11 July 2024 | Country Update
The new drug markup model approved by the Cabinet of Ministers31 December 2021 | Policy Analysis
Some results from the ongoing reform of the pharmaceutical reimbursement systemLegislation and policies in the field of pharmaceuticals are the responsibility of the Department of Pharmacy of the MoH. In addition, there are three main institutions concerned with regulation of pharmaceuticals: the SAM (the national drug market authorization agency), the NHS (responsible for reimbursement and pricing decisions) and the HI (responsible for monitoring of market and professional activities). In the pharmaceutical sector, vertical integration with the growing concentration of individual market players is an issue of concern.
Pharmaceutical products are supplied to the public by a regulated distribution system consisting of licensed enterprises that manufacture and/or distribute them. At the end of 2018 there were 31 licensed manufacturers, 85 wholesalers and 818 (782 retail and 36 hospital) pharmacies in Latvia (SAM, 2019). Foreign manufacturers operate through representative offices, subsidiaries or limited liability companies. Some of them perform only promotion and marketing activities, while others have established companies and are licensed as wholesalers. Only a few Latvian pharmacies are authorized to distribute OTC non-prescription medicines on the Internet. Distribution of prescription medicines via the Internet is prohibited.
When launching medicinal products in Latvia, the holder of marketing authorization shall declare the ex-factory price to the SAM. Ex-factory price is not regulated and serves as a basis to calculate the indicative maximum retail prices. The price of the product is calculated by adding wholesale and retail mark-ups (digressive curve depending on the manufacturer’s price) and VAT to the manufacturer’s selling price. The maximum allowable mark-ups are approved by the Cabinet of Ministers. Maximum wholesale and retail margins for pharmaceuticals marketed in general and in the reimbursement system differ. The wholesale mark-ups range from 10% to 18% for general market and from 1% to 10% for reimbursable products. The pharmacy mark-ups range from 10% to 40% for general market and from 5% to 30% and a fixed sum of €6.05 for wholesale price over €71.14 for reimbursable products. The VAT for pharmaceuticals is 12%, which is higher than in Estonia (9%) and Lithuania (5%). The list of medicines registered in Latvia and their retail (pharmacy) prices is available on the SAM website (https://www.zva.gov.lv/lv/pacientiem-un-sabiedribai/zales). In cases in which a person has doubts about the validity of the price of the medicine, it must be reported to the HI.
In 2018 the total turnover of pharmaceutical wholesalers in Latvia and abroad was €931.54 million (excluding VAT), which increased by 10% compared with the previous year. Pharmaceutical wholesalers continue to increase the sales of medicines in Latvia and abroad. The volume of medicines sold in Latvia in 2018 amounts to €591 million. Meanwhile, the pharmaceutical exports increased by 27% and reached €259.03 million (excluding VAT). Domestic production on average accounts for about 5% of the pharmaceutical market (2010–2018). However, there was a rapid growth in 2018, when the share of local production comprised 11.6% of the internal consumption. The growth in turnover can be related to the growth of repackaging of products by the wholesale companies.
The pharmaceutical market steadily grows and pharmaceutical consumption has reached €430 million in 2018 (SAM, 2018a). The annual growth of the market (since 2011) is on average 6%. The retail pharmaceutical market comprises €359 million, sales to hospitals €51 million and sales to doctors’ practices €19 million (in wholesale prices, excluding VAT). In 2018, there was a significant increase compared with 2017 in the sales of pharmaceuticals to doctors’ practices (4.6 times) and a slight decrease to hospitals (by €5 million). Pharmacy chains (three or more pharmacies) account for 80% of total retail pharmaceutical sales. The share of general type pharmacy chains in the market continues to grow (in 2017, 76.57%; in 2016, 76.2%; in 2015, 74.71%; in 2014, 68%). The turnover of extemporal medicines in general type pharmacies amounts to €2.15 million (excluding VAT) in 2018, which is 4% less than in 2017 (SAM, 2019).
Hospitals purchase medicines from wholesalers or pharmacies. The NHS provides centralized procurement of medicinal products and medical devices. These apply to vaccines, syringes, standard tuberculin, peritoneal dialysis products, phenylketonuria products and products for other genetically determined diseases, vision correction products for children, immuno-biological preparations and, since April 2017, artificial mixtures for infants and follow-on formulae for children under 1 year born to HIV-infected mothers. From 2019, parenteral treatments will also be centrally purchased for the treatment of oncological diseases.
In 2017, the cost of centralized purchase of medicines and materials was €11.7 million. Compared with 2016, this cost increased by €163 770 (14%) due to increase in purchases of vaccines and peritoneal dialysis products (NHS, 2018). For other medicines, each medical institution organizes annual purchases.
The NHS approves a list of medicinal products necessary for provision of inpatient health care services paid for from the state budget. In each medical institution, a responsible person with pharmaceutical education is appointed for the circulation of medicines. Multiprofile hospitals form a closed-type pharmacy (Regulation No. 222, 2007).
In 2017, the reimbursement of pharmaceuticals accounted for a total of €149.43 million, an average increase of 31% in monetary terms and 29% in natural units (DDDs per 10 000 inhabitants) compared with 2012. Reimbursement was provided for 708 067 patients in 2016, an increase of 5.3% from 2015. On average reimbursable pharmaceuticals per patient was €213.56. Individual reimbursement was provided for 833 (584 in 2016) patients amounting to €4.47 million. In 2017, a total of 6.5 million reimbursable prescriptions (List A, B, C and M medicines) were issued, an increase of 3.2% (6.367 billion prescriptions issued in 2016). The average price of one prescription for List A, B, C and M medicines is €22.81 (2016). The average price for one prescription for children up to 2-year-olds, pregnant women or postpartum women (List M) is €5.40.
Patients’ co-payments comprise a considerable part of the reimbursement system (due to partial reimbursement at 50% or 75% level). The co-payments amounted to €16.94 million in 2017 (€16.48 million in 2016).
Recent reforms in the pharmaceutical reimbursement system are aimed to increase access and affordability.
A significant change in the price setting procedure for the reimbursable pharmaceuticals came into force in 2018, with the introduction of a price corridor set at the level of 100% from the cheapest product in the reference group for identical active substance pharmaceuticals, with the aim to reduce patient co-payments. The price will be reduced gradually by 20% in 2018 and 2019. Before that, there were cases when prices differed up to 800%.
In addition, in 2018 the amount of reimbursement increased from 50% to 100% for several diagnoses, including rare diseases (interstitial lung diseases, sarcoidosis, motor neuron disease, Huntington disease, copper metabolism disorders). In 2019, the reimbursable diagnoses in the mental and behavioural disorders group were extended and the amount of reimbursement for a range of diagnosis increased from 50% to 75% and 100%.
Box5.5 describes the trend in pharmaceutical spending in Latvia and presents the way in which cost–effectiveness is achieved.
Box5.5
The new markup model moves away from the percentage-based markup mechanism for wholesalers and pharmacies, which can incentivize pharmacies to sell more expensive medicines. Instead, one fixed markup will be applied to all reimbursable and prescription drugs per package regardless of price for wholesalers, and pharmacies will have fixed markups in three price groups. Key points of the new markup model include:
The patient’s co-payment for prescriptions will be required only for the first time, with subsequent refills exempt from additional charges. The purpose of the changes is to improve the availability of medicines and reimbursement, ensuring at least 75% reimbursement, and expanding the range of reimbursable pharmaceuticals and diagnoses.
The implementation of the new markup model will require additional funding starting from 2025, amounting to EUR 9.4 million annually.
In Latvia, pharmaceuticals are generally prescribed using the generic name (INN) of the drug rather than the brand name. At the same time, the generic name has to be indicated in the hospital discharge documents and inpatient/outpatient cards.
Since 1 April 2020, doctors must prescribe reimbursable pharmaceuticals only by active substance. The patient is reimbursed only for the cheapest product in the reference group. Patients do not have the right to co-pay for more expensive products. The new system aims at avoiding high patient co-payments.
Pharma companies are encouraged to reduce prices for reimbursed pharmaceuticals every three months by at least 5%. Thus, the lowest price products in the reference group can change every three months. Patients have to switch to the product they are offered in the pharmacy. If they reject the offered alternative, they can still buy the product they have used before, but then they need to pay out of pocket. There are exceptions. For example, if there is a medical justification, the doctor may prescribe a previously prescribed medication and it will be reimbursed. Nevertheless, doctors must prescribe by the active substance in at least 70% of cases.
Thus, the implemented reform reduces the co-payments made by patients for the purchase of reimbursable drugs and promotes the education of patients about the rational use of pharmaceuticals.
The most important performance indicators show that:
16.07.2019. Grozījumi MK 31.10.2006. noteikumos Nr. 899 “Ambulatorai ārstēšanai paredzēto zāļu un medicīnisko ierīču iegādes izdevumu kompensācijas kārtība”