MEDICAL DEVICES

DIRECT (‘BUSINESS-TO-CONSUMER’)

We deliver medical devices and related services to patients via the direct distribution channel, largely on the basis of an authorisation from the healthcare professional and paid for by the insurer or other payer.

Mediq delivers medical devices that are eligible for reimbursement (by private or government bodies). The reimbursement prices are set by the paying parties, which differ by country. In addition, regulations for patient co-payments vary from country to country.

In the Netherlands there is private funding by healthcare insurers. Medical devices have list prices that are set by the manufacturers and are publicly disclosed. The government does not set maximum prices or statutory reimbursement limits. Reimbursement rates are negotiated with individual healthcare insurers.
Recently healthcare insurers have started to develop different reimbursement models, for example based on an average maximum annual reimbursement per patient for certain chronic conditions, or based on a set daily reimbursement amount for certain chronic conditions. There is a patient co-payment in the form of an annual deductible for all medical services.

In the USA, medical devices are partly reimbursed by public bodies (Medicare and Medicaid) and partly by private health­care insurers. Several public bodies are shifting insurance coverage to private healthcare insurers (‘managed care’). The diversity of private healthcare insurers is considerable. A patient co-payment always applies, which can however be reinsured.

In Germany, Norway and Denmark, funding is provided by public bodies (Krankenkassen and municipal bodies). In Germany, the Krankenkassen apply a patient co-payment for uninsured risk, maximised per delivery. Healthcare insurers are increasingly influencing prescribers to prescribe lower priced test strips and generic prescriptions wherever possible. In Norway, medical devices are reimbursed by a public body and there is a maximum patient co-payment per annum, depending on the type of medical service.
In Denmark, there are no co-payments.

Relevant policy developments: USA
It is expected that as from the summer of 2013, diabetic supplies to Medicare beneficiaries (retirees) can only be delivered by suppliers that are awarded a contract under the national mail order competitive bid programme. Bids have to be submitted in the first quarter of 2012. Mediq will participate in the bidding process. This presents the risk of not being contracted, as well as the opportunity of expanding our business as a selected supplier.
 

EU-tendering model

The agreements and price-setting with hospitals and care institutions are based on the EU-tendering model.

INSTITUTIONAL (‘BUSINESS TO BUSINESS’)

Within the institutional channel, Mediq delivers medical devices to professional customers which, in most countries, are state-funded. The funding is typically administered by municipalities and/or regions. The agreements and price-setting with hospitals and care institutions are based on the EU-tendering model. These agreements run for a period of one to two years and normally include a prolongation period of one to two years. In general we are seeing a reduction in the number of municipalities and regions. These larger buying groups have greater purchasing power and are becoming more price-focused in order to mitigate the increasing costs of healthcare.
In case of sales to GPs and specialists, there is a business to business relationship and, in general, commercial agreements are applicable.

In Denmark, municipalities fund care institutions while regions fund hospitals. In Finland, Sweden and Norway most of the funding is done by the regions and municipalities.

There is a small but growing private healthcare offering in most countries, typically funded by private insurance.

PHARMACEUTICALS IN THE NETHERLANDS

PRESCRIPTION PHARMACEUTICALS

Up-to-and-including 2011 the income of a Dutch pharmacy was highly regulated via a set prescription fee and a number of pricing controls for pharmaceuticals. As of 2012, pharmaceutical prices and the reimbursement of pharmaceutical care have been deregulated.

Dispensing fee up to the end of 2011
The dispensing fee is the fee a pharmacy receives from the healthcare insurer in return for its services. These services are provided, for instance, in connection with the dispensing of pharmaceuticals to patients. The average dispensing fee during 2011, as set by the Dutch Healthcare Authority NZa, was € 7.50. As in 2010, the Dutch Healthcare Authority allowed for a maximum fee of € 10.00 in 2011 to reflect specific additional services as agreed between the pharmacy and insurer, for instance on implementing care services and on meeting certain quality criteria. In the past few years, Mediq has used this scope for customised arrangements with insurers.

Pricing of pharmaceuticals up to the end of 2011
The pricing of prescription pharmaceuticals is governed by the Pharmaceuticals Pricing Act (Wet Geneesmiddelenprijzen – WGP), the list price of pharmaceuticals (the Taxe) and the Pharmaceuticals Fee System (Geneesmiddelenvergoedings-systeem – GVS). The WGP determines the maximum price of pharmaceuticals in the Netherlands. Those maximum prices are based on the average prices in Great Britain, Belgium, France and Germany and are re-set every six months by the Ministry of Health, Welfare and Sports. The list price or Taxe is the officially registered asking price that manufacturers set for their pharmaceuticals. In setting the list price, manufacturers take account of the reimbursement limit for a pharmaceutical set by the government on the basis of the GVS. The GVS regulates reimbursements for pharmaceuticals. It determines how pharmaceuticals are classed in clusters of mutually interchangeable pharmaceuticals and how reimbursement limits are calculated. A maximum reimbursement is set for each cluster. If the price exceeds this, the patient has to make a co-payment. In practice, the prices of most pharmaceuticals are below this reimbursement limit.

Manufacturers’ list prices form the basis for the purchasing and selling of pharmaceuticals by pharmacies. In practice, there is a difference between the official list prices of pharmaceuticals that pharmacies charge to healthcare insurers and the purchasing price for pharmaceuticals. That difference is known as the purchasing margin that pharmacies receive from manufacturers via wholesalers. Since the late 1990s, there has been a clawback, set by the government. For 2011, a clawback of 6,82% with a maximum of € 6,80 per pack has been in place.

Under what is known as the preference policy, insurers designate specific pharmaceuticals within a group of pharmaceuticals with the same active agent and mode of administration as preferred pharmaceutical. GPs and pharmacists can only deviate from this designated pharmaceutical in specific cases. For each active agent with the same method of ingestion and strength, the healthcare insurers designate one or more preferred medication labels if there is a price difference between brands of a specified percentage, which may differ for each healthcare insurer. The cheapest brand of medication is then designated as preferred product, together with all other brands of this medication within a specific price range (which may differ for each healthcare insurer) above the price of the cheapest label. Products outside that range are not eligible for reimbursement. The preference policy has led to enormous price decreases since June 2008. The purchasing margin on generics, formerly the principal source of income for pharmacies, declined very steeply as a result.

Pharmaceuticals prices and the reimbursement of pharmaceutical care as of 2012
As of 2012, the prices for pharmaceuticals and pharmaceutical care have been deregulated. They are now based on bilateral agreements between the pharmacy and the healthcare insurer, using the pharmaceutical services as defined by the Dutch Healthcare Authority as a framework. In addition to delivering pharmaceuticals and the associated care, for instance providing instructions (dispensing), reimbursements can also be received for additional services, directed at enhancing therapy compliance, advising on complex pharmaceuticals use and providing information to certain groups of (chronic) patients.

For this purpose, Mediq pharmacies have an integrated pharmaceutical care programme in place. This programme provides insight into whether the patient’s use of pharmaceuticals is optimal. Together with the general practitioner the pharmacist decides whether or not a patient is receiving the correct treatment, whether or not a patient is administering it in the correct way (therapy compliance) and whether or not the pharmaceutical treatment is in line with the most recent guidelines and scientific insights. Better use of pharmaceuticals reduces the chance of complications and prevents unnecessary hospital admissions. The programme is mainly intended for patients who take pharmaceuticals for chronic conditions.

Free pricing of pharmaceuticals is not arbitrary but will take place within a regulated framework comprising both the WGP and the GVS as price controls. The regulated clawback has however been abolished.  

SELF-CARE PHARMACEUTICALS AND OTHER (OTC) PRODUCTS

The last source of income is the sale of OTC (‘over the counter’) products such as skin care products and vitamins. The pricing of these products is not regulated. They are generally not reimbursed although customers can sometimes be entitled to reimbursement under voluntary supplementary healthcare insurance.

RELEVANT POLICY DEVELOPMENTS

Transfer of biopharmaceuticals to hospital budget
As from January 2012, the purchasing of biopharmaceuticals for conditions such as rheumatoid arthritis has been transferred from the basic individual insurance reimbursement to the hospital budget. In the past years, Mediq used to deliver a substantial part of these products to patients in home healthcare settings. From 2012 onwards these products will be purchased by hospitals, which also have to take care of the delivery to patients, together with nursing care if required.
We believe it is important for patients to receive this care at home, instead of having to visit a hospital. The policy change has required an adjustment of the business model for our group company that delivers this specialised medication; from full-service pharmacy on a stand-alone basis to delivery, on a fee-for-service basis, in cooperation with the hospital. At the end of 2011 we had a number of contracts in place with hospitals. Further talks are still ongoing.

Lump-sum contracting for patients with chronic conditions
The previous government introduced a different way of funding healthcare for patients with chronic conditions. This lump-sum contracting (known in Dutch as integrale bekostiging) was intended to contribute to better cooperation (integrated pharmaceutical care) between the various healthcare providers, including GPs, pharmacists and nurse practitioners. The principle is that healthcare providers are no longer paid separately; instead, an amount is agreed between a principal contractor for this integrated healthcare and a healthcare insurer. A start was made in January 2010 with two conditions: diabetes and vascular risk management. This also includes respiratory and pulmonary conditions (COPD) as from July 2011. Pharmaceuticals and medical devices are not yet part of the lump-sum system, and inclusion is not expected before 2013.

PHARMACEUTICALS IN POLAND 

co-payments

In Poland, almost 50% of the pharmaceutical product range has to be paid for by customers themselves.

Polish pharmacies earn income from the sale of prescription pharmaceuticals (around 60% of sales) and other products (around 40% of sales).

The Polish government has significant influence on the income of pharmacies. It negotiates and agrees maximum prices of reimbursed prescription pharmaceuticals with the pharmaceuticals industry and sets the reimbursement levels for prescription pharmaceuticals at least twice a year. There is no direct equivalent of the dispensing fee system used in the Netherlands.

In Poland, almost 50% of the pharmaceutical product range is not reimbursed by the state-run national health insurance system and has to be paid for by customers themselves. A gradual reimbursement system is used for the remaining 50% of products, according to type of pharmaceutical and the medical condition subject to treatment. There is full reimbursement for certain categories of pharmaceuticals and certain groups of patients, subject to a patient co-payment of PLN 3.20 in some cases. There are rules for patient contributions of 30 to 50% of the official reimbursed price for other categories of pharmaceuticals. If a prescriber prescribes or a patient chooses a different brand with the same active agent, the patient has to pay the pharmacy any difference above the maximum reimbursed price set by the government. The pharmacy’s margin on all products comes from negotiating with wholesalers or directly with manufacturers.

RELEVANT POLICY DEVELOPMENTS

In 2012 a new reimbursement act and a number of other legal acts have become effective. According to the new legislation the system of maximum prices of pharmaceuticals has been replaced by fixed official selling prices to patients. The selling price will be based on the manufacturers’ price, as negotiated by the government with the manufacturers, plus a legally determined wholesale and retail mark-up. Discounts and rebates will not be allowed under the new reimbursement system, meaning that manufacturers will not be able to transfer discounts into the distribution channel. The reimbursement limit for a given product category will be based on the highest price among the 15% lowest-priced products in that category and is fixed for every product in the category. In Poland the retail price consists of the government reimbursement and a patient co-payment. The patient co-payment differs between products in one category depending on the negotiated manufacturer price. Under the former law the pharmacy margin was based on the retail price of the product. In the new legislation the pharmacy margin will be based on the reimbursement limit and fixed in zloty for every product within one category. The new legislation also includes a ban on pharmacy advertisements, which used to be market practice in the Polish market.

The wholesale mark-up on the manufacturers’ price will be 7% in 2012, 6% in 2013 and 5% from 2014 onwards. This relates only to reimbursed pharmaceuticals. A fixed wholesale mark-up and elimination of discounts should in principle improve the profitability of our wholesale activities in 2012 and 2013. However, it is expected that price competition on OTC will increase. It is hard to estimate the impact of the new act precisely due to potential demand shifts between different products as a result of changes in prices and patient
co-payment.