The great European drug problem

Europe has a drug problem — and it has nothing to do with illegal narcotics.

Today’s new medicines come with a dangerous side effect, says Sascha Marschang of the European Public Health Alliance: “financial toxicity.” His is just one voice among a mounting chorus of denunciations of drug industry exploitation of patients and the public purse. Indictments of EU impotence have become a routine feature of European Parliament debates on pharmaceutical policy.

Even the normally reserved EU Health Council responded to the recent rash of high-priced product launches with a statement of barely-concealed alarm: “Due to the very high prices of some innovative medicinal products in relation to their benefit to patients and to the public health expenditure capacities of some member states, patients do not always have access to innovative treatments.”

Against the background of an ever-more urgent search for sustainability in health care, the calls for a solution grow louder every day, and the list of obvious questions grows longer. Why are medicines so expensive? Why doesn’t the EU intervene to fix prices? Why don’t countries work together to force down drug prices?

But the deeper the discussions go, the harder it becomes to identify solutions. The apparently simple proposition that European patients should receive the medicines they need whenever they need them runs up against almost insurmountable obstacles as soon as the principle needs to be turned into practice.

The new challenges that all health systems face are well-rehearsed: they are having to fund ever-growing demands for ever-more expensive treatments from an ever-older population, all at a time of persistent austerity. And in parallel to the wider problems of health systems, the complexities that bedevil the mechanisms for pricing medicines are so numerous that they have, so far, baffled all attempts at breakthrough solutions — rendering any talk of cooperation and collaboration almost meaningless.

A different approach for all

Every European country makes its own decisions on pricing and reimbursement of the medicines it allows onto its national market, and no two countries do it the same way. Countries allocate their own health care budgets and follow their own priorities — based on a wide range of factors, including national wealth, national disease patterns, cultural tradition, and broader areas of government policy.

Similarly, the decision-making apparatus varies widely, with some countries handling pricing and reimbursement within a single government body, such as in Italy, while others split responsibilities between health ministries, insurance agencies, or regional governments.

Most of them make their decisions looking over their shoulder at what is happening in other member states, because each of them wants the best deal. But none of them really knows much about what is happening in the other countries. So even if most of them set their prices by trying to make comparisons with the price in other countries, the information they have is often insufficient, and the methods they use for making their comparisons vary dramatically.

Some use comparisons only for new products, others use them for a wider range of medicines. Luxembourg systematically refers to just one other country — but Poland and Hungary refer to dozens, while others make only occasional comparisons. Slovakia calculates an average of the lowest three countries in its basket, while Bulgaria and Romania use just the lowest price.
Sometimes the price charged by the manufacturer is used as the reference, but in other cases it is the price the wholesaler charges to the pharmacy — calculations complicated not only by the fact that pricing and reimbursement arrangements for the hospital sector often differ from those for primary care, but also by the existence of differently sized packs from country to country.

Some countries use the reference as the principal price-setting criterion, while others take account of other factors, such as an assessment of the medicine’s clinical merits. On top of that, currencies still vary across much of Europe, with exchange-rate volatility adding another variable to any comparison.

The reference-price system

Aliénor Devalière, policy advisor with the campaigning organization Health Action International in Brussels, says the reference-price system risks leading to relatively higher prices in countries with a lower GDP.

She says “there is some evidence that using external reference pricing has led to upward convergence of prices in the EU.” Other research suggests it may save some money in the short term, but does little to improve patient access to medicines. And the industry body representing generic medicines, EGA, says the method “is not appropriate to set generic medicine prices,” because it risks creating shortages when it drives prices down to unsustainable levels for manufacturers.

Some of the deficiencies are evident. Even identifying the price charged in another country is far from easy. Prices are not always published, and not always up-to-date when they are. Above all, many prices are reached in confidential negotiations between the manufacturer and a national pricing authority, where discounts, rebates or other special conditions are agreed on an individual product or even on a range of products.

Nearly all countries negotiate discounts. France secured Europe’s lowest price for treatment with the drug that precipitated much of the current debate on pricing, the so-called “miracle drug” for hepatitis C, Sovaldi: it pays €41,000 for a 12-week course, compared to €77,000 in the United States. Such pacts are increasingly common: the U.K. cost watchdog NICE is paying Celgene for its multiple myeloma drug for two years in a deal that requires the drugmaker to then pick up the tab for patients still needing treatment.

A push for transparency

These deals and the secrecy attached to them are the target of constant criticisms. The European Public Health Alliance speaks of “the black box of medicines’ pricing” and has called on the EU to promote greater price transparency between member states. The drug industry defends the confidential nature of the agreements, claiming that the discounts, the prices conditioned by volume sales, or the agreements to share risks of development between company and payer are all designed to adapt prices to the purchaser’s ability to pay. It argues that the confidentiality is necessary in a context where countries choose to base prices on comparisons.

“Confidentiality offers the possibility of ensuring that low income countries have access to some medicines without questioning the higher prices in force in other member states,” the pharmaceutical industry group said in a recent comment to the European Commission. If the details of these deals were going to leak out, companies might not be prepared to cut them in the first place, and that — the industry has intimated — could leave patients in poorer countries deprived of new medicines.

EPHA rejects industry assertions that payers love secrecy because they get discounts, and disputes the suggestion that price confidentiality guarantees have widened access to medicines. Instead, it wants to tear away “the shroud of secrecy that surrounds price negotiations between pharmaceutical companies and member states,” starting with greater transparency on how a price for a medicine is calculated in the first place, even before discounts are discussed.

There is wide distrust of industry claims that higher prices are needed to fund further research — claims that have suffered from the negative publicity surrounding recent dramatic price-hikes in the U.S. for medicines no longer covered by patents. Aliénor Devalière at HAI wants the European Commission to demand more transparency particularly around medicine prices and research and development costs.

Critics are fortified by research — cited recently by Médécins sans Frontières — suggesting that the production costs of Sovaldi are just $101 per treatment course. There are also reports that a local generic version of the product is available in Egypt for around $350, and getting cheaper all the time.

Gregg Alton, executive vice president at Gilead Sciences — the company that makes the ‘miracle drug’ for hepatitis C — at a press conference in New Delhi announcing that his company has signed generic licensing deals with seven India-based companies to increase access to its costly drug


The European Association of Hospital Pharmacists similarly urges improvements in transparency and disclosure about pricing, so as to “allow the public to know how their taxes are spent and to improve public scrutiny of healthcare expenditure.” Two leading groups of European health insurers also called last month for closer involvement in setting companies’ R&D budgets and for more transparency in spending.

EFPIA says it is committed to publishing more information about how much research is done and how much companies invest in innovation. But in a market that is currently driven, for good or ill, by supply rather than by demand, this is likely to provide only a partial answer: R&D costs are notoriously difficult to assess, and still harder to predict, leaving plenty of scope for diverse interpretation.

Some industry figures take a blunter approach to the debate. EFPIA’s director-general, Richard Bergström, insists that there must be a balance between access to medicines and promoting innovation. The price of a drug reflects not just its own development costs but also has to feed a cycle of innovation to ensure that new products emerge for still-unmet needs.

And privately, industry executives ask how else innovation might be driven if the supply-driven approach were to be replaced by a demand-side approach. “What would public authorities be prepared to put up for a treatment for Alzheimer’s?” one ruminated. “A billion euros? Ten billion? Would that work? Would that guarantee a better deal?”

The continued prominence of the reference system for price setting means that attempts are being sought urgently to remove its handicaps and improve its performance.

The EU’s Working Party on Public Health at Senior Level has called for an exploration of ways that could help in price-fixing “and at the same time avoid (some of) the clear disadvantages” that are connected to the current use of reference pricing. One of the suggestions currently under study is a central pricing database that could make it easier and faster for countries to make comparisons.

And as the European doctors’ organisation, CPME, points out, a database would have to include discounts and other price reducing arrangements to be effective. But this runs straight into the difficulty that countries, just as much as companies, are keen to maintain confidentiality as the price of securing their individual deals. Greater pricing collaboration between member states has also been recommended, including by EU health ministers — but the slow progress of the only tentative step in that direction so far, between the Netherlands and Belgium and Luxembourg, is demonstrating how difficult that is even for a limited group of countries and a limited range of products. And Germany has firmly indicated that it has no sympathy for that approach.

Alternative methods are also being considered. Differential pricing, in which a product’s price is tiered according to a country’s ability (or willingness) to pay, has some industry support, but it presents technical difficulties — notably that it would be circumvented and sabotaged in Europe’s single market by parallel traders buying cheap in low-priced countries to sell on in countries with higher prices.

It would also depend on the maintenance of confidentiality over the differentials applied, unless some agreement could be reached on a central price and specified discounts according to each country’s wealth — two calculations heavily fraught with variables and value judgements.

Differential pricing also draws fire from EPHA, which sees it as “an arbitrary and utterly untransparent mechanism which allows manufacturers to control, unilaterally decide and impose the prices they desire in a fragmented market.” Aliénor Devalière also views it as essentially a commercial strategy that “allows firms to maximize profits.”

Hopes of a solution through joint procurement — another frequently-cited option — could be realized only through a policy shift to allow the new EU mechanism to expand beyond emergency supplies for tackling cross-border threats — and no such shift is currently in view. And while a further alternative, which would de-link R&D from pricing, through perhaps collaboration among patent-holders, or through grants or prizes, is gaining some traction in relation to developing countries’ neglected diseases, it has yet to offer promise for mainstream drug development in Europe.

The hospital pharmacists’ association calls for “more rational and appropriate use of medicines” to promote better patient compliance and reduce over-prescription. Health Action International calls candidly for compulsory licensing. And the research-based industry’s approach leans increasingly towards linking price with outcomes rather than products — a challenging concept that will require the development of a great deal more trust in the industry than it currently enjoys in a world that tends to view it with suspicion.