Lithuania's drug cost-containment initiatives – getting tough on pricing

12 Sep 2017 Brendan Melck

Following several years of circular debate on the disparity between drug prices in Lithuania and other European countries, the Lithuanian Ministry of Health (MoH) has recently implemented a number of measures intended - as stated - to reduce the cost of medicines to patients.

Foremost among these legislative changes introduced this year is the change to the "price corridor", which has become even more restrictive. Previously, in the case of drugs for which there were three or more producers present on the market, producers were obliged to price their products at a maximum of 40% above the reference price in order to qualify for reimbursement. Under the new rules, the cut off point has been reduced to 10%; if the price of a drug (for which there are at least 3 producers on the market) is more than 10% higher than the reference price, it is disqualified from reimbursement. Also, instead of the price list for reimbursed drugs being updated once a year, it will now be updated four times per year, thereby allowing faster reductions in prices, as it will be possible to react to reductions in prices in reference markets more quickly.

The changes come in the context of an ongoing national debate about drug prices in Lithuania that has focused on the lower prices in regional markets used for international reference pricing (IRP). In Lithuania, IRP is used in the case of both off-patent and patented pharmaceuticals, and the Lithuanian reference price is set at 95% of the average price of the specific medicine in Latvia, Estonia, Poland, the Czech Republic, Hungary, Slovakia, Romania and Bulgaria.

Competition Council concludes drug pricing system 'blocks' cheaper alternatives

In late 2016, an investigation by Lithuania's Competition Council found that the existing system of setting prices favoured higher-priced medicines, and effectively blocked the entry of cheaper equivalents. The Lithuanian authorities have been grappling with the problem of how to increase the take-up of cheaper generics in the country in recent years, but the growing amount of money paid out by patients in co-payments indicates that these efforts have largely been unsuccessful, as many patients appear to stubbornly stick with more expensive products. Another factor in this situation is the role of pharmacies - although they are obliged by law to give patients the option of a lower-priced equivalent, if available, and obliged to stock them (or order them within a specified timeframe), it is clear that the government does not consider that they are fulfilling this obligation satisfactorily - hence the recently-introduced "mystery shopper" legislation, under which compliance with these regulations is being assessed and enforced in pharmacies.

A survey by the Lithuanian MoH published in October 2016 concluded that 78.6% of the medicines it examined (842 products) had prices lower than the average for 25 countries in the EU. However, as reiterated on many occasions earlier in the year by representatives of the MoH, the prices of medicines in Lithuania remained predominantly higher than the level defined under IRP (i.e. 95% of the average price in the reference markets).

Presidential intervention

In this context, at the beginning of this year, president Dalia Grybauskaitė called for drug prices to be reduced, and for greater competition to be introduced into the sector. As might be expected in a central and eastern European country, the spectre of corruption and lobbying is never far away, and the president's spokeswoman referred to "illegal lobbying" and "corruption" in the reimbursed medicines market, which allegedly prevented any change to the status quo.

The MoH has responded to these calls with a range of measures, including the reduction of the price differential for admission into the reimbursement list for the prices of drugs for which there are at least three producers of equivalents, from 40% to 10% above the IRP-based reference price. Producers were requested to bring the prices of their medicines into line with the new regulations. When the July update of the price list for reimbursed drugs was published - the first following the changes - it was reported that 169 products previously included had been removed from reimbursement, because producers had not reduced their prices sufficiently. The MoH reassured that patients would continue to have access to all medicines previously available, because equivalent versions remain on the market. Patients are expected save around EUR20 million annually thanks to lower co-payments, and the savings for the Compulsory Health Insurance Fund are expected to reach around EUR9 million.

Co-payments for some drugs rose, but fell for many

However, there have been reports in the Lithuanian media of patients paying higher co-payments for some medicines. According to the director of the MoH's department of pharmacy, Gita Krukeiene, quoted by Lithuanian news portal skrastas.lt, in the case of around 200 medicines, there has been an increase in the co-payment, averaging at EUR1. This is likely to be due to producers not reducing prices sufficiently in line with reductions in reference prices. Krukeine stated that in the case of 650 medicines, there was a significant reduction in the patient co-payment, while there was no change for 1,105.

Since the changes, the MoH has published data to back up its assertion that patient co-payments have come down. It reported that there was an 11.7% reduction in patient co-payments from July 2016 to July 2017, and a reduction in the average co-payment in July 2017 of EUR1 compared with the previous month to, EUR4.7.

Conclusion - bigger changes ahead?

So where do these changes leave the pharmaceutical industry? More frequent re-pricing based on IRP will affect both off-patent and on-patent medicines; price reductions in reference markets will be more quickly reflected in Lithuanian prices than before. On the upside, the savings expected to be achieved as a result of the changes are due to be used - according to the MoH's statements - for expanding access to expensive originator medicines.

There is also the likelihood of further developments to consider. In its 2016 report, The Competition Council recommended identifying a more effective means of calculating reimbursement prices than international reference pricing, and also recommended using 'actual prices' rather than producer-declared prices in calculating reference prices. This would imply that future changes to the pricing system could be more fundamental.

For patients, the reduction in co-payments for a considerable number of medicines is a positive development, and this, together with the recently-approved reduction in the rate of VAT on non-reimbursed prescription medicines (a fairly significant segment of the Lithuanian market) from 21% to 5%, will certainly improve access.

Learn more about our new multi-client study (and download an extract), the International Reference Pricing Guidebook, 2017 Edition, which considers the IRP landscape in Lithuania and a wide selection of other countries.

Brendan Melck is a Senior Research Analyst for the Life Sciences team at IHS Markit
Posted 12 September 2017

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