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Downward price pressure in CEE countries – too far, too soon?

11 December 2013 Brendan Melck

In the four countries of central and eastern Europe (CEE) that make up the so called Visegrad 4 group - Poland, Hungary, Slovakia and the Czech Republic - the past couple of years have witnessed significant price reductions for many drugs, affecting both generics and originators. In 2011-12, regulators and lawmakers in these countries put new legal amendments into place that have led to price decreases, almost in a synchronised way. In fact, in early 2011, the health ministers met in Bratislava just as they were all preparing various cost-containment proposals for state pharmaceutical spending. Now, two and a half years on, we can see the results.

The backgroundPoland
The 2012 implementation of the Reimbursement Act created a revolution or sorts in the pharma market for the group's largest and most populous nation. Price negotiations between Ministry of Health teams and producers, as well as updates to the reimbursement list (resulting in more frequent additions of new, cheaper generics, putting pressure on the prices of those already on the list) have helped to bring prices down significantly. At the same time, the act meant that the number of reference-pricing groups was reduced. The remaining groups were broadened into what have been called "jumbo" reference groups, making originators (even those still protected by patents) vulnerable to inclusion in the same group as substantially cheaper generics.

Hungary Hungary's pharma industry, already hit hard from the Pharma Economic Act which came into effect in 2007, came under even more pressure in 2011. New measures came into play that sought to put further downward price pressure on suppliers of reimbursed drugs. The introduction in 2011 of new price thresholds (above which the full reimbursed amount is not available) together with the blind-bidding tender system for reimbursed medicines (under which suppliers have to submit closed bids with no possibility of reference to competitors' prices for the right to supply a particular medicine for a six-month period) have exerted significant downward pressure on prices.

Slovakia In Slovakia, which had previously been one of the largest spenders on medicines as a proportion of its GDP among OECD countries, the process began 2008/9. It began with the tightening of the international reference pricing (IRP) system, and it intensified with the legal changes introduced with amendments to two key pharmaceutical laws at the end of 2011. In particular, the introduction of a monthly 'categorisation' procedure (in which drugs are categorised for reimbursement on the basis of percentages), allowed new generics to enter the market on a monthly basis, has combined with the new stricter implementation of IRP to bring very low prices in Slovakia. The introduction in 2012 of a therapeutic clustering system, applied to selected drug groups, has exacerbated the situation.

The Czech Republic In the Czech Republic, changes to laws introduced in 2011/12 have also resulted in price reductions. These include the introduction of an abbreviated administrative procedure for generics entering the market, making it possible for new (and cheaper) generics to enter the market much more quickly, and the application of a new IRP system, including a greater number of lower-priced reference countries. Added to the fact that many of the drugs on the Czech reimbursement list have undergone pricing and reimbursement reviews by the state regulator in 2008-11, resulting in very considerable reductions in prices in many instances, drug prices have been under some major downward pressure.

The results of the regulationPoland
In Poland, the Reimbursement Act resulted in an initial 8% cut in average prices of reimbursed drugs following the first price negotiations. And considerably more reductions with each two-monthly update to the reimbursement list following its implementation. These factors have resulted in a huge surge in parallel exports of medicines, with the value of parallel exports in 2012 estimated by IMS Health to have reached PLN2 billion (USD645.9 million). Legislation to prevent medicines in short supply in the country - resulting from increased parallel exports - has been drafted, although not yet implemented. Insulins, anti-epileptics, drugs to treat high cholesterol, and asthma treatments are all among those reportedly affected by shortages due parallel exports from Poland.

Hungary
In Hungary, legal amendments to guard against parallel exports leading to drug shortages in the country were brought into law in July 2013. Meanwhile, in February, the Hungarian pharma association, Magoyosz, estimated that since October 2011, the blind-bidding tender system had resulted in average price reductions of 18.76%. Currently, major domestic pharmaceutical producers are reported to be in negotiation with the government to ease the rules of the system, stating that they are not able to compete with producers from lower-cost nations.

Slovakia
In Slovakia, regulations to control parallel exports were brought into force at the beginning of 2013. The country faced perhaps the most high-profile problem with this phenomenon of all four considered here. In May, the state drug regulator placed temporary bans on the export from the country of four drugs - epilepsy treatment Lyrica (pregabalin; Pfizer, US), anticoagulant Inspra (eplerenone; Boehringer Ingelheim, Germany), blood thinner Clexane (enoxaparin; Sanofi, France) and Parkinson's disease treatment Azilect (rasagiline; Teva, Israel). Recently, the Slovak Chamber of Pharmacists has warned about the scarcity of up to 200 products, while the Slovak MoH has brushed off the reports.

Czech Republic
In the Czech Republic, where parallel exports regularly reach one-fifth of the market's total value, legal measures have also been introduced. The state drug regulator monitors the supply of drugs and keeps a particularly watchful eye on pharmacists/distributors who export medicines that are officially destined for use inside the country.


Whither the battle against parallel exports?
These "solutions" are not likely to provide lasting or satisfactory solutions. Retailers and wholesalers may turn to parallel trade because low prices have hit their margins to such an extent that it becomes a useful way for them to maintain their profitability. In an integrated regional market, such as the EU, where the rights of free movement of goods and services are sacrosanct, this open-market principle will always be in contradiction - to some extent - with the aspirations of payors in individual nations. Particular those with lower GDP per capita and lower purchasing power.

Equally, payors (and therefore governments) in higher-price countries -particularly Germany, where many of the drugs parallel exported from the Visegrad countries go and where a statutory amount of medicines dispensed by pharmacies must come from parallel imports (5%) - are only too happy with the status quo.

Downward price pressure - the longer-term impact
In terms of the Visegrad 4 countries and their drug prices, there are unlikely to be significant changes the regulatory outlooks of each country in the foreseeable future. It's important to note the exception in in Hungary, where the huge importance to the domestic economy of the pharmaceutical industry may lead to some changes in the industry's favour.

A continued downward spiral of pricing will, however, put pressure on small and medium-sized regional pharmaceutical producers. They will be unable to compete on price with larger players, and will also help to continue the trend of a greater market share being taken in these countries by non-EU producers, particularly Indian companies, with lower production costs. The CEE markets status as branded generics heaven is certainly not over - but it is under an increasing threat, as a result of regulatory forces.

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