Drug Pricing Methods in Australia and Its Enlightenment

GUO Lang, SUN Li-hua

(School of Business Administration, Shenyang Pharmaceutical University, Shenyang 110016, China)

Drug Pricing Methods in Australia and Its Enlightenment

GUO Lang, SUN Li-hua

(School of Business Administration, Shenyang Pharmaceutical University, Shenyang 110016, China)

Objective To provide references for drug pricing in China. Methods Drug pricing methods and price control measures in Australia were expounded. Results and Conclusion Ideas that drug pricing should be based on its value have also long been put forward by Chinese scholars. Therefore, it is suggested that the drug pricing department in China should carry out relevant research as early as possible.

drug pricing; value-based pricing; Australia; enlightenment

Facing the rapid growth of medical expenses, every government is searching strategies to control the health costs. As we know it, scientific & technical innovation and new drug price rise in recent years pushed the medical expenses to increase. One solution is to apply the pharmacoeconimics evaluation theory to drug pricing and compensation decisions.

More and more nations are using this theory to evaluate new drugs so that drugs can have the advantages of both clinical efficacy and cost effectiveness in Pharmaceutical Benefits Scheme (PBS).

Up to now, Australia and Sweden have applied pharmacoeconomics to drug pricing management, and we are not clear about the results whether these two countries have controlled health cost. However, the introduction of pharmacoeconomics evaluation or health technology assessments has improved the traditional cost-plus or other management methods that emphasize drug costs and ignore drug values. This new method can strengthen the idea of utilizing medical resources effectively and promote the innovation and development of pharmaceuticals industry[1]. It also can provide references for China’s government to price drugs.

1 Drug pricing method in Australia

Australia performs National Medicare. The manufacturers can price the drugs that are not listed in PBS, namely, the OTC. Before 1993, Pharmaceutical Benefit Advisory Committee (PBAC) could recommend drugs to Ministry of Health to be listed in PBS, taking no account of cost. Drug price would be determined after negotiations between the Ministry and manufacturers. But between 1987 and 1992, reformations took place in the field of medicine because of the overall increase in the cost of PBS. First, the modification of National Health Act required PBAC should take drug cost and efficacy into consideration when they recommend drugs to Ministry of Health. In 1991, the draft of guidance for economic evaluation on medicine in Australia was proposed, and it is issued in August 1992. Australia became the first country to apply pharmacoeconomics evaluation to drugs reimbursement system. The guidance was put into effect in January 1993, it mandatorily required medical enterprises who apply for listing on the PBS should provide detailed information under the guidance of economic evaluation. For manufacturer’s applications, Pharmaceutical Evaluation Section (PES) would evaluates the technical report in detail, then the evaluations and the applications would be submitted to Economics Subcommittee (ESC) would compare drug’s clinical efficacy, amount of data, assumptions, economic evaluation model and so on, then they would submit the report with their brief comments to PBAC, which would make a proposal to Commonwealth Ministry of Health based on the suggestions from ESC and the Internal discussion. The Commonwealth Ministry of Health can determine whether the drugs would be listed in PBS for reimbursement. PBAC should providethe control treatment data to PBPA which would determine the price after negotiation with pharmaceutical factories, and propose the price and effect on PBS cost[2]. If the curative effect is not better than the existing drugs, its price would be the same as the existing ones; If better, the increasing cost and effect must be analyzed economically to identify whether to be worthy of the price prepared. As for methods, the government advocates cost-effectiveness analysis. The government publishes approbatory health indicators and cost-effectiveness ratio after referencing the experts’opinions. When the ratio is lower than the parameter, reimbursement can occur.

Economic evaluation can estimate monetary value of drugs at most and provide a price range for a new drug, but can not determine the price. Drug pricing is complicated because we have to balance the interest between the social health care and pharmaceutical companies, drug price can be determined only after various factors have been taken into consideration. The final price may not be the same as the one concluded from economics evaluation. In Australia, although Pharmaceutical Benefits Pricing Authority (PBPA) is not restricted by its suggestion, for the first approved projects from PBAC, about 80% of the final price is close to or equal to the suggested price from economic evaluation[3].

2 Problems of current drug pricing methods in China

China’s drug pricing method has been based on the cost-plus method, that is, the research and development costs, production costs, circulation costs, and proportional profits were all put together. It is necessary to determine drug price according to cost, but it is not sufficient, especially when the cost comes from the firm instead of the social average cost. By applying cost-plus method, firms would reserve excess profit space which could lead to some problems such as artificial high prices, kickbacks, unreasonable drug bid and excessive consumption of drugs, etc.[4].

Cost-plus pricing leads to greater price differences in China. As to some traditional medicines, because of the strict management and low inflation, the low medicine costs and the clear ingredients resulted in the low drug price. Due to the loose management and high inflation in recent years, the prices of approved “new drugs” (not the real new drugs, but just changing dosage forms and socalled exclusive varieties, etc.) are drastically higher than the traditional substitutes with “reasonable price”. Thus the “new drugs” are more possible to stay on the market, and some pharmaceutical manufacturers would like to give up the traditional drugs for the “new drugs” research and development, which makes the wrong direction for resource allocation guidance[5].

The current drug pricing method in China based on cost has displayed obvious drawbacks though the government has tried to improve the pricing method and operation rules. On April 6, 2009, the CPC Central Committee and State Council on deepening “the reform of medical care system views” ([2009] no.6) (hereinafter referred to as the “views”) put forward to establish a scientific and reasonable medicine pricing mechanism and to perform drug economic evaluation system gradually for new drugs and patent drugs. The views explicitly indicated the pharmacoeconomics would be going to guide the drug pricing and other related regulation. The 2010 revision of the ‘measures for the administration of drug pricing’(exposure draft) (June 1, 2010) by National Development and Reform Commission proposed to adjust the alternative drugs with big expense variance based on the results of pharmacoeconomics evaluation. The amendments of national basic medical insurance, injury insurance and maternity insurance catalog of medicines in 2009 explicitly pointed out the results of drug efficacy and price should be taken into consideration according to pharmacoeconomics principle when drugs are taken in and out of the list.

The National Essential Medicine List Management Measures (interim) was introduced in 2009 and it proposed, pharmacoeconomics experts should be included in the drug expert database, and “the expert group can conduct technology evaluation for the drugs included in selection scope based on medicine and pharmacoeconomics”[6]. But it is difficult to solve the problem of drug pricing and value.

3 Inspirations to China

From the above analysis, we can see, the rationality of the Australian drug pricing depends largely on the application of pharmacoeconomics evaluation method, and the price of drugs can reflect its true value. China’s scholars proposed value-based drug pricing years ago[7], and they wanted this method could be the beneficial supplement to the current pricing method and to provide some references for our drug pricing.

4 Conclusion

This article uses Australia practice as reference and, puts forward the drug-value pricing method can betterreflect the social objective request of drug economy which should play a important role in pricing, and provides references for the changing from cost-based pricing to the value-based one. Then, we can realize the drug management objective from the perspective of price.

[1] LU Feng-xia, CHEN Wen, YE Lu, et al. The Application of International Experience and the Domestic Discussion of Pharmacoeconomics Evidence [J]. China Medical Insurance, 2010: 27-46.

[2] HU Shan-lian. Guidance of Pharmacoeconomics Evaluation Study [M]. Shanghai: Fudan University Press, 2004:107-108.

[3]YAO Hong. International Pharmacoeconomics Research and Development (The First Edition) [M]. Beijing: Chemical Industry Press, 2006: 69-73.

[4]SUN Li-hua. Discussion about the Measures of Restraining Unreasonable Increase of Drug Expenses [J]. China Pharmacy, 2005, 16 (12): 885.

[5] SUN Li-hua. The Relationship between “High Medical Charge”and “High Drugs Price” on System Standpoint [J]. China Pharmacy, 2006, 17 (24): 1845.

[6]LIU Guo-en, et al. Guidence for China’s Pharmacoeconomics Evaluation [R]. Beijing: Peking University Health Center for Economic Research in China, 2011.

[7] SUN Li-hua, TIAN Xue-ying. Guidance for Drug Pricing Based on Pharmacoeconomics-pricing and Effective Management of Drugs with Different [J]. China Pharmacy, 2004, (10): 609.

Author’s information: SUN Li-hua, Professor. Major research area: Medical benefit of investment and management, pharmacoeconomics. Tel: 024-23986553, E-mail: guolang1016@163.com