Scrapping of claw back remains in limbo

Pharmaceuticals producers are grappling with a claw back tax that absorbs around 20 percent of their sales, on a market worth EUR 2.6 billion last year, and there are no signs it will go away soon. Experts say that price-volume agreements could be the first step towards removing the claw back, which was initially billed as a temporary measure.

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Producers of innovative drugs, meanwhile, are pinning growth hopes on the update of the reimbursed drugs list that should be carried out by the end of this year.

Pharma executives have complained that the claw back tax is unpredictable and unsustainable. Experts say this mechanism has been adopted by other EU member states to prevent the consumption of medicines from spiraling out of control, while in Romania it is used simply to cover the public budget deficit for subsidized drugs.

Romanian policy needs EU impetus

“Since 2008, the entire pharma industry has been under pressure, on one hand because of the introduction of new molecules onto the list of free and reimbursed medicines, and on the other because regulated drugs prices are the lowest of 12 EU countries (HMO no.75.2009) and because of the claw back tax (EGO no. 77/2011),” Mihaela Scarlatescu, senior external associate at D&B Davis si Baias, the law firm affiliated to professional services firm PwC Romania, told BR.

She argued that the claw back tax should be fairly regulated, considering that this year the allocated budget for compensated medicines was based on the real consumption of drugs in the fourth quarter of 2011. In addition, the tax is levied on the shelf price of the drug, which also includes the profit margins of the distributor and pharmacists – in theory borne solely by producer. VAT was removed from the computation of the claw back after it was declared unconstitutional.

Laurentiu Mihai, executive director of the Generic Drug Manufacturers Association in Romania (APMGR), commented that the authorities have not clearly stated when they will scrap the controversial tax, despite requests by the association.

“The claw back should have been treated as an interim measure, and scrapped when the economic situation stabilized, as was stipulated in the bills that introduced it,” Mihai told BR. “Instead it has become a permanent contribution towards financing the public healthcare system, but which seriously impacts patients’ access to drugs, as well as the sustainability of the local pharmaceuticals industry, which is exclusively made up of generic drugs makers.”

According to Cegedim Romania, a provider of data for the pharmaceuticals sector, the local market grew slightly by 0.3 percent to EUR 1.3 billion in the first half of this year, helped by growth in the over-the counter segment.

Dan Zaharescu, executive director of the Romanian Association of International Medicine Manufacturers (ARPIM), has pointed out that in the last year, two out of ten patients have been treated exclusively through the claw back. He added that the claw back mechanism should be transparent and encourage new investments, and this could be achieved if the reference budget for its computation reflected patients’ real consumption of medicines.

“Only through this will the clawback tax, whose mechanism is unique at European level, stop being a fiscal burden for medicine producers, and start bringing benefits both to the healthcare budget and to patients,” Zaharescu told BR.

Mihai of the APMGR said that manufacturers of generic drugs had been hit the hardest since the roll out of the claw back in 2011. Consumption of generics, which are cheaper drugs with expired patents, has fallen from 36 percent to 28 percent, while investments in local production facilities worth tens of millions of euros have been put on hold since the adoption of the tax.

“Maintaining it will only see this trend continue and in time it will lead to the bankruptcy of the Romanian pharmaceuticals industry, with negative consequences for patients, who will be forced to pay more in co-payment, and the state, which will have subsidize drugs that are twice as expensive,” warned the APMGR head.

Data from Cegedim show that generic drugs accounted for 63.3 percent of all drugs sold in Romania and 29.1 percent of the value of pharmaceuticals sold in the first quarter of this year.

Amended claw back or new agreements?

Health authorities are currently looking to enforce a differentiated claw back for producers of generics and innovative drugs, but have also been open to confidential deals between producers and authorities, known as cost-volume agreements.

An amendment to the claw back would see the tax computation reflect a price limit on generic drugs of up to 65 percent of the cost of their innovative equivalents.

This measure has been approved by the Ministry of Health, the healthcare insurance body (CNAS), the Ministry of Finance and international lenders as neutral from a budgetary perspective, but its implementation has been “unjustifiably delayed”, according to Mihai of the APMGR.

He cautioned, “The correction of the computation mechanism of the tax, which would reflect both the price limitation imposed on generic drugs and the greater impact that the current tax has on the producers of generic drugs, is absolutely necessary for the survival of the local pharmaceutical industry.”

The authorities are now looking more carefully into price-volume agreements, which experts believe could in theory replace the claw back. Players say these confidential agreements between authorities and producers on the sale of drugs could work, and are already being used in the EU.

Petru Craciun, general manager of Cegedim Romania, commented that, theoretically, price-volume agreements could successfully replace the current claw back, which is too high, unpredictable, and sometimes discriminatory.

“In practice, however, I am afraid of several matters, because our mentality has not advanced too much. First of all, price-volume agreements could be introduced without giving up the claw back, as an expression of immaturity that aims to bring the price of drugs below a sustainable level,” Craciun told BR.

He added that these agreements, which are mainly based on financial figures, may not “pursue strongly enough the interests of Romanian patients”, or may not have an optimum outcome and could further constrain the already reduced options in Romania’s therapeutic package.

Zaharescu of ARPIM commented that price-volume agreements are currently under discussion, but that they could not replace the claw back.

“These agreements are a long way from implementation because the Romanian legislation does not provide a legal framework for companies and authorities to sign such agreements,” said Zaharescu. He suggested that drugs sold under such agreements should not be affected by the claw back, and the regulated prices of these drugs should not change.

Scarlatescu of D&B David si Baias suggested that the application of the claw back tax for drugs covered by price-volume agreements should be suspended. She added that the same should be done for the entire portfolio of any producer involved in these agreements. Otherwise the producer will not be able to bear simultaneously all the costs of the discount/reduced price of drugs and guaranteed volume under these agreements as well as the claw back, according to Scarlatescu.

“In addition, (e.n.the government should) take into consideration and start applying the models successfully implemented in other EU countries, developing market access plans based on real negotiation between producers and authorities, and establishing drug prices and volumes granted by the producers. In this way all the consequences of signing these cost-volume agreements will be predictable,” said the senior associate.

Mihai of the APMGR added that the price-volume agreements that are currently under discussion could be beneficial if additional funds were allocated to this area.

According to media reports, price-volume agreements are already being used in countries such as France, based on a stable and agreed budget that allows the launch of innovative drugs as long as there is a limit on overall spending.

Some industry executives argue that these agreements could be used for the update of the reimbursed drugs list, which has long been awaited by producers and is slated to be rolled out in 2015.

Spiking costs feared from reimbursed drugs list update

The question raised by the update of the list centers on the mechanism by which it will be financed. Players say that the authorities may opt to finance it through the claw back, while some are suggesting that price-volume agreements would be enough.

“Because the list has not been updated in the past six years, a large number of molecules and products could get on it, and the decision-makers’ fear is that the insurance budget deficit will grow significantly,” said Craciun.

He added that producers have enough innovative drugs pending approval on the list to see their businesses grow “significantly”, while the rest of the producers, mainly makers of generics, would have to pay more in claw back with no concomitant hike in sales.

Craciun suggested that the update would have had a limited impact on the market and the public coffers had it been carried out on a regular basis (annually, each semester) and would have been balanced by the introduction or elimination of some products.

“The failure to update the list of free and reimbursed medicines for six years harmed drug producers, both in the innovative and generic fields, impeding the possibility of their developing new molecules on Romanian territory and rendering difficult the efficient promotion and easy access on the market for generic drugs, as an alternative to new innovative medicines that would have stimulated competition,” said Scarlatescu of D&B David si Baias.

The government approved 17 new orphan drugs this summer, which are being used for the treatment of rare diseases and cancer. The major update should take place by the end of this year, giving patients access to the new drugs from 2015, according to pharma executives.

According to Zaharescu, there are now 130 medicine files waiting to be evaluated.

“We can only hope that the authorities will keep their promise and the list will be updated according to the established calendar, or else Romania will keep its last place in Europe as far as access to innovative therapies is concerned, with a waiting period of more than 2,500 days since the last update,” said Zaharescu.

He suggested the update of the list would generate “moderate costs”, since some of the innovative medicines will replace others that are in current use.

“These costs could partially be covered through the claw back tax,” said Zaharescu.

The executive director pointed out that the authorities have proposed a tougher Health Technical Assessment framework, meaning that few medicines will be introduced onto the reimbursement list. The update should take place on October 29, according to the health authorities’ plans.

“However, we would like to underline that the authorities collected RON 350 million more from the claw back tax than they had anticipated and that the medicine budget needs an increase of RON 175 million in order to cover all public treatment needs. A budget responding to these needs would allow the constant update of the reimbursement list, thereby increasing patients’ access to innovative treatment, and would provide space for a sustainable claw back tax,” said Zaharescu.

Romania’s healthcare financing woes

Players say that the root cause of the heavy taxation of the pharma sector is the lack of public funds for healthcare.

Mihai of the APMGR said there were no signs yet of any increase in the budget for reimbursed drugs in 2015, adding that the current budget does not meet the real needs of Romanian patients.

“Taking into account the constant growth of medicine consumption, it will become unsustainable for producers to bear this financing deficit,” said Mihai.

The government has allotted RON 6.7 billion to the reimbursed drugs budget this year, while RON 1.3 billion takes the form of receivables through the claw back, said LAWG consultant Radu Comsa this summer, speaking at a conference.

The ARPIM executive pointed out that healthcare financing is currently 20 percent below the real needs of patients.

Scarlatescu of D&B Davis si Baias warned that the continuation of last year’s measures, which lacked predictability, pushed up costs and prevented the roll out of new drugs, could persuade some producers to withdraw from the local market.

“Such a situation will negatively affect the Romanian economy, the country’s image as an investment destination and, last but not least, the patient,” cautioned the senior associate.

Ovidiu Posirca

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