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Italy's public procurement agency, CONSIP, has this month
updated the list of pharmaceutical products under a 2017-21 tender
with a valuation of EUR10 billion (USD12 billion) under the SDAPA
dynamic purchasing system (DPS). DPS tenders for the supply of
pharmaceutical products (medicines, vaccines, infusion solutions,
and blood products) were first launched in October 2011. The
third-round, 36-month (March 2017-March 2021) SDAPA scheme for
pharmaceuticals has a total estimated value of EUR10 billion (USD12
billion). The expected award criterion is that of the lowest price
submitted. The list of active ingredients to be procured under the
tendering arrangement is available
here.
The co-ruling Five Star Movemen, including Minister for Health
Giulia Grillo, t has at the same time voiced criticism of the
economic case for pharmaceutical tenders in Italy. This is based on
a fall in the number of offers submitted for tendering contracts
during recent years, as well as the cancellation, postponement, and
failure to fulfil some contract lots in 2018. The governing party
is moving to monitor the tendering competition process more
closely. This could include reviewing the number and value of
individual purchasing contracts by CONSIP on behalf of the Ministry
of Economy and Finance, as well as setting up monitoring procedures
through the Italian Competition Authority (AGCM). Implementing
greater cost-control controls in the tendering system for
off-patent and mature medicines is a politically less sensitive
target for the M5S than reining back public spending on innovative
and rare disease medicines.
In mid-2018, CONSIP awarded separate tender contracts for
filgrastim, infliximab, follitropin alfa, etanercept, insulin
glargine, rituximab, and epoetin (available
here). The public procurement agency claimed that on average,
the tender generated savings of about 18% or equivalent to EUR140
million. The actual discounts ranged from a maximum of 48% to a
minimum of 14%. Seven lots were up for tender for an estimated
total auction amount of EUR460 million. However, only six lots were
awarded (for a value of EUR405 million), because there was no
submission for the seventh lot.
A separate tender for the supply of antineoplastic and
immunomodulatory drugs resulted in only 11 of 26 lots being
fulfilled (available
here). The tenders estimated that total auction amount was
EUR112.50 million, but the total award amount reached only EUR80.85
million. Many of the lots in this case went to one operator, Accord
Healthcare (UK), which was awarded total contracts valued at
EUR62.85 million (or equivalent to 77.7% of the total award notice
in the tender offer).
An increase in the trend towards unfilled tender lots, combined
with a fall in the average number of offers submitted by
pharmaceutical companies during recent years, is driving
government-led efforts to tighten regulation surrounding tenders
and strengthen CONSIP's bargaining power in awarding contracts.
This began in July when Grillo referred the matter to the Italian
Competition Authority (AGCM) and pledged to activate an improved
monitoring system of tendering procedures.
CONSIP publishes the contract notice, defining the product
characteristics and providing negotiation models and tender
documentation. Procurement contracts are split into lots, each of
which consists of combinations of four dimensions: active
ingredient, ATC classification, dosage form, and dose. In 2017, 162
unique notices were issued for an expenditure total of EUR1.05
billion.
The degree of competition in the market is usually linked to the
value of procurement contracts. In Italy, when the value size of
contract has increased, smaller pharmaceutical firms can often find
it more difficult to participate in highly competitive processes.
This results in a lower number of competitors. If the tendering
participation effect is not strong enough, this may lead to lower
cost savings. A July 2018 research paper published in the
Applied Health Economics and Health Policy estimated that
the higher rates of competition in off-patent pharmaceutical
tenders in Italy resulted in higher amounts of price reductions.
This was calculated at about "10% per additional competitor".
The updated list of pharmaceutical products under the 2017-21
SDAPA tender for pharmaceutical products has an estimated total
value of EUR10 billion (excluding value-added tax), with the award
criterion set as the lowest price submitted. IHS Markit's new
competitive tendering tool ProcureIntel is monitoring the COSNIP
restricted procedure at the award level. Italy's regional tendering
system is operated as a purchaser-driven, cost-control mechanism
aimed at lowering unit prices. The process is popular among
regional authorities, but the potential downside is that tendering
results in thinner margins for pharmaceutical companies, thereby
making Italy unattractive to market entrants. The positive for a
tendering-heavy market such as Italy is that it can provide
expedited market entry or access.
The outcome of CONSIP tenders will probably be subject to
stricter oversight and competition market scrutiny in 2019 and
beyond. There is a low risk that this could entail opening
investigations to ascertain whether companies restrict competition
by co-ordinating their participation in a tender. However, in
February 2017, the Italian Council of State confirmed that the AGCM
had the power to fine companies that distort the market through
collusion. More probably, the government will attempt to expand the
level of co-operation between regional purchasing centres and
CONSIP, with the aim of boosting the number of offers received,
diversifying the award winners, and generally more closely
monitoring award outcomes. The main policy objective will probably
be to ensure that lower ranked, smaller pharmaceutical competitors
fare better in winning individual contracts, with the expectation
that increasing the number of average offers per tender will
overturn the current softness in price competition.
IHS Markit has recently launched its new competitive tendering
tool, ProcureIntel. For an overview or demo, please click here.
Posted 08 October 2018 by Eoin Ryan, Senior Analyst