Global Insight Perspective | |
Significance | The government hopes that allowing pharmacies to offer discounts will cut the retail prices of all medicines that have co-payments. At the same time, the new Statute lays out maximum margins for pharmacies. |
Implications | The Statute accompanies the introduction of a thorough reference pricing system, which will also drive down costs. |
Outlook | The legislation will especially benefit generic medicines, which will enjoy a discount of only 35% over the reference medicine—or 20% if the drug’s retail price is less than 10 euros (US$13.32). Access to innovative and/or brand-name pharmaceuticals will effectively be disincentivised. |
Portugal’s Medicines Statute (Estatuto do Medicamento) has now become law following its publication in the country’s official gazette. The measure introduces price-fixing at every level of the pharmaceutical supply chain.
Too Many Sticks, Not Enough Carrots
At retail level, pharmacists have opposed the introduction of new controls that will see their maximum margins shrink from 19.15% to 18.25%; margins will stay at 20% for medicines that do not require a co-payment from consumers. Wholesalers, meanwhile, will be entitled to a margin of just 6.87% on the retail price of co-pay medicines, or 8% in the case of drugs without co-payments.
The government has seen fit to provide a carrot alongside all the sticks for medicines distributors. For the first time ever, Portuguese retail pharmacies will be able to offer a discount to consumers, which will be calculated on the share of the maximum retail price that is reimbursed by the state. The government hopes that by encouraging retailers to splash details of their discounts all over their stores, consumers will become more sensitised to the real cost of medicines, and in turn help the new mechanism to become a money-saver for the state.
This apparent embrace of market forces is misleading, however. According to the official news agency Agência Lusa, the Statute pledges that “once established in its definitive form, the price will be maintained for three years”. Given the new incentives for discounting by retailers and wholesalers, manufacturers are unlikely to welcome what amounts to a freeze on the maximum price that will last until at least the end of the decade.
Basket Cases
The Statute also introduces a number of other cost-control mechanisms at manufacturer level. Perhaps most controversially, the law adds Greece to the basket of countries used as comparators in setting Portuguese manufacturer prices, alongside Spain, France and Italy. In recent years, Greece has been the target of criticism from international manufacturers for its harsh price controls, which have turned the country into a significant hub for the European Union’s parallel trade. Under the new Portuguese law, parallel imports must be only 5% cheaper than local equivalents to gain clearance.
The basis for comparing medicines across the reference countries also appears to lack a certain rigour. Under the Statute, international price comparisons are possible in the case of any medicine that is “essentially similar” to a product marketed in two of the four reference countries. In the case of new medicines—either innovative drugs or new formulations—retail prices in Portugal may not exceed the average of all manufacturer prices for the same medicine in the reference countries, regardless of whether it is imported or produced in the reference country.
Outlook and Implications
When the dust settles from the new Statute, it is likely that inexpensive medicines—and in particular generics—will be the prime beneficiaries of the reforms. For equivalents of cheap brand-name medicines costing under 10 euros, a discount of only 20% is demanded. Specifically in the case of generics, a discount of just 35% on the retail price of the reference medicine is required, presenting manufacturers with very robust margins. Not coincidentally, Prime Minister José Sócrates has noted that the market share of generics in value terms reached 16% in January 2007, with 2.73 million boxes sold in the month. Speaking at the inauguration of a new 10 million-euro price-monitoring unit that has been set up to oversee the reformed system, Sócrates promised that “the government will do everything to drive up the consumption of generic medicines in Portugal”.
Little back-tracking on the reforms now seems possible. The new pricing system will be jointly managed by the health and finance ministries, reflecting the political priorities attached to reining in Portugal’s medicine spending. As it stands, the new system can be expected to reward sales of high volumes of low-priced off-patent medicines. Ensuring fair compensation for producers of innovative and therapeutically advantageous medicines does not appear to play much part in the government’s thinking.
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