorised into a cluster within 30 days of marketing authorisation.
The rebate value of a pharmaceutical is calculated by EDAF on a product-by-product basis. For each
cluster, a rebate price is calculated as the difference between the retail price of a medicine and the
reference price, weighted to account for wholesaler and pharmacist margins. Rebate prices are also
published in the Price Bulletin. Therefore, social insurance funds are charged for the retail price of
pharmaceuticals, and subsequently claim the rebate price back from the pharmaceutical companies.
Patient Co-payments
As of January 2014 the cost of a prescription has risen by one euro for Greeks insured with the
National Organisation for Healthcare Provision (EOPYY), reports ekathimerini. A Health Ministry
directive stated the new measure did not apply to those suffering from long-term illnesses.
In October 2013, it was revealed that the Greek health ministry's decision, whereby patients pay the
difference between the lowest EU price and the maximum reimbursement amount, had increased the
prices of drugs amid challenging economic conditions in the country. Around 80% of drugs had
become more expensive since the introduction of this regulation, with the number expected to
increase further in the coming months. Drug prices had risen by more than 24% since March 2013,
compared with a 12% price rise in January 2012 and a 10% increase in 2009.
IRELAND
Pricing
Although Ireland successfully exited its EUR85 billion (US$117 billion) bailout with the EU/IMF in
December 2013, BMI sees little reason to believe the governing Fine Gael/Labour coalition will turn its
back on austerity. This poses a downside risk to drug companies operating in Ireland - particularly as
the success of implemented austerity measures targeting the pharmaceuticals and healthcare sector
will further encourage the government to target the sector and deliver cost savings.
In November 2013 Istvan Szekeley, the head of the European Commission's troika mission, told the
Irish government that the cost of medicines in the country - at three times higher than in the UK - was
unjustified. Members of the mission from the EU, the European Central Bank and the International
Monetary Fund, met in Dublin to discuss Ireland's financial situation. Szekeley further warned that
the situation on pharmaceutical prices in Ireland was not sustainable.
Reference Pricing and Generic Substitution

Ireland operates a reference price scheme for pharmaceuticals. The wholesale price of a medicine
must not exceed the average wholesale price in nine other European countries. These are Austria,
Belgium, Denmark, Finland, France, Germany, Netherlands, Spain and the UK. If a drug is not available
in these markets, the price will be set by negotiation between the manufacturer and the HSE. All
drugs supplied to the General Medical Services (GMS) scheme are subject to a rebate to the
government, equal to 3.53% of the wholesale price.
Under the Health (Pricing and Supply of Medical Goods) Bill 2012, pharmacists are permitted to
substitute prescribed brands with less expensive generic versions that have been deemed
interchangeable by the Irish Medicines Board. Previously, if a medicine was prescribed by brand, the
pharmacist was obliged to supply that particular brand.

July 2014 157
The reference price is a common reimbursement price for a group of interchangeable products. If a
patient would like to receive a particular brand that costs more than the reference price, then the
patient will have to pay the additional cost of that product. In cases where substitution is prohibited
for clinical reasons, patients will not face any additional costs if the prescribed product costs more
than the reference price.
The new scheme is designed to promote price competition and reduce medicine prices.
Wholesale Margins
Wholesale margins are supposed to be set at 15% of the manufacturer's price, although confusion
over the application of this in the past has led to the margin often being applied as 15% of the
wholesale price, equivalent to 17.7% of the manufacturer price. Wholesalers often do not add this
mark-up in full, however, effectively offering a discount to pharmacies.
Reimbursement
The Health (Pricing and Supply of Medical Goods) Bill 2012 allows for the establishment and
maintenance, by the HSE, of a reimbursement list. This list will include all medicines and other items
provided by the HSE under the General Medical Services Scheme or Drug Payment Scheme. The Bill
provides for the list to be reviewed by the HSE within three years (or five years if the Minister permits
it). The HSE may also review a listed item at any time in accordance with the legislation.
In addition, the HSE is allowed to attach conditions to the supply or reimbursement of items included
on the list “in the interests of various factors, such as, patient safety and cost-effectiveness”.
New medicines usually become reimbursable under the Community Drug Schemes within 60 days of
the application for reimbursement. Acceptance is not automatic, however; the HSE retains the right
to subject a new medicine to pharmacoeconomic assessment. The process is supposed to take no
longer than 90 days, and is subject to appeal by the applicant should a drug be refused
reimbursement.
Reimbursement for the over 70s was more or less automatic between 2001 and 2009, but a means
test has now been introduced in an attempt to slow consumption.
HSE Primary Care Reimbursement Service (PCRS)

The HSE Primary Care Reimbursement Service (PCRS) is part of the HSE. The PCRS processes
payments to providers of free or reduced cost health services to the public in Ireland, including GPs,
dentists, pharmacists and others. Almost all payments for health services provided in the community
are made by the PCRS. There are various reimbursement schemes in operation in Ireland. The
following are particularly relevant to pharmaceuticals:
• General Medical Services (GMS). Anyone who is unable without undue hardship to
arrange general practitioner medical and surgical services for themselves and their
dependents and everyone aged 70 years and over receive free GMS, including medicines
supplied under the scheme and provided through retail pharmacies.
• Drugs Payment Scheme (DPS). Under the DPS, persons who are ordinarily resident in
Ireland and who do not have a current medical card can benefit. An individual or family has
now to pay no more than the monthly threshold amount in a calendar month for approved
drugs, medicines and appliances for themselves or their family.
• Long Term Illness Scheme (LTI). On approval by the HSE, people who suffer from one or
more of a schedule of illnesses are entitled to obtain necessary drugs/medicines and/or
appliances under the LTI Scheme, without charge, irrespective of income.

158 July 2014
Reimbursement Policies Create Drug Shortages

A medicines supply agreement signed between the Irish government and the IPHA in October 2012
was expected to prevent medicine shortages in the country. The Health (Pricing and Supply of
Medical Goods) Act 2013 passed through both Houses of the Oireachtas in May 2013. Previously,
when a specific brand of medicine was prescribed for a patient, a pharmacist could only supply that
particular brand, even when a cheaper generic version was available. The new legislation allows
pharmacists to substitute medicines that have been designated as interchangeable by the IMB.
In July 2013, it was reported by pharmacies that the shortages had grown worse over the previous 12
months. Pharmacies requested the government to intervene to ensure that patients got the drugs
they needed. According to the Irish Pharmacy Union (IPU):
• 98% of pharmacists had noticed drug shortages in the last year;

• 91% of pharmacists stated that the shortages had got worse in the last year;
• 93% of pharmacists expected the shortages to worsen over the coming 12 months;
• 44% of pharmacists believed that patients' health outcomes had been harmed by the
shortages; and
• Pharmacy staff spent an average of eight hours each month working to resolve the
problems caused by shortages.
Under the Health Services (Drug Payment Scheme) Regulations 2012, a prescription charge of
EUR1.50 is payable for each prescribed item dispensed to medical card holders. No person or family is
required to pay more than EUR 19.50 per month.
Prescription charges do not apply to:
• Children in the care of the HSE who have their own medical card. This includes children in
residential care, foster care, foster care with relatives and other care placements;
• The Long Term Illness Scheme;
• The Drugs Payment Scheme;
• Persons who receive services under the Health (Amendment) Act 1996; or
• Methadone supplied to patients participating in the Methadone Treatment Scheme.
ITALY
In Italy, pricing and reimbursement is primarily determined at national level with decisions published
in the official journal (Gazetta ufficiale). The regions are responsible for implementing pricing and
reimbursement decisions and retain the right to impose patient co-payments, with the result that the
cost to patients of the same drug can vary from region to region.
Pricing
The prices of drugs reimbursed by the SSN, under Class A, are regulated. Non-reimbursed drugs,
under Class C, have free pricing. However, Class C drugs are monitored by the Inter-ministerial
Economic Planning Committee (CIPE - Comitato Interministeriale per la Programmazione Economica)
and the Ministry of Health.

July 2014 159
Since January 1 2004, prices of drugs reimbursed by the SSN have been established through
negotiation between AIFA and pharmaceutical companies in accordance with Law no. 326 of
November 2003 and the CIPE resolution of February 1 2001. Prices are negotiated by the Pricing &
Reimbursement Commission (CPR - Comitato Prezzi e Rimborso), which represents AIFA, CIPE, the
regions and the Ministry of Industry. Pricing decisions take into account the following criteria:
• Potential sales and financial impact on the national health system;

• Prices in other countries;
• Daily treatment costs in comparison to similar products;
• Cost/efficacy rate compared to alternative treatments;
• Therapeutic value; and
• Degree of innovation.
The Technical & Scientific Commission (CTS) and AIFA's Administration Council further evaluate the
results to establish the drug reimbursement classification and price. Innovative drugs are rated
according to the severity of the condition they address and the efficacy of existing treatments. There
are three categories of severity:
i) Life-threatening conditions e.g. cancer and AIDS drugs;

ii) Other serious illnesses (e.g. hypertension, obesity); and
iii) Non-serious diseases.
Where effective treatments already exist, new drugs are assessed to see whether they provide
additional benefits such as enhanced safety or a new method of action. Products are then rated
according to whether they offer a major, moderate or minor therapeutic innovation.
Reimbursement
Since July 2004, AIFA has been the national authority responsible for reimbursement, taking over the
responsibilities of the former Italian Drug Committee (CUF). Under the National Pharmaceutical
Formulary (PFN - Prontuario Farmaceutico Nazionale) enforced in July 2005, Class A medicines are
reimbursed (regime di rimborsabilita) and Class C medicines are not reimbursed. In addition AIFA can
impose restrictions on certain products or product groups.
Class A medicines are subdivided into Class A and Class A-H. Class A comprises essential drugs and
drugs for chronic diseases, which are 100% reimbursed by SSN. These drugs are distributed in
pharmacies. Some drugs can form part of the Territorial Hospital Formulary (PHT - Prontuario
Ospedale-Territorio) so they can be distributed via public establishments or normal pharmacies.
Some Class A drugs are prescribed for only some of the clinical indications for which the drug is
authorised.
Class A-H comprises drugs exclusively used in hospitals; these are also 100% reimbursed. These drugs
are known as OSP drugs, due to their 'hospital nature'. Some drugs under Class A-H can be classified
as OSP 1 or OSP 2. OSP 1 drugs are prescription drugs used exclusively in hospitals or during day-
hospital visits. OSP 2 drugs are prescription drugs used in hospitals, during day-hospital visits or
outside of hospitals, depending on regional or provincial regulations.
Class C drugs are not reimbursed so patients need to pay for them, unless they receive a life war
pension, under Law No. 203/2000. Under Law No. 311/2004, this category is sub-divided in to three
main groups, including Class C prescription medicines, Class SOP (Senza Obbligo di Prescrizione
Medica), which are non-prescription medicines that cannot be advertised, and Class OTC (Over-The-
Counter) non-prescription medicines used for minor ailments and can be advertised.
In 2010, gross spending on reimbursable pharmaceuticals, including co-payments and pharmacy

discounts, was EUR 12,985 million (US$17,221 million), representing 49.8% of total pharmaceutical
spending. Hospital pharmaceutical spending amounted to EUR 7,015 million (US$9,304 million),
equivalent to 26.9% of the total.

160 July 2014
Expenditure Capping and Payback

The level of Italy’s national pharmaceutical expenditure has been capped and a payback system is in
operation. In 2013, the territorial spending could not exceed 11.35% of the national health fund and
3.5% of hospital spending. If these limits were exceeded, pharmaceutical companies and/or regions
wouldfarma have to repay an amount equal to the excess of verified expenditure.
Tendering System
A tendering system was initially proposed as part of Italy's austerity budget measures in June 2010.
The government’s aim was to boost the consumption of generic medicines through the introduction
of a new tendering system for reimbursable off-patent medicines. AIFA was to choose four
equivalent drugs with the same active ingredient through a tender process. Only those four drugs
were to be fully reimbursed and patients choosing other drugs would have to pay the price difference
between their preferred choice and the products selected in the tender process. Later that month,
the Italian Health Minister announced that in response to criticism of the tender system, it had
decided to scrap its plans.
However, in a U-turn, in late 2013, the Italian government announced that it was looking to
implement a new tendering system for medicines. However, there are concerns that, while the
government's focus on the increased consumption of low-value generic drugs over high-value
patented drugs is a step in the right direction with regard to containing drug expenditure, a
tendering system applied in the retail sector, combined with the delays in payments by hospitals and
the pay-back mechanism currently in place in Italy represent a very serious risk to the domestic
generic medicines industry, which currently provides 10,000 direct jobs.
Additionally, according to the PhRMA submission to the 2013 Special 301 report by the US Trade
Representative (USTR), several regions and local health authorities in Italy are already organising
tenders in which they group together patented and off-patent medicines deemed to be in the same
therapeutic group.
Risk Sharing
AIFA has instigated a risk sharing approach to accelerate reimbursement for new drugs, especially
when there is limited data available at launch. The AIFA Oncologic Working Group suggested risk
sharing based on the epidemiological data for the disease, results from submitted clinical trials and
the possibility of clearly defining a subset of the population responsive to treatment. As suggested
by the AIFA's Working Group, a risk-sharing agreement is to be formed between AIFA's Pricing and
Reimbursement Committee and the Marketing Authorisation Holder. Essentially, if the treatment
proved successful it could be reimbursed by SSN, but if the treatment was ineffective, the cost would
be reimbursed by the company. A number of oncology drugs have been included in a risk sharing
scheme including: Tarceva (erlotininb), Sprycel (dasatinib), Nexavar (sorafenib) and Sutent (sunitinib).
Some are 50% reimbursed by the SSN for a fixed time, which varies. For example, Tarceva is 50%
reimbursed for two months/two treatment cycles; Sutent is also 50% reimbursed for two treatment
cycles or three months and Nexavar is 100% reimbursed by the SSN for two months. Subsequently,
the SSN only reimburses treatment for patients who meet agreed response criteria. Treatment is
withdrawn for non-responders.

July 2014 161
NETHERLANDS
Pricing
Drug prices in the Netherlands are governed by the Drug Price Act (WGP), which was introduced in
1996. Under the WGP, the Ministry of Health, Welfare and Sport sets the maximum price for each
pharmaceutical classification, which is reviewed every six months. A pharmaceutical may not be
offered or sold on the Dutch market for more than the maximum price.
From 2012, pharmaceutical prices have not been controlled, although all existing regulations to
control spending on medicines remain in place.
Reference Pricing
The Netherlands operates a reference pricing policy, in which the reference countries are Germany,
Belgium, France and the UK. The official 'list price' for each drug, which is set by the manufacturer,
cannot exceed the average price of that drug in these four countries. Generics are subject to the
same pricing regulations as branded medicines.
In October 2013, the Foundation for Pharmaceutical Statistics (Stichting Farmaceutische Kengetallen,
SFK) asserted that drug prices fell by almost 2% as a result of the WGP. Combining this with the price
cuts on medicines enforced in April 2013, prescription medicine prices fell by 2.4% in 2013 - in line
with the annual 3-4% decline in medicine prices observed in recent years. The prices of originator
medicines fell by 1.7% - pushed down by a decline in the prices of drugs such as GlaxoSmithKline
(GSK)'s Seretide (salmeterol + fluticasone), AstraZeneca's Nexium (esomeprazole) and Seroquel
(quetiapine). Highlighting the downward price pressure on low-value products, in October 2013, the
prices of generic medicines fell by 1.3% - pushed down by a decline in the prices of Novartis's Diovan
(valsartan), UCB's Keppra (levetiracetam) and Merck's Temodar (temozolomide).
A year earlier, in October 2012, prescription medicine prices fell by 1.2% as a result of the WGP.
Combining this with the price cuts of 1.4% enforced in April 2012, prescription medicine prices fell by
2.6% in 2012. In October 2012, the prices of originator medicines fell by 1.9% and the prices of
generic medicines fell by 0.5%.
VAT
Prescription pharmaceuticals are subject to 6% VAT in the Netherlands.
Pharmacy Fees
Pharmacy fees are regulated by the Healthcare Market Regulation Act (WMG), which replaced the
Healthcare Charges Act in October 2006. Under this act, the government sets the maximum rate a
pharmacy may charge for dispensing prescription drugs that are only available in pharmacies (known
as WMG medicines).
The rate is based on the manufacturer's list price for the drug concerned plus a fixed pharmacy fee. In
2011, the maximum fee for the provision of pharmaceuticals was EUR7.50 (US$10.46). In this way,
pharmacists have no financial incentive to dispense expensive drugs. Normally, a prescription will
only cover a maximum of 90 days' supply, although contraceptives can be prescribed for a whole
year. Medicines not covered by the WMG are subject to a pharmacy margin. However, these drugs
only account for a small proportion of pharmacy income.

162 July 2014
Dispensing practitioners are paid on a quarterly basis for each of their insured patients regardless of
the number of prescribed drugs each patient receives, although the rate for patients over 65 is
generally much higher than the rate for younger patients.
Because the dispensing fee is relatively low, pharmacists have compensated by negotiating discounts
from the official list price with the pharmaceutical industry via their wholesaler. Since 1998, the
government has attempted to recover some of these purchase benefits through the introduction of a
claw-back mechanism, which requires pharmacies to pass on a proportion of their purchase benefits
to the health insurers. Set at 3% in 1999, the government has sought to progressively increase the
level of discount pharmacies are required to pass on to health insurers. In 2011, the claw-back was
6.8% of the list price, up to EUR6.80 (US$8.47) per prescription dispensed.
The legal basis for the claw-back disappeared in 2012 under the uncontrolled prices regime. From
January 1 2012, a new treatment-related pricing system applies to pharmacies. The prices for the
services of pharmacies and dispensing GPs are no longer centrally fixed and are freely negotiable. In
practice, however, the majority of insurers’ contracts maintained the claw-back scheme.
Reimbursement
The Medications Reimbursement System (GVS) was introduced in July 1991. Under the system, the
Ministry of Health determines whether and to what extent a drug is reimbursed. Medicines deemed
therapeutically equivalent are grouped into clusters and a reimbursement limit set for each cluster.
Where this price limit is exceeded, the patient is responsible for paying the additional costs.
The majority of prescription medicines available in the Netherlands are reimbursed under the
statutorily insured drug package. Drugs not included on the general list are either not reimbursed or
only reimbursed under certain conditions. Medicines excluded from reimbursement under the basic
health insurance include oral contraceptives for women aged 21 or older, sleeping pills and sedatives,
erectile dysfunction medicines, topical contraceptives, travel prophylactics, such as malaria
medication and typhoid vaccines, and viral vaccines, such as ‘flu and yellow fever.
In January 2014, SFK reported pharmacists’ concerns towards changes to basic health insurance in
2014. Changes include an increase in the excess for basic packages of pharmaceutical care to EUR360
(US$494).
Generic Substitution
The government actively encourages generic substitution by pharmacists. If the physician prescribes
a branded medicine that is no longer protected by patent, generic substitution is automatically
required, without the need to refer to the doctor. In 2011, 63% of prescription medicines dispensed
by pharmacies were generics.
NORWAY
Pricing
The Norwegian Medicines Agency (NoMA) sets the maximum price for all prescription-only
medicines. All suppliers of prescription pharmaceuticals must apply for a maximum price, whether or
not they are seeking reimbursement for the product. The pharmaceutical may only be sold at or
below the maximum price level.
There is no price regulation for OTC products. A selected range of OTCs may be sold in outlets
outside pharmacies, and free pricing is applied at all levels.

July 2014 163

An international reference pricing system has been in use since July 2002 to set maximum prices for
both new and existing pharmaceuticals. The maximum price for a pharmaceutical product is
calculated from an average of the three lowest pharmacy purchase prices (PPP) in nine countries:
Austria, Belgium, Denmark, Finland, Germany, Ireland, Netherlands, Sweden and the UK. If a product
is marketed in fewer than three of the reference countries, the mean price is taken of the countries
where a market price exists. Pack sizes in different countries are not always directly comparable, so
price comparisons are made on the basis of units (price per tablet/dose). Prices in each country must
be converted into Norwegian Kronor, using the mean exchange rate of the last six months, as
presented by the Bank of Norway.
Maximum prices also apply to hospital-only products. Most hospital purchasing is carried out by
means of tender processes through the Norwegian Drug Procurement Co-operation
(Legemiddelinnkjøpssamarbeidet, LIS). Discounts to hospitals are around 28.5% on average.
Generic Pricing System

Norway introduced a stepped-price model (Trinprismodellen) in January 2005 to reduce
pharmaceutical costs, for both the NIS and for patients. Under the scheme, a maximum
reimbursement price is set for both brands and generics, and generic prices cannot exceed the
maximum price of the original brand. The maximum reimbursement price is automatically reduced
step-by-step according to pre-defined rates. The model has been modified three times since its
introduction, with the latest change being implemented in January 2014. NoMA publishes a list of
substances that are included in the system on its website, together with a price list.
The first step takes place when the pharmaceutical loses patent protection and is exposed to generic
competition. The second price-cut is implemented six months after generic competition has
occurred and the third step is applicable 12 months or more after the second step. The maximum
mark-up is added to the reduced PPP. The size of the cuts depends on the annual sales of the product
in the previous 12 months.
• First step – the initial price-cut at the start of generic competition is 35%.
• Second step – six months after generic competition began:
- If sales of the product were less than NOK100 million, the price-cut is 59%;
- If sales of the product were more than NOK100 million, the price-cut is 81%.
• Third step – 12 months after the second step:
- If sales were more than NOK15 million but less than NOK30 million, the price cut is
69%;
- If sales were between NOK30 million and NOK100 million, the price cut is 86%; and
- If sales exceeded NOK100 million, the price cut is 90%.
Pharmacies are obliged to secure the capacity to deliver at least one pharmaceutical product at a
retail price equal to the stepped price. If a medicine is delivered in both small and large packages, the
pharmacy is obliged to deliver both package sizes at a retail price equal to the stepped price.
Wholesalers are obliged to offer pharmacies medicines that enable them to fulfil these obligations.
The stepped price system also applies to parallel traded medicines, which are given the same
maximum price as directly imported medicines. Price notification is not part of the statutory system.

Wholesale mark-ups are not regulated in Norway. The average wholesale margin is between 5% and
7% for patented pharmaceuticals, but for off-patent pharmaceuticals it is often much higher.

164 July 2014
Pharmacy mark-ups are regulated by NoMA. The pharmacy mark-ups are 'maximum' mark-ups and
are applied for all price-regulated pharmaceuticals, including reimbursable and non-reimbursable
products.
The scheme was revised as of January 1 2014. It was made more regressive, by a reduction from 4%
to 3% for products with purchasing prices above NOK200. For products with pharmacy purchasing
prices of less than NOK200, the mark-up is 7%.
At the same time, the fixed mark-up per package was increased from NOK22 to NOK25. Additional
mark-ups for addictive medicines/narcotics remained at NOK10.
The pharmacy margin for prescription only medicines (POM) that are not included in the stepped
pricing model was 15% in 2010. The average pharmacy margin for all POM was 19%.
Pharmacists are permitted to establish their own margins for non-prescription medicines.
Sales Tax and VAT

There is a Medicines Sales Tax of 1.3% of the PPP per pharmaceutical. The fee is applied to all
pharmaceuticals, including OTC products, and is paid by the pharmacies and other outlets selling
OTC products. The fee is collected by the wholesalers, and a small amount is redistributed to the
pharmacies as subsidies. There is also a pharmaceutical fee of 0.6% of the wholesalers' purchasing
price, which is collected from the producers by NoMA.
VAT is payable on pharmaceutical products in Norway at the standard rate of 25%.
Reimbursement
The Norwegian reimbursement system is predominantly based on the type of disease and
pharmaceutical consumption. Whether or not a pharmaceutical is reimbursed is dependent on the
following criteria:
• The illness must be considered serious and chronic, for which long-term medication (more
than three months per year) is necessary;
• Annual consumption - no co-payment above an annual ceiling;
• The type of patient, for example low-income pensioners and children under 16 years are fully
reimbursed.
Pharmaceutical companies apply to NoMA for general reimbursement. A price application may be
submitted at the same time. The allocated time for NoMA to deal with both pricing and
reimbursement is 180 days. If the reimbursement application involves a generic product, a new
strength, formulation or package size, and is no more costly than the relevant reimbursed product,
the procedure is usually swift and NoMA will approve the application. Pharmaceutical products need
to have market authorisation before the company can be granted reimbursement. Reimbursement is
granted by the Norwegian Insurance Scheme (NIS).
While a pharmaceutical can obtain both market authorisation and a maximum price without a
pharmacoeconomic evaluation, one must be conducted for all pharmaceuticals for which an
application for reimbursement is submitted. This has been compulsory since January 2002. However,
a pharmacoeconomic evaluation is not necessary for:
• Pharmaceuticals with the same active ingredient as pharmaceuticals for which

reimbursement has already been granted; and
• Pharmaceuticals where a new formulation does not change the costs and health outcomes
of treatment.

July 2014 165
The reimbursement decision depends strongly on the result of the pharmacoeconomic evaluation of
the product.
NoMA compiles a list of pharmaceuticals eligible for general reimbursement, and updates it at least
once a month. Reimbursement is automatically granted for medicines on the reimbursement list. If a
medicine is not on the reimbursement list, the patient must apply to the Norwegian Labour and
Welfare Administration for individual reimbursement. The Norwegian Labour and Welfare
Administration receives around 60,000 individual applications every year. It is not a prerequisite that
the product has obtained a market authorisation for individual reimbursement.
There are four categories of reimbursement:
• Schedule 2 - For pharmaceuticals on the general reimbursement list, which are reimbursed in
the case of the specified diagnoses in the list and only for long-term treatment. More than
90% of reimbursement expenditures arise from Schedule 2.
• Schedule 3a - For pharmaceuticals prescribed to a patient who does not respond to the
pharmaceuticals on the general reimbursement list for their diagnosis. This also applies to
cases where the reimbursable pharmaceutical causes an adverse effect in the patient. This
type of reimbursement is granted upon submission of an individual application and is only
for long-term treatment.
• Schedule 3b - For pharmaceuticals used to treat rare diseases not included in the general
reimbursement list, which are reimbursed through an individual application and only for
long-term treatment.
• Schedule 4 - For pharmaceuticals used to treat serious communicable diseases such as
tuberculosis and syphilis. Vaccines against communicable diseases are also reimbursed.
Long-term treatment is not a prerequisite for Schedule 4.
For Schedule 2 and Schedules 3a and 3b, the reimbursement rate is 64%, or 100% for children under
16 years of age, low-income pensioners and patients who have reached the annual co-payment
ceiling. The reimbursement rate for Schedule 4 is 100%.
Individual consumption data is monitored through the Norwegian Prescription Database. This is a
national health register containing information connected to the delivery of all pharmaceuticals from
pharmacies in Norway. The Database was founded in 2004 as part of the Norwegian Institute of
Public Health. The Database is used for pharmaco-epidemiological research and pharmaceutical
statistics.
First-Choice Scheme
For some therapeutically equivalent products a first-choice scheme has been implemented. The
prescriber must prescribe the first-choice product unless there is a medical reason for not doing so.
This ensures the use of the most cost-effective pharmaceutical treatment. The scheme has been
implemented for certain groups of reimbursable pharmaceuticals, including statins, antihistamines,
proton-pump inhibitors and triptans.

166 July 2014
Patient Co-payments
Patient co-payments in Norway are based on a percentage of the product cost, up to an annual
ceiling. In 2011, the patient co-payment was 38% of the total cost of the reimbursed medicine, up to
a maximum of NOK520 (US$91) per prescription. The annual ceiling was NOK1,880 (US$328).
The annual ceiling rate applies to all ambulatory and hospital outpatient treatment, including co-
payments for pharmaceuticals, consultations with a doctor, X-ray examinations etc. Once this cost
ceiling has been reached, all further expenses are covered by the NIS.
Patients are required to pay the total cost of non-reimbursable medicines and OTC medicines.
Inpatient pharmaceuticals are covered by the public hospitals.
PORTUGAL
The EUR78 billion (US$116 billion) EU/IMF economic bailout for Portugal targets drug pricing and
reimbursement. The EC's fourth review of Portugal's Economic Adjustment Programme, published in
June 2012, reported that many changes to pricing had been implemented, including:
• A maximum price for the first generic drug launched of 50% of the retail price of its branded
equivalent;
• An automatic reduction of a branded drug's price once its patent expires (which came into
force fully by end-2012);
• A 20% average price reduction for generic drugs from May 1 2012;
• The enforcement of prescribing by international non-proprietary names;
• Changes to drug procurement through the newly created Central Purchasing Authority; and
• Legislation regarding the calculation of wholesalers' and pharmacists' profit margins.
With these and other measures outlined in the report, the IMF/EU aimed to reduce public spending
on pharmaceuticals to 1% of GDP by 2013. In its seventh review, published in June 2013, the IMF and
EU reported that Portugal had met its 2012 target of public spending on pharmaceuticals to
represent 1.25% of GDP. Industry association, Apifarma objected to this goal, not least because this
target was below the European average of 1.28% of GDP.
Pricing
In September 2010, the government approved a Decree-Law for the implementation of measures
that aimed at rationalising National Health Service (SNS) drug consumption and increasing the
efficiency of SNS drug policies. These measures included the reduction of drug prices by 6%, which
represented an additional reduction to the 7% cut introduced in June 2010; the development of
electronic prescription, being fully enforceable from March 1 2011; and the introduction of two main
changes to the reimbursement system. The National Authority of Medicines and Health Products,
INFARMED is responsible for setting reference groups and prices, which are updated quarterly.

July 2014 167
Previously, the body responsible for the pricing of patented products was the Directorate General for
Trade and Competition (DGCC), which is part of the Ministry of Finance. However, one of the
requirements of the IMF/EU's economic bailout package was that this responsibility be transferred to
the Ministry of Health. On August 1 2012, the government approved this transition, and under
Decree Law 152/2012 INFARMED is now in charge of the price of all prescription medicines.

Under Regulation No. 29/90, the initial manufacturers'/importers' maximum selling prices (PVA) are
strictly based on the lowest ex-factory price of identical or similar medicines containing the same
active ingredient in three reference countries as per changes to legislation in 2011. Under a change
introduced in March 2013, the reference countries are France, Slovakia and Spain. Prices are not
permitted to be higher than the average levels in these countries.
Since the change of reference countries and as part of the terms of the IMF/EU's financial rescue
package, the reference countries will be reviewed annually to ensure that they have comparable GDP
per capita levels and the lowest price levels.
Depending on whether the comparator product is marketed in all or some of reference countries, the
following rules apply:
- If identical or similar medicines exist in only one of the three countries, the lowest PVA at
launch in that country is applied for identical or similar medicines.
- If identical or similar medicines can be found in two or more countries of reference, the
lowest PVA at launch in the countries of reference for identical or similar medicines is used. If
there is more than a 30% difference between the lowest PVA and the average PVA in the two
lowest-priced countries, then the Portuguese PVA is the sum of the lowest PVA plus one-
third of the average of the two lowest PVAs.
- If the identical product does not exist in Spain, France or Slovakia, but there is such a product
on the Portuguese market, the price of the new product is equal to the highest PVP (public or
retail price) of the similar product in Portugal at the time of the pricing decision.
- If an identical or similar product can be found only in the country of origin, the government
uses the PVA at the launch of product in that country. In this case, the price is to be
reassessed annually. If an identical or similar product were subsequently introduced in any
of the three reference countries, then the Portuguese launch price would be revised to
converge towards this price (upwards or downwards - in annual increases or decreases of
10%). For example, if the price in Portugal was set at EUR1,000 (US$1,280) and the product
was subsequently launched in Spain at EUR700 (US$900), the Portuguese price would
become EUR900 (US$1,150) at the first annual revision, EUR810 (US$1,040) at the second,
EUR729 (US$930) at the third and EUR700 (US$900) at the fourth revision.

168 July 2014
Once a drug's patent expires, the price of branded drugs automatically drops, as per legislation
introduced in March 2012, which was fully enacted at the end of 2012.
Generics
According to Decree Law 271/2002, prescription by INN is compulsory for medicinal products
containing active substances for which there are authorised generic drugs.
Under a legislative change that formed part of the EU/IMF's recommendations, the maximum price of
the first generic introduced is 50% of its branded equivalent, and on May 1 2012 generic drugs were
subjected to average price cuts of 20%. In addition, the government has introduced a law whereby
the price of branded drugs declines automatically once a patent expires; this was enacted at the end
of 2012.
There is an internal reference pricing system applied to medicines with generic alternatives included
in reimbursement lists. Medicines are clustered in homogeneous groups, which share the same
active substance, pharmaceutical form, strength and route of administration, and include at least one
generic on the market. A reference price for reimbursement is established for each homogeneous
group, based on the average of the five lowest prices on the market. Under Decree Law 103/2013,
when a new generic is added to an existing group, the maximum price must be 5% less than the
lowest priced generic in the group. The list of homogenous groups and reference prices is produced
quarterly.
VAT
VAT rates of 5% are applied to both prescription and OTC pharmaceuticals, compared to a standard
VAT rate of 20%.
Reimbursement
The reimbursement system is based on a positive reimbursement list and is subject to regular review.
Towards the end of 2000, the Ministry of Health requested stricter scientific and economic criteria for
deciding on the reimbursement status of new medicines. The government intended to delist
products that were thought to be of little clinical benefit, since the introduction of new medicines
might have rendered some older products obsolete.
The review process was intended to rationalise the reimbursement list and reduce the drug bill.
Where products were identified as having little clinical benefit, the manufacturer was notified and
given ten days to inform INFARMED of its intention to supply clinical data to support the continued
reimbursement of the product. A period of two years was given to present new data. INFARMED
contacted doctors with an explanation of the review process and assurances that no significant
therapeutic area would be left without suitable reimbursable treatments.

July 2014 169
The government’s September 2010 Decree-Law included cost-containment changes to the

reimbursement system. The new reference price for reimbursement is the average of the cheapest
five medicines in each homogenous group, rather than the generic drug with the highest retail price.
Additionally, the special reimbursement status was reduced from 100% to 95%, and the general A
reimbursement status was reduced to 90%.
Previously, in March 2010, the government passed a Decree-Law that approved the general drug
reimbursement system; changed the rules for the evaluation of drugs that are purchased by SNS
hospitals, therefore updating Decree-Law No. 195/2006; and modified the price system for
prescription and reimbursed non-prescription medicines, therefore updating Decree-Law No.
65/2007 for the second time. In terms of reimbursement, the main measures included;
• In the special reimbursement system, a 100% reimbursement will be given when acquiring
generic medicines with the five lowest retail prices in each homogenous group.
• The price of new reimbursed generic medicines will be 5% lower than the lowest generic
medicine already on the market.
• In the reference price system (SPR), the reimbursement will be for the reference price,
independently of the value of the drug, except when this is lower than the reimbursement
value.
• Legislative and administrative simplification measures would be introduced. The rules to
notify when reimbursement drugs are on sale would also be clarified.
The introduction of the SPR updated the reimbursement system in 2003. Reimbursement of products
with a generic alternative is calculated according to a reference price, previously a percentage of the
drug cost. The government aimed to reduce the reimbursement percentage on generic medicines to
force generic prices down and make generic medicines more competitive. This measure was
designed to lower generic prices, which are still very similar to reference prices.
SPAIN
The MSSSI has overall responsibility for pricing and reimbursement. When a new drug is approved,
the MSSSI’s Dirección General de Farmacia y Productos Sanitarios (DGFPS, or General Directorate of
Pharmacy and Health Products) decides whether to include it in the national reimbursement list.
Reimbursement decisions take place before pricing decisions. The reimbursement decision is based
on health criteria only, whereas pricing decisions are based on economic criteria and are applicable
only to reimbursed products. There are no formal health economic criteria used and the submission
of pharmacoeconomic studies is not mandatory.
Pricing
Prices for prescription only medicines are determined by the Comisión Interministerial de Precios de
los Medicamentos (CIPM, or Inter-Ministerial Pricing Commission), which has representatives from the
ministries of health, finance and industry. The CIPM will consider evaluation reports drawn up by the
AEMPS, as well as reports produced by the Comité de Coste-Efectividad de los Medicamentos y
Productos Sanitarios (Committee for Cost-Effectiveness of Medicines and Health Products ). The
committee comprises experts appointed by the Consejo Interterritorial del Sistema Nacional de Salud
(Inter-territorial Health Council) at the proposal of the autonomous communities and the MSSSI.
The MSSSI has the final decision making power and may establish a time period for which a
reimbursement price is valid. Prices may be revised for technical, budgetary or health-related issues,
although there are no formal post-launch price reviews.

170 July 2014
Manufacturers receive a preliminary decision regarding the CIPM's proposed price. If they disagree,
manufacturers can appeal before a final decision is released. If the drug is not going to be
reimbursed, the manufacturer is able to set a price and launch it as a non-reimbursed product.
Reference pricing
Spain has both external and internal reference pricing systems in operation. International reference
pricing is focused on France, Italy and Portugal. All drug prices existing in the EU, not only the
average drug price, will be considered when establishing drug prices. Under Royal Decree Law No.
16/2012, reference prices are reviewed every three months.
In late March 2014, the Spanish government announced that a new reference price group of
medicines could be created when medicines have been authorised for sale on the Spanish
pharmaceutical market or in another EU country, for at least ten years. The calculation of the
reference price of each group will be based on the lowest 'daily/treatment/cost' of the included
formulations. This calculation will be based on the daily-defined dose (DDD) and the number of daily
doses contained within each formulation. The new reference pricing system aims to generate savings
of EUR400 million (US$552 million) and is expected to affect 14,500 formulations of medicines.
For the first time, the formation of reference groups does not need to include a generic medicine,
thereby placing downward price pressures on patented or originator medicines even before the
availability of lower priced generic copies. Additionally, BMI believes that the decision to create a
reference group based on the length of the sale of a medicine in another EU market will work to
exacerbate the impact of price cuts that have been enforced on medicines in neighbouring markets.
However, a system for price reduction of products otherwise excluded from the reference system was
already in place. After having been marketed for at least a ten-year period, which is deemed to be the
period that guarantees a recovery of manufacturing costs, medicines that did not have a generic or
biosimilar alternative in Spain and were not included in the reference price system would have their
prices reduced by 15%. Medicines meeting these criteria would be excluded if they were protected
by a patent in all the European member states.
Previously, the internal reference pricing system applied only to off-patent groups of chemically
identical substances. Royal Decree Law No. 9/2011 established modifications to the reference price
system in order to speed up the process of creating new homogeneous drug groups (i.e. drugs with
the same active ingredient) and corresponding reference prices. Therefore, as soon as the first
generic version of a reference drug becomes available, a new group can be included in the public
system. In addition, the possibility of reducing the price of a drug that is included in a group with
reference prices can no longer be done gradually over a two-year period. Instead, the price cut will
have to be immediate, in order to better control pharmaceutical expenditure.
Under Royal Decree Law No. 4/2010, the reference price for each homogenous group of medicaments
was changed, using the cheapest price (cost/treatment/day), and not the average of the three
cheapest prices. Also, the option to gradually reduce costs by over 30% was modified. Until then,
drug prices could be reduced by minimum increments of 30% per year until reaching the final price
reduction. However, the minimum annual price reduction percentage was fixed at 50%, establishing
a maximum period of two years to reach the final price reduction.
Manufacturers receive a preliminary resolution regarding the Interministerial Commission's proposed

price. If they disagree, manufacturers can appeal and a final decision is released through a new
resolution. If such a resolution indicates that the drug is not going to be reimbursed, the
manufacturer is able to launch the product as a non-reimbursed product.

July 2014 171
Regional Variations
While pricing and reimbursement issues are decided nationally, regional governments can add
restrictions or cost-containment measures to the criteria set up by the government. These include
issuing prescription guidance, setting a shadow reimbursement price, giving financial incentives to
doctors and using health inspectors.
The regions are also able to set up managed entry agreements (MEAs), which usually involve price-
volume agreements (PVAs) for new products. An April 2013 EU report on MEAs in Europe suggests
the negotiated price is “conditioned by the expected number of units sold”. However, the final
decision on how to manage the drugs budget of an individual hospital rests with the pharmacist. The
full report is available for download from the EC website
at:http://ec.europa.eu/enterprise/sectors/healthcare/files/docs/mea_report_en.pdf
Drug Price Discounts

In May 2010, the Congress approved Royal Decree Law No. 8/2010 to help reduce the public debt
deficit. Regarding SNS pharmaceutical expenditure, price discounts of 7.5% were imposed on
patented pharmaceuticals financed by the SNS system. As part of this measure, unique dosages,
specific for each treatment, were established. With this measure, the government estimated total
savings of EUR 1,300.0 million (US$1,803.7 million) between 2010 and 2011; EUR 275.0 million (US$
381.6 million) in 2010 and EUR 1,025.0 million (US$1,422.2 million) in 2011. In fact, SNS
pharmaceutical expenditure fell by 2.4% in 2010.
The regulation of discounts offered by distributors and producers to pharmacies due to volume
purchases or early payment was established by Royal Decree Law No. 4/2010. These discounts can be
offered providing that they do not encourage the purchase of one product against products from
other competitors and that they are reflected in the corresponding invoice. These discounts are fixed
at 5% for medicaments financed by SNS, extendable up to 10% in the case of generic medicines. It is
important to note that the average price reduction of 25% for generic medicines is lower than the
average discounts obtained by pharmacies when acquiring generic medicines due to volume
purchases or early payment, at around 40%.
Initially, the government had announced drug price cuts to save EUR 1,300 million (US$1,803.7
million) in SNS pharmaceutical expenditure. However, the government accepted a proposal issued
by Farmaindustria to replace them with drug price discounts. The use of drug price discounts had a
lesser economic impact on the industry than the use of drug price cuts, as it did not affect European
countries that use Spain as a reference country. Also, sales in the private sector were not affected, as
they were only applicable to SNS pharmaceutical sales. Pharmaceutical producers assumed 5% of the
drug price discounts, whilst pharmacies were accountable for a further 2% and wholesalers for the
remaining 0.5%. Nevertheless, this depended on whether drug price discounts were applicable to
prices at manufacturers' or retail prices.
Pharmacy Margins
Royal Decree 823/2008 was modified by Royal Decree Law No. 4/2010. Higher fixed margins were
established for medicaments with the highest prices, those priced at EUR 91.6 (US$127.1) per unit.
The fixed margin was increased by EUR 5.0 (US$6.9) for medicaments priced between EUR 200.0
(US$277.5) and EUR 500.0 (US$693.7), and by EUR 10.0 (US$13.9) for those medicaments priced over
EUR 500 (US$693.7).
The scale of pharmacy payments to the SNS system, based on sales volume, also changed. The
objective was to provide a more equal scale to allow pharmacies with the lowest sales to pay less
money, so that a large number of pharmacies would stop paying and only pharmacies with the
highest sales increased their payments to the SNS system. With this new measure, it is expected that
up to 98% of pharmacies will reduce their payments to the SNS system.

172 July 2014
Under Royal Decree Law No. 9/2011, a compensation system was established for pharmacies located
in sparsely populated, isolated or socially deprived areas. Therefore, a correction index was
established for the retail margin in these pharmacies. With this measure, these pharmacies are
expected to increase their profitability in terms of total sales and will be able to co-operate in several
rational drug use programmes established by the authorities. These compensations will be available
on a monthly basis and reach a maximum of EUR 10,000 (US$13,847) per year. The relevant
administration will determine which pharmacies will be affected, and how compensations will be
processed and managed.
Reimbursement
Royal Decree Law No. 9/2011 amended article 89 of Law 29/2006, setting out revised criteria for
consideration for the inclusion of drugs under the Sistema Nacional de Salud (SNS):
• The severity, duration and consequences of the diseases for which they are indicated;
• The specific needs of certain groups;
• The social and therapeutic value of the drug and its incremental clinical benefit, considering
its cost-effectiveness;
• The rationalisation of public expenditure and the impact it will have on the budget for
pharmaceutical services in the NHS;
• The existence of drugs or other therapeutic alternatives for the same conditions at a lower
price or lower cost of treatment; and
• The degree of innovation of the drug.
Generic prescribing
In Spain, Royal Decree Law 16/2012 revised the previous prescribing rules for drugs and medical
devices provided by the SNS. The prescription of drugs included in the reference price system will, in
general, be by substance; in particular, for acute conditions, and the initial prescription of a treatment
for a chronic condition. Subsequent prescriptions for chronic conditions that represent the continuity
of treatment may be made by trade name, provided the drug is included in the reference price
system and is the lower-priced product within its homogenous group.
Prescription by brand is possible in the case of medicines that are considered to be substitutable,
providing the principle of efficiency in the system is respected. When the prescription is written by
substance, the pharmacist will dispense the lowest priced medication in the homogenous group,
which may be a generic or biosimilar.
Tendering System
In a move to contain pharmaceutical expenditure, in 2013, the Spanish government announced that
it was centralising hospital drug purchasing. Given the success of the national tender for vaccines
organised by the MoH in 2012, the Ministry decided to expand this practice to other drugs and
healthcare products, stating that it expected to save the government EUR400 million (US$525 million)
in 2013.
Managed by the Centralised Purchasing Unit, on the healthcare products side, the tender included
surgical gloves, glucose test strips, incontinence pads and bed soakers. In terms of pharmaceutical
products, two drug classes were put out to tender: anti-TNFs and erythropoietins (EPOs). With
regards to the anti-TNFs the starting price for the tender was set at between 10% and 25% below the
ex-manufacturer list price. With regard to the EPOs, depending on the active ingredient, the starting
price for the tender was set at between 50% to 85% below the ex-manufacturer price list.

July 2014 173
Regional Tenders
In April 2014, Spanish Industry Association Farmaindustria stated that it was launching legal action
against the government of Andalusia. The association was siding with the Spanish generic
manufacturers' association, AESEG, stating that the tender for medicines to be dispensed at
pharmacies that was launched by the local government was a violation of Spanish law, which was
specifically modified in July 2013 to outlaw regional drug tenders. Whereas previous legislation was
unclear, the law approved in July 2013 means that any local measure affecting the price of drugs is
illegal because only the Ministry of Health can modify what the country pays for medicines. The
tender includes 251 active pharmaceutical ingredients and is designed to provide EUR36.6 million
(US$50.5 million) in annual savings.
BMI believes the ongoing attempts by Andalusia to control the availability and price of medicines in
the region stems from the country's historically decentralised approach to healthcare - the public
sector operates through 17 regional autonomous communities. Regional autonomy in
pharmaceutical policy means a range of cost-saving initiatives is in place in the country.
Patient Co-payments
Royal Decree Law 16/2012 revised the co-payment system for SNS patients using outpatient
pharmaceutical services, including pharmacies. Co-payments are based on income level and charges
may be updated annually.
In general, the percentage of user input is as follows:
a) 60% of RRP for users and beneficiaries whose income is more than EUR100,000;
b) 50% of RRP for those who are actively insured and their beneficiaries whose income is more
than EUR18,000 and less than EUR100,000;
c) 40% for people who are actively insured and their beneficiaries who are not included in
paragraphs a) or b) above;
d) 10% of RRP for Social Security pensioners, except those included in paragraph a).
However, the contributions of pensioners who require long-term treatment for chronic illnesses are
capped according to income level. Those whose annual income is less than EUR18,000 will pay a
maximum of EUR8 per month; those whose income is between EUR18,000 and EUR100,000 will pay a
maximum of EUR18 per month; and pensioners whose income is more than EUR100,000 will pay a
maximum of EUR60 per month.
Certain groups of beneficiaries are exempt from co-payments, including the long-term unemployed,
people who are receiving treatment for accidents or occupational diseases, and single women who
receive a non-contributory pension.
SWEDEN
Pricing
The Dental and Pharmaceutical Benefits Agency (TLV) is responsible for pricing and reimbursement
decisions, which are made by an expert board within the agency. There are ten board members and a
chairperson, all appointed by the government for a period of two years.
The Swedish government has set a tight time limit for decisions on reimbursement and pricing in
Sweden; the TLV has to announce its decisions within 120 days. A company has the possibility to
appeal the board's decision to a public administrative court.

174 July 2014
Aside from the TLV, there is at least one Pharmaceutical Committee in each county which produces a
list of medicines recommended as the first choice treatment for a range of common diseases.
The process for setting a price for a pharmaceutical and deciding its reimbursement status is
combined, as the price of the pharmaceutical determines whether it will be reimbursed. A
pharmaceutical company submits an application to the TLV, which decides whether the proposed
price of the pharmaceutical is cost-effective. If the price of a pharmaceutical is considered too high,
the application will be rejected and the pharmaceutical will not be eligible for reimbursement. The
TLV does not negotiate prices with manufacturers.
There are three main reasons why the TLV is eager not to force down the price of a drug:
• It is not possible to efficiently set prices - the TLV believes that it is not possible for a
government agency to efficiently set prices as the pharmaceutical companies will soon learn
to adjust their prices accordingly. The TLV states that if they were to try and always get a 30%
lower price, the companies will compensate by negotiating with a price 30% higher than the
one they want.
• So the market can work as freely as possible - the pharmaceutical market is heavily regulated
and the TLV does not want to regulate it more than necessary. The TLV tries to allow the
market to work as freely as possible by letting the companies set a price and then decide
whether or not they, as taxpayers and patients, would be willing to buy that particular drug.
• To stimulate innovations - if the pharmaceutical industry can rely on the TLV to pay high
prices for drugs that are beneficial to society, they will probably deliver more new drugs for
urgent treatments.
Pharmaceuticals not included in the reimbursement scheme, such as OTCs, may be freely priced by
the manufacturer. The approved price is the wholesale price, which is then subject to a pharmacy
margin. The pharmacy retail margin is decided by the TLV and consists of a flat fee per prescription,
according to the size of the pack, and a fee depending on the price of the pack.
VAT
VAT is 25% in Sweden but is only applicable to OTC medicines, as prescription-only pharmaceuticals
are exempt from tax. No import duty is charged on pharmaceuticals in Sweden.
Reimbursement
The Dental and Pharmaceutical Benefits Agency (TLV), initially set up as the Pharmaceuticals Benefits
Board in 2002, is the independent government agency responsible for deciding whether or not a
drug will be reimbursed under the national pharmaceutical benefits scheme. All prescription drugs
for outpatient care, as well as a few OTC products that are eligible for reimbursement, are evaluated
by the TLV for inclusion on the positive list. The reimbursement scheme does not cover inpatient
pharmaceuticals, since the county councils are solely responsible for the cost of pharmaceuticals in
hospitals.
When deciding a prescription drug's reimbursement status, the TLV evaluates the extent to which the
drug is cost-effective. With regard to direct expense, all costs related to the use of the drug are
evaluated, including those related to physician visits, the cost of the drug itself (at the proposed price)
for a typical course of treatment, any costs related to subsequent healthcare interventions and costs
incurred due to any side-effects the drug induces. The TLV evaluates the direct benefit of the drug in
terms of the number of quality-adjusted life years (QALYs) gained, as well as indirect benefits, such as
the gain in worker productivity due to less sick days taken in the long run.
In order to grant a patient reimbursement, four additional requirements must be met:
1. The medicinal product must be prescribed;

July 2014 175
2. The medicinal product must be intended to prevent, diagnose, alleviate or cure an illness or
a symptom of an illness in humans;
3. The medicinal product must be prescribed by an authorised party; and
4. The prescription must have a prescriber's code.
Certain over-the-counter medicines are included in the high-cost threshold. The same requirements
apply.
There are two main types of reimbursement status for which a medicine may be eligible: general or
restricted. General reimbursement status is usually granted. In principle, the medical reimbursement
system is product-specific, meaning that a medicine is either eligible for general reimbursement for
its entire approved area of use, or not at all.
Restricted reimbursement may be granted to allow a medicine to be included in the high-cost

threshold for a certain area of use or a specific patient group. For example, a medicine may only be
considered cost-effective for a specific group of patients.
Reimbursement Rates
Sweden operates a high-cost threshold for prescription medicines that incrementally reduces the
amount the patient has to pay. The threshold applies to a 12-month period, beginning with the
purchase of the first medicine. The high-cost threshold starts to apply once a patient has spent SEK
1,100 (US$171) on prescription medicines during the 12-month period. When costs exceed this
amount, the following reimbursement rates apply:
• 50% of the amount between SEK 1,101 (US$171) and SEK 2,100 (US$326);
• 75% of the amount between SEK 2,101 (US$326) and SEK 3,300 (US$606);
• 90% of the amount between SEK 3,301 (US$606) and SEK 4,300 (US$668); and
• 100% of the total cost in excess of SEK 4,300 (US$668).
Any amount that is not reimbursed must be paid by the patient in the form of co-payments.
However, there is a maximum cost ceiling of SEK 2,200 (US$342), after which additional prescription
medicines within the 12-month period will be reimbursed in full.
SWITZERLAND
Pricing
The Federal Office of Public Health (FOPH), under the auspices of the Federal Department of Home
Affairs (FDHA) is the final decision making body for the pricing and reimbursement of drugs. The
FOPH also controls social health insurance. The FOPH regulates not only the ex-factory price but also
the distribution margin to be shared between wholesalers and pharmacies in payment for logistic
and capital costs of distribution.
Reference Pricing
Switzerland operates an external reference price system for reimbursable pharmaceuticals, based on
comparable prices in Denmark, Germany, Netherlands and the UK. If there are any large price
discrepancies, or a product is not available in one of the reference countries, then the product price in
France, Italy or Austria is used.

176 July 2014
Under rules introduced in 2010, generic medicine prices are linked to market volumes:
• The ex-factory price of the generic product must be at least 50% lower than the price of the
original, if the market volume of the original (including its co-marketing products) exceeded
CHF16 million (US$16 million) on average during the last four years before patent expiry.
• The ex-factory price of the generic product must be at least 40% lower, if the market volume
of the original (including its co-marketing products) was between CHF8 million (US$8
million) and CHF16 million (US$16 million) on average during the last four years before
patent expiry.
• The ex-factory price of the generic product must be at least 20% lower, if the original and its
co-marketing products have had a market volume not exceeding CHF8 million (US$8 million)
on average during the last four years before patent expiry.
Wholesale Mark-ups
In 2010, wholesale margins applied to drug prices were reduced by 3% for drugs priced at CHF800
(US$825) or more, while the maximum mark-up was lowered from 15% to 12%. For medicines priced
at CHF800 (US$825) or less, the maximum mark-up was reduced from 10% to 7%.
Pricing Agreement
A study carried out by Santésuisse in early 2012 assessed the prices of medicines in the country. It
concluded that the Swiss ex-factory prices of off-patent original medicine brands were higher than
that in France, the UK, Austria and the Netherlands, but lower than in Denmark and Germany.
Furthermore, the Swiss ex-factory price of generic medicines was higher than in the entire basket of
six reference countries. The analysis was based on MAT/09/2011 volumes and prices at September
2011, and did not include discounts or rebates to pharmacists and payers.
Aiming to contain costs and improve drug affordability and access, the Swiss government and the
pharmaceutical industry struck a short-term deal in April 2013. This came into force on June 1 2013,
and will run to the end of 2014, at which point the deal will be re-examined. Under the deal drug
companies will adhere to cabinet's recommendation of pegging Swiss drug costs to overseas prices,
in exchange for a faster drug approval process for new drugs (down to 60 days).
Reimbursement
The FOPH makes the final decision on reimbursement based on a Federal Drug Commission (FDC)
recommendation. New drugs are classified into one of five categories:
1. Therapeutic breakthrough;
2. Therapeutic progress;
3. Savings compared to other drugs;
4. No therapeutic progress and no savings; or
5. Not appropriate for social health insurance.
A new drug must be effective, appropriate and cost-effective to be listed in the positive list (SL). The
Swiss Agency for Therapeutic Products (SATP) assesses medicines for their efficacy and
appropriateness, while cost-effectiveness utilises the reference price countries and therapeutic
benchmarking (comparative effectiveness e.g. daily treatment costs). An innovation reward of up to
20% may be granted during the patent protection period.
A positive FOPH reimbursement decision gets a new drug listed in the SL within 30 days after the FDC
meeting. The FOPH re-evaluates pricing and reimbursement of drugs in the SL every three years and
after patent expiry. In addition re-evaluation also takes place in case of new indications or changed
limitations.

July 2014 177
The time frame to get reimbursement depends on the meeting schedule of the FDC. The FDC meets
five times per year. It usually takes 4-5 months from reimbursement dossier application to official
reimbursement status. However, if an innovative drug got SATP market authorisation by the fast
track approval process, an accelerated reimbursement process is in place.
If a reimbursement decision is projected to be negative, then the applicant may apply for re-
evaluation before the official reimbursement decision has been made. A second reconsideration
application is possible with new evidence.
Generics, co-marketing products and new forms with identical price levels get reimbursement by an
abbreviated process without FDC assessment within around seven weeks. A generic is included in
the SL if its ex-factory price is 10% to 60% lower (effective 2012) than its Swiss reference product after
patent expiry and external price referencing. The percentage in price decrease depends on the sales
volume of the Swiss reference product.
Drugs may be reimbursed outside an official indication/limitation or outside the SL if the drug offers a
vital benefit to treat a fatal disease and no alternative treatment is available. This kind of
reimbursement needs prior approval by a health insurer; price will be negotiated and set by the
health insurer.
Patient Co-payments
Generally, the patient co-payment in Switzerland is 10%. However, a two-tier system was introduced
in 2005 where generic alternatives are available. Under this system, the co-payment is 20% for
branded off-patent drugs, where prices are 20% higher than the average price of the lower third of
available generics containing the same active ingredient.
UNITED KINGDOM
Pricing
Since 1957, all branded (including branded generic) pharmaceutical prices have been controlled
indirectly in the UK by the Department of Health (DoH), under the Pharmaceutical Price Regulation
Scheme (PPRS). The scheme, which has undergone a number of major changes since its inception,
regulates the overall profitability of pharmaceutical companies from their sales to the NHS. The PPRS
is the product of an agreement between the government and the pharmaceutical industry and
provides a framework for negotiation. It has been subject to renewal every five years.
The PPRS does not regulate prices directly, but limits individual company profits. Manufacturers are
free to set specific drug prices where they wish, but must not breach their overall profit limit. If they
do, the excess must be paid to the government.
In July 2010, the government published a White Paper entitled, Equity and Excellence: Liberating the
NHS, in which it announced plans to introduce a value-based pricing (VBP) system in place of the
PPRS. According to the White Paper, VBP would ensure that patients “get access to the medicines
they need by linking the prices the NHS pays drug providers to the value of the treatment.” The
government had originally planned to introduce VBP for new active substances placed on the market
from January 1 2014. However, uncertainty around the proposed scheme remained and plans for
implementation were moved back to September 1 2014.
In the meantime, the DoH and the Association of the British Pharmaceutical Industry (ABPI) signed a
new PPRS in late 2013, which became effective from January 1 2014, after the expiry of the 2009 PPRS.
The voluntary scheme was joined by 134 companies, representing 93% of the UK’s branded industry,
up from 88% covered by the PPRS 2009.

178 July 2014
Companies not covered under the PPRS are automatically subject to a statutory scheme. In 2014,
companies in the statutory scheme face compulsory price cuts of 15%.
PPRS 2014
Under the PPRS 2014, the pharmaceutical industry agreed to keep NHS expenditure on branded
medicines flat for two years, with industry underwriting any further expenditure by the NHS within
agreed boundaries. Prices are then allowed to rise by 1.8% in 2016 and 2017, and by 1.9% in 2018.
Under the PPRS, companies have agreed to make percentage payments based on the difference
between allowed percentage growth and actual percentage growth in NHS expenditure on branded
medicines. For 2014, payments have been fixed at 3.74% of companies’ net sales. In subsequent
years, any payments will be corrected based on actual growth.
THE PPRS 2014 also builds on the 2009 agreement, which established new and more flexible pricing
arrangements and patient access schemes. Under flexible pricing arrangements, companies can
apply for an increase or decrease to the product’s original list price in light of new evidence or a
different indication being developed. Patient access schemes are aimed at facilitating patient access
to a medicine where NICE’s assessment of value, on the current evidence base, is unlikely to support
the list price.
According to the text of the PPRS 2014: “These pricing flexibilities will continue to be available as part
of the value-based approach to pricing, giving scheme members flexibility to better reflect the value
of their medicines, within a framework that preserves the independence of NICE.”
However, the DoH also notes that, “no applications were received under the flexible pricing
mechanism within the 2009 PPRS, and this remains a novel approach with a number of practical
challenges in implementation.”
Generics
While not compulsory, generic prescribing has been actively encouraged for some years in order to
reduce costs to the NHS. According to the British Generic Manufacturers Association (BGMA), this has
led to a 67% market share for generic medicines. Generic prices in the UK, which are constrained by
fierce market competition, are among the lowest in the developed world. As at June 2014, prices
quoted on the BGMA’s website suggest that “the average cost to the NHS of a generic medicine is
£3.79, while the average cost of a branded medicine is £19.73”.
Reimbursement
The National Institute of Health and Clinical Excellence (NICE) was set up in 1999 to reduce regional
variations in the availability of healthcare in the UK that had resulted in a ‘postcode lottery’. NICE
undertakes technology appraisals on the use of new and existing medicines and treatments within
the NHS. The appraisals programme is designed to ensure that people have equal access to new and
existing medicines that are deemed clinically- and cost-effective. The aim is to standardise healthcare
across the county, thereby reducing the risk of a postcode lottery of care.
The NHS is legally obliged to fund and resource medicines and treatments recommended by NICE’s
technology appraisals. However, where a treatment has not yet been ruled on, a patient can appeal
to their local Primary Care Trust (PCT), which can choose either to fund treatment as an exceptional
case or veto the appeal. For this reason, the postcode lottery continues to exist, albeit to a lesser
extent than in previous years.
As of April 2013, NICE assumed the work of the Advisory Group for National Specialised Services
(AGNSS), which was responsible for the review of very high-cost drugs, used in the treatment of rare
and very rare diseases. The move forms part of the reforms established through the Health and Social
Care Act 2012.

July 2014 179
In June 2014, the ABPI stated that NICE’s technology appraisal system is not fit for purpose for today's
medicine. The ABPI claimed that a more radical reform of NICE methods and processes is needed
than that proposed in the DOH’s consultation on VBP. The association has called for NICE to approve
more new innovative medicines in the context of the PPRS agreement.
Scotland has its own system, the Scottish Medicines Consortium (SMC), which can, and does
occasionally, come to a different conclusion. The SMC evaluates medicines and provides advice to
the NHS in Scotland, in a similar way to NICE in England and Wales. In addition to NICE, Wales has its
own HTA organisation, the All Wales Medicines Strategy Group (AWMSG), which was established in
2002. The AWMSG undertakes appraisals and provides guidance for Wales, which is interim to NICE
guidance, should this subsequently be published.
Patient Access Schemes

The PPRS 2009 made provisions for manufacturers and sponsors to submit proposals for patient
access schemes to the DoH. These schemes involve innovative pricing agreements designed to
improve cost-effectiveness and facilitate patient access to specific drugs or other technologies on the
NHS.
Before a patient access scheme can be considered as part of a NICE appraisal, it must be formally
approved by the Department of Health. The Department of Health bases this approval on guidance
from the Patient Access Scheme Liaison Unit (PASLU), which advises whether it is feasible to
implement the scheme in the NHS in England and Wales.
Following approval, NICE can take the scheme into account when deciding whether a drug is a cost-
effective use of NHS resources. However, NICE has no role in negotiating such schemes. Patient
access schemes can be proposed at the beginning or the end of the appraisal process for Single
Technology Appraisals, but must be proposed at the start for Multiple Technology Appraisals.
Patient access schemes also operate in Scotland. Medicines are reviewed by a Patient Access Scheme
Assessment Group (PASAG), under the auspices of the NHS National Services Scotland. The PASAG
operates independently from the SMC in order to maintain the integrity of the assessment process.
Cancer patients may also benefit for the Cancer Drugs Fund, which was introduced from April 2011,
to provide better access to drugs that doctors recommend, whether or not these have been approved
for NHS use by the NICE.
Prescription charges have been abolished in Wales, Scotland and Northern Ireland, but patients in
England continue to pay a standard fee unless they qualify for free medication. There are no plans to
abolish prescription charges in England as they raise around £430 million (US$673 million) a year for
the NHS. Charges are generally reviewed annually. From April 1 2014, the charge increased to £8.05
(US$13.46) for each quantity of drug or appliance prescribed.
The Department of Health estimates that around 60% of the population is exempt from prescription
charges, and this is equal to 90% of total prescriptions being dispensed free of charge. Medicines are
provided free to hospital inpatients. Ambulatory patients are entitled to free prescriptions if they:
• Are aged under 16 years, or 17-18 years if they are in full-time education, or 60 years or older;
• Are pregnant or have had a baby in the previous 12 months and hold a valid maternity
exemption certificate;
• Have a specified medical condition or continuing physical disability and hold a valid medical
exemption certificate; or
• Hold a valid war pension exemption certificate and the prescription is for their accepted
disability.

180 July 2014
Additionally, people on low incomes and their partners may be entitled to free prescriptions if certain
conditions are met.
Cancer patients in England have received prescriptions free of charge since April 2009. The Labour
government planned to expand this to around five million patients suffering from other long-term
illnesses and conditions, but the coalition government postponed this plan indefinitely.

July 2014 181
SOURCES
Aarogyasri Health Care Trust. https://www.aarogyasri.gov.in (accessed June 2014).
Allgemeinen Ortskrankenkassen. http://www.aok-

gesundheitspartner.de/bund//arzneimittel/rabatt/index.html (accessed June 2014).
Casa Naţională de Asigurări de Sănătate (Minsitry of Health, Romania). “National Price Catalogue of
medical products issued by prescription, approved for market release.”
http://www.casan.ro/medication (accessed June 2014).
CILFA, Cámara Industrial de Laboratorios Farmacéuticos Argentinos. http://www.cilfa.org.ar (accessed

June 2014).
Danish Health and Medicines Authority. Reimbursement Prices.

http://sundhedsstyrelsen.dk/en/medicines/reimbursement/reimbursement-prices (accessed June
2014).
Danmarks Apotekerforening. “Lægemidler i Danmark 2013.” 2014.

http://www.apotekerforeningen.dk/analyser-og-fakta/aarbog-laegemidler-i-danmark.aspx.
Department of Health and Ageing, Australian Government. Pricing Matters.

http://www.pbs.gov.au/info/industry/pricing (accessed June 2014).
Department of Health, Republic of South Africa. http://www.doh.gov.za (accessed June 2014).
Disley, Thomas. “A New Era of Reimbursement in France.” 19 March 2014.

http://social.eyeforpharma.com/market-access/new-era-reimbursement-france.
“Drug Reimbursement Act (Ustawa Refundacyjna), Poland.” 13 July 2011.

http://isap.sejm.gov.pl/DetailsServlet?id=WDU20111220696.
Estonian Health Insurance Fund. “Medicinal Products.” June 2014.

http://www.haigekassa.ee/eng/service/medicinal-products.
European Confederation of Pharmaceutical Entrepreneurs (EUCOPE). “Pharmaceutical Prices: Why are

there differences between Member States? .” 2012.
http://www.eucope.org/en/files/2012/10/EUCOPE-IRP.pdf.
FONASA. http://www.fonasa.cl (accessed June 2014).
Government of India National Pharmaceutical Pricing Authority.

http://www.nppaindia.nic.in/index1.html (accessed June 2014).
Government of India, Department of Pharmaceuticals. http://pharmaceuticals.gov.in (accessed June

2014).
Health Canada. National Pharmaceuticals Strategy. http://www.hc-sc.gc.ca/hcs-sss/pharma/nps-

snpp/index-eng.php (accessed June 2014).
Interfax-Ukraine. “Health Ministry: Mechanism for reimbursement of medicines for hypertensive

patients launched in Ukraine in November.” 20 November 2012.
http://en.interfax.com.ua/news/general/128138.html#.UUrwdKWbo8E.
International Society for Pharmacoeconomics and Outcomes Research. http://www.ispor.org

(accessed June 2014).
Joint Learning Network for Universal Health Coverage. http://jointlearningnetwork.org.

182 July 2014
Kamae, Isao, and Makoto Kobayashi. “Value-Based Pricing and the Principle of the Incremental Cost-
Effectiveness Ratio: The Case and Potential in Japan.” International Society for Pharmacoeconomics and
Outcomes Research (ISPOR). http://www.ispor.org/news/articles/October2010/Value-Based-Pricing-
Principle-Incremental-Cost-Effectiveness-Ratio.asp (accessed June 2014).
Kanavos, Panos, Sotiri Vandoros, Jarno Habicht, and Kees de Joncheere. “Review of the Estonian
Pharmaceutical Sector: Towards the development of a National Medicines Policy.” 2009.
http://ee.euro.who.int/E93049.pdf.
Kela - Kansanelakelaitos. “Reimbursements for medicine expenses.”

http://www.kela.fi/web/en/reimbursements-for-medicine-expences (accessed June 2014).
Kristina Garuoliene, et al. “Pharmaceutical policy and the effects of the economic crisis: Lithuania.”
January 2011.
http://www.lse.ac.uk/LSEHealthAndSocialCare/pdf/eurohealth/VOL17No1/Garuoliene.pdf.
Melck, B. “AMNOG amendment promises more flexibility in choice of appropriate comparator

therapies.” July 2013. http://healthcare.blogs.ihs.com/2013/07/02/amnog-amendment-promises-
more-flexibility-in-choice-of-appropriate-comparator-therapies/ .
Ministry of Health and Welfare, Republic of Korea. http://english.mw.go.kr/front_eng/index.jsp.
Ministry of Health, Chile. http://www.minsal.cl.
Ministry of Health, Hungary. http://www.eum.hu/english.
Ministry of Health, Israel. http://www.health.gov.il.
Ministry of Health, New Zealand. Medications. http://www.health.govt.nz/your-health/conditions-

and-treatments/treatments-and-surgery/medications (accessed June 2014).
Ministry of Social Affairs and Health, Finland. “Pharmaceuticals Pricing Board, Reference price system.”
http://www.stm.fi/en/ministry/boards/pharmaboard/reference_price (accessed June 2014).
National Agency of Medical Insurance (ANAM), Morocco. http://www.assurancemaladie.ma.
National Authority of Medicines and Health Products, INFARMED. http://www.infarmed.pt.
National Bureau of Health Insurance, Taiwan. http://www.nhi.gov.tw/English/index.aspx.
National Health Insurance Fund, Lithuania. http://www.vlk.lt/sites/en (accessed June 2014).
National Health Insurance Service, Republic of Korea.

http://www.nhis.or.kr/static/html/wbd/g/a/wbdga0101.html (accessed June 2014).
Omelyanovskiy, Dr Vitaly. “ Pricing of Pharmaceuticals in Emerging Countries of the Central & Eastern
European Region: The Case of Russia .” 21 May 2013.
http://www.ispor.org/meetings/neworleans0513/releasedpresentations/FORUM-2-Central-Eastern-
Europe-Omelyanovskiy.pdf.
Patented Medicines Pricing Review Board, Canada. Regulating Prices. http://www.pmprb-

cepmb.gc.ca/english/View.asp?x=1440 (accessed June 2014).
PHARMAC. Costs of Medicines. http://www.pharmac.health.nz/medicines/medicines-

information/costs-of-medicines (accessed June 2014).
Pharmaceutical Manufacturers Association of Turkey. Pricing.

http://www.ieis.org.tr/ieis/en/issues/9/fiyatlandirma (accessed June 2014).
Pharmaceutical Services Divisions, Ministry of Health, Malaysia. http://www.pharmacy.gov.my.

July 2014 183
Philippine Healthcare Insurance Corporation (PhilHealth). http://www.philhealth.gov.ph.
Prof. Mondher Toumi, et al. “ External reference pricing of medicinal products: simulation-based
considerations for cross-country coordination - Final Report .” European Commission, 2014.
Rashtriya Swasthya Bima Yogna. http://www.rsby.gov.in.
Remuzat, et al. “New drug regulations in France: what are the impacts on market access?”
http://dx.doi.org/10.3402/jmahp.v1i0.20891.
Republic of the Philippines Department of Health. http://www.doh.gov.ph.
SingHealth. http://www.singhealth.com.sg.
State Agency of Medicines (Ravimiavet), Estonia. http://www.ravimiamet.ee/en.
State Institute for Drug Control (SUKL), Czech Republic. Regulation of prices and reimbursements for
pharmaceuticals. http://www.sukl.eu/medicines/regulation-of-prices-and-reimbursements-for-
pharmaceuticals (accessed June 2014).
State Medicines Agency, Latvia. http://www.vza.gov.lv/?
Superintendencia Nacional de Costos y Precios, Govenment of Venezuela.

http://www.superintendenciadepreciosjustos.gob.ve (accessed June 2014).
VATlive. www.vatlive.com (accessed June 2014).
Vogler, Sabine, Claudia Habl, Martina Bogut, and Luka Vončina. “Comparing pharmaceutical pricing
and reimbursement policies in Croatia to the European Union Member States.” Croation Medical
Journal 52, no. 2 (2011): 183-197.

184 July 2014

2014 - The Worldwide Guide To Pharmaceutical Pricing and Reimbursement (Espicom)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2014 - The Worldwide Guide To Pharmaceutical Pricing and Reimbursement (Espicom)

Uploaded by

Copyright:

Available Formats

IMPORTANT NOTICE:

A Business Monitor International Company

© Copyright 2014 Espicom Business Intelligence

Internal Reference Pricing ............................................................................................................................................. 9

© espicom BUSINESS INTELLIGENCE

© espicom BUSINESS INTELLIGENCE

Foreign Exchange Controls ........................................................................................................................................................... 38

© espicom BUSINESS INTELLIGENCE

National Health Insurance Drug Price List............................................................................................................................... 54

© espicom BUSINESS INTELLIGENCE

© espicom BUSINESS INTELLIGENCE

Supplementary Benefit for Pharmaceuticals.......................................................................................................................... 85

© espicom BUSINESS INTELLIGENCE

Changes to State Tenders.............................................................................................................................................................. 99

Reimbursement ............................................................................................................................................................ 109

MIDDLE EAST/AFRICA ..................................................................................................................... 113

Reimbursement ............................................................................................................................................................ 116

© espicom BUSINESS INTELLIGENCE

ISRAEL ..................................................................................................................................................................................... 116

© espicom BUSINESS INTELLIGENCE

Pharmaceutical Tenders ............................................................................................................................................................... 130

© espicom BUSINESS INTELLIGENCE

Special Reimbursement ....................................................................................................................................................... 147

Reimbursement ............................................................................................................................................................ 153

Reimbursement ............................................................................................................................................................ 155

Reimbursement ............................................................................................................................................................ 158

© espicom BUSINESS INTELLIGENCE

ITALY ........................................................................................................................................................................................ 159

© espicom BUSINESS INTELLIGENCE

Patient Co-payments .................................................................................................................................................................... 174

SOURCES ........................................................................................................................................... 182

© espicom BUSINESS INTELLIGENCE

We hope you find the report useful in your research.

Karen Holmes, Author

© espicom BUSINESS INTELLIGENCE

[This page left intentionally blank.]

© espicom BUSINESS INTELLIGENCE

© espicom BUSINESS INTELLIGENCE

© espicom BUSINESS INTELLIGENCE

PRICING & REIMBURSEMENT

The perceived value of a treatment is central to the German AMNOG (Arzneimittelmarkt-

© espicom BUSINESS INTELLIGENCE

External Reference Pricing

© espicom BUSINESS INTELLIGENCE

Countries Operating External Reference Price Systems

Source: European Commission, BMI Espicom

© espicom BUSINESS INTELLIGENCE

Most-commonly Referenced Countries for External Pricing

Source: European Commission, BMI Espicom

Concerns and Limitations of External Reference Pricing

© espicom BUSINESS INTELLIGENCE

Internal Reference Pricing

© espicom BUSINESS INTELLIGENCE

Fixed Generic Price Reductions

Wholesale and Pharmacy Mark-ups

© espicom BUSINESS INTELLIGENCE

© espicom BUSINESS INTELLIGENCE

© espicom BUSINESS INTELLIGENCE

Regulatory Authority Pricing Reimbursement

Source: BMI Espicom

© espicom BUSINESS INTELLIGENCE

Price Controls in the National Medicines Policy