Unlike most other industries, pharmaceutical payers are not simply buyers. As third-party purchasers of highly regulated products
on behalf of patients, these payers—usually government entities—have a myriad of roles which they can exploit in their pharma
relationships (see Payer Power over Pharma chart). The combination of these three forces with the global recession and other
pricing pressures, especially in European countries like Greece and Spain, has created a "perfect payer storm" for pharmaceutical
companies. As a result, desperate but empowered payers are using the full range of their capabilities and controls to place
more extreme demands on innovative pharmaceutical companies and products.
Swelling payer power has recently been demonstrated globally in a number of ways:
Pricing schemes. In June, the German government required pharmaceutical companies to provide a 16 percent rebate to public health insurers
and instituted a price referencing system tied to low-pricing countries including Greece, which significantly depresses innovative
drug prices. Separately, the Spanish government has enacted new measures that will require patients to pay the full price
for 450 prescription medicines. According to the European Federation of Pharmaceutical Industries and Associations (EFPIA),
price cuts and mandatory discounts levied by Greece, Ireland, Italy, Portugal, and Spain cost drug companies nearly $9 billion
in 2010-11. After threatening to cease supplies of discounted drugs to Greece following additional government-mandated price
reductions, CEO Gitte Aabo of Leo Pharma stated, "In my 18 years in the pharmaceutical industry, I have never experienced
anything like these price cuts. It's much more severe than the impact of US healthcare reforms."
In China, the government announced plans in August to extend the number of products on its price-controlled Essential Drugs
List from 307 to 700 by the end of 2012. In line with China's policy to reduce healthcare costs, this announcement signifies
further price reductions on the more expensive drugs available from hospitals, which typically provide manufacturers with
Generic utilization/substitution. India has enacted a $5.4 billion policy which provides free generic drugs to patients and requires doctors to select from
a generics-only drug list or face punishment for prescribing prescription drugs. "The policy of the government is to promote
greater and rational use of generic medicines that are of standard quality [and that] are much, much cheaper than the branded
ones," stated India health official L.C. Goyal.
Prescription limitations. In the United States, 16 states have imposed monthly drug limits on Medicaid patients. For example, Mississippi and Illinois
restrict coverage to two or four prescriptions drugs per month, respectively.
Coverage denial. The National Institute for Health and Clinical Excellence (NICE), the United Kingdom's primary health technology assessment
group, has rejected reimbursement for nine of the last 10 end-of-life cancer drugs proposed by pharmaceutical companies, including
Roche's melanoma treatment Zelboraf. Various forms of government agencies responsible for valuing and/or making nationwide
coverage decisions on medical therapies have been established in: Canada, The Canadian Agency for Drugs and Technologies in
Health Care or (CADTH); Germany, the Institute for Quality and Efficiency in Health Care (IQWiG); Australia, Pharmacy Benefits
Advisory Committee (PBAC); and recently in the United States, the Patient-Centered Outcomes Research Institute (PCORI), which
could evolve in that direction.
Competitor support. According to Decision Resources, the Russian government is implementing policies to help modernize and double the size of
its domestic pharmaceutical industry by 2020. Russia wants to reduce drug prices and spending by 20 percent to 30 percent
by substituting imported drugs with locally-produced medicines. The country is requiring foreign drug importers to invest
millions of dollars in domestic manufacturing and to transfer knowledge and technology to local manufacturers as a quid pro
quo for continued market access. In Brazil, the government has long supported local manufacturers by requiring global pharmaceutical
companies to pay for product development and distribution and profit-share with local subsidiaries. This policy has resulted
in sizable investments by global pharmaceutical players, such as Sanofi's acquisition of Medley Pharmaceuticals; GlaxoSmithKline's
co-development deal with the government's parastatal firm Oswaldo Cruz Foundation; and Novartis's construction of a local
manufacturing facility in the Brazilian state of Pernambuco.
Payer consolidation. US pharmacy benefit managers are rapidly consolidating to gain competitive advantages and negotiating leverage. Despite anti-competitive
concerns, US Federal regulators in April approved the merger of two of the nation's three largest pharmacy benefit managers,
Express Scripts and Medco Health Solutions, to form a $116 billion colossus. Together with CVS's recent acquisition of Caremark,
these two merged entities now control nearly 75 percent of the pharmacy benefits market in the United States, creating tremendous
leverage in negotiations with pharmaceutical companies.
Legal actions. In March, several health plans and Community Catalyst, a non-profit consumer advocacy group, filed class action lawsuits
in four US courts against eight major drug manufacturers for illegally subsidizing co-payments for expensive brand-name prescription
drugs such as Lipitor and Nexium through the promotion of co-pay coupons. In July, Walgreens, Kroger, Safeway, and other retailers
sued Pfizer in US court for conspiring to delay the launch of generic Lipitor for two years and forcing the pharmacies to
overpay for the world's best-selling cholesterol drug.
Patent challenges. In March, India forced Germany's Bayer to grant a compulsory license for the cancer drug Nexavar, which costs $5,700 for
a month's supply. According to the Wall Street Journal, Indian patent regulators stated that local generic-drug maker Natco Pharma Ltd. had pledged to sell Nexavar for $178 a month.