Global Insight Perspective | |
Significance | The Brazilian drug price regulator, CMED, has imposed a 24.69% discount on medicines supplied to key procurement schemes, prompting firms to launch legal action in Brazil’s Superior Court of Justice. |
Implications | For some small-scale manufacturers the impact of the discount, coupled with an existing automatic 25% discount on medicines supplied to the public sector, will be ruinous. But the government is committed to reducing its drugs bill, as citizens increasingly turn to the courts to obtain their right to free treatment. |
Outlook | If firms fail to have the measure declared unconstitutional, the real value of large public tenders will decline, undermining one of the key avenues by which multinational drug firms can bring novel therapies to market in Brazil. However, there is a remote chance that the cut could free up resources for other purchases. |
The Brazilian health minister, José Temporão, and Interfarma, the industry association that represents multinational drug-makers in Brazil, have had their first hearing in Brazil’s Federal Superior Court over the government’s decision to impose a new discount on medicines supplied in the public health sector. On 21 March, Resolution 4 of the Brazilian price regulator, CMED, introduced a 24.69% “Price Adjustment Coefficient” on the manufacturer price of all state-supplied pharmaceutical products. The cut applies uniformly to all pharmaceutical products concerned, and takes no account of specific development and production costs for any of these medicines.
The cut essentially applies the same ”international purchasing power” adjustment methodology to the public sector that is already used in the private sector. But it is also much deeper than it appears: medicines supplied to the public sector are already commonly subjected to an automatic 25% discount, according to the president of Interfarma, Gabriel Tannus. As a result, the acquisition prices of many medicines in the public sector will be halved, leaving firms that are overly dependent on state tenders facing severe financial pressures.
The cut also coincides with a general trend towards large federal tenders that are managed electronically, as officials attempt to increase the bargaining power of state procurement agencies. The industry had offered to supply medicines at the lowest price previously offered in any public tender, but this proposal was rejected by the health ministry. The ministry now argues instead that their price calculation, including the 24.69% cut, will constitute an official and universal Maximum Government Sale Price.
Lawsuits Pressure Government
The discount will affect all judicially mandated purchases, meaning those which are judged necessary to fulfil the government’s constitutional obligation to provide free treatment with “high-cost” therapies to those who cannot afford them. In essence, this means pharmaceutical products where patients have turned to the Courts in order to obtain continued treatment for rare, chronic and/or life-threatening diseases. Such products are detailed on the National List of Exceptional Medicines; according to the health ministry, spending on these products has increased by 177% since 2003, and is budgeted to rise by a further 16% this year to 1.58 billion Brazilian reais (US$740 million). It is estimated that these medicines consume more than a third of Brazil’s drug budget.
Notably, funding for these medicines does not include the specially earmarked expenditure for anti-retroviral treatment (ARVs), which has also increased significantly in recent years. The new cut will also apply to ARVs, as well as blood products, cancer drugs and most novel pharmaceutical products.
Outlook and Implications
From the government’s point of view, then, these “exceptional” or “high-cost” medicines are an obvious target for cost containment policies. Further savings on AIDS medicines and on basic medicines supplied to the Unified Health Service (SUS) will be difficult to achieve. In general terms, it is difficult to see the general drift towards cost containment in the public sector as anything less than negative for innovator firms.
But there is a chance that there will be at least one silver lining, as firms may become better able to get their products listed in the first place. There is anecdotal evidence that manufacturers of drugs that treat rare diseases are queuing up to get their products listed as exceptional medicines, and the list has not been significantly updated since October 2004. If there is movement in this area, it will illustrate that in Brazil’s public health sector at least, there really is an opportunity in every crisis.
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- 4 April 2007: Local Judiciary Sues to Get Genentech’s Tarceva Reimbursed in Brazil
- 26 January 2007: Calls Made for Wider Reimbursement of High-Cost Drugs in Brazil
- 27 December 2006: Government of Brazil Outlines Drug Procurement Funding, Mulls New Quality Rules