Could unorthodox measures cripple drug market?
From the Budapest Business Journal print edition: Since 2011, the Hungarian healthcare administration has introduced several unorthodox methods in order to keep the medicinal support budget in balance. The struggle to “contain the big pharma’s hunger for profits” has proven to be all too successful: dumps of low-cost generic drugs are prone to disappear suddenly from the market, meaning the security of the medicaments supply could be jeopardized.
The Hungarian medication authority (GyEMSzI-OGyI) regularly publishes an updated list of drugs in short supply. At the moment, the list features nearly 450 medicines, surely far too many and a notable increase from the fewer than 100 enumerated in 2011.
“Most items featured on GyEMSzI’s list are generic brands, many of them are the cheapest in their agent/active substance category,” OGyI senior consultant Tamás Paál explained to the Budapest Business Journal. “There are 142 items whose market share had not reached 1% in their active agent category before they disappeared for a good. The latter group might well be called phantom drugs.”
But why do cheap phantom drugs appear at all in the Hungarian market? The problem is rooted in unorthodox measures the Hungarian government began to introduce back in 2011 to curb the “outrageous” profits of large pharmaceutical interests.
The punishment strikes back
Measures included the replacement of innovative drugs with generics, the contesting of generic drugs containing the same agent/active substance, and blind tenders for the cheapest reference drug status. All these have reduced the expenses within the central government's medicament budget by about HUF 31 billion since 2011.
Consequently, the turnover of Hungary-based innovative pharmaceutical manufacturers has decreased, but the profit of generic drug manufacturers has significantly fallen back as well. The main beneficiaries of the restrictive government measures have become those generic drug distributors who have managed to sell the cheap products of Asian manufacturers on a one-time basis on the Hungarian market.
The stocks of these distributors are easily exhausted, however, and the limited supply of goods is dumped at depressed prices on the market, no further supply is guaranteed.
As imagined by health administrators
The introduction of the regulations in 2011 was in many ways a response to the extreme expansion of the medicinal market during previous years: Between 1999 and 2009, consumption of prescription drugs in Hungary increased nearly threefold, putting an extreme burden on the central healthcare budget.
To prevent a further increase in pharmaceutical subsidies, the healthcare administration therefore facilitated the replacement of original, innovative drugs whose licenses had expired with cheaper generic drugs. “The lower manufacturers’ prices get, the stronger the competition will be among generic medicaments,” a source speaking on condition of anonymity informed the BBJ.
In the beginning, the rule followed by the state-run healthcare system was that the first subsidized generic variant was required to be 65% less expensive than the original medicament it had replaced. Subsequently introduced generic drugs had to be priced even lower.
In that system, however, price competition gradually decreased over time, and so the concept of the so-called preferred reference range was introduced: Groups of medications were defined by the active agents they contained, and, within each group, the cheapest medication available on the Hungarian market became the reference drug for the group in question. Only the ‘reference range’ would be subsidized by the state, i.e. the cheapest generic drug in the group plus those priced less than 10% more.
Those medicines in the group that were priced higher than the reference range received only limited subsidies, and those which were more than twice as expensive as the reference range were delisted.
Blind tenders and Indian competitors
“At the heart of the new policy, subsidization preferences were combined with the announcement of tenders in which drugs were competing for first-place reference status in the first round, and to be included in the reference range in the second round,” said Teva public relations director Péter Paplanos. “In the case of these tenders, competitors cannot see each other’s prices; this is why the process is called blind bidding.”
In this system, however, the initial conditions set by manufacturers increasingly determine their later chances in each successive round of the competition. “Firstly, higher manufacturing costs put some of producers at a disadvantage right at the start,” Zentiva Hungary managing director György András Deák told BBJ. “Secondly, blind tendering affects the extent of available state subsidies, so the more expensive medications will loose further competivity because they will receive less (or no) state subsidy. Thirdly, pharmacies and doctors are obliged to call their patients’ attention to the price differences and are expected to recommend cheaper drugs.
“The state-induced competition created among generic medicaments fits tightly into the current trends of unorthodox Hungarian economic policy,” Deák said. “Each element of that competition exists in the practice of other countries as well; but this combination, made even more restrictive by the extremely rigorous requirements set up by the government, is unique to Hungary.”
Since 2011, the expenses of the medicaments budget spent on subsidies have decreased by about HUF 31 billion; patients have saved another HUF 7.5 billion by buying cheaper medication.
These achievements, however, have had negative side effects (so to speak) as well. “Prescribing dump-sold Asian medicaments to patients is often hazardous on a log-term basis,” a source who asked not to be named told the BBJ. “By the time they get used to a certain medicine, the drug vanishes from the Hungarian market.”
Domestic generic pharmaceutical manufacturers have found themselves in a desperate situation. “We cannot compete with the low wages of Indian manufacturers,” Zsuzsa Beke, public and governmental relations manager of Gedeon Richter, told the BBJ. “We have suffered huge losses amounting to several billion forints as a consequence of blind bidding. We have been forced to withdraw many of our blockbuster products from the market, or to sell them on the verge of profitability. Within Richters’s total income, domestic sales have sunk below 10%.”
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.