Negotiating the EU pricing system: How the financial crisis has encouraged closer-knit cooperation between member states
Drug pricing is a topic that has become headline-friendly over the past year. It has come to dominate media coverage across the globe, after several notable stories broke across the globe that put a spotlight on certain pharmaceutical companies. Ben Hargreaves looks at the debate occurring within Europe and how it could lead to closer relations between countries within the EU.
Writing on the EU from within the UK has an odd twist to it; just over a month away from the publication of this newspaper lies the deadline for the triggering of Article 50, the first step to the ultimate process of stepping out of the circle of the EU. Yet, in regards to market access for drugs, both post-Brexit UK and the EU will face similar issues. The spectre of drug pricing has lurked behind the scenes of market access in Europe for years, with several notorious cases, yet it is finally demanding public attention only after the infamous behaviour of Turing Pharmaceuticals. It has led to President Trump declaring broadly that the pharmaceutical industry has been “getting away with murder”.
This piece will focus on the reaction to drug pricing in Europe, but Trump’s comments indicate that there is currently a global reaction to drug pricing. In fact, you can practically take your pick of country, type it into your favoured online search engine, follow it with ‘drug pricing’ and you will be deluged with articles detailing various pricing scandals and the proposed methods of regulating prices in reaction.
It should not be forgotten that at the heart of any wrangling between governments and the pharmaceutical industry are the patients. Access to medicines needs to be central to the debate – something that can be forgotten when governments are arguing for lower costs to reduce spending and the pharmaceutical industry is arguing for competitive pricing to reimburse the R&D costs.
There have been numerous recent cases where countries have taken steps to place limits on drug prices; however, there are several that stand out as being particularly bold actions that will no doubt worry the pharmaceutical industry. One example occurred in Colombia, where the government forced through a nearly 50% price discount on Novartis’ cancer drug, Imatinib, to lower its health care costs. This came after negotiations between country and company dragged on for four years before the Colombian Health Ministry finally had enough and pushed through a price discount that Novartis was legally obliged to submit to. Skip across the water to the opposite side of the world, where Japan also forced through a similar price reduction of Bristol-Myers Squibb’s Opdivo and slashed the price of the drug by half. In both cases, the drug had been selling at a price point that compared unfavourably with similar markets and led to the countries taking drastic action to redress what they saw as an unfair imbalance.
It seems that we are on the verge of a tipping point whereby countries globally take action to attempt to lower the price of their drug bill, and the larger question is how the pharmaceutical industry will react. In Europe, this is a situation that has been unfolding for a while. The EU, as opposed to individual countries, has a more complicated process of bringing drugs to market – through the mix of centralised EU drug approval and individual member’s policies towards drug pricing. It is a system of bringing drugs to market that is becoming further complicated, as member states have begun to form blocs to negotiate within the EU as a single body.
The strategic pursuit of increased negotiating influence with the pharmaceutical industry over pricing was spurred into gear by the price of one particular drug that is now notorious as one that caused a headache: Gilead’s Sovaldi. It was a major misstep by a normally adroit industry. The drug, it cannot be disputed, arrived on the market as a revelation in the treatment of Hepatitis C. However, the prices at which the drug was introduced was also responsible for increasing the blood pressure of pricing regulators across Europe. The price chosen to introduce the drug was initially set at €60,000 per 12-week treatment. Each member state ended up with a different negotiated price, but an outcry across Europe and extending to the US saw Gilead backtracking on the price, agreeing to reductions, though its hand was somewhat forced by the introduction of AbbVie’s alternative treatment to the market place.
The price reduction across countries in the EU was not enough to save Gilead and the wider industry from the backlash and, in many ways, only fuelled the fire. Countries essentially had competed with one another to obtain the lowest price for Gilead’s medication, not an unusual practise but, because the cost price had been so exorbitant, countries then began to stress the achievement of the reduction attained. Notably, France in late 2014 announced that they had negotiated the lowest price for Solvadi in the EU. This story hit headlines across Europe and suddenly hackles were raised. It didn’t necessarily give birth to a movement but it did add greater impetus to countries looking to curb costs where they could, as austerity became the watchword in post-financial crisis Europe.
Keeping up with the Joneses
The most common method currently implemented across EU member states to manage drug pricing is External Price Referencing (ERP). Essentially this means that countries assess the prices that their fellow EU member states pay for their pharmaceutical drugs to conclude their own price. In theory, this should allow each country to determine costing that is fair and achievable for their own country, depending on relative wealth and incidence of those affected by certain illnesses.
However, each country has been able to interpret ERP to determine its own method of pricing, leaving discrepancies across member states. According to 2015 study published by Co-Action, 15 countries using a pricing model where they paid the average across the EU, seven countries who simply chose the lowest price paid by another country and seven other countries who used their own methods of determining value.
With very little harmonisation across countries’ spending, it delivers both a blessing and a curse to pharmaceutical companies when they bring a drug to market within the EU. Clearly it creates difficulties for companies that have to plan how to present their drugs to individual markets. The opposite side is also true; with no price transparency required, there can be undisclosed deals with countries so that the lowest price remains unknown - unless you broadcast the price, such as in the previous example by France. It also means that prices of those countries that conform to an average across the EU remain relatively stable and integrated, allowing the pharmaceutical industry to dictate prices to an extent.
Is there a difference between the US and EU drug price discussion?
In theory, ERP should allow the EU to negotiate as a bloc – by negotiating a low price in one country and then spreading that price across the board. However, as with any system, it can be played and that’s where Gilead came in. It was offering a treatment that had amazing results for Hepatitis C sufferers and they were determined to make it as lucrative a drug as possible, equivalent to its revolutionary cure rates. Gilead drove a very hard bargain at a very high price, and then let the individual member states fight it out over price with one another instead of with themselves
. It led to a pushback in the opposite direction, with greater cooperation between countries and more conversations over pricing.
To ascertain the stance of the industry in Europe, a spokesperson from the EFPIA told us their view upon the pricing debate, as it stands: “We speak a lot about drug pricing but I think that the drivers are different whether you are in US or Europe, or whether you speak to access to less developed markets. I want to differentiate between the type of news we see coming out of the US, where the debate focuses on price hikes, whereas in Europe we only observe one or two more specific cases of price hikes in the generic sector. This is really, in my opinion, the exception rather than the rule. This is not the same trend as in the US when you speak of normal price increases.”
There can be no doubt that the debate over drug pricing has been kicked into gear globally by notable news stories emerging from the US; Martin Shkreli and Turing Pharmaceutical notably hit the headlines in 2015 for its enormous inflation of the price of its medicine, daraprim, by 5000%.
While the discussion has been undoubtedly spurred by cases emerging out of the US, Policy Manager at the EPHA, Yannis Natsis, refuted the notion that it is only news from the US that has contributed to the debate. He suggests the European pharmaceutical industry is trying divert attention to the US and away from Europe: “They hate the noise around high prices; in Europe, it’s thanks to the Sovaldi phenomenon. The issue and behaviour of Gilead, they brought so much attention to this issue but it wasn’t the only issue; high prices triggered a broader discussion, for instance, upon the question of the mix of incentive and rewards. Everything is on the agenda and this is what the pharmaceutical federation and individual pharmaceutical companies hate.”
These two lines of argument sum up the counterpoint at which the pharmaceutical industry and the NGOs who examine drug pricing – with one side, respectively, stating that pricing is an issue but one that has been overblown by salacious stories from the US, and the other side that is determined to encourage discussions on pricing.
Even when it comes to the general public, there is a disagreement over the conversations that are happening within the general public of the EU. When asked about the general public’s viewpoint on drug pricing, the spokesperson for the EFPIA stated: “I don’t think the general public is really concerned with these things.”
Natsis takes the contrary opinion, “The issue is not going to go away. Simply because Europe is not as rich as it used to be. It’s true, very recently, only a few years ago, were you to do a survey on the street of the average citizen, would they know how much cancer treatments cost? No, because they wouldn’t care – at least in Western Europe - because it would be automatically reimbursed for everyone. This is not the case anymore. It’s a harsh, new, reality because we must remember it is a new debate. It is indeed an uncharted territory for national, let alone EU, policy makers. I think everyone is debating the issue and, in public opinion, the pharmaceutical industry is suffering increasing damage to its reputation. And it’s trying to rescue its image, I think we will certainly see this in 2017, through campaigns or ad campaigns or some other methods. And it’s all thanks to Gilead.”
European governments feel the pinch post-financial crisis
Gilead began the slow march within national governments to try to rein in spending and this is where Natsis is keen to stress the impetus comes from. The desire for change is emerging out of governments and non-governmental initiatives, not from public, grassroots opposition to pharmaceutical pricing. Since Sovaldi stung the wallets of respective national governments and the financial crisis descended upon the market, the squeeze has forced governments to reconsider how sustainable the current pharmaceutical business model is within Europe.
Natsis offered up comment: “We haven’t seen any huge movements on the streets, demonstrating against the high prices, aiming to force political leaderships across Europe to work on the issue. On the contrary, these initiatives started and are exerting influence because of the national governments’ feeling the pressure and feeling the heat that they need to do something about it. This business model, which operates upon the principal of ‘the sky is the limit’, does not show any sign of changing.”
The spokesperson from the EFPIA also traced a direct line to the moment that pricing became a key issue and the start of the financial crisis: “I would like to make a distinction between the period before 2008 and the period after 2008. When I check the statistics to see what was the average growth rate of the pharmaceutical market and, most importantly, average growth rate of expenditure for the reimbursement of pharmaceuticals, it is clear after 2008 that there has been significant inverse growth of these two factors. I think there is a problem that some countries believe that they can keep their budgets flat.”
If the financial crisis pre-empted the current pricing debate, what has this led to in the EU market? The answer is to be expected from a collective of member states: each country has followed their own policy with many countries adopting particularly strict regulatory bodies. However, in the last few years there has been a general trend towards greater communication between countries. For instance, the European Parliament’s Environment Committee recently convened to issue its draft report on how to improve access to medicines for patients within Europe.
The report highlights four key areas, as regards the pharmaceutical market:
- Recalls that the EU pharmaceutical industry is one of the most competitive industries in Europe and that quality innovation is key to improving its competitiveness;
- Regrets that the research priorities of the pharmaceutical industry are profit-oriented rather than patient-oriented;
- Stresses that transparency of the cost of development and clinical trials is crucial in order to set a fair price;
- Stresses that the interests of the pharmaceutical industry favour short trials and fast access to the market.
Point two does not offer anything particularly new – pharmaceutical industries have often been accused of the same priority – but because its inclusion is bold, and therefore important of itself. It drives home a point that is often rejected by the pharmaceutical industry, that profits are its raison d'être. It’s a sore spot and one that the pharmaceutical industries are keen to disavow.
The spokesperson from the EFPIA reacted: “The report says that the pharmaceutical industry is profit-orientated but I do not like to see that statement alone. Profit is part of the system; you have companies but behind companies you have individuals. It’s what we have observed over the years is that the industry is much more sensitive to public opinion and elements of corporate responsibility. I think that there has been much progress over the years on a number of important issues on which the industry was attacked and that this progress has not been significantly recognised. There has been significant progress on transparency for example.”
However, the progress being made is not quick enough for some countries who have responded to the pricing pressures placed upon them by the financial crisis and by government budgets by bolstering their negotiating power. One prominent example is the bloc formed by the Netherlands, Belgium, Luxembourg and Austria in order to better negotiate prices for orphan drugs. The group began with the Netherlands and Belgium but, as the idea began to gain momentum, has grown to include Luxembourg and Austria – whilst Ireland is also apparently mooting a bid to become part of the group.
In terms of market share, it is an unusually mixed bag, as Luxembourg is a much smaller market, while Belgium has one of the highest individual spends per capita on pharmaceutical drugs. It is tied to a relative geographic region, but Austria is not tied to the previous countries by borders. The reality of the situation is that this small group is creating negotiating power by both sharing information on the respective drug prices and by their collective population and spend to secure lower prices. The deal sees the four countries engage in joint discussions with pharmaceutical companies and, beyond this, they will exchange data, share records and coordinate their evaluation methods. It means that the countries will also prepare, between themselves, for any new drugs that will enter the market.
The EFPIA spokesperson was ambivalent on the emergence of coordinated groups of countries negotiating prices: “With any new initiatives you have the good sides and the bad sides. Basically the EFPIA position, in consideration of economic value, is that price negotiation should remain the responsibility of member states and we consider that prices in different countries will vary across member states to reflect their differences: in the burden of diseases, in indications, in health system preference and ability to pay.”
Though there is mention of the potential benefits of new initiatives, it’s hard to deny that it’s a difficult situation to be in for the pharmaceutical industry; it cannot decide how these countries behave but nor can it stand by as countries collectively manage to dictate terms by changing the rules of the game. The uncomfortable situation is exacerbated by the growth in interest in joining the bloc, and also by the wider discussions, within the EU, towards greater harmonisation, as demonstrated through the European Parliament’s Environment Committee.
Between a rock and a hard place
At present, the pharmaceutical industry does not see the need to change the system has worked for itself in the past. However, Natsis believes that the member states of the EU no longer have any choice and it is an inevitable process: “We have, over the past three years, seen unprecedented movement in this area. You have groups of countries trying to get together, at the highest political level, and these initiatives have not happened before. You have countries, for the first time ever, sitting around the same table, sharing the same information and willing to go beyond their comfort zones – willing, even, to go beyond their own fears of collaborating. In the past, they could never even conceive of working together on such a sensitive area, as the pricing in regards to the pharmaceutical industry is. We now see this happening but this is, again, indicative of the gravity of the problem, which is the question of affordability and feasibility of the healthcare system that is relevant for all member states – no matter how poor or rich they are”.
If, as Natsis suggests, the process of countries coming together to negotiate prices is one that is beginning to gain momentum, it begs the question why the EU, as a bloc of itself, does not use its collective negotiating power to possess even greater leverage over prices.
With more collective meetings, with countries coming together into blocs and with the discussion beginning to filter through into the public sphere, it should see people being brought together by discussing the issue of pricing. The EFPIA spokesperson suggested that the pharmaceutical industry “always relate the price to the value of the medicine” and there is a lot of truth to this comment. Some remarkable drugs have been developed and brought to market, such as the recent developments in immunotherapy, and the company’s involved deserve to be rewarded financially for this. The question, of course, is how to strike a balance between rewarding innovation and avoiding pricing government, and therefore patients, out of treatments that are needed badly. The answer to the conundrum is greater communication and it’s one that the pharmaceutical industry may need to push itself towards with greater force, or they may find a unified bloc ready and prepared to face them.