Are medicines affordable for health systems? The myths, the facts and the way forward

The debate on access to medicines often focuses on the “three A’s” – Access, Availability and Affordability. All these dimensions are important for new (and old) medicines to actually reach the patients that need them.
Access and availability are relatively easy to comprehend as concepts. Although the reasons for lack of availability or access are often many and complex – relating to pricing and reimbursement systems of Member States and regions, health budgets, cross-border trade, reference pricing systems and the commercial decision-making of pharma companies reacting to these realities – they are fairly easy to measure. EFPIA has for many years published yearly “WAIT report”, mapping access of and availability to innovative medicines in Europe.
Affordability on the other hand is a more relative concept that requires some further reflection.
First of all, affordable in relation to what? Affordability depends not only on the price of a product or service, but also on the budget available and who is paying. Installing a Proton Beam Therapy System is not something any normal hospital can afford on their budget, which is why these investments are often made through regional cooperation or national-level funding.
Secondly, affordable in which perspective? European health systems spent a lot of money – like a lot - on COVID-19 tests to identify new cases and contain the spread of the pandemic. But the cost of NOT containing the disease, including hospitals being overwhelmed by critically ill patients, would have been much higher. Smart spending will help you save costs elsewhere or in the longer term, making it the more affordable option at system and societal level.
Thirdly, affordable for who? Obviously medicines should be affordable for patients, and this is the raison d'être for our European health systems based on Universal Health Coverage. No one should have to refrain from going to the pharmacy and getting their medicines because they can’t afford it on their salary or pension or social benefits. Unfortunately, some European countries still have very high patient co-payment rates for prescription medicines. This is a clear barrier for access that also puts many patients in financial risk, and needs to be addressed.[1]
Now the key question should be: are medicines affordable for health systems?
In the Commission’s Pharmaceutical Strategy for Europe, you can read the following:
“The affordability of medicines has implications for both public and household finances. It poses a growing challenge for the majority of Member States. /…/ This puts the budgetary sustainability of health systems at risk, and reduces the possibilities for patients to have access to these medicines.
This sounds dramatic, and the notion of pharmaceutical expenditure making health budgets unsustainable is put forward as a key reason for several proposals in the Strategy, including to review protection periods for innovative medicines. So, is it true? Is medicines expenditure bankrupting European health systems?
We asked IQVIA to crunch the numbers for all European countries where there is reliable data available. What we wanted to find out was the net, total cost for health systems of pharmaceuticals as a share of total healthcare expenditure. What does this mean?
Net - meaning after rebates and (when it is possible to calculate) clawbacks[2]. This is important, as there is a difference between the list (public) and net price of innovative medicines because of rebates and discounts, and this difference has been growing in most countries during recent years.
Total – meaning pharmaceuticals sold and dispensed through all channels, both through pharmacies and in hospitals. This point in particular has been contentious in the debate, as most available public data (e.g., OECD data) does not always include pharmaceutical expenditure in hospitals. For this study, IQVIA had to create bespoke methodologies for each country, complementing OECD or other officially reported data with their own data on pharmaceutical sales, to arrive at the total number.
So what was the conclusion of this study? Maybe to the surprise of many, pharmaceutical expenditure has been stable as a share of total healthcare expenditure in all European countries included in the study for the last 20 years, converging at around 15% of total healthcare expenditure. The exact share of total healthcare expenditure varies a bit between countries – in general, wealthier countries that spend more on healthcare overall have a lower share of pharmaceutical expenditure (like Norway, with 8% of healthcare expenditure spent on pharmaceuticals). Countries in Eastern Europe generally have a higher share of pharmaceutical expenditure, mainly because the price of pharmaceuticals varies less between countries than other healthcare costs (such as salaries for healthcare professionals).
These results are quite amazing when you think about it. The last 20 years have seen a steady stream of new medicines and breakthrough therapies make it from the industry R&D pipelines to patients. Think of all the new lines of oncology medicines, like targeted therapies and immunotherapies, that didn’t exist 20 years ago and that are now changing the outlook for millions of patients with previously hard to treat cancers. Think of the Hepatitis C medicines that are curing patients and replacing previously cumbersome and often failing treatments (and liver transplants). Think of all the breakthroughs for patients living with rare diseases, which previously had no treatments at all. Despite all this and many other medical breakthroughs reaching patients, pharmaceutical costs have remained a stable share of health budgets.
Actually, the report shows that in many countries, overall healthcare expenditure has been growing faster than pharmaceutical expenditure. Health systems do have a long-term sustainability problem, but this is driven by ageing populations and the burden of chronic disease and multi-morbidity (according to OECD, the segment of healthcare that has been growing fastest during recent years is long-term care[3]). For many chronic diseases, such as diabetes and cardiovascular disease, the cost of medicines is a very small part of the overall cost of the disease, especially if you account for the broader societal costs, and proper medicines use actually prevents these costs from being even higher by reducing unnecessary emergency visits, hospitalisation and complications. 
To sum it up, health systems do not have an affordability problem with pharmaceuticals.
So what are the actual problems, and how do we deal with them?
  • While health systems, as these numbers show, do not have an affordability problem with pharmaceuticals in the aggregate, health systems do not always pay for their costs in the aggregate. As there has been a shift in innovative pharmaceutical spending from pharmacies to hospitals, this can affect who pays for what. A single hospital or clinic can suddenly have to pay the therapies for several rare disease patients that had not even been a blip in the balance sheet if they had been paid from a national budget. We need to rethink how we do health budgeting and financing, and bridge the current silos in the system.
  • As already pointed out, all European countries don’t have the same capacity to pay for healthcare. If we want to create a more equitable system, Romania should pay less for innovative medicines than Sweden. In order to align affordability and GNI per capita, we need to discuss a new model for equity-based tiered pricing in Europe.
  • Some new advanced therapies, like gene therapies for hemophilia, come with high upfront costs but could off-set a lifetime of chronic treatment. This can pose problems for small budget holders, especially if they don’t know for how long the therapy will be effective. We need new payment models that are suitable for this new paradigm, like over-time payments or subscription models.
  • Therapies for small patient populations, including orphan drugs, also come to patients with less robust data then the standard phase 3 randomised clinical trial. In that scenario, the question isn’t so much “can we afford it” as “is it worth it”? Again, new payment models such as outcomes-based payments where you pay for what you get can help solve the issue.
These issues are solvable, but often require new ways of doing things and new types of collaborative models between stakeholders. The industry is ready to work with policy makers and all stakeholders to overcome the current barriers in the system to ensure that new therapies can reach all patients that need them. To leave things as they are should not be an acceptable option. 
Download the report here.
[2] Clawback is a mechanism through which some countries ‘claw back” revenues from pharma companies based on some kind of growth or expenditure cap. This is sometimes done several years after the original expenditure occurred which can make it difficult to calculate, especially per product.
[3] OECD: Health at a Glance 2021

Thomas Allvin

Thomas Allvin is Executive Director for Strategy and Healthcare Systems at EFPIA. Before joining EFPIA, Thomas...
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