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Effective procurement of generic medicines

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Title: Generic Medicines: Pricing & Reimbursement Systems in Europe Author: Warwick Smith Last modified by: jo blumson Created Date: 3/22/2006 2:51:25 PM – PowerPoint PPT presentation

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Title: Effective procurement of generic medicines


1
Effective procurement of generic medicines
  • PDIG Summer Symposium 2014
  • Warwick Smith
  • Director General, BGMA
  • 5 June 2014

2
Why were here
Success is achieving a secure, sustainable supply
of medicines for patients Anything else is
failure
3
So, do we succeed?
Wave VIIIB tender showed only one or fewer bids
for hundreds of lines
Anecdotally, we hear of increasing concern about
inability to supply
Evidence of lack of communication understanding
between supplier and hospital
49 of off-contract claims for less than 50
19 of off-contract claims for less than 10
Average cost to a supplier of managing the
payment of a claim is 43
4
Administrative improvement
Agreed by PMSG and BGMA
Increased dialogue to solve long-term issues
Small claims aggregated over three months
Template form to standardise
Trialled by Leicester Portsmouth NHS Trusts,
now being rolled out for 1 July start
5
BGMA, CMU, PMSG seminar
  • In October 2013, BGMA convened a meeting of
    members, the NHS and CMU to discuss security of
    supply in the hospital sector

6
CMU perspective
When supply failure occurs impact is potentially
greater
  • The NHS has
  • consolidated demand
  • reduced its stock holding levels
  • Suppliers have typically
  • merged
  • rationalised product ranges
  • rationalised organisation of manufacturing
    capacity
  • optimised utilisation of manufacturing capacity
    and supply chain performance

When supply problems occur flexibility within the
supply chain to respond is reduced
7
CMU perspective
8
Companies more risk averse
  • Risk of penalties too great for companies to
    enter into contracts/framework agreements
  • England obligation to supply, no obligation to
    purchase
  • Penalties are significant and are often more in
    value per month than the value of the business
    per annum
  • Zero profit per line following penalty payments
  • Similar position across many EU states
  • Example product Central and South West, 2,800
    packs per month

Contract Price List Price (brand) Annual Revenue Penalty for 1 month out of stock
20.00 162.76 672,000 400,000
9
Uncertainty of demand
  • Increase
  • Estimated quantities in the UK are poor
  • Unplanned increase in demand impacts
  • Companies build in a contingency
  • Raw material availability
  • Manufacturing time
  • Packing time
  • Components
  • Test and Release
  • Availability of labour
  • Decrease
  • Reduction in Recovery of Overhead
  • Cost of Raw materials increase
  • Batch sizes may not be achieved

Potential for product discontinuation
Leads to cost increase
10
Decrease in API availability
  • Reduced number of API suppliers globally
  • As companies discontinue products, locally or
    globally, this API is not often reassigned
  • Reduction in API availability creates scarcity
    which increase API costs
  • Very difficult to achieve price increases in many
    countries

Reduces economic sustainability Leads to fewer
suppliers Weakens supply chain resilience
11
Decrease in Manufacturing Capacity
  • Companies continue to merge/acquire to improve on
    economies of scale
  • High barriers to entry on production of certain
    product types
  • Reduction in number of manufacturing plants for
    many product types especially Oncology.
  • Companies reassign production scheduling to most
    valuable products
  • 3rd party manufacturing arrangements
  • Many products that are unprofitable have been
    discontinued a number of companies have
    achieved this on a few products in isolation but
    together
  • FDA/MHRA warning letters

12
Decrease in Manufacturing Capacity
  • Companies discontinuing several major products at
    a global level has seriously distorted the
    manufacturing base
  • Not enough other manufacturers have products
    registered to back-fill on these discontinuations
  • Timeline required to get a new licence does not
    solve the problem

Biggest potential for long term shortages is
on-going global discontinuation of key molecules
13
Change in distribution practices at a country
level
  • DTP schemes did not exist a few years ago
  • Wholesaling distribution is more common and
    therefore stock is more dispersed in the supply
    chain
  • Early warning systems of other companies being
    out of stock are reduced.
  • Many other countries operate their own national
    or local distribution networks within their
    healthcare systems
  • Use of commercial compounders in the UK/DE/Nordics

The quickest way to create an out of stock
position on a product is to inform hospitals that
there is the potential for an out of
stock Quote from a national wholesaler
14
Declining profitability of products
  • Annual pruning process
  • Many products make marginal profitability due to
    very low prices
  • UK has often been used a sink to improve on
    total companies COGS (Cost Of Goods Sold) to
    benefit smaller markets.
  • Incorrect volumes on tenders can force incorrect
    product launch decisions
  • Volumes decline over term of contract making
    product unsustainable to keep in the market.
  • Changes in prescribing patterns as other products
    lose their patents
  • Reduction in profit means less to invest in
    bringing new products to market

15
Other countries approach
16
Other countries
  • Impact of the US market
  • Within Global Supply Chain, their demand
    massively affects EU supply
  • One companys current back-order position is
    160M
  • France
  • ring-fenced stock is rewarded in contract award
  • More than 150 tenders per year
  • Many types of Ts and Cs
  • French owned companies are preferred
  • Short term contracts
  • Public and private healthcare

17
Other countries
  • DE Krankenkasse,
  • private health care insurance funds take most of
    volume
  • Significant penalty clauses
  • Range is important
  • Bundling is common
  • NO/DK
  • Must demonstrate ability to supply at start of
    contract
  • Contracts run by calendar year
  • Off patents in middle of year must wait until
    next calendar year
  • Purchase orders provided up front

18
Other countries
  • Poland
  • tender is for one year for XX packs
  • More than 150 tenders per year.
  • Growing generic market
  • Ireland
  • Hospital specific contracts
  • Spot purchase is common
  • Prices are above EU average
  • Few out of stocks
  • Joint packs are becoming more common

19
Other countries
  • Italy
  • 18 regions (540 hospitals)
  • Public tenders for one year or XX packs
  • Private negotiation
  • Often clinician based decisions on off-patent
    products (co presentations)
  • Growing generic market
  • Spain
  • 800 hospitals
  • 60 tenders (18K tender), 40 direct
    negotiation (lt18K direct negotiation)
  • Annual awards for one or two years
  • Award criteria 60 price, 25
    quality/technical, 15 supply chain

20
Other countries
  • Belgium/Luxemburg
  • 90 hospitals
  • 5 purchase groups (20 of market)
  • Negotiations start June to November for Jan 1st
    start
  • Annual arrangements
  • Hospitals 90 verbal propositions with
    gentleman's agreements
  • Sweden
  • Unique tendering system in Stockholm
  • Recognised as one of the best systems (by
    companies)
  • Very few out of stocks
  • Prices remain reasonable
  • 100 transparent

21
Survey of out of stocks
22
Reasons for failure to supply overall
23
Reasons for failure to supply mid contract
24
Reasons for failure to supply start of contract
25
Differences start v mid contract
34
Higher demand
12
Regulatory
0
Uneconomic
Manufacturing
22
26
Products that companies did not tender for (again)
  • 20 products that companies had tendered for in
    the past but decided not to again
  • Reasons for this included
  • Decrease in market price rendering bidding
    uneconomic (7)
  • Insufficient time between tender award
    notification and supply to build stock imposing
    too large a risk for companies (3)
  • Low level of tender award prices (2)
  • Penalties at innovator list price present too
    large a risk (2)
  • Insufficient market size against batch size (2)
  • Lack of cost effectiveness due to increase in API
    costs and reduced uptake resulting in significant
    write-off costs (1)
  • Overall Supplying became uneconomic, either due
    to risk of non-supply penalties or because of the
    lack of profitability in the price

27
What next
28
Seminar conclusions
  • A one size fits all tendering system is not
    adequate
  • For some categories of products, a tender system
    is proving counter-productive and may require a
    different form of procurement
  • The criteria for award of contracts should take
    into account ability to supply (Swedish model
    noted)
  • There may now be more confidence to do this with
    the EU Public Procurement Directive as public
    bodies are able to take into account previous
    suppliers supply histories
  • Contract lead times should reflect increasing
    global production and supply chains
  • Estimates for the product quantity they need
    should be more accurate
  • Heavy penalties for failure to supply, even when
    beyond a suppliers control, can lead to an
    inequitable balancing of risks and rewards

29
Possible future thinking
Objective To create an environment to deliver a
secure and sustainable supply of secondary care
medicines to ensure so far as possible that
patients receive their critical medicines
  • Risk assessment criteria
  • Patient safety critical
  • Degree of use in primary care too
  • Number of suppliers
  • Volumes
  • Difficulty of manufacture
  • Shelf life
  • API supply capacity
  • Availability of alternatives

Categorised products
Speciality
Critical
Commodity
Commitment to purchase?
Tender by quarters?
Openmarket?
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