Clarification of competition rules is helpful, but not a panacea for lower prices of prescription drugs
In June 2016, the Dutch Authority for Consumers and Markets (ACM) published the guideline “Collective procurement of prescription drugs for medical specialist care (MSC)”. In this guideline, the ACM describes a so-called “safe harbor“ in which collective procurement is permitted. The ACM published this guideline to clarify the opportunities for collective procurement permitted within competition rules. The ACM expects that collective procurement could help procurement agents to negotiate lower prices for drugs and better conditions, which benefits patients and the insured.
The ACM decided in advance to evaluate the guideline after three years. The ACM has asked strategic consultant firm SiRM to carry out this evaluation and to investigate the effect of the guideline and possibilities for improvement or expansion of the guideline.
We conclude that clarification of competition rules is helpful, but not a panacea for lower prices of prescription drugs for MSC. We substantiate this conclusion in the following paragraphs and make recommendations on how to refine the guideline and describe possibilities for expansion. We start by introducing the different segments of prescription drugs we distinguish and conclude with a chapter that describes two other barriers to effective collective procurement not related to competition rules.
The market for prescription drugs has four segments based on their degree of price competition
The market for prescription drugs has four segments based on their degree of price competition:
- Monopoly drugs – Prescription drugs for which there are no therapeutic alternatives available, mostly, but not exclusively, because of patents or regulatory protection. For these monopoly drugs, hospital procurement agents can hardly negotiate lower prices from the moment the drug is covered by health insurance. Only parties that decide on health insurance coverage and reimbursement have some negotiation power.
- Oligopoly drugs – Prescription drugs for which a therapeutic alternative is available, which is not its generic variant or biosimilar. For these oligopoly drugs, price competition is only possible after prescribers decide that the drugs are interchangeable and therapeutically equivalent.
- Drugs in competition – As soon as patents of prescription drugs expire, the price competition increases sharply from the moment generic variants or biosimilars enter the market. These are so-called drugs in competition.
- Multi-source drugs – Price competition is strongest when multiple suppliers provide the same drug.
The guideline has some impact on the effectiveness of price negotiations of oligopoly and monopoly drugs
The guideline is well known to those involved in the procurement of prescription drugs for MSC in the Netherlands and the majority of them believe that publishing the guideline has been useful. The impact of the guideline differs per drug segment. Negotiation power of procurement agents for prescription drugs is actually based primarily on the ability to effectively shift prescribed volumes. We refer to this power as implementation power. Scale of procurement organizations, for which the guideline clarifies the opportunities permitted by competition rules, comes second.
- For oligopoly drugs, the guideline has led to a new dynamic in the procurement of prescription drugs as a new national procurement organization was created – the NFU / NVZ / ZN1 procurement organization. However, the collaboration within this national procurement organization of hospitals and health insurers was complex, which reduced its effectiveness and implementation power.
- For monopoly drugs, the guideline contributed to lower friction costs and possibly to some price reduction, as health insurers took a (certain) position collectively in the procurement of these drugs.
- Although the guideline does relate to drugs in competition, it has had no impact on the procurement of these drugs. Joint procurement organizations of hospitals that purchase these drugs among others, were created several decades before the publication of the guideline in 2016. Its publication has not resulted in an increase of scale or aggregation of these procurement organizations.
ACM can further strengthen purchasing power, also for medical devices
Refining the guideline for procuring prescription drugs for MSC can further strengthen its effect on purchasing power to some extent. Expanding the safe harbor - within the limits of competition rules - can reduce the reluctance for collective procurement. The safe harbor could, for example, be expanded by describing the permitted options and topics for information sharing between parties in a procurement organization. In addition, it could be expanded by describing the permitted possibilities for stricter admission criteria for procurement organizations for the benefit of strengthening their implementation power.
In addition to prescription drugs, a guideline could also describe the opportunities for collective procurement of medical devices permitted within competition rules. The market of medical devices is less developed in the Netherlands than, for example, in Germany. A guideline could increase collaboration on procurement of devices by the attention it generates. A greater effect can be expected of a guideline in this market than the effect the current guideline has on the market of prescription drugs. Compared to the procurement market for prescription drugs in 2016, there is relatively little cooperation in the procurement of medical devices. This seems to be due, among other things, to the fact that procurement agents of medical devices are more reluctant to procure collectively because of competition rules.
Other aspects than competition rules impede effective procurement
The disappointing results of the NFU / NVZ / ZN procurement organization for oligopoly drugs are largely due to a limited implementation power. This is in part related to the narrow definition of the safe harbor. Another major obstacle to effective procurement of oligopoly drugs is the lack of agreement on interchangeability of drugs. After all, without an agreement on this, an oligopoly market cannot be created.
The negotiation organization of health insurers for monopoly drugs is also not yet optimally equipped for price negotiations. It has little, or no information at all, on the cost-effectiveness of the drugs under negotiation. In addition, health insurers lack a legal basis to jointly refuse a drug’s reimbursement that is offered at a "non-cost-effective" price.