New Pricing Reforms Passed in Bid to Cut Switzerland's Heavy Pharmaceutical Spend

Switzerland's Federal Council and Federal Department of the Interior have passed a series of new measures that will shake up the country's pharmaceutical pricing and reimbursement (P&R) system and create more than 400 million Swiss francs (US$373.2 million) in savings for the national public health insurer. The new measures will take effect from 1 January 2010, and will affect everything from wholesaler margins to international reference pricing to pharmacoeconomic guidelines on new drugs. Some overlap is visible between the reforms and the policy changes proposed by Swiss health insurer umbrella association Santésuisse just over a month ago (see Switzerland: 2 June 2009: Swiss Government Has Multiple Options to Cut Pharma Bill).

Wholesale Margin Cuts

Wholesalers will see the maximum level of margins they can apply on drug prices reduced by 3% for both cheaper and more expensive treatments. For drugs costing less than 880 francs, the maximum margin will be lowered from 15% to 12%, while for medicines costing 880 francs or more, wholesalers will only be able to apply a margin of 7% as opposed to the current 10%. The reduction in margins appears to be a separate measure to the 10% price cut on medicines already agreed between the pharmaceutical industry and Santésuisse, which will also take effect from the start of 2010 (see Switzerland: 15 June 2009: Price of Reimbursable Medicines to Fall by 10% on 1 January 2010 in Switzerland).

New Reference Price Countries

The basket of countries currently used for reference by Switzerland in setting its own public prices for medicines contains Denmark, Germany, the Netherlands and the United Kingdom, but from January it will be expanded to include Austria and France. Proposals made in early June had included Italy as a possible reference country, but it has not made the final cut—a minor triumph for the pharmaceutical industry.

Introduction of Regular Pricing Revisions

Under the new legislation, drugs will be reappraised for efficacy, adequacy and cost once every three years following their initial registration. Depending on the outcome of these reviews, the drugs in question may be subjected to a downward price revision by the Federal Office of Public Health (OFSP).

Separately, a one-off revision of prices for all drugs registered in Switzerland between 1955 and 2006 has been planned that will factor prices from the two new reference countries—Austria and France—into the final calculation.

Finally, drugs that are already on the market will be subject to a pricing reappraisal each time a new therapeutic indication is approved.

Realignment of Prices for Generics

As new generic medicines are approved for use in Switzerland, their price will fall into one of three preset bands, as opposed to the current two. Generics will be priced at either 20, 40 or 50% lower than the price of their originator drug, depending on the market volume held by the originator. This will be the first time that a 50% pricing differential will be used for generics, and will in theory make these drugs much more attractive in pricing terms compared with their originators, the producers of which will be under pressure to slash their own prices to stay competitive. Another change brought in under this part of the reform is that generics' pricing bands will be determined on the basis of their originators' market share, as opposed to the estimated annual revenues of the generics themselves. This latter system has been in place since January 2008.

Shifting More Costs Onto Patients

One reform likely to prove controversial with the electorate is the reduction of rebates associated with the franchise à option scheme. Insured patients who opt for the franchise à option—which gives patients a rebate on their monthly insurance premiums in exchange for paying a higher, 300-franc deductible in case of sickness or injury—will see their monthly rebate reduced from 80% to 70% of the standard premium.

Outlook and Implications

The reforms will bring the most stringent pricing constraints against the Swiss pharma industry for some time, but were largely expected due to the rising pressure on the government to reduce spending on medicine. Pharmaceuticals account for approximately 20% of all expenditure on the statutory health insurance system, and total public healthcare spending topped 55 billion francs and was worth 12% of GDP in 2008. Patient premiums have risen steadily in order to foot the bill, and double-digit hikes in premiums had been forecast for next year if urgent reforms were not instigated. Now that these long-awaited reforms have been made law, Switzerland has arguably sent a clear signal to the drugs industry that social responsibility has taken precedence over economic growth as a government priority (see Switzerland: 30 June 2009: Containing Healthcare Expenditure: Could Switzerland Re-Assess its Love Affair with the Pharmaceutical Industry?). The one reform that does not target the industry and associated players is the rebate cut on insurance premiums for subscribers to the franchise à option plan. This effectively shifts more costs onto these patients in order to bring added revenue for health insurance funds.

While these reforms will unavoidably impact the industry's topline growth, the Swiss government is too reliant on the sector as a major contributor to the country's economy to intervene in such a way that could result in lost jobs and productivity. It is worth pointing out that some of the proposed reforms that would have been the most damaging to the industry have not been passed into law, such as scrapping the OFSP's ability to grant "innovative bonuses" to new drugs that demonstrate clinical superiority to existing treatments, allowing them to be priced 5-10% higher than existing treatments.