Blog: Focus On Regulation | 08 January 2019

Italy Budget Law 2019: New Fiscal Measures for the Pharmaceutical Sector

In a last minute rush to meet the end of year deadline, the Italian Parliament eventually passed the Budget Law 2019 (Law No. 145 of 30 December 2018). Several provisions affect the pharmaceutical sector with particular regard to the pricing and reimbursement of medicinal products. While we must wait for the implementing regulation to understand the amplitude of the quake, changes are to be expected and could be material.

New regulation for the negotiation of medicinal products

By March 15th, 2019, the Ministry of Health shall issue new rules for pricing and reimbursement of medicinal products (replacing CIPE decision of 1 February 2001, "Identification of criteria for the negotiation of the price of medicinal products"). The current procedure contemplates a negotiation between AIFA and the marketing authorisation holder, where both the clinical benefits of the product and financial considerations are addressed. At the end of the procedure, a contract is entered into by AIFA and the marketing authorisation holder, establishing the terms and conditions for reimbursability. A key aspect of the current procedure is that both parties are bound by the agreement. Thus it cannot be unilaterally changed or terminated by AIFA, save for exceptional circumstances.

While the Budget Law 2019 does not state how the procedure should be changed, the intention is clearly that to allow more room to AIFA for the renegotiation of the reimbursement conditions if the originally ones become too burdensome. This is made clear by the further provision of the Budget Law 2019 that, as from January 1st, 2019, AIFA may renegotiate even the existing contracts if meanwhile "market conditions are changed as either an increase of the medicinal product's consumption may be envisaged, or the cost-benefits balance considering the alternatives available in the national list of medicinal products is altered".

Provisions as those at comment, which unilaterally allow a party to modify an agreement on which the marketing authorisation holder relied upon further to the negotiation with the NHS, appear to be disputable, to say the least. Furthermore, it is unclear what "available alternatives" means, while the risk is that the specificity of each product in respect of the needs of the patients is disregarded.

New payback of medicinal products directly procured by the NHS

Payback procedures, both for the territorial and hospital expenditure, have been put in place in the past in order to seek a contribution from marketing authorisation holders for the coverage of expenditure overruns as against budget previsions. As a matter of fact, such procedures posed several issues due to the complexity of the required calculation and the poor reliability of data, which led often to large-scale litigation.

A new payback procedure is introduced by the Budget Law, which shall apply to expenditure overruns starting from the current year. AIFA is requested to calculate the overall pharmaceutical expenditure for direct procurement by the NHS of medicinal products reimbursed at territorial or hospital level (with exclusion of some categories of products, as those for which the special payback for innovative products applies).

In that context, AIFA shall then calculate the expenditure allocated to each marketing authorisation holder, based on the revenues generated from the sale to the NHS of reimbursed products. From that amount, revenues corresponding to a maximum of 3 million Euros shall be detracted.

A 50% share of the overall expenditure overruns should then be reimbursed pro quota by each marketing authorisation holder, the share being calculated considering the expenditure allocated to the marketing authorisation holder for its products as against the overall expenditure. The payback debt, if not timely paid by the marketing authorisation holder, can be offset by the NHS.

It remains to be seen whether such procedure is actually more viable and less prone to be challenged in court, as stated by the Ministry of Health. As a matter of fact, the share allocated to each marketing authorisation holder seems to be completely unrelated to any responsibility in the expenditure overruns (with the consequence that marketing authorisation holders who sell blockbuster products would be required to perform a higher compensation, even if their overall turnover did not exceed, in proportion, the expected expenditure). On the other hand, the detraction of an amount corresponding to 3 million revenues shifts the burden of the payback on big pharmaceutical companies without any clear reason for such disparity of treatment. Reportedly, the new payback would be fairer than the old one as allegedly progressive in nature. However, progressivity (let us leave aside whether it may matter in this context) is generally related to the profits, while the envisaged payback is based on the amount of revenues, which is not necessarily related to higher profits.

Payback for innovative medicinal products, oncological innovative products and orphan drugs

Last but not least, the Budget Law contemplates a payback mechanism also for marketing authorisation holders of innovative medicinal products, including orphan drugs. The payback procedure is based on criteria that are similar to those discussed above with the important exception that the expenditure overruns are calculated in respect of the budgets allocated to special funds for innovative medicinal products and oncological innovative products. However, the facilitation is dependent on the sufficiency of the funds, whilst in the last years the expenditure for such products exceeded the funding. Orphan drugs are considered as innovative medicinal products for payback purposes.

As the devil is in the detail, the Budget Law appears to have excluded from the benefits of this special regime the so-called orphan like medicinal products and other products for the treatment of orphan diseases that do not qualify as innovative according to the law (e.g. products that lost exclusivity). Such products, even though necessary for the treatment of orphan conditions, will be subject to the more burdensome ordinary payback. The provision has understandably attracted strong criticism from associations and networks of patients suffering from rare diseases, as well as raised concerns among pharmaceutical companies whose main business is in this segment of the market.