Global Insight Perspective | |
Significance | The temporary cuts come in response to a sharp increase in public expenditure on reimbursable drugs. |
Implications | The price cuts are intended to help recoup a 2005 spending deficit, and to pull the national health system’s drug spending back in line with a ceiling of 13% of Italy’s overall public health budget. However, industry disquiet looks set to undermine the government’s chances of negotiating a more durable solution to its drug expenditure problems. |
Outlook | The Italian Drug Agency (AIFA) is hoping to keep an increase in drug spending to a maximum of 16% next year. This is unlikely to be achieved without the imposition of further price cuts, rendering Italy a less attractive market for domestic and foreign drug manufacturers. |
AIFA Moves to Claw Back Overspend
The Italian Drug Agency (AIFA) imposed a temporary 5% cut on the price of drugs used by the country's National Health Service (SSN) on 1 October, having approved the reduction in June, according to Scrip. According to the source, the cuts are expected to remain in place until "the agency has recovered an amount equal to its overspend in the year to date". The move comes in response to a sharp increase in public expenditure on reimbursable drugs. The SSN’s spending on reimbursable pharmaceuticals rose by 12.5% year-on-year (y/y) during the first quarter of 2006 to 3.6 billion euro (US$4.6 billion; see Italy: 16 May 2006: Italian Pharma Spending up by 12.5% in Q1). The price cuts are intended to help recoup a 2005 spending deficit, and to pull the national health system’s drug spending back in line with a ceiling of 13% of Italy’s overall public health budget. They come in addition to earlier reductions, with "cumulative cuts" ranging from 11% to 21%, according to the source.
The Italian pharmaceutical industry association Farmindustria has fiercely criticised the temporary measure, stating that some products on the market are now "40% cheaper than in other European markets". The association has reportedly warned that the situation will have adverse effects on "jobs and competitiveness" in the sector, and that with profit margins squeezed, industry investments of two billion euro (US$2.5 billion) over a three-year period have, in effect, been wiped out by the price cut. Furthermore, the precise details of the application of the price cut remain uncertain; Scrip reports that Farmindustria has warned that if the government applies these cuts to "products already delivered to the national health service under contract—after maximum discounts and generous 360-day payment terms", it will take legal action, and take its case as far as the European Court of Justice if necessary.
For additional information on drug prices, see the website of the Italian Medicines Agency.
Outlook and Implications
The 5% across-the-board price cut is intended to save 388 million euro (US$47.9 million), according to earlier information from APM Health Europe (see Italy: 12 June 2006: AIFA Approves Italian Pharmaceutical Price Cuts).Farmindustria, meanwhile, has disputed AIFA’s reasons for slashing prices, claiming that statistics on drug spending in Italy are unreliable.
While the measure will indeed secure short-term savings, strained relations with the pharmaceutical industry will ultimately damage the AIFA’s chances of achieving longer-term solutions to budget overspends through negotiations with industry representatives. The government has already set a growth ceiling of 16% on pharmaceutical spending in 2007, but its chances of remaining within that limit through a fresh round of negotiations with drug manufacturers have been seriously undermined by the 5% temporary cut on drugs paid for by the SSN. Although the drugs agency does reserve the right to intervene with price cuts of up to 10% on all products sold to the SNN, additional forced price cuts could encourage domestic drug-makers to focus more heavily on export markets, and will seriously undermine incentives for foreign manufacturers to operate in this market. This could consequently cause problems with the supply of some drugs to the SSN.
Furthermore, the reduction of prices also raises opportunities for parallel trade. With the prices of some drugs being pushed so low, Italy will become a more prolific source country for parallel trade in Europe, joining the ranks of Spain and Greece; in turn, this will add further fuel to the re-exportation row in Europe, where the sentiment of judicial powers is now beginning to swing in favour of drug manufacturers (see Spain/United Kingdom: 28 September 2006: European Court Partially Vindicates GSK's "Dual Pricing" Strategy, But Confusion Persists Over Parallel Trade).