How reference pricing systems work

The pharmaceutical industry is heavily regulated in order to ensure good quality and effective medicines that are used correctly. Unfortunately this comes at a cost, which is ultimately borne by both the state and the individuals. A RPS tries to drive down the price of medicines by setting prices. It is based on the assumption that drugs grouped together in clusters are interchangeable.

There are basically three types of clusters. The most restricted version of the RPS is called generic reference pricing (or Level 1 RPS), and applies to originator medicines and their generic equivalents (the same molecule classified under the same anatomical therapeutic chemical [ATC-5] group). Belgium, Denmark, France, Portugal and Spain use a Level 1 RPS. Belgium introduced a RPS in 2001 and extended it in 2005.

In a Level 2 RPS, chemically different active ingredients that are considered as pharmacologically comparable are included (typically ATC-4). Countries having a Level 2 RPS are Australia, The Netherlands and New Zealand. In a Level 3 RPS, pharmacologically different, but therapeutically equivalent, products form a cluster (typically ATC-3). Countries such as Canada, Germany, Hungary and Italy set clusters at different levels, e.g. Germany combines clusters at Level 1, 2 and 3.

Once drugs have been classified into clusters, a reference price is set for all drugs within each cluster. Different methods are used to calculate the reference price. The price can be set by reference to the cheapest drugs within the cluster, e.g. Australia; the average of all drugs included, e.g. The Netherlands; the average of the lowest two prices, e.g. Denmark; the most expensive generic drug in the cluster, e.g. Portugal; or by a regression model based on prices of drugs within the cluster, e.g. Germany.

When Belgium first introduced the RPS in 2001, the reference price was based on the originator price, which was reduced by 16%. This price reduction has been progressively increased to 30%, and higher for drugs in the system more than two or four years; effective from April 2010. Belgium is unique in applying a fixed percentage of the originator product to calculate reference prices, all other countries take into account the price of some or all generic products in the cluster.

The Belgian RPS has the benefit of guaranteeing savings on health insurance funds. However, it is not clear at what level the reference price needs to be set. Health insurance funds will lose out if reference prices have been established at a higher level than would have been observed in a competitive market. The size of successive reductions does not seem to be informed by the underlying economics of producing and distributing generic medicines. For instance, setting the reference price at 70% of the price of the originator medicine does not necessarily mean that it is 30% cheaper to produce and distribute generic medicines. Also, such an approach provides little incentive for manufacturers to drop the prices of generic medicines below the level of the reference price [1].

However, it should be noted that these determinants not only vary between countries, but also within countries. A study found that the pricing strategies of generic medicines in Belgium varied from molecule to molecule and were influenced by the regulatory approach towards pricing, e.g. the RPS; by market incentives (price competition between generic medicines and competition between originator and generic medicines); by the medication class; and by the market power of the manufacturer of the originator medicine [2]. Therefore, manufacturers of generic medicines do not adopt a single pricing strategy in a country, but take into account several factors, the importance of which may vary from molecule to molecule.

Measures for prescribers in Belgium

All countries monitor physician prescription behaviour, and three countries have direct financial incentives to prescribe low cost drugs: France, Germany, Spain.

Belgian doctors are given prescription guidelines and information about the RPS and classes of medicines. Since 2006 they have been required to prescribe minimum percentages of low cost prescriptions (so-called ‘quotas’). Low cost prescriptions included in the quotas are: (1) original drugs that have lowered their public retail price to the lowest generic price because a generic alternative exists, (2) generic drugs and copies, and (3) drugs prescribed under their international non-proprietary name (INN), even if there is no generic alternative.

Quotas are set by specialty, and range from 9% for gynaecologists to 30% for gastroenterologists, oncologists, stomatologists and dentists. The low cost prescribing quota for general practitioners is set at 27%.

For four groups of drugs the National Agreement between Physicians and Sickness Funds for 2009–2010 includes (among other measures) the commitment to initiate the treatment for at least 80% of their patients with the least costly molecule(s) within this group of drugs. The groups are: proton pump inhibitors, ACE inhibitors and sartans, statins and non-steroidal anti-inflammatory drugs. This is the first attempt by decision makers to introduce the concept of therapeutic equivalence within a class of drugs.

Recent Belgian guidelines on INN prescriptions recommend that for certain drugs, the treatment initiated, with an original or a generic, has to be maintained. This list includes 32 substances with a narrow therapeutic range. For these there is very little difference between toxic and effective concentration in the blood, so for safety considerations substitution is not encouraged. Still, doctors can choose to start new patients on generic versions.

Recommendations to reduce prices further

The Belgian Health Care Knowledge Centre has recently published a report examining the use of the RPS in Belgium [3]. It made several recommendations for changes to the present system.

Physicians

The low cost prescription quota could be selectively increased in consultation with the National Commission Physicians Sickness funds. These quotas were set in 2005 and have not been revised since then.

More prescriptions by INN could be encouraged, this ensures that patients receive a low cost version of the drug, if there is one available on the market. At present, only 3% of prescriptions are written in this way. The pharmacist is only obliged to dispense a low cost medicine when prescriptions are written using the INN.

Pharmacists

Pharmacists could be encouraged more to dispense lower priced medicines. Belgium has been hesitant to introduce substitution by the pharmacist, although it was made legal in 1993. Many countries encourage pharmacists to dispense lower priced generics against certain prescriptions. The proportion of medicines in which a substitution is made is 80% in the UK, for example. The way pharmacists are remunerated (per item or based on a percentage of the price) is also important in determining dispensing of low cost alternatives. A new remuneration system came into force in April 2010 but the report was unable to say if it would influence the use of generic medicines.

Pharmacists could also promote generic alternatives to their patients. At present they comply with their legal obligation to dispense low cost drugs when prescription is in INN, but generic OTC products are not visible in the pharmacy, and are not suggested spontaneously.

Reference pricing

Savings might be larger by setting the reference price to take account of generic products as well as original brands.

For further information on reference pricing in Belgium please see the country focus section of GaBI Online [4].

Related article

The reference pricing system: a socio-economic analysis of the use of low cost medicines in Belgium

References

1. Simoens S. Generic medicine pricing in Europe: current issues and future perspectives. J Med Econ. 2008;11(1):171-5.

2. Adriaen M. The role of authorities in the generic medicines industry. Unpublished MSc thesis. Leuven: Catholic University Leuven, 2007.

3. Vrijens F, Van de Voorde C, Farfan-Portet M-I, le Polain M, Lohest O. The reference price system and socioeconomic differences in the use of low cost drugs. 2010. KCE reports 126C.

4. GaBI Online - Generics and Biosimilars Initiative. Belgium. Policies and Legislation [www.gabionline.net]. Mol, Belgium: Pro Pharma Communications International; [cited 2011 August 09]. Available from: www.gabionline.net/Country-Focus/Belgium/Policies-and-Legislation