Thomas Schael, ex-commissioner at the Public Health Authority of Naples, led the implementation of a system that produced annual drug expenditure savings of €20m. How did he do it? Eye for Pharma has a revealing two–part interview.
The first thing Schael did to reduce the cost of pharmaceuticals in Italy was to improve the efficiency of the distribution system. He permitted more patients to buy directly from produces and bypass middle men. Additionally, he let patients pick up drugs during a hospital discharge. Why does this type of direct distribution save money? Italian law that dictates drugs used in hospital carry a 50% discount to the official price. Thus, this savings is really an artifact of the payment system.
Like many countries, Schael also focused on substituting generic drugs for brands. “We now have a law that doctors can only prescribe a chemical formula rather than a brand name.” Patients get to choose whether they take brand or generic, but patients are responsible for paying the difference in price between the generic and branded product if they prefer to take the latter. Schael also “had project meetings to monitor [generic-prescribing] progress every two weeks with districts and the other two weeks with hospitals.”
So where do looming threats to the Italian budget now loom? According the Schael, “The main problem for the Italian public health system is that we can’t reduce expenditure enough in the regions to cover growing drug expenditure by hospitals.” The majority of new and expensive therapies are prescribed in the inpatient setting.
Is decreasing prices for brand drugs optimal? Schael thinks not:
[Pharmaceutical firms] have to set high prices in order to pay back the R&D activity of course and there’s nothing wrong with that.
Additionally, Schael stresses that in areas such as oncology, “there’s been substantial progress over recent decades.”
Despite the fact that new drugs may offer significant improvement over older drugs, fiscal constraints are an issue.
The main threats for the Italian market and other developed countries at the moment are the sustainability of innovation and the efficacy of new drugs compared to the difference in price.
Gaining market access in Italy
There are multiple stages of approval, including Italian Medicines Agency (Agenxia Italiana del Farmaco – AIFA), regional healthcare systems, public health authorities and individual hospitals. Thus, pharmaceutical firms need to justify the value and effectiveness of their product to a variety of stakeholders.
Italian efforts to limit drug prices
Drug reimbursement in Italy is very different than in most countries. Italy has an agreement with the pharmaceutical industry to have a soft spending limit. Schael explains that “if we spend more than the set reimbursement budget, 50% of the overspend is paid back by the industry and 50% is covered by the public health system…If one company pushes too much the others will tell them to calm down.” Thus, there is a top-down management of drug prices although in a hands off manner.
For innovative products, there is a pay for performance system, whereby AIFA will test a drug on a small sample and if it is ineffective then the drug will not be purchased. This makes entering the Italian market risky for pharmaceutical firms since lack of effectiveness—or effectiveness similar to the status quo—can lead to non-reimbursement. On the other hand, if the drug does work, the Italian health care system is willing to pay a premium.
I think that the drug pricing in Italy, from reading this one snippet of information here, sounds quite intriguing. I wonder how that would go over in capitalistic U.S.? Sounds like it is definitely a unique way of dealing with over-pricing, but not so much an honest pricing method, if taken advantage of.
The P4P sounds quite interesting; I understand the concept here, but I feel like the underlying weakness of this P4P setup is the potentially inconsistent reimbursement to drug companies who are trying to discvoer something new. I don’t think an option like this will come into play here in America though.