There are now dozens of articles in the pharmaceutical and NHS journals describing what the new GP Contracts are and how they will operate post April 2004, this article seeks to examine what the commercial implications might be in relation to field sales activity and the importance of understanding the altered dynamics brought about by the outcomes focused contracts.

Background

Firstly, a reminder as to what the contracts mean. There has been something of a feeding frenzy around the new General Medical Services (nGMS) contract, but remember more than 40% of GPs will be paid under PMS so it is important not to focus exclusively on nGMS but to regard nGMS as part of wider contractual and ways of working arrangements in the NHS and only one of two ways to reimburse GPs. Now all the negotiations are over and the ‘aspirational’ bids are in, just who is “going to make it happen” and what are the worries? Of course, there are many stakeholders in the implementation process, the GPs, Practices, LMC’s, PCTs, SHAs, the Modernisation Agency, to name but a few. But, in respect of the detail that needs to be mobilised before April 1st 2004 there are 3 key groups: the GPs, the LMCs and the PCTs.

From a GP/practice perspective the tasks between last summer and April this year lies around deciding on how they wish their contract with the PCT to shape-up:-

• Do they want to opt out of additional services (eg: Vaccs and Imms, cervical screening)

• Do they want to opt-out of out of hours (OOH) - 1 PCT I spoke to anticipated 85% of practices will opt-out

• Which national enhanced services (eg: depression, drug and alcohol misuse, MS) might they want to opt into

• Which local enhanced services to they wish to opt in to.

There has been a tidal wave of advice to GPs in respect of where their priorities might lie in order to ensure they get the most financial gain from the new contract. For some, delivering on just a few of the possible high revenue-earning priorities outlined in Tables 1 & 2 will be easy because they are already delivering on NSFs, targets, implementing NICE guidance and are fully computerised. For many the new contract represents a highly prescriptive method of payment, which will necessitate significant behavioural change at professional and practice level.

It is the PCTs however, who will face the biggest challenge in respect of implementation. In addition to the existing responsibilities of local health strategy delivery, financial balance and delivering sustainable local health improvement, or even worse an imminent CHAI review, (or recovery from a CHAI review!) they now have to plan the roll-out of the new contract. The pharmaceutical industry therefore must proceed with caution ensuring that PCTs are engaged in the process of driving through initiatives in the name of nGMS and PMS as they remain the payors, and although it will take many months for the new contractual schemes to bed in, there will come a time when the PCT decision makers will take an interest in points generating projects for general practice that increases their infrastructure and prescribing costs.

New General Medical Services (nGMS) Behavioural Changes

Last year HealthGain Solutions worked with industry leaders developing their strategic response to the new contract. Naturally, most have focused on the quality components; some are becoming attracted to the National/Local Enhanced Services component. Michael Sobanja NHS Alignment Director at HealthGain Solutions believes “our clients are developing integrated solutions between PCTs and GP practices, rather than tactical quick fixes at practice level alone. As far as possible we believe solutions should align to the “ payment by results” system. The guiding principle for marketers who really believe in addressing customer need should be to work on initiatives that help the NHS meet its strategic objectives, the contract itself will see dramatic change in local policy and prescribing patterns”

Programmes which PCTs and practices with whom we are working with value, include: -

• Supporting the training and development of GPwSIs

• Project teams undertaking gap analysis of specific quality areas at practice level and developing action plans to address them

• Project managers to develop and implement action plans once LES priorities have been agreed

• Medicines management review strategies and team resource to do the work

• Facilitating patient group meetings to drive the patient agenda.

We asked a number of GPs and PCT PEC or Board members about issues during the implementation phase and have identified a number of common concerns. Dr Tony Brzezicki, a GP, and Prescribing and Cancer Lead from Croydon PCT explains “The clear objective within the new contract is outcomes, the concern for the PCT therefore is that an outcomes focused practice is not necessarily drugs focused, therefore the drugs guidance and formularies may go out the window”. He continues, “An example of my concern will be if a GP wants to get to target quickly in respect of cholesterol lowering then they will go to a higher and more expensive statin dose level earlier than recommended by local guidance, this could lead to a lack of goal congruence between the individual GP, practice and PCT”. Dr Duncan Jenkins, (Specialist in Pharmaceutical Public Health, Dudley PCT) sees the contract creating even more pressure on PA resource for the PCT “..where services such as prescribing support have been commissioned by the PCT, in the future, employment may be secured by the practices, especially as the opportunity for a pharmacist to become a practice partner evolves”

Impact on Field Sales Activity

It is clear then that the nGMS and PMS contracts, whilst creating opportunities for improved care and joined-up services, creates a selling environment that is complex and evolving. GPs and members of the practice are focusing very much on delivery and this presents the pharmaceutical industry with some real barriers. Dr Jace Clarke, a GP and Chair at Horsham & Chanctonbury PCT comments “Everyone in Primary care is totally focussed on the new contract at present so difficult to get anything done unless you are ill”. Dr Clarke’s comment is not an isolated one; many GPs throughout the country will feel the same way. It is also possible that GPs will favour seeing representatives from companies who have valuable information and perhaps initiatives that help them reach their contracted goals in the ten areas of most interest to them. Some local service delivery issues linked to quality and outcomes framework (e.g. CHD, Diabetes, COPD) may determine which companies are more attractive to receive calls from. As a natural progression from this, will the appointment management system in the practice be set up in such a way to allow the practice to earn more points within the outcomes and delivery elements of the contract? Will this mean that practices will prefer to open their diaries only to pharmaceutical companies who have a drug or service that will assist in this endeavour, speculation I know but this is a good time to think the unthinkable.

There are of course many more examples of GP and PCT concerns and indeed opportunities. As an industry, we must continue to measure where PCTs are with the implementation plan and its rollout post April 2004 and ensure we look beyond the obvious alignment opportunities and develop innovative solutions through really understanding the challenges facing all stakeholders, not just the GPs.

In the US alone, influenza (the flu) is responsible for killing 20,000 people and hospitalising a further 100,000 people each year. Over the past three years, it has been said that flu has generally maintained a relatively low profile in the Western World. This winter, however, the flu has hit back in a ferocious way with Asia so far bearing the brunt of this avian flu (H5N1) outbreak. At the time of writing, the likes of Cambodia, China, Indonesia, Japan, Laos, Pakistan, South Korea, Taiwan and Vietnam have all been affected. With the death toll currently standing at 19 – and rising – all avenues which could assist in the containment of this viral infection are being explored.

MORE OFTEN THAN NOT it is the very young, elderly or immuno-compromised who are the most susceptible to this illness. Furthermore, this viral respiratory infection tends to be seasonal, first appearing in early winter and lasting through to early spring. The common flu patient normally suffers from a severe bout of chills, congestion, coughs. exhaustion, fever, headaches, muscle pains and a sore throat. However, this latest outbreak of highly pathogenic avian influenza (HPAI) A H5N1 has proved to be fatal.

Urgency calls for the rapid test?Some experts suggest that rapid tests should play a part in the containment procedures of this current flu outbreak. The latest generation of rapid tests is considered to be of a high level of sensitivity and may be used to rule out the presence of an influenza infection in suspected cases who are showing some of the worrying symptoms. These easyto- use tests, widely available on the internet and costing around $10 - $15 per test, are capable of giving an almost immediate response. Crucially, at the point of care (POC). However, these tests may still be too expensive for widespread use in developing countries. In affected areas, both the local population and relief workers could benefit from employing these tests. Indeed, checking a chicken farmer or a bird shop owner in rural Asia for infection would necessitate a rapid response. Otherwise, awaiting laboratory confirmation could result in the person falling into an even more critical state. In addition to ensuring faster patient management, faster results would curb the prescription of antibiotics in inappropriate cases and reduce the build-up of antibiotic resistance.

Bonus for the rapid flu test market?Before this outbreak, sales for rapid influenza tests were traditionally limited to the winter and spring months. Whilst the media attention given to this serious outbreak has undoubtedly afforded the influenza POC test industry some unexpected exposure, this may just represent another blip in the longterm growth of this market. Following the multiple discoveries of anthrax in letters a few years ago in the US, there was an upsurge in the demand for rapid flu tests. Since anthrax and flu symptoms are highly similar, rapid flu tests were used to ease the concern of worried people. By confirming the person did have the flu, these tests were coincidentally able to rule out the more dreaded anthrax infection. Since 2001, the market for rapid influenza tests has settled down again. In 2003, the US market was estimated at less than $10 million by Frost & Sullivan, whereby rapid flu tests accounted for approximately a fifth of all respiratory rapid tests sold in the US. In Europe, the demand for rapid flu tests remains minimal, principally due to a lack of awareness and a continued reliance on laboratory analysis.

Increased uptake of tests?Through a combination of mass culling of chickens and ducks, banning the import of poultry meat and eggs, improved personal hygiene and thorough cooking, this avian flu has, thus far, been restricted to Asia. Although current efforts are focused on preventing a pandemic, and not on diagnostics, the rapid flu test may yet have a greater role to play before this outbreak is finally contained.

Background Frost & Sullivan, an international consultancy firm, has been supporting clients’ growth for over four decades. Our market expertise covers a broad spectrum of industries, while our portfolio of advisory competencies include strategic consultancy, market intelligence and management training. Our mission is to work with our clients’ management teams to deliver market insights and to create value and drive growth through innovative approaches. Frost & Sullivan’s network of more than 500 consultants, industry experts, corporate trainers and support staff, spans the globe with 19 offices worldwide.

Media contact: Katja Feick, Public Relations Manager, Healthcare Practice katja.feick@frost.com T: +44 (0) 20 7915 7856 http://frost.com http://pharma.frost.com

This month, in the fourth of this new series of factsheets designed to broaden your clinical knowledge we look at epilepsy.

AROUND 2% OF THE POPULATION suffers from epilepsy, which untreated can cause seizures, or fits. Epilepsy usually starts between the ages of three months and the teens. Around 60 per cent of children with epilepsy grow out of it, but for most other people, it can be controlled with medication.

What is epilepsy? Epilepsy is characterised by seizures, sometimes called fits or convulsions. These occur when some of the nerve cells in the brain become overactive, and fire off uncontrolled random signals. Some people have one seizure and then never have another again. But people who experience repeated seizures – whether once a year, or several times a day – have epilepsy. The cause of epilepsy is not known, but it’s generally thought to be the result of a chemical imbalance in the brain. People can be more at risk if they have had a stroke, head injury, meningitis or if they have a history of drug or alcohol abuse. Epilepsy sometimes runs in families, and can be the result of a brain injury at birth or a brain tumour. In most cases, though, it is not known why some people get epilepsy and others don’t.

SeizuresThe main symptom of epilepsy is repeated seizures. Most people have no other symptoms, and live perfectly normal lives. Seizures may come on without warning, although they can be triggered by flashing lights. They are sometimes preceded by an “aura”, which may be a strange smell, taste or feeling. There are different kinds of seizures. Some people experience just a fleeting loss of awareness. Others lose consciousness and suffer stiffening or jerking movements in their body. Seizures can last just a few seconds, or may go on for some minutes, and can be barely noticeable or quite traumatic. Types of epilepsy There are several different types of epilepsy, each with different symptoms.

Primary generalised epilepsyIn this kind of epilepsy, also known as grand mal epilepsy, nerve cells in both sides of the brain become overactive at the same time. Seizures usually last for about five minutes, and can be alarming. In a grand mal seizure, people are likely to experience some or all of the following:

Absence seizuresAbsence seizures, also called petit mal epilepsy, is not as alarming as grand mal. There may be a loss of consciousness, or more often just a loss of awareness, but this kind of seizure doesn’t involve falling down or experiencing involuntary jerking movements. In fact, people may just look as if they are daydreaming. This kind of seizure is most common in children aged between five and nine. Most grow out of them by the time they are 13. For more information, see the BUPA factsheet, Epilepsy in children.

Juvenile myoclonic epilepsy During a juvenile myoclonic epileptic seizure, the hands, arms or whole body will start jerking, but the person doesn’t lose consciousness or awareness. This type of epilepsy usually develops in late childhood. It tends to run in families.

Temporal lobe epilepsy Temporal lobe epilepsy has quite different symptoms. They include:

DiagnosisTo diagnose epilepsy, a doctor will need a detailed description of the seizures – family members or friends can often help with this. The doctor may then arrange for some tests. These can include an EEG (electroencephalogram), a brain scan – either CT (computerised tomography) or MRI (magnetic resonance imaging) and blood and urine tests.

TreatmentThere is no cure for epilepsy, but drug treatment can control the seizures in around 70 per cent of people. These drugs sometimes have side-effects, though, such as drowsiness or a rash. If someone who has had epilepsy doesn’t have a seizure for two years, their doctor may suggest they come off the medication (or reduce the dose). Some children with particular forms of epilepsy are recommended a “ketogenic” diet – one high in fat and low in carbohydrates. Brain surgery may be appropriate for some people with severe and disabling epilepsy that is not improved after trying several different anti-epileptic drugs over three to five years.

Managing epilepsyPeople with epilepsy may need to avoid certain activities or jobs where it could be dangerous to have a seizure – most obviously, things like flying a plane, but also, for example, operating certain machinery, riding a bicycle in busy traffic, or swimming alone. People who are diagnosed with epilepsy cannot drive until their doctor confirms that their seizures are under control – usually no less than a year since their last seizure. If a child has epilepsy, it is important to ensure he or she doesn’t get too tired. And older children and adults may benefit from relaxation and anti-stress exercises. It’s also a good idea for someone with epilepsy to carry a card, necklace or bracelet which says that they have epilepsy. Family, friends, teachers and colleagues should be told what to do in the event of a seizure.

It’s been a long accepted wisdom that brand communication relies heavily on the human element. But what about the human element as it affects corporate or product brands? How do you align your corporate, product and/or your service brand with the personal brands that your sales teams communicate to ensure your marketing spend is maximised?

ALL THOSE WHO TOUCH YOUR BRAND – employees, sales force, retailers, website managers, etc, - on its way to the ultimate consumer, have an effect on it. Does this effect strengthen, dilute or even wreck the brand’s image? And are you in control of this outcome? Pharmaceutical companies provide good examples of organisations that invest considerable time and money into promoting their brands. Generally, around 10% of brand communication is via written content such as advertising and direct mail, with the rest communicated via the messengers, such as the medical sales professionals. If these individuals aren’t promoting the correct brand, message and company values, there is the potential for 90% of a company’s branding to be off-message.

People play a major part in generating and maintaining the positive brand experience that nurtures customer relationships, encourages repeat purchase and in turn increases profitability. Within the pharmaceutical industry, medical sales representatives are the brands on the front line. Ultimately, the image they project will be the one to influence doctors’ opinion on whether to buy their products, and patients will form opinions judging on how well they work. Aligning the corporate, product and personal brands is absolutely crucial. So medical sales representatives are responsible for promoting their company as well as instilling a positive perception about the health service as a whole. In recent years people were backed up by CRM systems, designed to provide customer data and improve the ‘customer experience’. In time this approach was used to cut corners and merely give the illusion of relationship. For many this became a systems issue and the system was to blame when relationships faltered. But in the great brand debate, the people effect seems to slip between the cracks created by those major forces – the great tectonic plates of mass advertising, direct marketing, PR, corporate relations and, yes, CRM.

Does this mean then that the people who stand between you and your customer, having a role somewhere in the distribution chain, are not in themselves influencers on your brand? Does what they do with your carefully researched, defined, created, nurtured and therwise controlled brand not matter? Of course it matters and we would argue people should be viewed as a key medium through which your brand is communicated. This means setting objectives, standards and measures along the same principles marketing people apply to their communications strategies every day. What if you could manage people as a true team – give everyone who has an effect an understanding of that effect and how their behaviours can influence the outcome? We use the analogy, both metaphorically and literally, of a rugby coach; the coach has to set such clear objectives and strategies that he can stay on the sidelines and watch the team’s performance safe in the knowledge that each knows his or her role and responsibilities in that team. Effective management of people in pharmaceutical companies should be based on similar methods.

The senior managers (‘coaches’) need to be assured their sales representatives (‘players’) understand the brand attributes, buy into them, live and breath them once out in the field. We must envisage the coach as the whole management team. This is where the importance of the brand shows up at its most vital. While each key function on the board is managed in a silo fashion, the brand tends to be left as the sole remit of marketing. But it is fundamental to the continuing success of brand communications that the entire board should examine the impact, actual and desired, of the corporate brand upon three key stakeholder groups: customers, employees and shareholders. These stakeholders are of course already represented by “guardian” functions of marketing, HR and finance respectively.

The brand should ideally stand above all these functions, informing and guiding the necessary behaviours. Measures of impact on each of the stakeholder groups should be agreed within the brand parameters. The impact of the brand on each part of the stakeholder’s pyramid must be defined clearly and must be owned by all parts of the business. Thus a horizontal brand focussed agenda is created with associated clear and tangible measures. Each board member is accountable for the brand impact in their own areas. Each board member is therefore clear about the implications of the brand attributes on their areas of responsibility and incorporates specific actions in their own plans to reflect these attributes. We have called this approach Parallel Branding, because what it does is recognise the importance of individual people, wherever they are in the distribution chain, to ultimate consumer perception of brands. It describes the effect of the personal brand of that individual on the corporate, product or service brand. It recognises that while they should be aligned they are separate and they do run in parallel, without one entirely subsuming the other. From the brand owners’ point of view the personal brand of the individual, assuming a good fit initially, can be maximised and measured to keep it in line with brand objectives.

Parallel Branding is still very new, but we can cite companies who are actively exploring this approach and they come from very different categories and business sizes. These are contrasting businesses with staff levels, distribution networks and operational requirements at opposite ends of the scale, but they are passionate about their brands and their people. Marketing directors already have the brand remit – it is now essential that the influence of the brand becomes holistic, permeating the whole organisation. Measures of behaviour should meet the needs of the brand as rigorously as the measures used to monitor the effectiveness of all other aspects of the marketing mix. Parallel branding will run and run and so, potentially, will positive branding pharmaceutical companies and the medical industry as a whole.

21. Enhanced Services: The GPs should have got copies of their enhanced services, particularly DES & NES. These are vital (cost £5 per copy) and are available on the internet. These are important for GPs when deciding which activities will get them payments and which ones won’t.

22. Directed Enhanced Services (DES): The DES represent national benchmark for services that are essential for PCOs to commission. THINK POINT PF: The DES are literally ‘directed’ by the government. Hence there is no question of choosing whether or not to deliver these. They are a national requirement for all PCOs and a national pricing structure for payments will exist. They include services to the populations, improved access, dealing with violent patients, quality information, childhood vaccines and advanced minor surgery. If for example you represent a pharma company selling vaccines for children, these are essential pharmaceutical goods. To a certain extent, they always have been. Consider your self lucky… many representatives are selling good, cost-effective drugs for diseases that are just not high priority at the moment.

23. Enhanced Services: There are 2 types of enhanced services that fall under DES. There are the ‘essential / additional’ services which are at higher standards (ie extended minor surgery and then are the services not provided under the essential services. They will be specialised services delivered by staff who have been trained in that remit. THINK POINT PF: The specialised services will be of significant interest to pharma companies. Why ? Because here lies the remit behind all of that you tout. Working at the interface, treating specialised patients and meeting their needs and of course training of staff to empower them in their newly found speciality. Furthermore, we will find new pilots of interface clinics and specialised services started under this remit. One important point – funding follows the patient, or the service - not the drug- an important distinction.

24. Essential Services: Also under national direction with regards to payment benchmarks, the essential services cover three main areas. Patients who are ill/believe themselves to be ill whereby recovery from condition is expected, patients who are terminally ill and finally patients who have chronic diseases whereby the practices may plan how exactly they will be managed.

25. Additional Services: Covered in last issue : the 6 areas of cervical screening, child health surveillance, contraceptives, vaccinations and minor surgery. THINK POINT PF: The global sum (2/3 of salary) is aimed to deliver the essential and additional services as well as provide some staff costs and locum fees. The remaining 1/3 is the points, prizes, etcetera. So thinking from a GPs workload perspective there is much that can go wrong here. The global sum is ‘calculated’ (using the Carr-Hill Formula) which is then applied to the ‘practice register lists’, So what happens if you have more patients than are officially ‘on your lists’ ? Or what happens if the workload is far greater than the Carr-Hill has calculated in your favour ? Well what happens is the GP receives a fee which doesn’t reflect the workload he/she is doing. In fact, this is exactly what is happening all over the country.

26. Nationally Enhanced Services (NES): Although they have national benchmark pricing schemes they are not ‘directed’. These would include anticoagulant monitoring, IUD fitting, specialisation in depression/sexual health, minor injuries and others. THINK POINT PF: This is very important. Whilst the NES are critical services to patients, the fact they are not directed means that not all GPs will be doing them. In fact they will local contracts to provide these services. This will lead to the development of Local Enhanced Services (LES) which will be locally negotiated and involve some of the opting in/opting out scenarios, described in previous issues..

27. Minor Surgery: These are sub-divided into 2 parts. Almost every practice is doing some sort of minor surgery at the moment. These practices have preferred provider status, hence the PCT has to offer work at least to the volume of current work load It’s is not always easy for practices to evaluate just exactly what services they want to offer and continue with. THINK POINT PF: It’s going to be tricky to get agreement on this all the time. What about services offered by a GP who is off sick – or away ? Does the service just stop for a while ? Or does a partner from the practice provide back up ? What if he/she is not interested in this new service or is not trained up ? Interesting…

28. Paperless Practices: Some practices are already ahead of the game. In fact not only are they going near-paperless, they result halved receptionist times. Hence, receptionists are being trained and used as a nurse assistants. For example – does it take a nurse to ask a patient with COPD if they smoke, if so how many, and whether or not they would like some help stopping. THINK POINT PF: I would be surprised if you are not already seeing receptionists trained up to do blood pressures, simple screening and other tasks. Remember previous issue and points on how staffing will be reimbursed. There is mixed feelings from nursing staff – ask them about it. This new contract is affecting everyone like no other has ever done.

29. Read Codes: GPs need not waste time re-integrating new codes. It will be a waste of time. Systems will now have templates for disease areas related to quality frameworks. These templates allow simple tick boxes for framework and hence allow for simpler management. THINK POINT PF: Many of the GPs seems genuinely confused over this. Re-typing codes, re-stratifying indices. None is required. New system should allow the computer to do the all the work. There are over 150 read codes and to try and refit them all in to the new contract is hefty. However errors are already emerging and some paranoia around the ability of these systems to extract the correct coding (which will eventually lead to subsequent payments) is probably not a bad thing.

30. What about the consultants contract? Interestingly I have received significant requests relating to this. In particular, what are the differences and how do they relate to the GP contract. So frequent this has been that I have decided to cover some elements of this in the next issue of THE MATRIX.

OMAR ALI is the Formulary Development Pharmacist for Surrey and Sussex Healthcare NHS Trust and is a PCT Formulary Adviser to 2 PCTs. He is a lecturer on the MSc on Pharmacy Practice at Portsmouth University and is also an adviser to three Drugs and Therapeutics Committees in the South of England. Omar is a National Speaker in the UK (cardiovascular, diabetes, mental health) and is an Executive Board Member for the National Obesity Forum. He can be reached directly on ‘alipha@aol.com’

Another crisis on pricing is looming over the European pharmaceutical industry in 2004, according to industry commentators at KPMG.

STEPHEN OXLEY, Head of Pharmaceuticals, KPMG looks at fears for the industry in 2004, focusing on concerns over what will happen if a new reference pricing scheme helps governments to drive down prices to the level of the cheapest generic version. Prices of whole product classes in Europe could collapse and doubts would have to be raised over who would actually bother to invest in future R&D when they are not the ones to see the benefit. The balanced set of recommendations to emerge from the G10 discussions last year left many feeling that 2003 would mark the end of the price disputes between industry and governments which had so characterised the sector in previous years. However, KPMG now maintains that Member State Health Authorities may not be supportive, meaning that 2004 will be dominated by their efforts to further leverage down prices for newer patented products.

There is a growing realisation that for the health sector budget holders at a national level, 2004 will be very much business as usual in terms of keeping prices low. The first indicator of this came as early as the middle of last year in the German Health Reform Plan. At first sight, the most striking feature was the imposition of a 16% discount or ‘ claw back ‘ on sales in 2004 of patented products, which are not covered by the existing reference price controls. However, the measure that hints at a wider EU conflict. This would set an upper limit for the price that will be paid, not just for one patent expired brand and its generic equivalents but for whole classes or clusters of drugs, regardless of whether they are patented or not. Only those products judged to be true or genuine innovations by an expert group - as yet to be constituted - would be exempt. In the face of such reforms, the industry will need to mount a vigorous campaign at the Member State level if it is not to suffer further erosion of its position in Europe and a widening of the price and revenue gap with the US. Germany has not been alone in proposing such measures. Several other Member States, with the notable recent addition of Holland, have proposed that maximum reference prices would be declared for mixed classes of patented and patent expired products, with the reference price set at, or close to, the cheapest generic versions of the patented products. This is often referred to as Phase II, or type II reference pricing. If implemented in a similar manner to Phase I reference pricing in the 1990‘s, KPMG feel that this could trigger the collapse in north European markets of whole classes of patented product prices.

The net effect would be another round of major cost savings for the health systems on big ticket items like the cholesterol reducing statins, at the expense of those companies that had made major R&D investments to bring these products to market. The concept of reference pricing emerged during the 1990s when many Member States, again following the German lead, achieved large cost savings on their drugs bill by encouraging brand generics to enter the market at patent expiry and then dramatically leveraging down the price of the original brand by declaring a maximum ‘ generic based ‘ reference price which they would pay. Companies therefore felt that they had no choice but to cut prices or lose most, or all, of their market share. The net effect was an immediate collapse of originator brand prices to the reference price levels. If this so-called Phase II of reference pricing now takes hold of the industry, it will bring back painful memories for many companies of the early ‘90‘s.

This time though the stakes will be higher as they have to decide whether to cut prices to the reference levels, in order to preserve market share, or to tough it out at higher prices in the hope that co-pay systems might work better this time. Perhaps, in hindsight, some of the optimism brought about by the G10 discussions was misplaced. After all, it is commonly agreed that the process avoided the more contentious aspects of national price controls and parallel trade. However, many were prepared to cling to it as a sign that common ground was being found in the pricing debate. In reality, as argued by FDA Commissioner McClellan recently, the situation is that EU countries have got the balance wrong in the way that state pricing regimes set the balance in rewarding innovators and non innovators; being too generous to the latter at the expense of the former.If the balance is not redressed, then you have to wonder who will be bold enough to make the future investments in R&D if they are not in line to reap most of the reward themselves.