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Price cuts in lieu of IPR and back order agreements: Is the Swedish consensus approach to the pharma industry under threat?

27 January 2014 Maria McGee

Pharmaceutical companies in Sweden currently have a number of agreements with the government that focus on how the industry is regulated. What makes these agreements comparatively unique is that they are voluntary in nature. This approach has been described by the Medical Products Agency (Lakemedelsverket, the MPA) as a "collaboration solution". It is based on the widespread Swedish cultural focus on "consensus" and has arguably permeated the Swedish life-sciences business mentality in the past few years. But will this collaborative approach continue?

The approach can be better understood through a selection of two of the more significant voluntary agreements for pharmaceutical trade in Sweden: 1. The 2003 (and subsequent 2010) voluntary back-order* agreement signed by a number of players: the branded industry association (LIF), the Association of Generic Medicines (FGL), and the National Board of Health and Welfare. The collaboration meant that manufacturers are not, by law, obliged to guarantee the supply of drugs in Sweden. 2.The voluntary price-cut agreement signed by Lif and the MPA in September last year. All prescription drugs approved for marketing 15 years ago or prior is subject to a 7.5% price cut. The collaboration meant that the introduction of a formal International Reference Pricing (IRP) system in this market was successfully avoided.

These agreements signify the relatively stable relations between the pharmaceutical industry and regulatory bodies in Sweden, working together to reach best practice agreements for medicine. However, following a government-commissioned report produced by the MPA in December 2013, there might be reasons for concerns over such stability- and perhaps over the future of Sweden's "collaborative solution" approach.

In the report (which, for the keen reader, can be accessed here in Swedish), the MPA outlines the rising concern over back-orders and the implications of drug shortage issues in Sweden. As a result, the MPA is now proposing that manufacturers should be required to notify back-orders to the MPA in an attempt to ensure patients access to medicine and to effectively address issues arising from products being out of stock. It is current practice in Sweden for the manufacturer to contact the relevant local health authority/pharmacy directly, and will only engage the MPA in cases when the shortage could be considered as critical and the product in question cannot be replaced by another, regulated by the substitution scheme.

As per the recent proposal, the Swedish authorities are considering greater control measures for back-orders, undermining the collaborative agreement initially reached in 2003. So can we expect notification requirements to replace current industry practice for back-orders in Sweden? And does this indicate that Sweden is moving away from its collaborative approach?

If we take the development of the price-cut agreement as a guide to answer these questions the answer is "No" (bearing in mind that the implication of an impending IRP system was different in nature and far greater to manufacturers than the expected risk of a potential introduction of notification requirement for back-orders). In this case, the Swedish government similarly commissioned a large assessment, investigating the need for an IRP system. However, since the recommendations of this report were more or less neglected in favour of a "collaborative solution" we should be cautious in expecting much in terms of more stringent regulation and immediate implementation from the back-order assessment.

And indeed, the MPA has ironically concluded in its report that prior to the potential introduction of notification requirement, a further assessment is needed. This is in order to ascertain if there has been an increase or decline in the occurrence of this phenomenon, as current data is not sufficient to draw such conclusions. Meanwhile, the authorities claim there are "indications", suggesting back-orders are on the rise both globally and within the EU. Interestingly, when commenting on the proposal, the Swedish Pharmacy Association claims that downward pricing pressure on drugs, such as that of the price-cut agreement, may contribute to the increase of back-orders in 2014.

Despite efforts being placed upon yet another assessment, the likelihood of the proposal being realized is from the outset relatively small. Look at the way the price-cut agreement panned out. The 7.5% price cut for products marketed 15 years ago or prior was introduced over the impending IRP system, with expected savings of SEK400 million (USD60 million) for the Swedish government in 2014. The strong influence of collaborative solutions, as demonstrated by the price-cut agreement, nonetheless indicates that the collaborative approach is still in the running when it comes to pharmaceutical regulation in Sweden. It will be of high interest to see if this prediction remains true for the back-order proposal as well, or if the Swedish government will indeed impose tighter regulatory measures.

* Back-orders is defined by the MPA as following; "When the patient is at risk of not having access to a drug due to supply shortage"

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