Implementation of reference prices

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

Abstract

Introduced in France by the Social Security Funding Act, in 2003, reference prices, named TFR (tarifs forfaitaires de responsabilité) aim to encourage the development and use of generic drugs and to reduce pharmaceutical expenditure. The policy introduces a reference price for each generic group based on the average prices of the generics in the same group in French market. This reference price serves as the basis for the reimbursement by the health insurance fund.

Purpose of health policy or idea

• To promote the use of generics
• To reduce health insurance funds expenditures on pharmaceutics: savings of 2,1 billion € are expected before 2007, of which 1 billion from the increase of generics use. Expected savings from the implementation of the first stage of TFR were about 145 millions Euros. For the second step, they are about 40 to 50 millions.
• To allow patients to have access to new treatments while reducing the total pharmaceutical expenditure.

Main points

Main objectives

In France, the promotion of generic drugs began in 1996. Since then a number of measures are introduced to encourage doctors, pharmacists and patients to use generics drugs. The consumption of generic drugs began to increase since 2002, but the overall generic use stayed quite low in France compared with other European countries.

The introduction of the reference prices (« tarifs forfaitaires de responsabilité », TFR from now on) aimed at stimulating patients' demand for generic drugs.

A reference price is set in each "generic group" of products including one brand-name drug and its generics to serve as a basis for the reimbursement to social security fund. Thus, if a patient buys a product in a generic group subject to TFR, s/he has to pay the difference between the actual price of the product and the TFR. The groups of reference price are selected by the Ministry of Health based on the advice of the Economic Committee for Health Products (CEPS). The price is calculated from the prices of available generics in the market.

The TFR have been implemented in three steps, since 2003. First, TFR applied to generic groups for which the market penetration rate of generics was particularly low (between 10% and 45%) at the end of April 2003. This was the most important step and concerned 450 medicines. In August 2004, the Ministry of Health has decided that the TFR will cover those generic groups in which the penetration rate is lower than 50% or lower than 60% for the molecule with high sale levels. The Ministry also decided that TFR can be implemented in generic groups for which the market share do not increase after two or three years. In any case, TFR can not be set for generic groups in the first year of the group definition. In September 2005, five more TFR are introduced for 3 brand names.

Groups affected

Pharmacists, Patients, Pharmaceutical industry

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

Political and economic background

The major draw behind this reform was the necessity to reduce the national health expenditures: savings of 15 billion Euros are expected before 2007. Savings of 2,1 billion Euros are expected on pharmaceutical expenditure, of which 1 billion due to the use of generics. Since 1999, different measures have been implemented in the pharmaceutical market, particularly to foster the use of generics drugs. In 1999, two important measures were introduced in France for increasing the generic use: first, the pharmacists are given the right to substitute the branded drugs with the generic ones (Social Security Funding Act of 23/12/1998 - article 29); second, an official agreement (additional protocol of 28/04/1999) between the government and the pharmacists' union introduced a financial incentive for the pharmacists for providing generic drugs by equalizing profit margins realized on brand-names and on generic products. Note that in France, the profit margins of pharmacies depend on the price of the product and are calculated by the formula mentioned in the box below: the higher is the price, the lower is the rate of margin. Moreover, the manufacturers are allowed to provide higher discounts to pharmacists on generic products (10,7% of the manufacturer price) compared with 2,5% for brand name products). (Social Security Funding Act for 1999 - sixth paragraph of article 29). 

These measures are part of a wider pharmaceutical policy which includes delisting of products, decreasing rates of reimbursement of other products, price cuts and diminution of pharmacists' profit margins in  2004. 

In 2004, the part of generics drugs in the total reimbursed drugs was 12% in volume ; government aims to rise this to 23% in 2007.

Between the 1st September 1999 and the 12 February 2004, the pharmacist margin for a drug had two components:

1    A fixed sum: 0,53 Euros before tax (increased to 0,84 euros before tax for antiretroviral drugs, hepatitis C drugs, drugs with limited prescription, exceptions drugs, substitutions drugs and narcotics)

2    A variable part : 26,1% for the part of the manufacturer price before tax (PFHT) comprised between 0 and 22,87 Euros. 

10.0% for the part of PFHT > 22,87 Euros

 

Since the 12/12/2004, a new margin is effective with a third bracket:

A variable part:

26,1% for the part of the manufacturer price before tax (PFHT) between 0 and 22,90 Euros  

10.0% for the part of PFHT between 22,90 Euros and 150 Euros.

1    6% above 150 euros

Fixed sum : 0,53 Euros for all drugs.

Purpose and process analysis

Current Process Stages

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

Origins of health policy idea

Germany and the Netherlands pioneered reimbursement policies for drugs based on reference prices, and several other countries followed them. Though these policies leave drug manufacturers free to set their own prices, they allow public authorities to control drug-reimbursement costs and put high pressure on brand-name prices.

In 2000,  IRDES (which named at this time CREDES) was asked by the French Ministry to assess the German and Dutch policies. IRDES concluded that reference price policies had little impact on pharmaceutical expenditures, partly because of increases in prices of drugs which are not subject to reference pricing. The overall impact on drug expenditures was modest, obliging governments to seek other means of curbing expenditures.

It's important to note that the TFR in France are more restricted than in Germany or in Netherlands: TFR are set only for a generic group (one brand name products and its generics) and not for a group containing different competing products as in Germany. Also TFR cannot be introduced for drugs under patent as in Germany.

Initiators of idea/main actors

• Government

Approach of idea

The approach of the idea is described as:
renewed:

Stakeholder positions

Pharmacist

Since 1999, pharmacists have the same profit margin, whether they deliver a brand-name drug or one of its generics. The main outcome of the implementation of TFR is that the majority of manufacturers have reduced the prices of brand name medicines in order to match the generic prices. The only incentive for pharmacists to substitute in generic groups subject to reference price is the higher discount rate granted by the manufacturers on generic sales. Pharmacists claim that they are actually worse off in terms of their overall earnings.

Clearly, the manufacturers of brand name products are opposed to the TFR. This measure forced them to reduce their prices in order to compete with  generics and to keep their market shares.

The manufacturers of generics products were initially opposed to reference pricing, arguing that decreases in brand-name drugs prices may reduce generic market shares and hence harm generic producers. However, they gradually changed attitude as they have seen that the impact of TFR on generic market growth was rather neutral.

The complementary insurance companies were very supportive of TFR as they do not reimburse the difference between price of a brand name medicine and the TFR.

For the patients, there is a clear financial incentive to consume generics.  This reduces the choice for patients between brand-name and generic drugs, but there was no significant reactions (negative or positive) from patients.

Actors and positions

Government
Social security fund	very supportive		strongly opposed
Pharmaceutical industry	very supportive		strongly opposed
Patients	very supportive		strongly opposed

Actors and influence

Government
Social security fund	very strong		none
Pharmaceutical industry	very strong		none
Patients	very strong		none

Positions and Influences at a glance

Adoption and implementation

The average substitution rate in generic groups subject to TFR was about 47% in October 2004, while the average substitution rate in other generic groups was 60% (this rate was 30% in 2002).

But the substitution rate is higher in generic groups where brand name products did not cut their price to the level of generic prices: 73% against 41% in those groups where there is no significant price difference between generic and branded products. 

In August 2003 (a month before the introduction of the first TFR), market shares of generics in groups concerned was only 20%. As early as September 2003, the rate of generics in the market increased and reached to 50% in October. After October the repartition of sales between brand name and generics remained constant.

Monitoring and evaluation

There is no study assessing the overall impact of TFR implementation on the pharmaceutical market. The overall market share of generics was quite modest in 2003. It is estimated that if all the brand name products adjusts their prices on the TFR, the health insurance funds would economize between 105 and 110 million Euros.

At the end of 2003, there are 124 molecules with at least one generic in French market. The potential of savings is between 300 and 370 million Euros assuming that all the molecules are reimbursed at the price of generics.

Expected outcome

The expected outcome is a reduction in total pharmaceutical expenditure, due both to higher rates of substitution of generic drugs and decreases in the prices of brand name drugs.

The main consequence of the first step of TFR was that 70% of producers of brand name medicines reduced their prices in order to save their market shares.

Consequently, with the adjustment of prices, pharmacists experienced financial losses in margins.

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

The adjustment of prices of brand name on prices of generics is interesting in the short term but restrict the penetration of generics in the long term, and can reduce the substitution rate (see, report 2004 of the court of account). The court of Account considers that a better incentive to improve generics prescription is to improve the quality of the prescription softwares which helps physicians in selecting appropriate generic alternative in treatment.

References

Sources of Information

The list of TFR in France are available for consultation in www.sante.gouv.fr/htm/dossiers/accord_med/liste_tfr.xls.

note of health ministry of 03/08/2004 available on www.sante.gouv.fr/ceps/doc/genetfr.htm.

Notes mensuelles sur le marché des génériques; LEEM.

Génériques et Tarif forfaitaire de responsabilité: données chiffrées à juin 2003 ; LEEM - août 2003.

Les enseignements de la 1ère vague de TFR sur le développement des médicaments génériques - Union des syndicats de Pharmaciens d'Officine - décembre 2004.

Génériques: 2004, l'année charnière - dossier d'impact pharmacien de février 2004.

Le TFR ne tue pas le générique - interview de Noël Renaudin dans le moniteur des Pharmacies.

Author/s and/or contributors to this survey

Nathalie Grandfils

Suggested citation for this online article

Nathalie Grandfils. "Implementation of reference prices". Health Policy Monitor, October 2005. Available at http://www.hpm.org/survey/fr/a6/4