How Drug Prices Are Formed

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How Drug Prices Are Formed
How Drug Prices Are Formed

Video: How Drug Prices Are Formed

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Video: How Drug Prices Work | WSJ 2023, January
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How drug prices are formed

In Austria, the pricing of drugs is regulated by law. The price commission of the Federal Ministry of Labor, Social Affairs, Health and Consumer Protection (BMSGPK) is responsible for drug prices. The price basis of a drug is the manufacturer's factory or depot price (FAP / DAP). The respective surcharges (wholesale and pharmacy surcharge) and VAT are added to this price. The FAP / DAP can be freely set by the authorized company, whereby the BMSGPK is informed of this price.

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Fixing the price base

For those drugs that are to be included in the list of reimbursable drugs, the Reimbursement Code (EKO), the EU average price is decisive in Austria. This average price forms the maximum possible FAP / DAP for reimbursable drugs. Since the same drugs are not always approved under the same brand name in EU countries, the BMSGPK price commission uses drugs with the same active ingredient, the same active ingredient strength, dosage form and identical or approximately the same pack size to calculate the EU average price.

The EU average price is determined for the first time by the price commission 6 months after the application has been submitted and is repeated after 24 and 48 months after the application has been submitted. If necessary, the price commission can initiate a new price determination 66 months after the application has been submitted.

For medicinal specialties that are not included in the EKO (for these only price reports apply with basically free pricing), but which exceed an annual turnover of 750,000 euros at the expense of the Austrian health insurance companies (based on the FAP, in the previous 12 months), the umbrella association of Austrian Social Insurance (HVB) to notify the price commission immediately. When calculating sales, all active ingredient strengths and pack sizes of the respective medicinal specialty are taken into account. The price commission must determine an EU average price for the medicinal product within eight weeks of being notified. If the determined EU average price is below the reported price,from the point in time at which the sales threshold is exceeded, the company authorized to sell must repay the difference within six months of the reasoned request to the social security agency.

For reimbursable pharmaceuticals, the determined EU average price at FAP level applies as the minimum requirement for inclusion in the EKO. The HVB applies the principles of price determination in accordance with the rules of procedure for issuing the EKO as well as the economic assessment criteria of the Therapeutic Products Evaluation Commission and negotiates the reimbursement price with the manufacturer on this basis. As soon as an agreement has been reached, the reimbursement price specified in the EKO is binding. If, on the other hand, a medicinal specialty is deleted from the reimbursement (red area) by decision of the main association, the companies authorized to sell have the opportunity to appeal to the Federal Administrative Court.

Original products, generics and biosimilars

In Austria there are special price regulations if a successor product with the same active ingredient (generic or biosimilar) is available.

For generics:The price of the first generic successor product must be at least 50 percent below the price of the original branded product whose patent protection has expired. The second and each subsequent successor product must have a price difference in relation to the previously contained generic: The price of the second generic successor product must be 18 percent lower than that of the first successor product and the price for the third successor product must be 15 percent lower than the price of the second successor product. The price of the original product must be reduced by at least 30 percent within three months of the first generic being added to the EKO. If there is a third successor product, all license holders of that product must lower the price to the price of the third product.Further successors must offer discounts of at least € 0.10 in order to be included in the EKO.

For biosimilars: The price of the first successor product (biosimilars) must be at least 38 percent below the original product. The price of the second successor product must be at least 15 percent lower than that of the first successor product and the price of the third successor product must be at least 10 percent lower than that of the second successor product. Thereafter, the same rule applies as for generics (the original product must reduce its price by 30 percent within three months, etc.).

Surcharges until submission

The pricing at wholesale level is regulated by staggered maximum surcharges. There are two different surcharge schemes: one for medicinal specialties that are listed in the list of medicinal products or in the yellow or green area of ​​the reimbursement code, and one for all other medicinal specialties.

The pharmacy surcharges are based on the pharmacy purchase price (AEP) and are also staggered and officially regulated. Here, too, there are two different surcharge schemes: one with reduced surcharges for beneficiary recipients (such as the federal government, the states and municipalities as well as the funds and institutions they manage, the social security agencies and non-profit hospitals) and one for private customers.

The value added tax on pharmaceuticals in Austria is 10 percent.

You can find more information on drug pricing on the BMSGPK website.

Price regulation in the EU

The pricing and reimbursement is set differently in the 28 EU countries. The prices of drugs that are reimbursed by health insurance or the public sector vary considerably in some cases. In de facto all 28 EU countries, the responsible national authorities set the price for at least some of the prescription drugs.

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