Thank you very much, Mr. Chairman. As you said, my name is Sofia Wallström. I'm the director general of the Swedish Dental and Pharmaceutical Benefits Agency, the TLV. I want to thank you for the invitation to address the committee today, and I hope that our experiences can be beneficial to your work.
First, I will give you some background. Sweden is a medium-sized European country. The Swedish population reached 10 million in January this year. The population density is approximately 22 inhabitants per square kilometre. The population is geographically unevenly distributed. As in Canada, the inland and northern parts are scarcely populated, while the major urban areas are located along the coastline of the southern part of Sweden.
Swedish health care is a national health service system. Provision of health care is regulated by law, incorporates equal access to services based on need, and emphasizes a vision of equal health for all. The health care system provides coverage for all residents of Sweden, regardless of nationality. The Swedish system is highly decentralized, with three independent governmental levels: the national government, the regional county councils, and the local municipalities. They are all involved in health care.
The county councils have the main responsibility for providing health care, and there are 21 county councils that own and operate most of the health care facilities, such as hospitals and primary care centres. The 290 local municipalities are responsible for providing nursing home care, social services, and housing needs for the elderly.
The Swedish health care system is funded primarily by taxes, and the county councils and the municipalities have the right to levy taxes and determine tax rates. Principal health policy objectives and frameworks are determined at the national level, but the actual provision of services is done by the county councils and municipalities. The county councils are solely responsible for the funding of in-patient pharmaceutical expenditure. Costs for out-patient pharmaceuticals are formally financed by the county councils, but the government gives a special grant that covers the county councils' costs for out-patients' medicines.
Patients pay a limited part of the actual costs for visits and treatments. Patients pay a fee when visiting a health care service centre and when treated in a hospital. The maximum annual amount is 1,100 Swedish kronor, which is about 116 euro, and includes pharmaceutical treatments. In a separate system patients also pay a copayment of a maximum of 2,200 Swedish kronor, which is about 230 euro per year, for out-patient pharmaceuticals included in the pharmaceutical benefits scheme.
The Dental and Pharmaceutical Benefits Agency is the governmental agency responsible for pricing and reimbursement decisions on medicines used in out-patient care. The criteria for reimbursement are laid out in the Act on Pharmaceutical Benefits and can be summarized in three principles: the human value principle, the need and solidarity principle, and the cost-effectiveness principle. All of these criteria are to be considered and weighed together by the TLV. This means that, for new pharmaceuticals, TLV uses health and economic analyses as important bases for our decisions.
For products that have been on the market for some years but for which the patent has not expired or there is no generic substitution, Swedish prices a couple of years ago were very high. To deal with this, we had new legislation in 2013, and we now have an automatic price cut of 7.5% when a drug has been on the market for 15 years.
When it comes to the generic market, Sweden has obtained among the lowest prices in Europe for generic drugs. Generic substitutions for pharmaceuticals in pharmacies have been mandatory since 2002. For products with this kind of competition, pharmacies are obliged to offer the equivalent medicine with the lowest price per unit. Each month TLV informs which product in each package-sized group has the lowest retail price per unit, and it should be dispensed at pharmacies that month. The preferred product is appointed through a monthly auction at TLV, where the product that the pharmacies should offer is decided.
Competition between manufacturers has resulted in significant price reductions of these drugs. After three months, the price will fall by 40% on average, and after two years, the price should fall further, to 35% of the price before the competition arose. As the prices fall, volumes increase, which means that more patients get access to effective treatment. Also, financial resources are made available for other care, since the decrease in price is larger than the increase in volume.
I will now make a few comments on our work in the face of challenges with new pharmaceuticals. We see that quite a few of the new pharmaceuticals address high unmet medical needs and are judged to have a positive risk-benefit balance. However, they often come with a challenge. They are high priced, so it's hard to decide on price and reimbursement when many new drugs reach the market earlier in the development phases and have a larger uncertainty in their documentation. To meet these challenges, TLV has established a national platform for collaboration and dialogue with the pharma companies and the county councils. A managed entry agreement between the county councils and a pharmaceutical company may be one of several factors considered when TLV decides on price and reimbursement status. Risk sharing via managed entry agreements is an increasingly important tool to manage these uncertainties associated with scarce data.
Managed entry agreements between county councils and pharmaceutical companies also have potential as powerful tools to create competition and stimulate price dynamics within established therapeutic areas where, for various reasons, competition and price pressure have not arisen. One example is biologicals, where price competition rarely arises, despite the market entry of biosimilars. This work is now being implemented in practice and to date, agreements have been reached in several areas, including hepatitis C, heart failure, and cancer.
We're now moving forward both to institutionalize and expand the use of these risk-sharing models. We increase our efforts to include a proper plan for renewal of our decisions, based on follow-up and post-launch evidence generation. We aim to develop this further to allow early decisions, early access, and link it to continued development of knowledge.
In summary, the Swedish system provides universal health coverage mainly financed by taxes. Both in-patients and outpatients are covered. For outpatients, there is a copayment system with thresholds in place for pharmaceuticals with generic competitions. After patents expire, we have some of the lowest prices in Europe. For products older than 15 years, when there is no generic competition, there is an automatic price cut of 7.5%, which gives us a good precondition to face challenges, such as new, high-priced, innovative drugs or drugs aimed at rare diseases. Of course, our pricing decisions in our reimbursement work is being made more complex, as pharmaceuticals reach the market earlier with a larger uncertainty in their documentation. Our work and decisions are becoming more complex based on scarce data. Our value-based approach with health technology assessment is an important basis and we're now in the process of developing this further to meet these new challenges.
With this, I would like to conclude my intervention. Once again, thank you for this opportunity.
Dear members of the Standing Committee on Health, thank you for the opportunity, on behalf of our Minister of Health, Edith Schippers, to present to you today. It's an honour to give you some insight into the Dutch system today for pricing and reimbursement of outpatient pharmaceuticals.
Our minister strongly values the voluntary collaboration among countries in the field of pharmaceuticals. In the international arena, the Netherlands has been a strong proponent of creating an environment that allows for long-term access to innovative drugs at affordable costs. Sharing knowledge and giving insight into policies among countries is a valuable part of ensuring access to pharmaceuticals. I hope that our exchange today will help you in facing challenges in your own pharmaceutical system, and might benefit Canadian patients.
As my colleague from Sweden did, I will try to give you a short insight into the Dutch pharmaceutical system.
The Netherlands is a slightly larger country than Sweden. We have approximately 17 million inhabitants. We basically have a private health insurance system, with the goal of providing health insurance and access for everyone equally. It's made up of a compulsory insurance, with a compulsory acceptance of patients or civilians, without differentiated premiums.
The characteristics are that it's an entitlement-based system, where the minimum standard of care is legally determined by the government. Basic health coverage is identical for all insurance companies, so they all have to provide the same basic insurance. There is a broad benefits package. For this benefits package, the maximum overall out-of-pocket payment is about 385 euro a year, which amounts to approximately $574 Canadian. This also includes copayments for pharmaceuticals.
In essence, there is a marketplace that consists of basically four large insurance companies and some smaller companies, but the four large insurance companies control approximately 90% of the market. The premiums are set by the insurance companies. The competition among those insurance companies is meant to keep the premiums at an affordable level.
The health providers themselves are mostly privatized, but are largely not-for-profit organizations, especially when it comes to hospitals. In the outpatient sector, of course, the general practitioners are private health providers.
If you look at the system, you will see that it's a regulated competition. This means that the insured, no matter their background, their income, or their health, are free to choose their insurer; and they have the option to change every year. Insurers, in turn, compete for the insured on a premium, quality, and service level. Health care providers compete for contracts with insurers on price and quality of care.
When you look at the outpatient sector or the life cycle of pharmaceutical products, you see that in a monopoly situation, where products are first in class, of course there are limited market forces in place. They slowly start to appear when a competition arises with single-source products that have therapeutic-equal benefits, but they still do not have the same active substances.
Once generics start entering the market, more competition is possible. This also defines the essence of the Dutch pharmaceutical system. When products enter the market, there is an external reference price that's set, which goes for all drugs that come to market. It is an average price of those in Belgium, the U.K., Germany, and France. The external reference price is recalculated every six months.
There is a positive list for the outpatient drugs, which means that before a drug is reimbursed in the national health system, a full HTA, health technology assessment, needs to be done. This consists of the assessment of the therapeutic benefit, plus of the pharmacoeconomics, which basically means that there is a cost-effectiveness assessment done, as well.
This assessment is performed by the Dutch health institute, which is a government organization, but an independent scientific organization. Based on the advice this institute gives, the minister approves the reimbursement for each drug.
Reimbursement is based on the therapeutic effects. When products are being reimbursed, and once there are products of equal therapeutic benefit, there are clusters made of comparable products. This means that different active substances with comparable therapeutic effects basically have the same maximum reimbursement in a cluster. Once generics start appearing into the market, these are also put into the same cluster as all the products that have the same therapeutic benefit.
The reimbursement of products from these clusters is based on the first product that comes to market. This is essentially the external reference price of that product. The costs exceeding the reimbursement limit have to be covered by the patient. This means that if the price of a drug is higher than the limit set for this specific cluster of products, the additional fee has to be paid by the patient. This happens relatively rarely. It's also because at least one product has to be without additional copayment. In each cluster, there should be one that's without copayment, so if there is a price rise, then it will have to be covered by the reimbursement system.
When you look at the life cycle of the product, as I said, there's an external reference price to begin with. You could say this is high government interference. Then once generics shift into place, there is a functioning marketplace in which the insurance companies get to play their parts, which actually means that the insurance companies start tendering for their generic products. The prescribers have to prescribe an INN. They contract with insurance companies on the care they deliver, and they receive incentives for appropriate use and for the prescription of generics when possible. That allows the insurance companies to tender for generic products once they're on the market and to tender them for the lowest price possible.
Pharmacies, in turn, are also contracted by the insurance company. They receive a tariff for handing over prescriptions, and they receive margins on products. For generics, that means there is a contracted margin they receive from the insurance company for providing the specific generic that each insurance company has agreements with. For speciality drugs, that depends on the product-specific rebates. They also receive contracted fees for additional service when it comes to pharmaceutical care.
If you look at the effect of the insurance companies' ability to tender—with each of the four companies tendering the generic products themself—you will see that the effect has been relatively drastic.
In my a presentation there's a slide that some might say I stole from the Swedish TLV, showing that Sweden, with a relatively centralized system of purchasing and reimbursement of drugs, has similar prices of generics as the Netherlands. We have a system that functions in the marketplace and we have the same prices. It's just that it functions in a more centralized way. This is interesting, I think, to look at. For the generic market, for instance, if you look at the 2016 prescriptions, 74.1% of prescriptions in the total market of prescriptions in the Netherlands are in the outpatient generics sector, and 25.9% of specialty drugs. If you look at the expenditures, generics take up 16.8% of expenditures in the outpatient sector, and specialty drugs still take up 83.2%. So generics are 74.1% of all prescriptions versus costing 16.8% of the total. The total expenditures of outpatients, by the way, were 4.7 billion euro over the last year.
We have relatively high substitution rate of 96%, which, as I think my Swedish colleague already mentioned, means that as soon as a product is off patent and as soon as insurance companies contract these generic products from the companies, patients are switched to the generic really fast and in large numbers. As soon as a generic comes to market, you can see the shift really taking place.
Now, there will be dilemmas in the future. One was already mentioned. That's the biosimilar case, where there seems to be no competition in biosimilars, or at least very limited competition, when biosimilars come to market.
We have a different way of dealing with this cluster of products. We saw that our outpatient system couldn't provide for lower prices. We transferred them to the in-patient sector. Hospitals in general are responsible now for the cost of biosimilars, which means that insurance companies contract hospitals, and they also contract the prescription of biologics or biosimilars. Now that there is a stimulus for the hospitals to reach lower prices, to use their volume, to use the prescriber, and to make good agreements with their in-house doctors who prescribe these drugs, we see that there is a price fall happening. However, the price fall is not as high as it is in Sweden. I think in Sweden their price cuts are approximately 90% of the original price when it comes to biosimilars. At this point we're at 50%, but we're decreasing. It seems to be promising.
With regard to the new drugs, when it comes to the new outpatient but also in-patient drugs that come to market with increased prices, the Netherlands has had a system in place for several years in which on a national level—it's not the insurance companies, but on a national level—there is a managed entry process for specific drugs that have large budgetary impacts, that entail high costs for patients, or that have a high uncertainty. Before the products are entered into the insurance schemes, before they're up for reimbursement, the ministry itself takes up a managed entry route with the company. Those are selected products. They're not the full range, but there are five to ten products per year, you could say, that on a national level we tender on.
The idea or thought behind this is that the marketplace can use a lot of the market forces to reach lower prices or to come to good price agreements, but when it comes to these monopoly products that have high budgetary impacts and often large benefits for patients, it's really hard for insurance companies to achieve lower prices. The only way to do that is to take up these products and reach market entry agreements on a national level.
So we have a different system from the Swedish. It's more decentralized, relies on market stimuli and market forces, and tries to create these forces when and where possible. That leads to interesting results.
Unfortunately, this is not really my expertise. So, unfortunately, it would be very difficult to explain what happened in 2006. I don't really have very specific lessons to hand over.
I would definitely say that if you were to engage in such a system, you should make sure that you find the right balance between the parties and that you keep in touch with whether or not your regulations and the market are still functioning. I think that's an important factor. I'm saying “market”, but it's a controlled system, of course, instead of an actual market.
One example I can give you, if you will allow me, is that of the biosimilars, where we saw that when it came to these out-patient drugs—or at least they are considered external drugs—when the biosimilars came to market, there was virtually no competition in the system at first. By analyzing the problem and seeing that apparently within the system the different parties could reach lower prices, we had to find a way of recreating the balance, which we found by putting it into the intramural sector and allowing for the total budget to be negotiated within the hospital sector.
So, we're really trying to fine-tune that and also allow for mechanisms that shave off the negative effects, you could say—because we were talking about copayments just now. Of course, in one of the debates, especially in our last elections a few weeks ago, many parties said that the yearly copayments should be lowered.
So there is debate about, for instance, vulnerable parties who take up a lot of care and who automatically make their copayments immediately—and that's an actual payment they have to make every year. Then, additionally, there are all sorts of different extra expenditures that they have in their daily lives. I think allowing for mechanisms to mitigate these negative effects is one of the important elements of our system....