Price control as a strategy for pharmaceutical cost containment—What has been achieved in Norway in the period 1994–2004?
Introduction
The pharmaceutical market is strictly regulated in most European countries. Both clinical and economic interests have traditionally been balanced in various ways, and since public pharmaceutical costs have risen faster than health expenditures in general [1], the control of the pharmaceutical costs has been a reason of increasing governmental concern since the early 1990s [2], [3], [4].
A number of different methods for pharmaceutical price control have since emerged. The impact is mainly direct through price changes or indirect through incentives for prescribing and dispensing cheaper products [5]. While the direct pricing methods reduce prices in a predetermined manner and seem to be more effective than the indirect ones [6], the indirect strategies appear to be more dynamic since they reflect the competition in the market to a greater extent. Direct pricing methods are usually based on the medical value of the drug and/or domestic or international prices of identical or comparable products. They include maximum pricing, price cuts or freezes, and volume-based pricing [7]. With a few exceptions (e.g. Germany and the UK), European countries have applied direct pricing methods on patented drugs [4].
Indirect pricing methods consist mainly of profit control (in the UK) and reference-based pricing (RBP). RPB is based on the assumption that certain drugs, within a defined group, are therapeutically interchangeable and can therefore be assigned the same reimbursement price [8]. In several countries RPB has resulted in price reductions on off-patent pharmaceuticals and mainly short-term savings for third party payers [5], [9], [10], [11]. Price reductions in the off-patent market can also be achieved by generic substitution or generic prescribing [12], [13], [14].
The Norwegian government has traditionally managed to keep pharmaceutical prices at moderate levels [15]. Despite not being an EU-member, because of its participation in the European internal market as a member of the European Economic Area (EEA) since 1994, Norway has undergone many changes in drug policy. This has given rise to new challenges in the pricing process. Membership in the EEA does not involve the use of the EU single currency and tax harmonisation but has nevertheless important implications for the Norwegian pharmaceutical policy with respect to competition. One example is the removal of the so-called “need clause”. This clause regulated the number of pharmaceuticals on the market to what was stipulated as the minimum required to achieve a rational and effective use of drugs in the population [16]. Another change was the detachment of pricing from the marketing authorisation process, yet in practical terms the ability to sell a product in Norway was still dependent on price agreement between the Norwegian Medicines Agency (NoMA) and the manufacturer [16]. In addition, the government had to allow the parallel import of drugs from low-cost countries. It was also necessary to abolish the state wholesale monopoly, which led to the arrival of international wholesale companies. The latter precipitated a thorough examination of the pharmacy legislation and a subsequent deregulation of the pharmacy market in 2001 [17]. This has led to the formation of the current situation where more than 90% of the pharmacies are owned by three multinational pharmacy chains. These are in turn vertically integrated with wholesale companies.
There is a lack of and need for good evaluation of pricing policies both in Norway and other countries [5]. Despite extensive policy changes in the Norwegian market, little effort has been put into studying their mechanisms and outcomes. The aim of this study was therefore to present an overall description and evaluation of the different strategies for price control implemented in Norway after its accession to the EEA (1994–2004). The main areas of focus were factors and market mechanisms that had an impact on the outcome of the strategies, as seen from different perspectives.
Section snippets
Methods
Two methods were used in the study:
- (1)
qualitative interviews and
- (2)
a literature review.
Drug prices
According to official statistics, the general price level of pharmaceuticals in Norway has declined during the 10-year period studied [18].2 For several years, as can be seen in Fig. 1, the price reduction was considerable and reached a maximum in 2003, after which the prices stabilised throughout 2004. The average annual price reduction during the 10-year
Discussion
Despite having a tradition of strict regulations of medicines, the Norwegian authorities have, during the last two decades, intensified their fight against increasing pharmaceutical costs with an emphasis on pricing systems. Direct price control is applied to all prescription drugs with marketing authorisation while indirect pricing methods are being tested for the off-patent market. The government has implemented new strategies after earlier systems have failed or when additional budget
Conclusion
The present study investigated strategies for price control implemented by the Norwegian authorities between 1994 and 2004, and their outcomes, as seen from different perspectives. The direct pricing strategy, i.e. international reference pricing, introduced in 2000, was regarded as the most successful policy because it led to considerable and predictable price reductions. In contrast, because of unpredictable market mechanisms such as delivery failure, asymmetric information, and counteractive
Postscript
In January 2005 the index price system was abolished and replaced by a tiered pricing system (the step price system) designed to ensure compulsory price reductions of off-patent medicines in a stepwise manner. Price cuts are achieved in two steps: (1) when generic competition is established and (2) after 6 months. The aim of this strategy is to increase the savings from generic substitution.
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