Pharma companies are getting too good a deal in Ireland

The Irish Pharmaceutical Healthcare Association (IPHA) is a lobby for pharma manufacturers in Ireland. It recently published an article in this section highlighting the economic benefits of medicines for Ireland based on a report it commissioned.

IPHA is due to agree a new drug pricing agreement with the State this summer, which explains why it’s keen to spread good news. In this article I’ll cast a cool eye over IPHA’s claims and Ireland’s system of setting drug prices.

Pharma is undoubtedly a major success story of the modern Irish economy. It produces high value-added products, contributes greatly to exports and employs highly trained staff in modern facilities. Part of pharma’s Irish success has been to extract high prices from the State. Historically, we paid more than other countries for medicines and used too few generics. Reforms have addressed those issues and others. Despite this, from my perspective as an academic health economist, pharma is still getting too good a deal.

Understanding why the taxpayer is currently locked into paying too much for drugs requires a little health economics detail. An important part of the drug pricing deal due for renewal is the price setting mechanism for new drugs. Most health economists agree the appropriate way to set prices for new drugs is to demand they offer at least as good value for money as the best alternative uses of health spending. This principle is reflected in Irish legislation regarding medicines pricing.

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The specific element of drug pricing rules that reflects this principle is the cost-effectiveness threshold. It’s the bar beyond which an intervention is considered too expensive to fund. The Irish threshold is currently €45,000 per quality-adjusted life-year (QALY). The QALY being the standardised unit of health used to make comparable estimates between different interventions.

There are several problems with the current threshold, the main being that it is likely too high, meaning we approve too many drugs and at excessively generous prices. My assertion that the threshold is too high is based on the clear evidence of many alternative uses of health funds that offer far better value than €45,000/QALY.

Growing waiting lists

Ireland has a chronic problem with long waiting lists for elective care. Relatively simple interventions such as hip or knee replacements and cataract removal are not provided in a timely manner by the HSE, yet cost only in the region of €3,000-€6,000/QALY. We would be better off applying a lower, stricter threshold and using the money saved to fund these highly cost-effective interventions. It is a waste of taxpayer money to retain a generous drug funding regime while elsewhere massively under-providing good value care.

Covid-19 means the pressures of unmet need are worse than ever. Waiting lists have grown following the suspension of elective services. Patient reluctance to seek care means lists will likely grow further in 2022. Moreover, the pandemic’s massive cost to the health system and State as a whole means continuing with current pricing rules is untenable.

Turning now to the claims of IPHA’s recent analysis. It concludes the economic benefits of drugs considerably outweigh their costs. Details of the methods used are beyond the scope of this article; suffice to say they are not those commonly applied in health economic evaluation and the report has not been peer reviewed. However, the main shortcoming of the analysis is that it doesn’t consider the estimated benefits of drugs versus non-drug spending. In short, IPHA’s report has missed the elephant in the room of value for money relative to the other badly needed services outlined above.

Two points from IPHA’s study are worth mentioning. It notes that Ireland is falling behind countries like Germany regarding how many and how quickly drugs are adopted. What IPHA doesn’t explain is that drugs are often declined or delayed because they fail to demonstrate cost-effectiveness. Remember, that’s with respect to Ireland’s excessively generous threshold that IPHA itself has agreed.

So, while IPHA claims medicines yield large benefits, that doesn’t square with evidence from many individual funding decisions that many drugs yield insufficient benefits to merit funding.

Innovation

IPHA’s report also makes repeated mentions of the value of innovation. Industry is keen for public payers to pay an innovation premium. The problem here is that current appraisal mechanisms already account for effectiveness. There’s little argument for paying extra for novelty once you’ve accounted for a medicine’s benefits. Industry also cites the need to incentivise R&D (research and development), but this argument carries little weight in a market that’s a tiny proportion of the global pharma market.

Finally, regarding transparency around drugs funding reform. The State will negotiate a new pricing deal over the coming months. I’m yet to see recent public mention of the cost-effectiveness threshold or its potential revision by the Department of Health, HSE or DPER.

It’s impossible to tell if this is because the State hasn’t meaningfully engaged with the topic or because deliberations are behind closed doors. This lack of transparency regarding such a large portion of state funding is concerning as outside observers cannot assess how rigorously the state is pursuing value for money until after the deal is agreed.

While I hope the State will tighten drug spending rules, I am not optimistic. Reform would likely be politically unpopular, especially given the understandable lack of appreciation of the trade-offs by the electorate. Rejecting more drugs means bad headlines and patient lobby pressure. A more efficient and equitable use of public funds could harm interests in the private healthcare sector and associated insurance industry.

It would suit a lot of people to retain the status quo. While pharma may continue to sing its own praises, we should remember that private sector success predicated in part on poor public sector cost control is not something for Ireland to be proud of.

James O’Mahony is an assistant research professor in health economics at the Centre for Health Policy & Management at Trinity College Dublin