CLAWBACK - Either RO or HU is the lesser of the two "evils"?
Brief
Improving expenditure efficiency has been, for a very long time, a much desired objective for public health authorities all over Europe. Measures have been developed to address increase in consumption costs as well as to counteract pressure exerted by private suppliers on the public health systems.
Case Study Content
Background & Concept
Improving expenditure efficiency has been, for a very long time, a much desired objective for public health authorities all over Europe. Measures have been developed to address increase in consumption costs as well as to counteract pressure exerted by private suppliers on the public health systems.
Although a wide spread practice in the EU countries, until recently, clawback was not considered by Romanian authorities as an applicable cost containment measure.
In essence, clawback system requires pharmaceutical market players to contribute to the public health system with an amount determined on the basis of the turnover obtained on public funding (either reimbursement, hospital consumption or other type of use sponsored by State). The most frequent form in the EU is the contribution paid by producers (although there are states requiring contributions by distributors or retailers in addition to manufacturers’).
However, due to the critical situation faced by the public health system in the last year months, authorities have undertaken several steps for the implementation of this type of expenditure containment mechanism for the Romanian pharmaceutical market.
Main Characteristics
Briefly, clawback may be defined as a system allowing health insurance bodies to partially recover amounts granted in a reimbursement system. However, scope as well as mechanics of such system widely differs from country to country, heavily depending on the objectives pursued by national public health policy.
According to the 2009 Pharmaceutical Inquiry Report issued by EU Directorate General for Competition, as of 2006 Austria, Belgium, Italy, Netherlands, Poland and United Kingdom had clawback systems implemented. By means of such systems, public bodies received back from dispensing pharmacies some of the commercial incentives funneled through the distribution chain.
During the same year, Hungary joined the list of countries applying clawback as cost containment measure. Yet, the Hungarian model is more drastic and highly challenging for the market players, since unlike any of the others, it addresses all links in the supply channel.
Yet, despite variety of forms, the objective behind clawback system remains the same, namely, reducing the pressure on heath related public expenditure.
Hungarian Model
Starting with 2006, Hungarian public authorities put in place a clawback scheme which requires all participants in the supply chain of reimbursed pharmaceuticals to contribute to sustaining related public expenditure. Thus, under the Act XCVIII of 2006:
1. “(…) Marketing authorization holders are required to pay a contribution in the amount specified in this Act in connection with the medicinal products they supply with a social security subsidy, consistent with the volume of turnover of such medicinal products, to enhance the cost-effectiveness of the supply of medicinal products which are available in exchange for the contributions paid on behalf of the persons insured under the social security system”
2. “(…) Business associations authorized for the wholesale distribution of medicinal products, and business association authorized for the wholesale distribution of dietary supplements shall be required to pay two-and-a-half per cent of the wholesale price margin on all their medicinal products sold during the month in public pharmacies and in institutional pharmacies engaged in supplying medicinal products to the general public with public financing, based on the amount of social security subsidies.”
3. “(…) Any authorized operator of a public pharmacy and any institutional pharmacy engaged in supplying medicinal products to the general public … whose aggregated quarterly price margin from the sale of medicinal products with public financing exceeds the amount referred to in Section 39 shall be required to pay a pharmacy solidarity tax.”
According to the legal text, all types of reimbursed pharmaceuticals providers (be it producer, wholesaler or pharmacy) have to contribute to health budget proportionally to the turnover they realize in relation with subsidized drugs:
Romanian Model
According to the mechanism regulated by Emergency Ordinance 104 / 2009, producers are required to pay a contribution of 5 to 11% of the sales of drugs on reimbursement list or hospital consumption list – payment to be effected on a quarterly basis as a percentage of their quarterly turnover.
Comparative Example of Clawback Scheme Impact
For a more a pragmatic assessment of effects of the two clawback schemes, we will use the follow scenario, simplified for the purpose of the exercise:
Producer PHARMA sells product DRUG on both Romanian and Hungarian markets, under the same formulation, package size and price expressed in EUR (10 EUR / pack). DRUG is used in oncology treatments and is 100% reimbursed under both Romanian and Hungarian health regulations.
Sales of DRUG follow the same consumption patterns, and are as follows (in packs):
Month RO Retail RO Hospital HU Retail HU Hospital
January 100 50 100 50
February 50 50 50 50
March 100 100 100 100
April 100 100 100 100
May 100 100 100 100
June 50 100 50 100
July 50 50 50 50
August 50 50 50 50
September 100 100 100 100
October 100 100 100 100
November 100 100 100 100
December 100 100 100 100
TOTAL 1000 1000 1000 1000
Supply on the Hungarian market is made as follows (prices are for exercise purpose only and are not correlated to the Hungarian pricing scheme):
1. PRODUCER sells DRUGS to wholesaler HU DISTRIBUTOR at a price of 10 EUR / pack
2. HU DISTRIBUTOR sells DRUGS to retailer HU PHARMACY at a price of 12 EUR / pack
3. HU DISTRIBUTOR sells DRUGS to consumer HU HOSPITAL at a price of 12 EUR / pack
4. HU PHARMACY sells DRUGS to consumer HU PATIENTS at a price of 15 EUR / pack
Supply on the Romanian market is made as follows:
1. PRODUCER sells DRUGS to wholesaler RO DISTRIBUTOR at a price of 10 EUR / pack
2. RO DISTRIBUTOR sells DRUGS to retailer RO PHARMACY at a price of 12 EUR / pack
3. RO DISTRIBUTOR sells DRUGS to consumer RO HOSPITAL at a price of 12 EUR / pack
4. RO PHARMACY sells DRUGS to consumer RO PATIENTS at a price of 15 EUR / pack
CLAWBACK CONTIBUTIONS
According to the Romanian clawback schedule, PRODUCER falls into the category liable for 7% contribution. Also, under the Hungarian clawback schedule, HU PHARMACY is liable for a 3% contribution.
HUNGARIAN MARKET
Due amounts are as follows:
PHARMA for sales on the Hungarian market (12% of the sales*) 2,400 EUR
HU Distributor (2.5% of margins realized on either hospital or retail market*) 100 EUR
HU PHARMACY (3% of margins realized on the 1000 packs sold to patients*) 90 EUR
* entire traded quaatity is presumed to be reimbursed
Summarizing, Hungarian public health budget benefits of contributions totaling 2,590 EUR for expensing 27,000 EUR on pharmaceuticals, namely 9.6% of expenditure being recouped:
Expenditure
Hospital Expenditure 12,000 EUR
Retail Expenditure 15,000 EUR
Total Public Expenditure 27,000 EUR
Contributions
PRODUCER 2,400 EUR
HU DISTRIBUTOR 100 EUR
HU PHARMACY 90 EUR
Total contributions 2,590 EUR
Maintaining the same quantities and prices, Hungarian public health budget may benefit of amounts ranging from 2,500 EUR (whereas all products are sold to hospitals) up to 2,700 EUR (whereas all products are sold through pharmacies), or 8.3% up to 11.25% of incurred expenditures.
ROMANIAN MARKET
Due amounts are as follows:
PHARMA - for sales on the Romanian market (7% of the sales as per assumptions) 1,400 EUR
* entire traded quaatity is presumed to be reimbursed
On the other hand, the Romanian public expenditure on DRUGS amounts to the same value of 27,000 EUR, which means that the percentage recovered under the clawback scheme is little over 5%. This amount does not depend on the distribution channel, since it is only due by PRODUCER.
Maintaining the same quantities and prices, Romanian public health budget may benefit of amounts ranging from 1,000 EUR up to 2,200 EUR, depending on the clawback category the PRODUCER falls in. In percentages, the amounts recouped by health authorities may range from 3.3% (in case PRODUCER is liable for only 5% under clawback schedule and PRODUCTS are exclusively sold through pharmacies) up to 9.2% (whereas PRODUCER is liable for 11% under clawback schedule and PRODUCTS are exclusively sold to hospitals)
Conclusions
Aside from the fact that currently there is still confusion regarding the specifics of clawback implementation, from the producers’ standpoint, Romanian regulatory framework is preferable to the Hungarian one. Thus, alongside a smaller clawback contribution, on our market side effects (such as pressures on discounts policy or payment terms) of imposing such measures on the wholesalers and retailers are not to be expected.
