Price regulation on pharmaceuticals

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

Abstract

The Minister of Health and The Danish Association of the Pharmaceutical Industry (In Danish: Lægemiddelindustriforeningen, Lif) have agreed on establishing a price cap on pharmaceuticals that are sold to the publicly owned hospitals. The price cap applies from July 2009 until December 31, 2012. During this period the Minister of Health is required not to make any changes that may affect the market conditions for pharmaceuticals in a significant way.

Purpose of health policy or idea

To introduce a price cap on pharmaceuticals that are bought by the publicly owned hospitals.

Main points

Main objectives

The Minister of Health and The Danish Association of the Pharmaceutical Industry (In Danish: Lægemiddelindustriforeningen, Lif) have agreed on establishing a price ceiling on pharmaceuticals that are sold to the publicly owned hospitals. The price cap applies from July 2009 until December 31, 2012. Furthermore it is agreed that members of Lif reduce the prices of their products to the prices of these products as of May 18,  2009. This defines the price ceiling for 2009. As of January 1, 2010 the price ceiling is reduced by an additional five percent. This price cap applies for the remaining period that is covered by the agreement. For pharmaceuticals which will be introduced during the agreement period it is agreed that the price cap is defined as the average price in the following nine countries at the time of launch in Denmark, Sweden, Norway, Finland, Great Britain, Ireland, Germany, The Netherlands, Belgium and Austria. The average price will be estimated regardless of  how many countries in which the product is marketed. However, the price ceiling is not established before the product is marketed in at least three of the countries mentioned above.

Only products that are dispensed at hospitals are covered by the agreement. Thus, products that are sold at community pharmacies (i.e. in the primary health care sector) with a general subsidy are not covered by the agreement. Lif is one of three branch organisations represented in the Danish pharmaceutical market. Lif currently has 39 members. Members include for example Pfizer and Novo Nordisk. The two other branch organisations that organise generic producers and parallel importers are not part of the agreement.

The agreement between the Minister of Health and Lif follows on a year long tradition between these two parties to agree on price ceilings for prescription drugs sold in the primary sector with a general subsidy. According to these agreements prices on these drugs are not allowed to exceed the price as of August 30, 2006. However, it has recently been agreed that the price ceiling on these drugs are to be increased by two percent as of January 1, 2010 and 2011. 

Thus, whereas it is agreed that prices on pharmaceuticals sold to public hospitals shall be reduced until the end of 2011, prices on pharmaceuticals sold in the primary market are allowed to increase.  

In both agreements when regulating the price ceilings in the hospital sector and the primary sector, the minister of health is required not to make any changes that may affect the market conditions for pharmaceuticals in a significant way. This include introduction of price control, and, furthermore, in the primary sector, generic prescription and principal changes in the reimbursement and substitution of pharmaceuticals.      

Type of incentives

Financial

Groups affected

Pharmaceutical companies, Minister of Health, Hospitals

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

It is new that the minister of health and part of the industry now make an agreement regarding the prices of hospital medicine. As stated above there is a year-long tradition for doing it in for pharmaceuticals that are sold in the primary sector. Thus, making such voluntary agreements is not as controversial as  the alternative of the governement introducing price regulation by law. The agreements preclude structural changes of the Danish pharmaceutical market. The agreements are publicly available.

Political and economic background

Purpose and process analysis

Current Process Stages

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

Origins of health policy idea

In 2008 the total turnover of pharmaceuticals in Denmark amounted to 20 billion DKK. The publicly owned hospitals share of this amount was one third. Since 2000 the turnover of pharmaceuticals has increased, and in particular in the hospital sector. Where the turnover in the primary sector has increased by 50 % from 2000 to 2008, the turnover of pharmaceuticals in the hospital sector has trippled during the same period. Based on the increase in the turnover of pharmaceuticals the minister of health and prevention set up a commision  to investigate how the hospitals' expenditures for pharmaceuticals could be reduced. A part of the commission prices on pharmaceuticals that are used at Danish hospitals were compared to prices in five countries. Based on this it was concluded that the Danish regions who own the hospitals may reduce their expenditures by 100-200 million DKK per year if a price cap on pharmaceuticals similar to the system in Norway was introduced.  

Based on this the commission recommended that a reference price system was introduced in Denmark.

Initiators of idea/main actors

• Government

• Private Sector or Industry

Approach of idea

The approach of the idea is described as:
new:

Actors and positions

Government
Minister of Health	very supportive		strongly opposed
Danish Regions	very supportive		strongly opposed
Private Sector or Industry
Danish Association of the Pharmaceutical Industry	very supportive		strongly opposed

Actors and influence

Government
Minister of Health	very strong		none
Danish Regions	very strong		none
Private Sector or Industry
Danish Association of the Pharmaceutical Industry	very strong		none

Positions and Influences at a glance

Expected outcome

It is expected that the publicly owned hospitals will save up till 200 million DKK in 2010 because of the introduction of the price cap. Over the entire period 2010-2013 it is expected that the hospitals will save 700 million DKK.

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 turnover of hospital medicine was about four billion Danish Kroner in 2007. The expected savings from the price cap make up about five percent of the annual turnover.

References

Sources of Information

The Ministry of Health and Prevention, http://www.sum.dk/IMEVEREST/Publications/imdk%20x2D%20dansk/Prisaft_laegemiddelomr/20090604135557/CurrentVersion/Aftale%20om%20prisloft%20og%20prisreduktioner%20for%20lægemidler%20til%20sygehuse_04-06%202009.pdf.

Lægemiddelindustriforeningen, http://www.lifdk.dk/graphics/Lif/dokumenter/PDF/Hospital%20prices%20agreement%20june%2009.pdf

Ministeriet for Sundhed og Forebyggelse. Analyse af sygehusmedicin. Rapport fra arbejdsgruppen om sygehusmedicin. May 2009. Available at http://www.sum.dk/IMEVEREST/Publications/imdk%20x2D%20dansk/Sygehusmedicin/20090525125320/CurrentVersion/Rapport.pdf

COWI.Analyse af sygehusmedicin i udvalgte lande

Erfaringer fra Sverige, Norge, England, Tyskland, Holland og Danmark

samt kort gennemgang af Frankrig og Canada. February 2009. Available at http://www.sum.dk/IMEVEREST/Publications/imdk%20x2D%20dansk/Sygehusmedicin/20090525125403/CurrentVersion/COWI_Analyse_sygehusmedicin.pdf

 

Author/s and/or contributors to this survey

Christian Kronborg

University of Southern Denmark, Institute of Public Health, The Health Economics Research Unit

Suggested citation for this online article

Christian Kronborg. "Price regulation on pharmaceuticals". Health Policy Monitor, November 2009. Available at http://www.hpm.org/survey/dk/a14/2