Generic substitution of prescription drugs

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

Featured in half-yearly report: Health Policy Developments Issue 2

Abstract

To contain the increasing costs, improve cost-effectiveness of prescription drug use, and encourage price competition among pharmaceutical producers, the Finnish government introduced a generic substitution system obliging pharmacies to substitute a prescribed drug with the cheapest/close to the cheapest corresponding one at the list of substitutable pharmaceuticals.

Purpose of health policy or idea

• The main objectives of the introduction of generic substitution are to improve cost-effective use of medicines and to encourage price competition in order to contain the rapidly increasing costs of prescription drugs and its burden to the national health insurance.
• The pharmacies are obliged to substitute a prescribed drug with the cheapest or close to the cheapest corresponding medicine of the same pharmaceutical substance included in the list of substitutable medicines issued by the National Agency for Medicines. The price limits for generic substitution for each pharmaceutical substance are defined in every three months by the Social Insurance Institution (SII) managing the national health insurance. The SII calculates the maximum price by adding 2 euros to the price of the cheapest product at that moment (and 3 euros if the price is more than 40 euros). The pharmacies offer to substitute a prescribed medicine which costs more than the defined maximum with a product costing less than the maximum.
• The prescribing doctor may decline generic substitution for medical or therapeutical reasons. The patient does not need any reason in order to decline substitution and he/she is refunded by the national health insurance according to the actual costs of the prescription.
• Before the introduction, the theoretical maximum savings due to generic substitution were expected to be about 2.5% of the total costs of medicines in Finland.
• Due to high co-payments for prescription drugs, generic substitution lowers also the patients' medicine costs.
• The main focus is in pharmaceutical companies which encourage to increase price competition. The reform hits the companies selling established brand names which do not have patent protection anymore but which are overpriced due to their strong market position.

Main points

Main objectives

1. cost containment of increasing prescription costs;
2. legal obligation to generic substitution of listed prescription drugs.

Type of incentives

1. legal obligation for pharmacies to follow generic substitution;
2.  savings for patients in their drug expenditure;
3. encouraged price competition for pharmaceutical companies.

Groups affected

pharmaceutical companies, patients, pharmacies

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

• The introduction of generic substitution may be an exception in the Finnish pharmaceutical policy tradition. The reform was followed through although it was strongly opposed by pharmaceutical industry and criticised by medical profession and pharmacists.
• After the adoption of the reform, and reports on drug price reductions and generated savings, the media has covered the reform more actively than during the preparation and parliamentary proceedings of the reform. The coverage has been mainly on price cuts and savings but the situation of pharmaceutical companies has also been reviewed.

Political and economic background

• Like other countries the expenditure for medicines is the fastest growing item in the health expenditure in Finland. The annual increase has been 10-12% during the last decade. 
• According to earlier legislation there was an option for generic prescription but doctors have used it marginally. Before the introduction of generic substitution, cheap generic drugs made only 3% of the retail sells of pharmaceuticals in Finland. However, locally produced, heavily marketed and rather expensive branded generics have historically had substantial share of the market.
• Generic prescription has been considered as one measure to contain costs of medicines and to improve cost-effectiveness of drug utilisation in several occasions by the policy documents and working groups of the Ministry of Social Affairs and Health.

Purpose and process analysis

Current Process Stages

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

Origins of health policy idea

Generic prescription and substitution are used in several countries. A closest example for Finland is Sweden where generic substitution was introduced in October 2002. The idea was adopted by the Ministry of Social Affairs and Health who has been the main proponent of the reform.

Approach of idea

The approach of the idea is described as:
renewed: In Finland, the generic prescription has been possible earlier but the obligatory generic substitution by the pharmacies was an innovation. A similar reform was introduced in Sweden in 2002 .

Stakeholder positions

• The legislation on obligatory generic substitution was strongly opposed by pharmaceutical industry which was supported by the Finnish Medical Association and some prominent representatives of the profession. The organisation of the pharmacies opposed the legislation because of a higher expected work load and longer service times / customer. Some patient organisation also criticised the reform.
• During the legislative process, the pharmaceutical industry was lobbying very prominently which somewhat irritated the legislators and the Ministers. After the Bill was passed at the Parliament the industry continued their campaign and lobbied doctors and patients.

Influences in policy making and legislation

• The amendments for the laws on medicines and health insurance were passed in the Parliament in late 2002.
•  No significant changes were made to the original draft bill.

Legislative outcome

success

Adoption and implementation

• The pharmacies have a legal obligation to offer generic substitution for patients. The implementation of the legislation has been dependent on patients (whether they accept substitution) and on doctors (whether they actively oppose generic substitution by denying it in prescriptions).
• According to the statistics based on reimbursement data and published by the Social Insurance Institution, generic substitution has adopted well. During the first six months (April-September 2003) of generic substitution the patients forbade substitution in 10.6% of potential substitutable prescriptions. This proportion has gradually decreased after the introduction of the reform. Surprisingly, the physicians forbade the substitution in only 0.4% of the cases and in over 70% of potentially substitutable prescriptions the physicians already prescribed a cheap enough generic alternative not calling for substitution.
• The introduction of generic substitution has also had an unexpectedly strong influence on competition between pharmaceutical companies. In the first four months of generic substitution the companies decreased the prices of about 40% of 1900 substitutable products. The price decreases have also been higher than expected. For instance, the average cost per prescription of alternative products of three ACE inhibitors (drugs to treat high blood pressure) included in generic substitution decreased by 26-49% in the first three months of the reform. The corresponding decrease for the only substitutable statin used to treat high cholesterol was 30%. The prescription costs of non-substitutable pharmaceuticals in the same therapeutical groups did not change or they slightly increased.

Monitoring and evaluation

• The use of generic substitution, sells of generic drugs and other experiences on the system are followed as normal activity of relevant government agencies. For instance, the Social Insurance Institution running the national health insurance has published monthly statistics on generic substitution. However, no specific formal review mechanism of the reform exists.
• Due to the smooth adoption of generic substitution by the patients, doctors and pharmacies and particularly due to increased price competition, the savings generated by the introduction of generic substitution have been higher than expected. The anticipated savings due to substitution in the preparation of the reform were 45 million euros corresponding to 2.5% of the total prescription costs. In only the first six months, the actual savings generated have been 39.4 million euros of which about two thirds were generated by drug price reductions and one third by actual substitutions to cheaper products. It is estimated that the first year savings will be nearly twice the expected. 44% of the total savings have lowered the patient's share of prescription costs and the rest, 56%, have reduced reimbursement payments by the national health insurance.
• The pharmaceutical industry is expecting that the growth rate of pharmaceutical sales will decrease due to generic substitution. For 2003, the industry anticipates an increase of 5% in their total sales, which is about half of the growth rate in 2002. The companies selling high priced products with generic alternatives have been losers. In several companies, the reform has even resulted decrease in sales. One of the losers is the only substantial Finnish company which has much based its market profile on highly priced generic products with established brand names. The company has given a notice for about 300 of its employees in 2003.
• As a whole, the principles of the Swedish and Finnish generic substitution systems are much alike and the experiences from the introduction of substitution are also similar. In Sweden, a slightly higher proportion of doctors (3%) but a smaller proportion of patients (8%) declined the substitution in the first six months of generic substitution than in Finland. While the price reductions of substitutable products have seemingly been slightly lower in Sweden than in Finland, the first year savings generated by substitution are estimated to be relatively larger in Finland corresponding 5% of the total prescription costs compared to 2% in Sweden.

Expected outcome

• According to first experiences it is obvious that generic substitution have been so far adopted more smoothly and the attitudes of medical profession have, as a whole, been less hostile than expected.
• The expected savings have also been larger than expected: the first year estimate is about 5% of total prescription costs. This is mainly due to intensive price competition between pharmaceutical companies but in addition the physicians and patients have accepted the reform better than expected. 
• On the long run, the outcomes of generic substitution are difficult to predict. Some experts have claimed that the reform may only have a short-term effect on pharmaceutical expenditure. After a short slowing down of the growth of the expenditure due to price reductions, the growth rate assumes the earlier trend because fundamental factors behind the fast increasing expenditure have not changed. The markets may divide somewhat differently from the pre-reform situation; companies selling low price generic products sell more. However, the expenditure growth, which has mainly been based on the introduction of new expensive patent protected pharmaceuticals, may still continue.
• It is also expected that the role of patent protected medicines will increase as pharmaceutical industry will focus on patented drugs in its marketing.

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

• It may be confusing that the ratings for the questions 6, 7 and 8 are not on the same scale. There is no negative end in the scale for the questions 6 and 8. I think there should be.
• Generic substitution is neutral in terms of equity and it is difficult to see that it could have any clear impact on quality of care but it lowers the cost of drug treatments for a number of diseases, thus it should have at least some effect on cost-efficiency.

References

Sources of Information

Most material is in Finnish. A short description and statistical information on the outcomes of the generic substitution system can be found at the web page of the Research Department of the Social Insurance Institution of Finland (www.kela.fi).

Reform formerly reported in

Generic Substitution of Prescription Drugs Process Stages: Implementation, Legislation

Author/s and/or contributors to this survey

Ilmo Keskimäki and Lauri Vuorenkoski

Suggested citation for this online article

Ilmo Keskimäki and Lauri Vuorenkoski. "Generic substitution of prescription drugs". Health Policy Monitor, Oktober 2003. Available at http://www.hpm.org/survey/fi/a2/2