Industry Trend Analysis - Reimbursement Changes Increase Pricing Pressures - OCT 2017

BMI View: Drugmaker opportunities in Lithuania will face challenges from the increasingly aggressive pricing regime. Reimbursement changes in 2017 have led to downward pressure on prices, exemplified by the new mechanism imposed in July 2017. While these changes and additional proposals will likely boost access to pharmaceuticals, the potential for growth remains severely restricted.

The focus on medicine prices in Lithuania continues to be central to pharmaceutical policy changes, and as such will result in shifting market dynamics for multinational pharmaceutical manufacturers. In May 2017, we highlighted a key amendment to the country's Pharmacy Act, which established price revisions for medicines on the reimbursement list every quarter, as well as proposals to reduce the cost of off-patent generic medicines ( see 'Pricing Pressures To Impact The Generic Medicines Segment', May 26 2017). Since then, further amendments to medicine reimbursement have been introduced which will place additional pressures on drugmaker revenues.

On July 3 2017, alterations to the pricing mechanism for drugs on the reimbursed list were introduced. As we have previously noted, innovative medicine prices in Lithuania are among the lowest in Europe; it is the generic medicine sector where prices are far above regional averages. The most significant change to the eligibility for reimbursement in this revision was that generic medicines priced at more than 10% above the reference price (calculated from a basket of countries: Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Poland, Romania and Slovakia) will not qualify for reimbursement. This forced drugmakers to provide discounts on their generic medicines.

According to the Ministry of Health, prior to the adoption of this new rule, 59% of medicines would be available at a reduced price and patient co-payments would fall. The reduction in medicine prices was anticipated to save patients a cumulative EUR20mn (USD23.6mn) and the Compulsory Health Insurance Fund (VLK) about EUR10mn (USD11.8mn).

Preliminary data from the Ministry of Health (July 22 2017) indicates that the new reimbursement mechanism has already begun to save funds. Patient co-payments in July fell on average by 9.6% year-on-year (y-o-y) to EUR4.7 (USD5.5). This resulted in total patient co-payments falling significantly compared to July 2016, by 11.7% to EUR3.77mn (USD4.44mn). The reduction in medicines prices from this new mechanism is also clearly evident from consumer price indices ( see below).

Reimbursement Changes Induce Greater Decline In Prices
Harmonised Index Of Consumer Prices (HCIP) (2015=100) - Monthly Data (Annual Rate Of Change, %)
Source: Eurostat, BMI

Access To Medicines To Improve

The government's proposed tax reform, which is anticipated to enter into force at the start of 2018, includes a proposal to reduce the VAT on non-reimbursed prescription medicines. Currently, reimbursed medicines benefit from a reduced-rate 5% VAT, while non-reimbursed medicines are charged with the standard-rate 21% VAT. This has been widely praised as a positive step towards increasing patient access to medicines, and unlike the reimbursement changes will not affect manufacturer prices; indeed it is likely to increase consumption of these medicines.

While the reduction of generic medicine prices will restrict drugmaker revenues in Lithuania, it should be noted that these restrictions serve merely to balance the pricing landscape with regional peers: prices are still permitted to be as much as 10% higher than the reference price. Moreover, the savings made by the reimbursement changes are, according to the Ministry of Health, to be used to enable increased penetration of innovative medicines.

Market Limitations To Remain

Despite the anticipated increase in access to medicines through these policies, we note that drugmaker opportunities in Lithuania will remain restricted by the small population size. There were just 2.85mn in 2016 and this is forecast to fall through to 2026. Nevertheless, major multinational pharmaceutical firms will continue to market their products in the country. In 2016, Novartis was the market leader in sales to the Compulsory Health Insurance Fund (PSDF), generating 13.3% of total sales at EUR22.3mn (USD26.3mn).