BMI View : The implementation of measures to contain public expenditure on medicines, such as tough drug approvals criteria and drug expenditure ceilings, will challenge innovative drug companies selling products in Italy. Additionally, we note that while the government is gearing policies towards increasing the use of lower-value generic medicines, we believe the sector will experience sluggish growth as a result of price pressures on off-patented medicines.
Government health expenditure data published by the Italian Medicines Agency (AIFA) reveals that between 2006 and 2012, spending increased across all divisions but one. Public pharmaceutical expenditure experienced a decline of 3.2%, while expenditure on SSN human resources increased by 4% and expenditure on 'other' goods and services required by the SSN increased by 25%, resulting in an 8.9% increase in the total public expenditure on healthcare between 2006 and 2012.
BMI believes the data highlights the challenging situation facing drugmakers in Italy and the rest of the region and the relative ease with which governments can target the pharmaceutical sector, rather than pursuing less politically-friendly cuts such as reducing hospital beds. Europe is renowned for having heavily government-financed pharmaceutical spending compared with many emerging markets and the dire fiscal situations faced by governments in the region and the urgent need to contain costs have led to the implementation of a series of complex cost-containment measures by administrations across Western Europe, including price cuts and freezes on medicines, realignment of reference systems or alterations to medicine reimbursement systems, forcing patients to increase out-of-pocket payments.
|Drugmakers Hit Hard|
|Italy Public Health Expenditure: Overall Growth 2006-2012 (%)|
Measures To Reduce Drug Spending
New Medicines Rarely Approved
In 2007, the Italian Medicines Agency (AIFA) introduced a system for evaluating innovation - to be taken into consideration while making decisions regarding the pricing and reimbursement of new drugs sold via the retail channel. However, depending on the region, listing on each formulary can take as long as 220 days, and that is after the 320 days taken by AIFA to grant marketing authorisation following regulatory approval by the European Medicines Agency (EMA). However, this has only improved access for those drugs deemed to be 'innovative' by the AIFA, which includes only four new drugs approved since 2007.
Generic Over Patented Medicines
In 2010, aiming to make annual savings of at least EUR600mn (US$768mn), the Italian Medicines Agency said it was reviewing the pharmaceutical expenditure of the various territorial regions in Italy in order to provide 'tools' that would direct the prescription of medicines towards lower-cost generics. Additionally, a 12.5% reduction on the retail price of generic medicines was implemented in June-December 2010, affecting generic drug producers' revenues.
Price Pressures On Already Low-Value Drugs
In relation to price pressure on generic medicines, since 2011 the maximum reimbursement rate paid for generic medicines by the Servizio Sanitario Nazionale (SSN) is based on the drugs' average prices in Europe. The government said pricing drugs in this manner will create cost savings of EUR600mn (US$768mn).
Physicians Prescribe Practices Directed Towards Generic Medicines
In February 2012, the Monti administration introduced a law that requires doctors to indicate on prescriptions that the prescribed patented drug can be substituted for a generic alternative if it is available on the Italian drug market.
Strict Drug Expenditure Limits
As of the start of 2013, the Spending Review Law approved by the Italian Parliament on August 7, 2012, (Law 135/2012) reduced the drug expenditure ceilings for retail and hospital drugs to 11.35% and 3.5% of the NHF, respectively - aiming to reduce pharmaceutical expenditure by EUR1.8bn (US$2.3bn) from 2012-2014.
Unfair Tendering Criteria
Several regions and local health authorities are organizing tenders in which they group together patented and off-patent medicines deemed to be in the same therapeutic group. This places a downward pressure on patented medicines, which in turn lessens the incentive for innovation.