Drug preference policy

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

Since 2007 health insurers have been developing a drug preference policy. The essence of this policy is that they negotiate directly with pharmaceutical companies on the price of generic drugs. They have been able to achieve considerable price discounts.

Purpose of health policy or idea

A cornerstone of the current market reform is that health insurers negotiate with healthcare providers on the price and quality of health services. They now also do so in pharmaceutical care by negotiating with pharmaceutical companies on the price of generic outpatient prescription drugs with an equal chemical substance (e.g. cholesterol lowering drugs, anti-hypertension drugs, stomach-acid inhibitors).

They only reimburse the costs of the lowest priced drugs in each category (called preferred drugs). Patients who for medical reason need another than the preferred drug can apply for a non-preferred drug the costs of which will be fully reimbursed if that drug is on the list of drugs covered by the basic health insurance scheme.  

The insurers' drug preference policy has significant consequences for the revenues of pharmacists delivering outpatient prescription drugs. Until recently, each pharmacist negotiated a discount for generic drugs. The difference between the price negotiated and the standard price paid by the insurer was a substantial part of a pharmacist's revenues (income). In addition, they were paid a standard remuneration for each outpatient prescription. This remuneration is not affected by the insurers' drug preference policy.

Main points

Main objectives

The prime objective of the insurers' drug preference policy is to save costs in outpatient pharmaceutical care. The policy is expected to have a beneficial impact on the premiums people must pay for their health insurance. One big insurer (market share about 25 percent) recently announced that patients who use preferred drugs are exempted from paying the mandatory deductible (€155 a year). By this arrangement, a patient using preferred drugs can benefit in particular from the insurers' drug preference policy.

Type of incentives

A distinction must be made between incentives for patients and the pharmaceutical industry.

Patients have a financial interest in taking preferred drugs because they do not get reimbursed the costs of non-preferred drugs (unless they need a non-preferred drug for medical reasons). In addition, they can now benefit from the new arrangement according to which they are exempted from paying the mandatory deductible in outpatient pharmaceutical care.  

Producers of generic drugs must compete with each other for contracts with health insurers. Contracts apply only for a restricted period of time (e.g. half a year). Missing a contract will lead to a considerable loss of business during the contract period.

Groups affected

Physicians (are expected to prescribe preferred drugs), patients, pharmacists, producers of generic outpatient prescription drugs

Degree of Innovation	traditional		innovative
Degree of Controversy	consensual		highly controversial
Structural or Systemic Impact	marginal		fundamental
Public Visibility	very low		very high
Transferability	strongly system-dependent		system-neutral

Interesting development in line with the ongoing market reform.

Political and economic background

The insurers' preferred drugs policy fits into the market reform in Dutch health care. A cornerstone of this reform is that health insurers should no longer passively pay the costs of health care rendered to their subscribers. Instead, they should negotiate on behalf of their subscribers with healthcare providers on the quality and costs of health care.

Their preferred drug policy is a rather successful example of the new role they have been assigned in the market model of health care (successful from the perspective of expenditure control in pharmaceutical care). Therefore, the Minister of Health took some regulatory measures to enable and encourage insurers to develop a drug preference policy.

Purpose and process analysis

Current Process Stages

	Idea	Pilot	Policy Paper	Legislation	Implementation	Evaluation	Change
Implemented in this survey?

Origins of health policy idea

The preferred drug policy is an initiative of health insurers. They believed that they could manage to achieve significant cost reductions by directly contracting with pharmaceutical companies on the prices of outpatient prescription drugs. Together with many others, including the Minister of Health, they also believed that the previous system in which each pharmacist negotiated with pharmaceutical companies on price discounts was only beneficial for the pharmacists themselves. The difference between the price charged by the pharmaceutical company and the standard reimbursement paid by health insurers had always been a sizeable source of revenues to pharmacists, despite policy measures of the Minister of Health to skim these revenues (the so-called claw-back measures).  

Since the early 1990s the revenues of pharmacists come from two sources. They were paid a standard and uniform reimbursement for each outpatient prescription. As an additional source or income, they were permitted to retain the difference between the standard price paid by the insurers and the market price charged by the pharmaceutical company. 

Initiators of idea/main actors

• Government: Supports the policy actively and has taken measures to encourage insurers to put it into practice

• Parliament: Supports the policy in spite of some concerns on the patients' access to outpatient prescription drugs

• Providers: Pharmacists are very opposed and claim that bankruptcies restricting the patients' access to phrarmaceutical care will be unavoidable.

• Payers: Insurers (see above). Note, however, that so far a few insurers have abstained from pursuing a preferred drug policy

• Patients, Consumers: The representative association of patients with chronic illness has expressed its concerns. Its influence is weak.

• Private Sector or Industry: Producers of generic drugs and wholesalers are opposed and started legal but so far unsuccessful procedures to contest the insurers' preferred drug policy.

Approach of idea

The approach of the idea is described as:
new:

Innovation or pilot project

Else - No, but phased introduction taking place this year.

Stakeholder positions

The preferred drug policy is an initiative of the insurers. Pharmacists are very much opposed because of the dramatic loss of revenues they expect. Some pharmacists did already close their business and others expect bankruptcies. In a recent report, the Netherlands Healthcare Authority confirmed the substantial loss of revenues of pharmacists, but it nevertheless did not consider it necessay to raise the standard remuneration per outpatient prescription. Based on this report, the Minister of Health refused to raise the standard remuneration

Actors and positions

Government
Government	very supportive		strongly opposed
Parliament
Parliament	very supportive		strongly opposed
Providers
Pharmacists	very supportive		strongly opposed
physicians	very supportive		strongly opposed
Payers
Insurers	very supportive		strongly opposed
Patients, Consumers
Association of patients with chronic illness	very supportive		strongly opposed
Private Sector or Industry
Wholesalers	very supportive		strongly opposed
Pharmaceutical companies	very supportive		strongly opposed

Influences in policy making and legislation

Only insofar the Minister of Health has taken some measures to enable health insurers to set up a drug preference policy and to put it into practice.

Legislative outcome

n/a

Actors and influence

Government
Government	very strong		none
Parliament
Parliament	very strong		none
Providers
Pharmacists	very strong		none
physicians	very strong		none
Payers
Insurers	very strong		none
Patients, Consumers
Association of patients with chronic illness	very strong		none
Private Sector or Industry
Wholesalers	very strong		none
Pharmaceutical companies	very strong		none

Positions and Influences at a glance

Dimensions of evaluation

Outcome

Results of evaluation

There are indications that the policy is successful. Insurers have managed to reduce the prices of outpatient prescription drugs, in some cases even to 90 percent. The Health Insurance Board found that the costs of pharmaceutical care grew by only 2,6% in 2008 compared to 8.4% in 2007. It explained this drop by referring to the insurers' preferred drug policy.

Expected outcome

The insurers' drug policy has been successful from a financial perspective.

Nevertheless, patients with chronic illness may encounter problems. They may be forced to switch to another preferred drug after the ending of the contract period, if the insurer contracts another provider for the delivery of generic drugs. Asking for reimbursement of a non-preferred drug for medical reasons causes additional bureaucracy for doctors and patients.

Another problem may the accessibility of pharmaceutical care. The Minister of Health has declared that he will closely monitor the accessability of phrmaceutical care. But he also believes that efficiency gains in the pharmaceutical column are possible without impairing accessibility. 

Impact of this policy

Quality of Health Care Services	marginal		fundamental
Level of Equity	system less equitable		system more equitable
Cost Efficiency	very low		very high

References

Sources of Information

• Policy documents and letters of the Ministry of Health
• Reports of the Netherlands Healthcare Authority and Health Insurance Board
• Press publications
• Websites of health insurers

Author/s and/or contributors to this survey

Hans Maarse

Suggested citation for this online article

Maarse, Hans. "Drug preference policy". Health Policy Monitor, October 2009. Available at http://www.hpm.org/survey/nl/a14/1