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Italy: pioneering pay for performance in the age of austerity

Published on 04/01/11 at 07:56am
Lorena Tonarelli
Italy hospital

2010 saw Europe beset by economic turmoil, as governments have struggled with the effects of the downturn, including considerable public debt.

Greece, Ireland, Portugal and Spain have been the worst hit, but Italy has also been badly affected.

The Italian government, like all its EU neighbours has been forced to introduce austerity measures, and healthcare spending is one of the prime targets.

Another problem common to all developed countries is an ageing population, with people living longer with chronic conditions that are costly to treat; Italy has the distinction of having Europe’s oldest population - making its economic burden all the greater.

Italy is the third largest pharmaceutical market in Europe, after Germany and France, but now is set for major cuts in healthcare spending. The Italian government recently announced plans to slash the €17.156 billion (£14 billion) worth of annual pharmaceutical expenditure.

The measures take effect from 2011, although some are already in place in certain regions of the country. Expenditure on medicines is expected to be cut by about €1.3 billion (£1.13 billion) from 2010 to 2012, and are part of a much more ambitious austerity plan that should save the country a total of €24 billion (£20.09 billion).

There is little doubt the austerity measures will have an impact on the industry. “All pharmaceutical companies supplying prescription drugs under the Italian national health service through pharmacies will certainly feel the effect of the 1.83% margin loss on these drugs,” says IHS Global Insight analyst, Brendan Melck.

Generic prices targeted

The Italian Ministry of Health will cut spending by imposing a reduction in generics’ prices, pegging them to a European average level, and will also impose stronger controls on hospital spending.

This could free up money for newer drugs, but this looks like a slim hope.

“The Italian national health service might be able to save a certain amount on the reimbursement of generics, and this might free up funds for the purchase of more expensive drugs,” Melck says. “But, considering the huge debts in the Italian regional healthcare authorities, this would be only a small contribution.”

The new generics system will limit reimbursement to the cheapest medicine in a therapeutic reference group, and this will encourage doctors to prescribe generic drugs, rather than their brand-name counterparts. “While this is unlikely to cause revolution overnight, it is very likely to give a boost to the volume and value of generics on the Italian market,” says Melck.

However, Melck says there is a ‘continued distrust’ of generics in Italy, particularly unbranded ones, meaning the desired increase in their use could be limited. Furthermore, “experience has shown that the pharmaceutical industry is very resourceful in its ability to circumvent many of the measures that the Italian authorities have attempted to make in the past in order to increase generics use”.

Generics producers will feel the pinch from the mandatory 12.5% reduction of the prices of most of their drugs. The effects are expected to last until the end of 2010, adding to similar price cuts imposed in 2009.

Pay for performance

Another key measure of the cost reduction programme is more experimental, and could even represent a glimpse of the future of drug pricing policies across Europe. Italy introduced a pioneering new ‘pay for performance’ approach to medicines prices in 2007, but the system is only now approaching the moment of truth.

In July the head of Italy’s government medicines agency the AIFA, Professor Guido Rasi,  told the Financial Times that significant price cuts would be imposed in 2011. The system allows the Italian government to cut drugs’ prices by up to 40% after launch. The price is then reviewed after two years, and increased or reduced depending on whether or not there is enough evidence of substantial benefits to patients.

A number of cancer drugs are expected to be targeted first, with the argument that these drugs do not justify their cost. The full list of these drugs has yet to been revealed.

Unlike price cuts often seen in Europe, however, these decisions will not be arbitrary or without any reference to clinical effectiveness. Pharma companies have worked with the government to set-up detailed ‘registers’ of patients to allow their health and response to the drugs be monitored.

Dr Onofrio Lamanna, the chief medical director of the recently built state-of-the art Ospedale dell’Angelo, near Venice, welcomed the new pay for performance approach as ‘a good system’, and says drug pricing and distribution in Italy has in fact been in line with this scheme for some time.

Lamanna is confident that the measures will be beneficial. “All of the austerity measures are useful and bound to generate substantial benefits for patients, doctors and hospitals,” he says.

However, he adds the cuts could have negative consequences for the pharmaceutical industry and research and development investment. The pharma industry has criticised the pay for performance programme, arguing it will make market entry and penetration more difficult for them. Yet, a study recently published in the Journal of Clinical Oncology suggests that the opposite may be true.

Researchers led by Mondher Toumi, PhD, professor of market access at Claude Bernard University in Lyon, France, looked at how market access conditions affect use of medicines in different countries. They reviewed data on the use of Roche’s Avastin (bevacizumab) in the UK, Germany, France and Italy, between 2006 and 2009. Avastin is licensed to treat advanced colorectal cancer, but its use and uptake in Europe has been uneven. It has been turned down for national health service use in the UK by NICE, but has full market access in Germany and France.

In Italy, it has been dispensed under the pay for performance scheme. The scheme means that if after six weeks of treatment, patients did not improve, the manufacturer had to pay back 50% of the costs and provide the drug for free for an additional 11 to 15 cycles.

Toumi’s team found that during the three-year study period, Italy had the highest use of Avastin, suggesting the pay for performance system could accelerate market uptake and allow “significant development of drug penetration”. The study found that Italy is the country where Avastin had the highest price (€2,127/£1,848 per cycle treatment), whereas the UK had the lowest price (€1,115/£969 per cycle treatment).

The rest of Europe will, no doubt, be interested in how well the new system works from the perspective of patients, payors and the industry.

However, it clearly is apparent in Italy and the rest of Europe that there are no easy answers to how to reconcile containing healthcare costs, and recognising and rewarding innovation in medicines.

ITALY’S AUSTERITY PACKAGE

Among the measures announced by the Italian government to reduce pharmaceutical spending are:

• A mandatory 12.5% reduction in generics’ prices.

• The setting of generics’ reimbursement prices at the level of average European prices.

• The introduction of a system comparing generics’ use and price among the 20 regions Italy is divided into.

• Reimbursement of prescription drugs limited to the cheapest options.

• A 1.82 and 1.83% reduction in reimbursement for class A drugs for pharmacists and pharmaceutical companies, respectively.

• Tightened control over hospital budgets, achieved with centralised procurement and by transferring the distribution of certain drugs, traditionally available only in  hospitals, to pharmacies.

• Price revision based on efficacy, or lack thereof, under the pay for performance scheme.

ITALY’S PHARMACEUTICALS DISTRIBUTION AND REIMBURSEMENT PROCESS

In Italy, drugs are traditionally distributed by pharmacies. Exceptions include a few widely used or very expensive products, which are distributed directly by the Local Health Authorities (LHAs) and by hospitals.

Drug reimbursement is made by the LHAs to the pharmacies. The amount reimbursed varies depending on the class of drugs. There are three of these classes:

• Class A – fully reimbursed.

• Class B – partially reimbursed.

• Class C – not reimbursed.

Pricing and reimbursement procedures are the responsibility of the Agenzia Italiana del Farmaco (AIFA), which includes two committees: the Comitato Scientifico e Tecnico (CST) and the Comitato Prezzi e Rimborso).

THE ITALIAN NATIONAL HEALTH SERVICE

Introduced in 1980, Italy’s healthcare service (Sistema Sanitario Nazionale; SSN) is a three-tier system financed almost entirely with taxpayers’ money.

It is made up of the state, with the Department of Health, the regions or Regional Health Authorities (RHAs), and the Local Health Authorities (LHAs) together with the hospital trusts.

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