Title: Promoting the use of generic medicines: Global experiences Panos Kanavos London School of Economics
1Promoting the use of generic medicines Global
experiences Panos KanavosLondon School of
EconomicsDelhi, 11 November 2008
2Agenda
- Policy objectives and policy choices for generic
medicines - Conventional thinking in generic medicines
- Assessing the impact of government policies on
generics - Evidence Interpretation Policy
Recommendations - Price
- Volume
- Generic entry
- Discounts
- Margins
- Potential Savings to Health Care System
- Conclusions Policy Recommendations
3Elements of an optimal generic policy
- Faster access through Bolar provisions (US / EU /
Canada) - Frequent price regulation (price capping)
necessary? - Reimbursement regulation (e.g. reference pricing,
for moderate savings over the long term) - Free price competition (works in insurance
environments?) - Managed competition
- Emphasis on generic prescribing, but few attempts
at enforcement - Incentives/disincentives to promote generic
prescribing - Regressive margins for pharmacists provide
incentive to dispense generically, but they may
result in higher cost generic being dispensed - Discounting practices and the clawback
- Generic substitution major policy emphasis
internationally between 1998-2004 beneficial? - Differential co-payments common practice in USA,
but almost unknown in Europe - Intervention in generic markets in order to
deliver minimum anticipated savings to payers
4Conventional thinking
- Empirical evidence suggests that generics save
money because prices decline post patent expiry
and there is fast generic uptake - Competition after patent expiry leads to low
prices, high generic penetration and savings to
health insurance - Generics paradox results in market share for
both the branded and the generics in a
post-patent market, with price of branded
medicines often increasing rather than decreasing
5Conventional Thinking Differences in Regulation
Resulting in Differenet Degrees of Generic
Penetration
Observations
- Significant differences in regulatory frameworks
between individual EU G5 countries and the USA - Significant differences in generic penetration
between individual EU G5 countries, USA and
Canada - France and Italy have very low generic
penetration - Spain and Canada with average levels of generic
penetration can improve significantly
Generic sales as a proportion of total sales,
2005, 12 molecules
Source Kanavos P, Costa-Font J, Frank R.
Exploring the nature of generic competition in 7
industrialised countries, LSE Health Discussion
Paper, 2007
There appears to be significant room to improve
generic penetration levels in the US, but, more
importantly, in Europe
Understanding the relationship between government
regulation and generic impact can help create the
regulatory framework which maximizes savings due
to generics and in turn, maximizes available
budgets for innovative medicines
6Impact of Government Policies on Generic Prices
and CompetitionI. Evidence (1) Generic price
evolution over time
- Price
- Volume
- Generic entry
- Discounts
- Margins
Generic price evolution over time,
non-standardised
Omeprazole 2000-2005
Paroxetine 2000-2005
Clavulanic Acid 2000-2005
Metformin 2000-2005
Amoxicillin 2000-2005
- US and UK generic prices decline faster
post-patent expiry than other countries - French, Canadian and Italian generic prices are
the most rigid downwards
7Impact of Government Policies on Generic Prices
and CompetitionI. Evidence (3) Generic price
impact 1 2 years post generic entry
- Price
- Volume
- Generic entry
- Discounts
- Margins
Generic price decreases one and two years post
generic entry, volume adjusted
- Generic price declines post patent expiry have
been exaggerated prices may decline but not as
fast as originally thought. - On certain occasions prices of generics rise in
the second year post patent expiry - US and UK show, on average, greater price
declines than Germany, France, Italy, Spain or
Canada
8Impact of Reference Pricing on Generic Prices and
CompetitionI. Evidence (4a) (Price) competition
among generic alternatives
- Price
- Volume
- Generic entry
- Discounts
- Margins
Originator and generic prices Germany,
Omeprazole 20mg/30 (prices are in per pack),
2005
Originator and generic prices Italy, Lisinopril
20mg/28 (prices are in per pack), 2005
Originator and generic prices France,
Lisinopril 20mg/28 (prices are in per pack),
2005
Originator and generic prices Germany,
simvastatin 10mg/30 (prices are in per pack),
2005
- In markets where there is very little generic
competition, the price difference between
originator brand and generic is small (e.g.
lisinopril 20mg, 28 tabs in Italy) - Although there is a gap between originator brand
and generic, the difference between the two is
often not very significant (e.g. omeprazole in
Germany) - Despite the existence of many generic
alternatives, price competition among them seems
to range from very limited (e.g. omeprazole,
Germany) to practically non-existent (lisinopril,
France)
9Impact of Reference Pricing on Generic Prices and
Competition UK simvastatin, per unit, 2005
I. Evidence (4b)
- Price
- Volume
- Generic entry
- Discounts
- Margins
10 mg
20 mg
80 mg
40 mg
- In countries where reference pricing does not
exist (e.g. UK), there is a significantly higher
price variation among generic competitors - The price difference between originator and
generic is greater in these countries (UK, USA),
compared with those where reference pricing
exists - In the absence of regulation (price) competition
is played at product presentation level (e.g. in
simvastatin 80mg, brand and generic unit prices
are practically the same in simvastatin 20mg,
the same price difference is significant)
10Impact of Reference Pricing on Generic Prices and
Competition II. Interpretation
- Price
- Volume
- Generic entry
- Discounts
- Margins
Negative Impact of regulation (Reference Pricing,
Price Capping)
- Reference pricing determines maximum
reimbursement price - Reference pricing limits price competition
- Both original and generic prices will converge to
the reference price
- Generic prices remain relatively stable in
countries with reference pricing and decline
slowly (some Canadian provinces, Germany, France,
Spain, Italy) - Significant reduction of generic prices over time
in countries without reference pricing (UK, US) - Price capping (Italy, Spain, France) reduces
prices up to a limit - (In line with regulatory requirement for generic
prices not to be higher than 70-80 of the
originator price) - All the above assumes that there exists (a)
health insurance organisation(s)
Principles of Reference Pricing
Regulation has a significant influence on generic
drug prices it deters continuous price
reductions
11Impact of Government Policies on Generic Volume
I. Evidence
- Price
- Volume
- Generic entry
- Discounts
- Margins
Impact on Generic Volume
- No clear relationship between price and volume
(France) - Volume increases associated with price increases
(Canada, Germany, Spain, Italy) - Only functioning (generic) markets are the US and
the UK, where price reductions are associated
with volume increases
Theory
Results
Demand function in a competitive market
P
1
p1
2
p2
Demand
Q1
Q2
Q
- In a competitive market
- ? lower prices would lead to higher volumes and
higher market shares for generics
Internal market dynamics and regulation disturb
the normal competitive forces
12Impact of Government Policies on Generic Entry
I. Evidence (1)
- Price
- Volume
- Generic entry
- Discounts
- Margins
Number of Generic Firms
Theory
Results from LSE analysis 2000 - 2005
Proliferation of generic firms in European
countries, 2004
Price equilibrium in a competitive market
p1
p2
p3
Price
Number of competitors
- In a competitive market
- Price premium attracts new competitors
- Additional entry and resulting price competition
leads to lower prices
Also includes unbranded generics whose source
may be more than one company
- In EU G5, number of generic firms per molecule by
far exceeds same number in the USA - Spain, France, Italy effect of generic
competition (through entry of more firms) on
prices is either positive OR negative and not
significant - US, UK prices do decline as the number of
generic competitors increases less so in Germany
13Impact of Government Policies on Generic Entry
II. Interpretation
- Price
- Volume
- Generic entry
- Discounts
- Margins
Competition effects on generic market
- The number of generic firms has little or no
effect on price competition at aggregate level - Only in the USA and, to a lesser extent the UK,
is the relationship between number of entrants
and price significant and meaningful, although
its effect is very small (1.5 2.5 price
reduction if competition through entry increases
by 100) - In Germany, there has to be a minimum number of
firms on the market per molecule for very small
effects on price to be present
- Introducing additional competitors on the market
does not necessarily promote price competition in
generic markets - Price and/or reimbursement regulation have an
adverse effect on price competition post-patent
expiry and result in downward price rigidity - The competition game is played at put-up level
rather than product level and is an indication of
product differentiation, i.e. , generic firms
choose where to compete in order to avoid direct
competition with each other and with the
originator
A high level of regulation leads to decrease in
competitive forces, higher prices and lower
savings for Health Insurance
14Impact of Government Policies Effect of
DiscountsI. Evidence Discounts often exceed 84
of reimbursed prices
- Price
- Volume
- Generic entry
- Discounts
- Margins
High discounts in EU G5 countries
Germany
United Kingdom
Discounts can be sizeable and may exceed 35,
although their exact extent is unknown due to the
different modes operating (price, volume,
rebates, promotions)
Allowable discounts to pharmacy exceed the
reimbursement price by at least 200 in 65 of
cases
France
USA
In sharp contrast with European countries, in the
US discounts are negotiated by insurance for the
benefit of its members, rather than negotiated
with wholesalers and/or pharmacists
Discounts are significant and may exceed 75 of
the reimbursed price, exceeding the officially
allowable 10.75 discount to generics by a large
margin
15Effect of DiscountsII. Interpretation
- Price
- Volume
- Generic entry
- Discounts
- Margins
Beneficiaries of Discounts
- Generic companies offer significant discounts to
the distribution chain - Health Insurance pays more to distribution chain
than net cost (after discounts) of drug - In all cases distribution chain profits from
discounting practices in addition to receiving
margins officially negotiated with payers - Downward price rigidity implies that the
competition game in the generic market takes
place at distribution level, through discounting
practices, whether these are allowed or not
Health Insurance in Europe overpays for generic
medicines
Significant part of potential savings from
discounts are moving to the distribution chain,
leading to reduced savings for Health Insurance
and reduced budgets for new innovative medications
16Potential Savings to Health Care SystemVolume
Gap Price Gap
Volume Gap
Price Gap
BENCHMARK
BM
Volume Gap
Price Gap
Implications for genericisation driven by generic
policies, mostly on demand-side Financial
non-financial incentives to generic Rx Generic
Rx Generic substitution Differential
co-payments Appropriate IT systems, monitoring
enforcement
Impact of improving generic purchasing Health
insurance can purchase at low price provided
competition exists for this to be available any
restriction on competition has detrimental
effects on price reductions
17Potential Savings to Health Care System
Conclusion
Potential Savings
- 3 billion or 43 could be saved (on generic
sales of 7 billion in 2004), provided generics
are sufficiently prescribed and offered at
competitive prices
Total effect of efficient generic purchasing in
G7 (EU G5, Canada, US)
Foregone savings can be used to give patients
access to new innovative medicines, resulting in
significant health gains
18Beneficiaries of high margins on generics III.
Policy Recommendations
- Price
- Volume
- Generic entry
- Discounts
- Margins
Fine tune the way some stakeholders are
remunerated
- In EU G5 (and Canada), discounts to pharmacy are
significant and occur in addition to official
payments and margins negotiated with payors
margins and discounts together may be
incompatible and annul each other they also
amount to dual payments - UK, Germany, France (possibly also Spain and
Italy), Canada
Findings
Policy Options
- EITHER Keep margins officially ban discounts
(perhaps with exception of modest discounts
timely payments and some limited volume
discounts), - OR Allow discounting (but have oversight on
their extent and introduce clawback
arrangements), and reduce/eliminate margins and
replace them with modest fees/charges
Shift of profit maximization from generics
industry to health care insurance. Creates
opportunities for investment in innovation
Likely outcome
- Keep margins and ban discounts High, as in some
countries discounting is forbidden (but takes
place informally) - Allow discounts and reform margins High, but
there is complacency about enforcement or
implementation, partly due to additional
requirements on the structure of distribution
system
Political feasibility
Evidence
- Keep margins and ban discounts Spain and
Germany, although enforcement of the ban on
discounts is unknown - Allow discounts and reform margins UK through
scheme M and W, but need to change dispensing
fees clawback in operation but needs to be
reformed - Allow discounts and reform margins USA, through
negotiated prices between insurance and generic
manufacturers