In this article, originally published in The Pharma Letter, Eva Marchese, Abhishek Kumar and Kees Chamberlain examine how the COVID-19 pandemic is expected to impact payers’ management of pharmaceutical budgets in Europe in an Expert View column.
During the ongoing pandemic, the focus on quickly developing COVID-19 vaccines has led countries and global government bodies to make substantial investments in funding vaccine manufacturers and in forming advanced purchase agreements and procuring available supply.
In the UK, the cost of five vaccine procurement deals for up to 267 million doses was expected to be £2.9 billion ($4 billion). When adding costs for sponsoring research and development, distribution and administration, the total spend was about £11.7 billion1.
Given that countries including the UK are spending significantly on vaccine procurement, questions about the long-term impact on healthcare budgets are being raised2. CRA recently surveyed 20 payers from the UK, France, Germany, Italy and Spain to better understand their expectations for the long-term impact on healthcare budgets and addressing funding gaps as a result of the pandemic.
Impact of COVID-19 on future healthcare funding
Many governments around the world have bolstered healthcare budgets with additional funding to address the COVID-19 health crisis, but as economies emerge from the pandemic and governments start to focus on paying down deficits and ensuring the long-term health of public finances, payers reported that they expect to face significant pressure to curb expenditure.
We have seen several changes or announcements of planned changes to health technology assessments (HTAs) across Europe, with an ever-greater balance of assessing both the clinical and economic value of new products. Debates over shifting HTAs towards a more cost-focused methodology long pre-date the COVID-19 pandemic, but it is important to note the extent to which the pandemic likely has accelerated this shift.
Healthcare budget limitations are also expected to be exacerbated as the costs of COVID-19 vaccines, which are currently covered by emergency funds in most cases, roll into general vaccine or preventative budgets. If COVID-19 becomes an endemic virus, payers reported that they expect vaccine funding and procurement would slowly be decentralized and incorporated into general vaccine schedules and budgets alongside other routine immunizations such as influenza. Some payers said that vaccine and preventative budgets might be increased in the short term to cover the inclusion of COVID-19 vaccines in routine schedules, but that this may not be sustainable post-pandemic.
As a result, payers anticipate facing large funding gaps, especially at the sub-national level, as budgets are restricted to pay down deficits while spending is poised to increase due to their new responsibility for COVID-19 vaccine procurement.
Solutions to address budget challenges
Survey respondents indicated that they will look for savings elsewhere to address funding gaps following the COVID-19 pandemic. One of the viable options to address budget challenges and generate savings will be to limit or reduce spending on new drugs, given the relative ease with which this can be achieved versus adjusting other components of healthcare budgets.
Payers anticipate that post-pandemic budget pressure will fall disproportionately on new drug launches, with payers across most markets seeing stricter pricing and reimbursement for new products to limit expenditure. But respondents said that existing products will also likely be impacted, with payers anticipating they will more aggressively promote generic and biosimilar drugs to generate savings and attempt to stimulate additional price competition via procurement.
These measures will likely put pressure on the pharmaceutical industry but they do not sharply deviate from pre-COVID-19 trends. More extreme options, such as delisting reimbursed products, are seen as relatively unlikely. Based on survey responses, payers generally believe that practices will return to business as usual but with some more aggressive methods to control costs after the pandemic.
However, it remains to be seen how payers will react if faced with unprecedented budgetary pressure, and options currently seen as extreme may begin to look more reasonable in the future.
Role of managed entry agreements
In the post-pandemic world when healthcare spending is limited, payers and industry will need to collaborate and form innovative contracts including outcomes-based managed entry agreements to protect budgets and business models while maintaining patient access to care. But for most payers, these types of agreements are seen as modest solutions that are not clearly achievable or effective. They indicated that the most promising contract-type is scheduled price cuts because this way healthcare systems can reliably expect to bridge some of the post-COVID funding gaps.
Analysis of payer responses
Based on our survey findings, most payers – except those in Italy, where managed entry agreements have been frequently used – were generally doubtful about the feasibility and applicability of alternative contracting solutions to mitigating the budget impact of COVID-19 vaccines. Most payers favored simple net discounts to reduce expenditure, which would require manufacturers to give compelling arguments as to why collaborating on alternative solutions would create value for all parties involved, and which historically has been a difficult case to sell to payers. However, the widespread disruption COVID-19 has brought, and will continue to bring, to global healthcare systems may also foster a necessity for innovation in procurement and funding moving forward.
The views expressed herein are the authors’ and not those of Charles River Associates or any of the organizations with which the authors are affiliated.