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Billions have been saved on drugs. They should be used for patient treatment

Spending on drugs is the most effective investment in the entire health system. The State Institute for Drug Control (SUKL), as well as the Ministry of Health, admits that since 2008, thanks to a working system of reducing prices and reimbursement, almost CZK 15 billion has been saved on drugs. Therefore further savings will be minimal. We spoke to John Raney, director of the Czech branch of the pharmaceutical company Pfizer, about where these savings should be spend.

Questions are responded by John Raney, Lead of BU for innovative products and Country Manager of Pfizer Czech Republic.

How did the state actually managed to save such a huge amount on drugs?

In 2008 a revolution took place in the Czech Republic in setting the maximum price for medicines and reimbursement from health insurance. In this year new legislation came into force in the CR transferring the power to decide about the price and reimbursement of drugs to the SUKL. Until then it had been done by the Ministry of Health and the Ministry of Finance.

So since 2008 drugs have been re-priced so that the reimbursement was at the level of the lowest price of the drug in the EU and the maximum price of the drug was at the level of the average of the three lowest prices in the reference basket of EU countries. This revaluation process lasted several years, and its result is that the Czech Republic has drug prices among the lowest in the European Union. It’s the same with reimbursing drugs from public health insurance – this has also decreased to the lowest level in Europe. This decrease thus creates the savings in healthcare system.

That’s interesting ... But why is it still often stated that drug prices are rising?

Unfortunately, we also see that from time to time such information, which conflict with reality and clear statistical data, do appear. The opposite is true - drug prices continually decrease. Personally, I believe that the public wrongly perceives co-payments in the pharmacy as the price of the drug. Patients pay more for their drugs because the health insurance company reimburses less for drugs. So the patient pays a higher difference between the price and the reimbursement. Wherever the insurance company saves, the patient pays more. Often, however, the burden of the reduced reimbursement is borne by the pharmaceutical company. It does so by reducing the price of the drug so that with a reduced reimbursement the patient pays the same co-payment that they were used to, even zero. This, however, cannot be done in every case; drug prices are already so low that our room for reduction is minimal.

Let’s go back to the system savings. Can you explain how this drug re-pricing takes place?

The procedure is that the SUKL starts administrative proceedings, in which it regularly “revise” drug prices and reimbursement. That’s why it’s called a “revision”.  In general, we can say that in the context of the revision they search for the cheapest price of the drug in the EU, and then reference to it, so they accumulate savings in health insurance spending on drugs. According to the SUKL data, from 2008 to 2011 nearly 9 billion crowns was saved on drugs and the reduction in the maximum prices brought in almost another 3 billion.  In the first couple of years almost all drugs were re-priced for the first time and this, naturally, used up the greatest potential for savings in the drug policy. Each additional review round can only bring a fraction of the savings. The SUKL estimates that from 2012 to 2014 the revisions managed to generate an additional 2.5 billion per year. And after 2014, SUKL expect to generate around 2 billion at all only. 

Regarding to the fact that around 59 billion crowns a year are paid for from health insurance for drugs, this concerns large amounts of savings. Where do the savings go?

Unfortunately, it is not clear. Regarding to the fact that the Reimbursement Decree was very restrictive in 2012 and 2013 and reduced doctors’ budgets that can be spend on drugs, I think that the savings on drugs haven’t been invested back into drug treatment. Although, it would be the logical and right solution. Due to saving on drugs we can treat more patients. Even though it’s not publicly admitted, no one can deny that there are still waiting lists, e.g. for biological treatment. The billions saved by revisions should improve access to high-quality and modern treatment, so that all patients can have access. 

You said that the drug savings potential is virtually exhausted. Is the health system looking for savings elsewhere?

I’d be glad if it was so. It is always a good idea to make reforms and savings in all areas of health care for the system’s stability. Minister Němeček has already taken some partial steps, for example, to prevent resources being wasted on purchasing expensive medical machines - specifically he set up the “Medical machines Commission” — but the effectiveness of this measure has yet to be seen. I believe that a considerable savings potential is still concealed in medical devices, there is a tens of thousands of them and their reimbursement from health insurance set is still inefficient, at least compared with the process applied to drugs. Every new health minister talks about it, but actually nothing changes in this area. 

The media has often addressed the export of drugs abroad. Do you also see this phenomenon as an issue?

First of all it is necessary to say that the export of drugs abroad i.e. re-export, is a legal activity that any drug distributor can carry out. It is an activity protected by one of the four fundamental pillars of the European Union, that being the free movement of goods. However, this does not mean that it doesn’t cause problems for individual Member States at the national level. Distributors basically export drugs that have been imported to CZ by manufacturers and that are intended for the Czech market. So if there is excessive export, the situation can easily arise that this or that medication is simply not available in Czech pharmacies, it is unavailable to the Czech patient because it was exported. Drug manufacturers have a duty to adequately supply the Czech market and naturally that adequacy is governed by the number of patients in the CR. No one can reasonably ask us to import three times more into the CZ than is required by Czech patients, that is not the way. The way ahead is only responsible behaviour by distributors or restrictions by the state. What surprised me was the high number of pharmacies with distributor licenses in the Czech Republic. There are more than 400 holders of a distribution licence, that was a really surprisingly high number for me. And it is a factor that makes re-export unpredictable and difficult to estimate. 

What is the reason behind Czech distributors exporting drugs abroad?

We are in a situation where the prices of drugs in the CR are among the lowest in the EU, as I’ve already mentioned. So the distributor receives the difference between the price of the drug in the CR and the price abroad. For example, in the UK our drug for epilepsy and neuropathic pain is 141% more than in the CR. It is therefore hard to resist the demands of a British distributor and not sell a Czech drug to him. Even in the case of there not being enough for Czech pharmacies. Pharmacies call us almost every day asking about the availability of this or that drug, and we can only repeat that, as a manufacturer, we have met our obligation and put a sufficient quantity of drugs onto the market. But who explains it to the patient who goes from pharmacy to pharmacy looking for their medicine? This is where I see the biggest problem. 

Does that mean we are doomed to run around the pharmacies looking for drugs? The principle of the free movement of goods really is very much protected by the European Commission ...

Fortunately, the argument of ensuring the availability of a drug at the national level is reason enough for exceptional solutions at the national level, usually in the form of a ban on exports of a specific drug for a specific period of time. Slovakia, Hungary and Romania have resorted to such measures - countries that, just like we, have very low drug prices, which actually cause increased re-export. According to the SUKL data the value of re-exported drugs is 6.07% of the total value of all drugs, which is quite high number. The Ministry of Health has been aware of the problem for some time now and in 2013 Minister Holcát adopted two export bans for a drug. Minister Němeček recently repeated one of the bans. The Ministry of Health is even preparing legislation that would regulate distributors announcing a proposed export and improve the options for announcing a ban, which, of course, is very positive. But it would be disappointing if such measures could only be applied to life-saving medicines, as the press reported. This would in effect mean the status quo. Day in day out we are dealing with the inaccessibility of commonplace drugs, but that doesn’t mean that they are easily interchangeable and that their unavailability does not cause the patients problems. And the patient should always come first.

What do you think about the planned reduction of VAT for drugs by 5%? Will it help patients get their medication cheaper?

It’s certainly a step in the right direction. In the CR the VAT for medication is 15%, which is one of the highest rates in the EU. The health insurance company pays VAT from the health insurance and so in fact it is inefficiently expended finance, in essence pouring money from one state pocket to another, because state pays health insurance for 60% of citizens. Any reduction in VAT is a positive step, which I fully support. The patient would see a slight reduction in the price of drugs, especially in OTC drugs, where they pay the full price. But again, what would the public should be interested in is how this saving of nearly 3 billion per year will be spent. Again, savings should go to patients access.

You’ve been at Pfizer for 23 years, why did you decide for this career?

I studied international business and immediately afterwards I joined Pfizer as a sales representative.

My family members were involved in medical science and business, therefore the combination intrigued me, and the pharmaceutical industry was the obvious choice for me. The work is varied, at Pfizer I’ve worked in many different positions and countries.   Most rewarding to me is bringing innovative medicines to patients.

During your career at Pfizer you worked in South America and Africa, how do you see the pharmaceutical market in the Czech Republic in comparison?

.Every market has something unique based on local epidemiology and different healthcare systems.  Like many other countries, healthcare funding is a challenge to find the correct balance of providing cost effective healthcare to everyone while offering access to high quality innovations.  In Czech Republic, I’m encouraged by the increasing advocacy of non-profit organizations for better quality healthcare and patients rights. 

What most surprised you in the Czech Republic? Did you have to get used to the Czech mentality?

Every country where I’ve worked has its own culture, and there are big differences. In the Czech Republic I was very pleasantly surprised by the level of education and also the passion of my colleagues, who are constantly trying to improve their skills. That is really very inspiring.  The pharmaceutical market is changing rapidly and those colleagues embracing change and are flexible with new challenges are exceeding the standards.

Do you come up against some problems with your Czech colleagues?

Each manager and leader has to inspire their colleagues & direct reports.   Most people choose a career in the pharmaceutical industry because they want to fight for patients’ health and improve the quality of life for society. However, if you don’t see the results of your work, it is very hard to keep motivated. Most of the feedback we get is vicariously through the nurses and the doctors, and it is very important to have as much as possible and for all employees to receive it. But the over-regulation in our field has led to the creation of a high wall between drug manufacturers and patients.

In the CR the pharmaceutical industry often contends with a negative public perception, is it the same abroad?

Unfortunately the situation is no better abroad. However, not everyone realizes that many years ago, the pharmaceutical industry voluntarily started along the path of self-regulation and setting strict ethical principles. In addition, Pfizer is a company founded in 1849 in the US and is thus bound by the strict anti-corruption principles of the American law against corrupt practices (FCPA) from 1977, so our corporate rules are much stricter than the Czech system of laws and even slightly more stringent than the Association of Innovative Pharmaceutical Industry’s code of ethics. For us, ethics is an everyday topic that pervades all of our processes.

When you talk about ethical principles and self-regulation, could you give us an example from practice? Is there something that your code of ethics prohibits?

Yes, the Association of Innovative Pharmaceutical Industry’s code of ethics and Pfizer’s code of ethics are so strict that they prohibit us from carrying out many activities that we would otherwise be able to do by law. For example, an innovative company with its own medical research and development is no longer allowed to give doctors even a ballpoint pen with the company logo (let alone a product), not even a cup or a flower for an anniversary. The only exception, as concerns gifts, is professional literature, the value of which cannot exceed CZK 1500 per year. We also have strict limits on hospitality, we are not allowed to financially support medical congresses in attractive tourist destinations or use luxury hotels. Every month the AIFP Ethics Committee assesses the professional contribution of one randomly selected non-interventional study and carries out self-regulation among the companies. Every pharmaceutical representative and his superior must pass the AIFP certification, which is actually a test of ethical principles in front of the AIFP commission, etc. There is a lot more of this, but it would require a special interview ... Working in an ethical manner is mandatory for Pfizer and the challenge is to keep it as standard in the future.

How long has Pfizer been on the Czech market?

The Pfizer branch was set up in the Czech Republic in 1993, last year we celebrated 20 years in the Czech market. In our portfolio we have over 80 drugs from different therapeutic areas, e.g. cardiovascular, oncology, rheumatology, medicines for disorders of the central nervous system, ophthalmology, antibiotics, vaccines, and also probably the best-known cure for erectile dysfunction.  In the CR we employ over 150 people and worldwide we have over 80 thousand employees.

Innovative companies invest huge sums into research and development. Is it worth it?

In 2012 Pfizer invested more than 135 billion crowns into research and development of new drugs at a global level. That is a huge amount. We have 12 thousand highly skilled researchers from more than 20 countries around the world. We have hundreds of research projects in 10 major therapeutic areas, ranging from the common cold to cancer. As concerns the number of research projects, Pfizer is a global leader. The process of developing a new drug, however, is not only expensive, but also tedious. It can take up to 15 years before a drug gets onto the market, and it costs an average of $1.3 billion. If it succeeds, it is a huge success for the entire company and, in particular, for the patients, because they are the ones that primarily benefit from the new drug.

Recently the answer as to whether it pays to market new drugs must necessarily include the issue of the drug’s patent protection. Unfortunately, we see that some states systematically fail to comply with the unwritten social agreement between drug manufacturers and the public – we invest billions of dollars into research on new drugs and for that we want a few years of patent protection from a state, thanks to which we can cover the costs of other research and development. That, for instance, is the case of India.

Also in the Czech Republic, products often drops in price and reimbursement before its patent protection expires. This can involve substantial declines, even up to 50%. This situation is caused by the Czech system of classifying drugs into reference groups. With the first generic or biosimilars entry into the group, the reimbursement for all medicines in this group decrease, even those that are patent protected. These are dangerous moments because the willingness and motivation of companies to bring out new, modern drugs on such a market can be, of course, less than on other markets.

Does the pharmaceutical industry also invest in research and development in the Czech Republic, or is it just investment abroad?

That is a very good question. Many people here believe that all our investments are only in the countries where we have research and production facilities. But it is not true. Thanks to its dense network of hospital facilities and high-quality doctors, the Czech Republic is a popular country for clinical trials. And clinical trials are a very important part of research. Few people know that the innovative companies associated in the AIFP invest 5% of their income and 11% of the costs into research and development in the Czech Republic! That is a great figure, especially compared to the car industry, which only invests 1.5% of its profits in the CR. So every year, the innovative companies invest CZK 1.2 billion. That means we put the same amount into research and development here as the electronics industry, which is 9 x larger. These are the results of an Ernst&Young study from 2012.

In your opinion, what will future development of the pharmaceutical market and health care overall bring to the Czech Republic?

I want to believe that the outlook for the future is positive. Nowadays the regulators themselves are aware of the weak and non-transparent areas in the drug policy, especially in the pricing and reimbursement of medicines. Therefore I assume they will support making certain, necessary changes to increase the transparency and predictability of the system.

Moreover, finally there is a public discussion about the issue of the ageing Czech population and the need for all ministries to be prepared for this negative trend. The social system will be most affected by ageing, but healthcare will be right behind it. Let us hope, therefore, that we can expect just such legislative changes that will be for the good of patients.

From a macroeconomic point of view, the Czech Republic has rebounded from its notional bottom, the forecasts for the coming years are positive and GDP is expected to show moderate growth after years of decline. I hope that this growth will also be taken into account in the health sector so patients will have better access to treatment.