Drug pricing deal not a panacea for increasing costs

It went down to the wire but eventually the Government and the big drug companies have crafted a deal with which both sides can live.

For the Government and the Health Service Executive, the Framework Agreement on the Supply and Pricing of Medicines delivers sufficient savings for them to accept it as they struggle to keep the lid on healthcare costs. For “Big Pharma”, there is clarity on the process for approval of new drugs and on the price they can expect for supplying the Irish market.

Certain features in the new accord mark a significant improvement of previous such deals. The introduction of annual pricing reviews – rather than the price being locked in at the start of a four-year deal – makes sense. The provision that prices can only fall, not rise, in those reviews is also welcome from the perspective of those managing the healthcare budget.

The formalisation of the “horizon scan” where companies will indicate drugs that are likely to be available in the coming year or two should, in theory, facilitate the provision of budgetary “headroom” to use Minister for Health Simon Harris’s term to allow their introduction.

Complaint

A common complaint of drug pricing in Ireland is that the basket of European countries used to set the Irish price was artificially weighted towards countries with higher drug costs. On that basis, the addition of five new countries to that basket – Italy, Greece, Luxembourg, Sweden and Portugal – is a positive step.

However, drugs are priced only against countries in the basket where that identical product is sold. That allows the pharma companies manage prices by initially supplying only better off countries where they can achieve a better price.

Also, the “price” for drugs in the basket is the list price. In many markets, health purchasers can strike deals for discounts or rebates on those prices, reducing the effective cost but without lowering the basket price that affects the cost of such drugs elsewhere, including Ireland.

There are also uncertainties. Chief among those is managing the burgeoning bill for newer-generation biopharmaceutical drugs: biologics. This is the fastest-growing sector of the drug market but, in many cases, these are therapies that target less pervasive, niche conditions. Part of the trend towards “personalised medicine”, the smaller patient pool for such drugs means they are of necessity more expensive.

Lookalikes

Also, unlike traditional drugs, where precise copies of formulation can be made and marketed as generics once patent protection has expired, you cannot make a precise copy of a biologic. Instead, biosimilars are lookalikes that act in the same way as the original branded biologic.

But as the first of the biologics are only recently coming to an end of their patented life, it is too early to assess accurately how much cheaper it will be to produce biosimilars. Initial expectations of discounts of up to 40 per cent have not materialised in the US and elsewhere. The Irish deal effectively forces biosimilar entrants to undercut the original branded product by more than 30 per cent. They say that makes it uneconomic.

If biosimilars are deterred, a portion of the savings projected in the four-year deal will not materialise and that will mean less money available to sanction new drugs offering wonder cures or health improvements.

It would also be foolish to expect that savings under the deal will ensure all efficacious, value-for-money drugs that come to market could be afforded by the Irish health service. Inevitably, some patients will be disappointed. That will mean a continuation of the scenario where political pressure is applied to politicians and ministers to sanction treatments for which no budget is available.

As with all these things, the bottom line is money.