The Centralized Drug Price Negotiation Process and its Collateral “Benefits”

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By Ursula Giedion.

As most middle- and high-income countries around the world, Mexico is facing increasing pressure on its public health budgets through a mix of variables such as an increasing prevalence of costly non communicable diseases, the ageing of its population, a commitment to move towards universal health coverage, increasing expectations of its population and, importantly, the appearance of new health technologies, among others.

An earlier webinar and BREVE by CRITERIA* featuring Colombia’s Minister of Health, vividly illustrated the former challenges making a call to governments in the region to critically assess health technologies to decide what to finance and how much to pay. Different strategies have been adopted around the world, often in combination, to use the available evidence to determine prices and make coverage decisions with the aim of allocating resources wisely.

Most high-income countries now have specific medicine price control and regulation mechanisms in place as illustrated by a recent OECD report. Latin America has followed this trend as many have adopted public policies to influence the prices of the drugs they purchase, either through direct price regulation, or the use of some form of consolidated procurement and negotiation mechanisms.

As presented by Dr. Francisco Bañuelos in a recent webinar by CRITERIA* , Mexico implemented in 2008 a centralized price negotiation process with the aim of negotiating prices for patented or single source medicines for the entire -highly segmented- public sector with the pharmaceutical industry. Before 2008, every public institution had negotiated a procurement price for patented medicines individually with each drug manufacturer.

As a result of the reformed procurement mechanism a Coordinating Commission for Negotiating the Price of Medicines and other Health Inputs (CCPNM) was established. This allowed the key public stakeholders and insurers of the Mexican health system: IMSS-the Social Security Institute for Government Employees, ISSSTE the Social Security Institute for state workers and the Ministry of Health, to negotiate together as a single entity with individual drug manufacturers for a single procurement price applicable nationwide for one year to all public institutions, including those not engaged in the negotiation.

The policy was motivated by the need to control expenditure for single source including patented drugs for which competition is not an option as a price reduction mechanism and it harnessed the combined purchasing power to negotiate prices for the whole public sector. Even though in Mexico, only 4% of all medicines approved for marketing are patented, they represent approximately 56% of the total public expenditure on pharmaceuticals.

The process is led by an intersectorial price negotiation commission made up of representatives of the different segments of the Mexican government and public health system (delegates of the finance, economics and health ministries and of IMSS and ISSSTE). The CCPNM is supported by different technical committees: clinical, economic and intellectual property advisory committees look at medicines from different angles to inform the negotiation process.

Each year, 97 to 218 drugs are negotiated with 16 to 38 laboratories. Even though many challenges remain as presented in a BREVE by CRITERIA*, the process has led to substantial savings in the public sector. For example, during the first year (2008), savings amounted to around 5,000 million Mexican pesos (more than 400 million USD), an amount equivalent to the payment of about 1.6 million affiliates of the Seguro Popular. Additional savings have decreased over the years as further price reductions for drugs that had already been negotiated become increasingly difficult to achieve. Drug Price reductions have varied ranging from 5% to 50%.

Many other positive results have been achieved:

• Public procurement has become better aligned and organized leading to homogeneous prices and therapeutic schemes.

• The understanding of the market as well as the therapeutic schemes used in the public health institutions has improved as the volume calculation is now based on consumption figures while before it was often estimated or adjusted to the available budget.

• The purchasing processes and transactions have become easier.

Maybe, most importantly, the CCNPM has become a key articulator of the Mexican health system and it has encouraged inter-institutional learning and cooperation through shared procurement practices.

This is an important positive externality for the Mexican health system but also, an important message for the many fragmented health systems in Latin America: public policies to control the rising health care expenditure pressure through the growth of public health expenditure require common and coordinated action from all stakeholders to become successful.

What´s the process of drug price negotiation in your country? Could it learn something from the Mexican experience? Let us know in the comments section below or mention @BIDgente on Twitter.

Lee este artículo en español, AQUÍ.

Ursula Giedion is the coordinator of CRITERIA.

*CRITERIA is an initiative by the Inter-American Development Bank (IDB) that aims to support countries in the Latin American and Caribbean region so they have the strong evidence and high quality institutions needed to improve their prioritization and public spending assignment of health. Through stronger processes, collaborative work, knowledge and experience exchange in subjects related to health prioritization, CRITERIA shares ideas and alternative ways to advance towards universal coverage in health in contexts of limited resources and growing costs.