2010 [UNIT PH 3340] 1

Pharmacoeconomics and

Management in Pharmacy II

[John Vella B.Pharm.(Hons.) M.Sc.(Pharmacoeconomics)]

2010 [UNIT PH 3340] 2

Economic considerations

Part One

J. Vella [PH 3340]

Price (i)

• One of the basic facts in economics

• Every good, or service has a price, at which

two parties, the buyer and the seller are

mutually satisfied and will execute a

transaction

• The process of deciding upon the price is

that of price negotiation

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J. Vella [PH 3340]

Price (ii)

• Prices can be stable or highly volatile

• Equilibrium is reached when neither has

further incentive to bid further

• Market for medicines is unique

• A ‘negative’ product

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J. Vella [PH 3340]

Prices (iii) - Elasticity

• An good or service exhibiting elastic

properties reacts according to the classic

curve

• ‘inelastic’ goods, such as medicines, do not

exhibit a drop in purchase with a

concomitant increase in price

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J. Vella [PH 3340]

Prices (iv) - Elasticity

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The relationship between the prices of cigarettes

and their price in the UK for the period 1972-92

(Townsend et al, 1994)

J. Vella [PH 3340]

Supply & demand curve (i)

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Supply & demand curve (ii)

• The price of a product will vary according to

how much of it is available for purchase, and

how many buyers there are

• if the supply curve shifts, so will the point of

intersection with the demand curve, and a

resultant modification in the equilibrium price

will necessarily take place

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J. Vella [PH 3340]

Competition (i)

• A situation of perfect competition exists

when no buyer or seller can wield a

substantial and unilateral influence on the

behaviour of the market

• A monopoly exists when one seller or

service provider exerts a controlling effect on

the market for a particular good or service

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J. Vella [PH 3340]

Competition (ii)

• The patent system for medicines allows a

period of 20 years monopoly from patent

registration

• E.g. Pfizer held a monopoly on the

manufacture of pharmaceutical preparations

containing atorvastatin (Lipitor®) until a few

years ago

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J. Vella [PH 3340]

Competition (iii)

• A monopsony is the opposite, when one

buyer has a considerable sway over the

market for a particular good

• E.g. a local supplier for generic hospital-only

products in Malta is bound by prices set by

the government, who is the only buyer for

their product

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J. Vella [PH 3340]

Inflation (i)

• Inflation is a rise in the general price of

goods and services in a defined economic

area or country

• Prices are usually tracked via an accepted

price index, such as the Retail Price Index in

Malta, and the HICP(Harmonised Index of

Consumer Prices)

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J. Vella [PH 3340]

Inflation (ii)

• A healthy economy requires a low rate of

inflation

• The European Central Bank aims ‘to keep

inflation levels at around 2% per annum’

• Too little or no inflation and the economy

does not grow

• Too high a rate and money depreciates too

fast

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J. Vella [PH 3340]

Inflation (iii)

• Inflation is the economic term for what we

call the change in the ‘cost of living’

• In Malta, medicine prices form part of the

Retail Price index, as part of the Personal

Care and health sub-index

• The National Statistics Office publishes

monthly updates

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J. Vella [PH 3340]

The composition of the RPI, Malta

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The RPI, in detail

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J. Vella [PH 3340]

Rate of inflation, ROI

• The annualised rate of change of a specific

price index, having a predefined base year

• This enables a comparison of the relative

‘cost of living’ at different temporal points

• The ROI, or ‘cost of living’ is an economic

indicator that is widely utilised and quoted by

various stakeholders in policy formulation

and implementation

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2010 [UNIT PH 3340] 18

Sample study on medicine

prices

Part Two

Medicine prices in Malta and

their relation to economic

indicators

John Vella

19Pharmacy Symposium 2010

J. Vella [PH 3340]

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J. Vella [PH 3340]

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J. Vella [PH 3340]

Medicine prices - a topical subject!

• Stakeholders in the local

pharmaceutical industry

defend prices and

availability concerns

• Consumers, both private

and public, look out for

price increases and insist

that medicine prices are

not commensurate with the

social context

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J. Vella [PH 3340]

Background Facts

• No published academic work or verifiable and consistent

data is readily available on the subject

• The local press carries claims that are at times based on

unsubstantiated allegations

• A need for accurate and relevant data to enable considered

and informed discussion between the actors involved

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J. Vella [PH 3340]

Methodology

• A comparative analysis of medicine prices and the ‘cost of living’

• A sample of 435 medicines, out of 1682a available for sale on the private market in the Maltese Islands1

• An eight year study time-frame

• Prices taken at the end of each calendar year

a As determined as part of the body of work of a dissertation submitted in partial fulfillment of the degree of Master in Pharmacy

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J. Vella [PH 3340]

Methodology

• Two indices were constructed, a simple price composite -

the Retail Medicine Index (RMI), and a volume-weighted

version - the Weighted Medicine Index (WMI)

• The main field identifiers employed were price, OTC/POM

and Generic/Originator status and mode of action

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J. Vella [PH 3340]

Results

18.79%

11.01%

13.66% 14.13%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

RPIb RMIb WMIb Wageminb

Perc

en

tag

e I

ncre

ase 2

002

-2009

Indices and Minimum Wage 2002 base=100

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J. Vella [PH 3340]

Results

• The medicine indices increased less than the ‘cost of living’

indicator, the Retail Price Index(RPI)2

• The minimum wage3 kept pace with the prices of

medicine, but not with the Retail Price Index

• The greatest annual increases were observed in 2004 and

2005, at around the time the new medicines registrations

system was introduced

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J. Vella [PH 3340]

Results

• The WMI increased more than the RMI, indicating that faster moving products rose by a greater percentage than slower ones

• The OTC segment increased twice as much as the POM segment

• No difference was observed between the generic and originator fractions

• Medicines comprising the respiratory section exhibited the greatest increase in price

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J. Vella [PH 3340]

Malta and the EU-27

• Data analysis for variations

in medicine prices

extracted from

European Central

Bank(ECB)4 sources

places Malta at the mean

value for the whole set

• The data obtained from the

dissertation study shows

convergence with the

European data, an average

of 12 %, as compared to

the ECB figure of 16.48 %

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J. Vella [PH 3340]

Malta and the EU-27

16.04%

16.47%

11.10%

13.66%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00%

HICP Malta (Phrm.)

HICP EU-26 (Phrm.)

RMI

WMI

HICP Malta (Phrm.) HICP EU-26 (Phrm.) RMI WMI

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Conclusions

• The cost of medicine definitely did not increase at a rate

greater than that of the cost of living

• The bulk of the increase in price in the last eight years can

be attributed to the integration of the increased costs of

registration into the final retail price

• Considerations of affordability need to be addressed

further, as the model indices included both branded and

generic products

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J. Vella [PH 3340]

Conclusions

• A case is made, and a model proposed for the refinement

of the methodology utilised, the Malta Retail Medicine

Index

• Supply and demand-side measures for the increased

penetration of generic products are required to reduce

average medicine prices in the Maltese Islands

• A hypothetical framework for the above is

outlined, involving the linkage of the granting of a Marketing

Authorisation to lower generic launch prices

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J. Vella [PH 3340]

Recommendations

• The development of a specialised index to monitor

medicine prices; an addition to data provided by the Health

& Personal Care sub-index of the RPI

• The linkage of such an index to European prices, taking

into consideration the obstacles of Purchasing Power

Parities and pack size uniformity

• This would provide a coherent tool to facilitate the inter-

country comparisons of prices

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J. Vella [PH 3340]

Recommendations

• The utilisation of the proposed index in the formulation and

implementation of social policies aimed at improving access

to the therapeutic benefits afforded by modern

medicines, both at a private sector level, and also in the

area of primary healthcare

• The common goal of all parties involved - the local

pharmaceutical industry, academia and government - must

not only include egoistic self-advancement but also a social

context to the benefits derived from the amelioration of

processes, research and policy implementation

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J. Vella [PH 3340]

Bibliography and Acknowledgements

• Deshpande PR, PharmD, Dept. of Pharmacy Practice, Manipal University, Manipal, India.

Pharmacoeconomics, Microsoft Powerpoint Presentation

• Drummond M, Sculpher M, Torrance G, O'Brien B, Stoddart G. Methods for the Economic Evaluation of Health

Care Programmes. 3rd ed Oxford: Oxford University Press; 2007

• International Society for Pharmacoeconmics and Outcomes Research (ISPOR), Introduction to

Pharmacoeconomics, ISPOR Distance Learning Program

• Rascati, K. Essentials of Pharmacoeconomics; Philadelphia:LippincottWilliams & Wilkins; 2008

• Satyanarayana K, St.Peter’s Institute of Pharmaceutical Sciences, Pharmacoeconomics, Microsoft Powerpoint

Presentation

• Shull S PharmD, MBA. Basics of Pharmacoeconomics and Outcomes Research:Application to Patient

Care, Microsoft Powerpoint Presentation

• Vella J. Medicine prices in Malta and their relation to economic indicators. Dissertation, University of Malta

2010

• www.nso.gov.mt, National Statistics Office website

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