## ANNEX I. ANALYSIS OF THE IMPACT OF THE MARKET SHARE OF GENERICS IN PHARMACEUTICAL SPENDING

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### Summary of empirical patterns and spending levels
- Average per capita retail pharmaceutical expenditure (prescribed and over-the-counter medicines) in OECD countries:
  - "308 US dollars in 2000"
  - "554 US dollars in 2018"
- Selected country per capita retail pharmaceutical expenditures (2017):
  - "1220 USD in the US (2017)"
  - "251 USD in Mexico (2017)"
  - "123 USD in Costa Rica (2017)"
- Pharmaceuticals as a share of total health expenditures:
  - "16.4 percent of total health expenditures" (average)
  - Country examples: "18.6 percent" in Spain; "16.7 percent" in Canada; "7.6 percent" in The Netherlands; "11.9 percent" in the UK.
- Market share of generics (reported sample):
  - "The average of the 26 OECD countries reporting is a market share of generics of 24.9 percent in value"
- Additional market-share statistic:
  - "52.4 percent in volume (OECD Health Data, 2019)" (countries such as the UK, Germany, New Zealand cited)

### Economic context and mechanisms affecting pharmaceutical spending
- Supply-side drivers and innovation:
  - Pharmaceutical R&D is costly and creates time-limited market power via patents.
  - Innovation can increase population health while raising costs through higher use of expensive products.
- Post-patent competition:
  - Generics: exact copies of chemical-origin drugs; considered perfect substitutes for branded chemical products.
  - Biosimilars: "not considered to be identical but similar"; most biosimilars are used in hospitals.
- Demand-side and market structure considerations:
  - Public sector purchaser monopsony potential; procurement organization pivotal.
  - Insurance and copayment design affect moral hazard and consumption.
- Efficiency objective:
  - Aim is to "reduce waste and inefficiencies in pharmaceutical demand and supply" to enhance population health and welfare cost-effectively.

### Data sources, scope, and limitations relevant to generics analysis
- Major public databases:
  - OECD Health Statistics: consumption in DDD per ATC, sales, and "share of generics in this market (in DDD or in sales)"; limited for hospital expenditure.
  - Global Health Expenditure Database (WHO).
  - EURIPID: pricing and reimbursement (not public; available to nationally designated bodies).
- Major private database:
  - IQVIA: sales, product volumes, trends, and market share across retail and non-retail channels.
- Data limitations:
  - International reporting focuses on retail (pharmacy) sales; "only a few countries report information regarding consumption in hospitals."
  - "No comprehensive international dataset for inpatient (hospital) pharmaceutical spending" currently available.
  - Limited public information on biosimilar consumption and prices.

### Policy levers and analytical scope in the annex
- Policy areas identified to enhance spending efficiency:
  - Promotion of generics.
  - Reducing waste.
  - Centralized purchasing to secure lower prices.
  - Use of co-payments to limit moral hazard while preserving access.
  - Health Technology Assessment (HTA) and Cost-Effectiveness Analysis (CEA).
  - Procurement and tendering practices (centralization pros and cons).
- Access dimensions for policy design: accessibility, availability, affordability, acceptability.
- LMIC focus:
  - Procurement critical where "sustainable and equitable access for all to essential medicines is key for a universal health coverage system focused on quality."

### Regression evidence: association between generic market share and spending
- Regression sample and design:
  - Sample: 18 countries with OECD data.
  - Five regressions with dependent variables: pharmaceutical expenditures per capita; share of pharmaceutical expenditures w.r.t. health expenditures; health expenditures per capita; share of health expenditures w.r.t. GDP; share of pharmaceutical expenditures w.r.t. GDP.
  - Independent variable: market share of generics (volume). Controls: country and year fixed effects and level of GDP per capita.
- Key estimated effects (Table 1 — all coefficients significant at 1% level):
  - Pharmaceutical Expenditures per capita (PPP): -35.88 USD
  - Share of Pharmaceutical Expenditures with respect to Health Expenditures: 0.52%
  - Health Expenditures per capita (PPP): -48.48 USD
  - Share of Health Expenditures with respect to GDP: -0.23%
  - Share of Pharmaceutical Expenditures with respect to GDP: -0.05%
- Interpretation:
  - "An increase of 10 percentage points in the market share of generics (in volume) is associated with:
    - an annual efficiency gain of 35.88 USD (PPP) per person in total pharmaceutical spending, and
    - a reduction in total pharmaceutical spending as a share of GDP by 0.05 of a percentage point."
  - Also associated with "increases of the share of pharmaceutical expenditures in total health spending by 0.52 of a percentage point" and "reductions of total health spending as a share of GDP by 0.23 of a percentage point," with no significant change in the level of annual total health spending per capita.

### Simulation to the 75th percentile of generics market share (year 2017)
- Simulation design:
  - Increase market share of generics to the 75th percentile (70.05 percent) for countries below that level; results for year 2017.
  - Countries at or above 75th percentile (no simulated savings): UK, Germany, New Zealand, The Netherlands.
  - France excluded (no retail market-share reporting since 2013); Turkey only partially present due to data gaps.
- Country-level current and simulated market volume shares (Annex Table A1.2):
  - Austria: 54.8 ; 70.05
  - Belgium: 37.3 ; 70.05
  - Denmark: 63.2 ; 70.05
  - Germany: 82.3 ; 82.30
  - Greece: 26.8 ; 70.05
  - Ireland: 40 ; 70.05
  - Italy: 26.2 ; 70.05
  - Luxembourg: 11.3 ; 70.05
  - Netherlands: 75.6 ; 75.60
  - New Zealand: 80.5 ; 80.50
  - Portugal: 52.8 ; 70.05
  - Slovak Rep.: 64.5 ; 70.05
  - Spain: 46.4 ; 70.05
  - Switzerland: 27.3 ; 70.05
  - Turkey: 59 ; 70.05
  - United Kingdom: 85.3 ; 85.30
- Selected estimated annual efficiency gains (per person, USD PPP and percent reductions) when market share increased to 75th percentile (Table 2 — reported values):
  - Austria
    - Pharmaceutical Spending (per person, in USD, PPP): 558.47
    - Pharmaceutical Spending (per person, in percentage): 0.07
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.35
    - Health Spending (per person, in USD, PPP): 74
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.35
  - Belgium
    - Pharmaceutical Spending (per person, in USD, PPP): 118
    - Pharmaceutical Spending (per person, in percentage): 17.06
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.16
    - Health Spending (per person, in USD, PPP): 159
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.76
  - Denmark
    - Pharmaceutical Spending (per person, in USD, PPP): 257.73
    - Pharmaceutical Spending (per person, in percentage): 0.03
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.33
    - Health Spending (per person, in USD, PPP): 33
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.16
  - Greece
    - Pharmaceutical Spending (per person, in USD, PPP): 155
    - Pharmaceutical Spending (per person, in percentage): 25.74
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.21
    - Health Spending (per person, in USD, PPP): 210
    - Decline in the share of GDP devoted to Health Spending (in percentage): 1.00
  - Ireland
    - Pharmaceutical Spending (per person, in USD, PPP): 108
    - Pharmaceutical Spending (per person, in percentage): 18.00
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.15
    - Health Spending (per person, in USD, PPP): 146
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.69
  - Italy
    - Pharmaceutical Spending (per person, in USD, PPP): 157
    - Pharmaceutical Spending (per person, in percentage): 26.67
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.22
    - Health Spending (per person, in USD, PPP): 213
    - Decline in the share of GDP devoted to Health Spending (in percentage): 1.01
  - Luxembourg
    - Pharmaceutical Spending (per person, in USD, PPP): 211
    - Pharmaceutical Spending (per person, in percentage): 37.92
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.29
    - Health Spending (per person, in USD, PPP): 285
    - Decline in the share of GDP devoted to Health Spending (in percentage): 1.36
  - Portugal
    - Pharmaceutical Spending (per person, in USD, PPP): 62
    - Pharmaceutical Spending (per person, in percentage): 15.36
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.08
    - Health Spending (per person, in USD, PPP): 84
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.40
  - Slovak Rep.
    - Pharmaceutical Spending (per person, in USD, PPP): 203.45
    - Pharmaceutical Spending (per person, in percentage): 0.03
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.27
    - Health Spending (per person, in USD, PPP): 27
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.13
  - Spain
    - Pharmaceutical Spending (per person, in USD, PPP): 85
    - Pharmaceutical Spending (per person, in percentage): 14.19
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.12
    - Health Spending (per person, in USD, PPP): 115
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.55
  - Switzerland
    - Pharmaceutical Spending (per person, in USD, PPP): 153
    - Pharmaceutical Spending (per person, in percentage): 15.93
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.21
    - Health Spending (per person, in USD, PPP): 207
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.99
  - Turkey
    - Pharmaceutical Spending (per person, in USD, PPP): 40
    - Pharmaceutical Spending (per person, in percentage): --
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 54
    - Health Spending (per person, in USD, PPP): 0.26
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.26
- Simulation implications:
  - Potential savings (difference between current spending and simulated spending at 75th percentile) exceed 15 percent in countries such as Belgium (17.06 percent), Greece (25.74 percent), Ireland (18.00 percent), Italy (26.67 percent), Luxembourg (37.92 percent), Portugal (15.36 percent), Switzerland (15.93 percent).
  - Decrease in the share of GDP devoted to pharmaceutical spending greater than 0.10 percentage points estimated for: Belgium (0.16 percent), Greece (0.21 percent), Ireland (0.15 percent), Italy (0.22 percent), Luxembourg (0.29 percent), Spain (0.12 percent), Switzerland (0.21 percent).
  - Largest estimated annual current pharmaceutical spending per person savings (USD PPP): Luxembourg (211), Italy (157), Greece (155), Switzerland (153).
  - Countries with smaller simulated savings (e.g., Austria, Denmark, Slovak Republic) have current generics shares closer to the 75th percentile.
  - "Realizing estimated gains requires strong political will and social support."

### Pharmaceutical expenditure in hospitals
- Growth patterns and scale:
  - Hospital pharmaceutical expenditures growth often greater than retail pharmaceuticals for reporting OECD countries.
  - "Hospital pharmaceutical spending accounts, on average, for an additional 20 percent on top of retail spending (OECD, 2019)."
- Drivers:
  - Entry of innovative, high-priced products (e.g., oncology treatments, hepatitis C drugs).
  - Fragmented hospital procurement weakens bargaining power and affects prices.
- Policy needs:
  - Encourage quality and efficiency, tackle waste and corruption, select cost-effective medicines, and design appropriate procurement strategies (WHO, 2010).
- Implication:
  - While retail pharmaceutical expenditure grew at a lower rate (or declined) since the financial crisis, hospital pharmaceutical spending has tended to expand and become a major concern.

### Cost-containment policies: key themes and evidence
- Decomposition of expenditure growth: prices, quantities, therapeutic mix.
- Policy categories:
  - Supply-side: price control, market composition, promotion of generics and biosimilars.
  - Demand-side: copayments to avoid excessive consumption.
- Medicine waste:
  - "Fewer than half of all patients treated in LMICs receive primary care according to clinical guidelines."
  - "Half of all medicines globally are inappropriately prescribed, dispensed, sold or used (World Health Organization, 2009, 2010)."
  - Effective measures include educational programs; "Direct communication between health professionals and patients before starting a new treatment has been shown to reduce medicine wastage by up to 30 percent (OECD, 2017)."

### External Reference Price (ERP) systems: principles, benefits, and limits
- Definition:
  - ERP uses the price of a pharmaceutical product in one or several countries to derive a benchmark for pricing or negotiation (WHO, 2015).
- Best-practice guidance (14 principles summarized):
  - Objectives clear and aligned with health system objectives.
  - Focus on in-patent products for coverage/pricing decisions.
  - ERP should not override HTA/VBP conclusions.
  - Administrative simplicity, transparency, stakeholder participation and appeal mechanisms.
  - Select reference countries based on economic similarity; consider international implications.
  - Use publicly available ex-factory prices; use mean of prices in reference countries; respect patent status; avoid exchange rate volatility impacts.
  - Minimize and consistently carry out price revisions.
- Concerns:
  - ERP can create cross-border spillovers, price instability, strategic manufacturer behavior, and reduce R&D incentives.
  - ERP may incentivize confidential discounts or price–volume agreements to avoid lowering reported prices used in ERP.
- Policy implication:
  - ERP justified where cost-effectiveness analysis capacity is limited; when used, design should be transparent, simple, stable, and sustainable.

### Promotion of generics: measures and evidence
- Definition:
  - Generics are bioequivalent replicas; WHO defines generics as multi-source therapeutically equivalent and interchangeable.
- Supply-side and competition-enhancing measures:
  - Speed approvals post-patent expiry; incentives for generics; research exemption / Bolar provisions; promote sufficient manufacturer entry.
- Pricing measures:
  - Price setting relative to originator prices, internal reference pricing, cost-plus in LMICs, auction/tendering in high-income countries.
- Demand-side measures:
  - Preferential procurement of generics; mandatory or promoted generic prescribing; INN prescribing; mandatory pharmacist substitution in some countries.
  - Educational/media campaigns to overcome resistance.
- Evidence since 2008 in OECD:
  - Mandatory INN prescribing, incentives for doctors and pharmacies, auctions and price cuts have lowered prices.
  - "Pharmacists’ role increases policy success (Puig-Junoy and Campillo-Artero, 2019; Berndt and Dubois, 2016)."
- Implementation challenges:
  - Enforcement weaknesses in many countries, especially LMICs; combined approaches recommended.

### Pricing and entry of innovative products: HTA, VBP, MEAs, SDFs
- HTA:
  - HTA defined as a "multidisciplinary process" to determine value and inform decision-making.
- Value-Based Pricing (VBP):
  - Relates price to added therapeutic value; HTA appears superior for value for money.
  - VBP difficult where no alternatives exist; many LMICs lack HTA capacity.
- Managed-Entry Agreements (MEA):
  - Range from discounts to performance-based schemes; may be confidential; trade-offs include early access vs. price discrimination and technical capacity needs.
- Specific Drug Funds (SDF):
  - E.g., Cancer Drug Fund; can be unsustainable as budgets rise; recommendation: use ‘only in research’ approach.
- R&D cost:
  - "Wouters and others (2020) estimates the mean cost of developing a new drug in the range $314 million to $2.8."

### Cost-sharing (co-payments)
- Effect:
  - Cost-sharing reduces quantity consumed; effective for medicines with elastic demand.
- Common designs:
  - Low copayment for patients in need; variation by drug type or socio-economic status; fixed per-prescription or percentage; maximum out-of-pocket limits.
- Risks:
  - Poorly designed copayments can reduce adherence, shift expenditure to private payments, or lead to inappropriate substitutes.

### Procurement of pharmaceuticals: tendering, challenges, and country experiences
- Role and objectives:
  - Central to cost-effective access; success judged by delivery when and where needed.
- Tendering benefits and risks:
  - Benefits: monopsony power to reduce prices, transparency.
  - Risks: shortages, supply disruptions, reduced competition, market concentration.
- Typical procurement problems:
  - Corruption, poor planning/data, weak bid assessment, political pressure for local suppliers.
- Country examples:
  - Netherlands: insurers determine required medicines; cheapest product plus within 5 percent eligible.
  - Germany: manufacturers invited to reduce list price via discount/rebate.
  - Denmark: price bids every two weeks to Medicines Agency.
  - Belgium: an unsuccessful tender led to abandonment.
  - Andalusia (Spain): tendering by active ingredient.
  - South Africa: government-operated confidential bids every two to three years since 1982.
- LMIC challenges:
  - High variance of generic prices; some poorest countries pay some of the highest prices; heavy private-sector reliance reduces public monopsony power.
  - Recommendations: impose quality standards, strengthen procurement/supply-chain management, monitor supplier market power, explore international pooling.
- TRIPS flexibilities:
  - Routine use recommended to sustain generic competition for essential medicines.

### Policy reforms and prioritized data needs
- Overarching aim:
  - Rationalize pharmaceutical spending, guarantee equitable and affordable access to essential medicines, ensure sustainable access to innovative medicines, and improve government capacity.
- Priority policy actions (selected):
  - Policy #1. Invest to improve government capacities in research, data analysis, regulation and evaluation of medicines, and procurement.
  - Policy #2. Strengthen information systems to track pharmaceutical sales, prices, prescribing and dispensing.
  - Policy #3. Improve data on implementation of generics-promoting policies and characteristics; recommend generic substitution, IRP for interchangeable medicines, and INN prescribing.
  - Policy #4. Provide educational programs to physicians, pharmacists, policymakers, and the public to overcome reluctance to generics.
  - Policy #5. Improve data on tendering systems and key variables; recommend centralized tendering; for small countries or LMICs, recommend international tendering.
  - Policy #6. Assure coverage of essential medicines in benefit packages, regulate their price, and reduce out-of-pocket spending for affordability.
  - Policy #7. Create an Essential Medicines Patent Pool at the international level to orientate R&D.
  - Policy #8–#10. Improve data on ERP, VBP, MEA, SDF utilization and characteristics; recommend transparent ERP for developing countries and VBP where feasible for developed countries; link VBP appraisal with national rebate agreements.
  - Policy #11–#13. Improve data on hospital pharmaceutical expenditures and biosimilar market shares; provide education and regulate biosimilar participation in tendering.
- Data gaps and priorities:
  - "Lack of international data on hospital pharmaceutical expenditures and biological products constrains policy analysis."
  - Need improved monitoring of tendering, ERP usage, VBP/MEA/SDF implementation, generics and biosimilars uptake, and hospital pharmaceutical spending.

### Selected quantitative findings and statistics
- "Gill and others (2019) provide 14 best-practice principles for ERP benchmarking."
- "Wouters and others (2020) estimates the mean cost of developing a new drug in the range $314 million to $2.8."
- Europe: "67 biosimilar medicines authorized centrally by EMA, corresponding to 17 active ingredients (European Medicines Agency, 2022)."
- "In 2018 in Europe, over 30 percent of all drug spending was on biological medicines, of which 1.5 percent are biosimilars (IQVIA Institute, 2019)."
- OECD evidence: "20 percent reduction in price per treatment-day across eight products which could result in cumulative savings exceeding EUR 50 billion by the end of 2020 (OECD, 2017)."
- Spain: "savings from biosimilars relative to total pharmaceutical spending was 3.92% (2019)."
- Norway vs. Denmark vs. Italy vs. France biosimilar market shares (Anti-TNF alfas): "Norway 93 percent; Denmark 94 percent; Italy 35 percent; France 26 percent (OECD, 2019)."

### Conclusion: balancing access, affordability, and incentives
- Key objectives:
  - Incentives for long-run innovation, early access to innovative products with value-based pricing, and promotion of generics and biosimilars.
- Trade-offs and risks:
  - Inefficient procurement/tendering can cause high prices or shortages.
  - Inappropriate ERP use can trigger launch delays in poorer countries and reduce long-run R&D incentives.
  - Where feasible, set prices for innovative products using cost-effectiveness analysis; otherwise use transparent ERP and strengthen bargaining via international cooperation.
- Overarching recommendation:
  - "Governments should continuously review pharmaceutical policies aiming not merely to cut spending but to maximize access and health outcomes with efficient resource use."

*Source: ANNEX I. ANALYSIS OF THE IMPACT OF THE MARKET SHARE OF GENERICS IN PHARMACEUTICAL SPENDING (excerpts from wpiea2022190-print-pdf).*

### ANNEX I. ANALYSIS OF THE IMPACT OF THE MARKET SHARE OF GENERICS IN PHARMACEUTICAL

### ANNEX I. ANALYSIS OF THE IMPACT OF THE MARKET SHARE OF GENERICS IN PHARMACEUTICAL SPENDING

### Summary of empirical patterns and spending levels
- Average per capita retail pharmaceutical expenditure (prescribed and over-the-counter medicines) in OECD countries:
  - "308 US dollars in 2000"
  - "554 US dollars in 2018"
- Selected country per capita retail pharmaceutical expenditures (2017):
  - "1220 USD in the US (2017)"
  - "251 USD in Mexico (2017)"
  - "123 USD in Costa Rica (2017)"
- Pharmaceuticals (prescribed and over-the-counter medicines) as a share of total health expenditures:
  - "16.4 percent of total health expenditures" (average)
  - Country examples: "18.6 percent" in Spain; "16.7 percent" in Canada; "7.6 percent" in The Netherlands; "11.9 percent" in the UK.
- Market share of generics (reported sample):
  - "The average of the 26 OECD countries reporting is a market share of generics of 24.9 percent in value"

### Economic context and mechanisms affecting pharmaceutical spending
- Supply-side drivers:
  - Pharmaceutical R&D is costly and creates time-limited market power via patents; incentives for innovation rely on these protections.
  - Innovation can increase population health (e.g., life expectancy) while raising costs due to higher use of more expensive products.
- Post-patent competition:
  - Distinct substitutes:
    - Generics: exact copies of chemical-origin drugs; considered perfect substitutes for branded chemical products.
    - Biosimilars: substitutes for biological originators but "not considered to be identical but similar" due to biological complexity; most biosimilars are used in hospitals.
- Demand-side and market structure considerations:
  - Public sector often acts as main purchaser, introducing potential monopsony power that makes procurement organization pivotal for cost and access.
  - Insurance/copayment design affects moral hazard: higher insurance reduces perceived cost and can raise consumption above efficient levels; copayments should balance abuse reduction and access based on need.
- Efficiency objective:
  - The aim is not to reduce pharmaceutical spending per se but to "reduce waste and inefficiencies in pharmaceutical demand and supply" to enhance population health and welfare cost-effectively.

### Data sources, scope, and limitations relevant to generics analysis
- Major public databases:
  - OECD Health Statistics: contains consumption in DDD per ATC classification, sales (total and by ATC groups), and "share of generics in this market (in DDD or in sales)"; useful for retail-level analysis but limited for hospital expenditure.
  - Global Health Expenditure Database (WHO): additional country-level pharmaceutical expenditure data.
  - EURIPID: pricing and reimbursement information across participating countries (not public; available to nationally designated bodies).
- Major private database:
  - IQVIA: sales, product volumes, trends, and market share across retail and non-retail channels; used to predict future pharmaceutical expenditure paths and evaluate policy effectiveness.
- Data limitations:
  - Most international reporting focuses on retail (pharmacy) sales; "only a few countries report information regarding consumption in hospitals."
  - No comprehensive international dataset for inpatient (hospital) pharmaceutical spending is currently available, constraining cross-country analysis of hospital-sector pharmaceutical efficiency.
  - Limited public information on biosimilar consumption and prices compared to originator biologicals.

### Policy levers and analysis covered in the annex
- Policy areas identified to enhance spending efficiency:
  - Promotion of generics.
  - Reducing waste.
  - Centralized purchasing to secure lower prices.
  - Use of co-payments (designed to limit moral hazard while preserving access).
  - Health Technology Assessment (HTA) and Cost-Effectiveness Analysis (CEA) to inform access, pricing, and reimbursement decisions, including consideration of offsetting effects (e.g., reductions in inpatient length of stay).
  - Procurement and tendering practices, including centralization pros and cons.
- Access dimensions relevant for policy design (decomposed as):
  - Accessibility, availability, affordability, and acceptability.
- Specific relevance for LMICs:
  - Procurement is particularly critical in low- and middle-income countries where "sustainable and equitable access for all to essential medicines is key for a universal health coverage system focused on quality."

### Analytic components and annex contents (as organized in the source)
- Figures and tables referenced in the annex include:
  - Figures on current expenditure, shares in pharmaceuticals and other medical non-durables, and generics market shares in value and volume (Figures 1–5).
  - Tables on expected changes if market share of generics changes and "Estimated Annual Efficiency Gains when Market Share of Generics Increased to" (Tables 1–2).
  - Appendix regression and simulation analyses:
    - "A1.1. Regression Analysis on the Impact of the Volume Share of Generics on" (A1.1)
    - "A1.2. Current and Simulated Market Volume Share of Generics" (A1.2)
    - Appendices estimating "Savings in Retail Pharmaceutical Expenditures," "Efficiency Gains by Reducing the Share of GDP Devoted to Retail Pharmaceuticals," "Savings by Reducing Health Expenditures per Person," and related scenario calculations (A1.1–A1.5).

*Source: ANNEX I. ANALYSIS OF THE IMPACT OF THE MARKET SHARE OF GENERICS IN PHARMACEUTICAL SPENDING (excerpt).*

### 52.4 percent in volume (OECD Health Data, 2019). Countries such as the UK, Germany, New Zealand and

### wpiea2022190-print-pdf - 52.4 percent in volume (OECD Health Data, 2019). Countries such as the UK, Germany, New Zealand and

### Market shares of generics and cross-country patterns
- Generics market share (volume) varies widely across OECD countries:
  - Countries with relatively large market shares for generics: United Kingdom, Germany, New Zealand, Turkey.
  - Countries with low generic shares: Spain, Switzerland, France.
- Historical adoption:
  - By the year 2000, generics had more than 40 percent of market share (volume) in the UK, The Netherlands and Germany.
  - Spain, France and Switzerland only began entering the generics market around that time.
- Policy drivers and market models:
  - Policies promoting generics (e.g., reference price systems, generic substitution at the pharmacy) are associated with consistent increases in market share.
  - Physician-driven pharmaceutical models (decision power with physicians) prevailed in countries such as Spain, Italy and France until 2006.
  - Pharmacy-driven models (pharmacist can replace branded drugs with generics) are present in countries with high cost reductions (Netherlands, United Kingdom, United States).
  - Evidence: introduction of generics in pharmacy-driven models achieved a greater decrease in average prices (Berndt and Dubois, 2016).

### Regression evidence: association between generic market share and spending
- Regression setup:
  - Sample: 18 countries for which OECD publishes the relevant information.
  - Five separate regressions with dependent variables:
    - pharmaceutical expenditures per capita,
    - share of pharmaceutical expenditures with respect to health expenditures,
    - health expenditures per capita,
    - share of health expenditures with respect to GDP,
    - share of pharmaceutical expenditures with respect to GDP.
  - Independent variable: market share of generics (volume).
  - Controls: country and year fixed effects and level of GDP per capita.
- Key estimated effects (Table 1 — all coefficients significant at 1% level):
  - Pharmaceutical Expenditures per capita (PPP): -35.88 USD
  - Share of Pharmaceutical Expenditures with respect to Health Expenditures: 0.52%
  - Health Expenditures per capita (PPP): -48.48 USD
  - Share of Health Expenditures with respect to GDP: -0.23%
  - Share of Pharmaceutical Expenditures with respect to GDP: -0.05%
- Interpretation:
  - An increase of 10 percentage points in the market share of generics (in volume) is associated with:
    - an annual efficiency gain of 35.88 USD (PPP) per person in total pharmaceutical spending, and
    - a reduction in total pharmaceutical spending as a share of GDP by 0.05 of a percentage point.
  - Additional findings: increasing generics market share by 10 percentage points is associated with increases of the share of pharmaceutical expenditures in total health spending by 0.52 of a percentage point, and reductions of total health spending as a share of GDP by 0.23 of a percentage point, with no significant change in the level of annual total health spending per capita.

### Simulation to 75th percentile of generics market share (year 2017)
- Simulation design:
  - Increase market share of generics up to the 75th percentile (70.05 percent) for countries below that level relative to existing market shares.
  - Results presented for year 2017.
  - Countries at or above 75th percentile (no simulated savings): UK, Germany, New Zealand, The Netherlands.
  - France excluded from simulation due to not reporting market share of generics in retail since 2013; Turkey only partially present due to lack of data.
- Estimated annual efficiency gains (Table 2 — presented values):
  - Austria
    - Pharmaceutical Spending (per person, in USD, PPP): 558.47
    - Pharmaceutical Spending (per person, in percentage): 0.07
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.35
    - Health Spending (per person, in USD, PPP): 74
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.35
  - Belgium
    - Pharmaceutical Spending (per person, in USD, PPP): 118
    - Pharmaceutical Spending (per person, in percentage): 17.06
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.16
    - Health Spending (per person, in USD, PPP): 159
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.76
  - Denmark
    - Pharmaceutical Spending (per person, in USD, PPP): 257.73
    - Pharmaceutical Spending (per person, in percentage): 0.03
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.33
    - Health Spending (per person, in USD, PPP): 33
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.16
  - Greece
    - Pharmaceutical Spending (per person, in USD, PPP): 155
    - Pharmaceutical Spending (per person, in percentage): 25.74
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.21
    - Health Spending (per person, in USD, PPP): 210
    - Decline in the share of GDP devoted to Health Spending (in percentage): 1.00
  - Ireland
    - Pharmaceutical Spending (per person, in USD, PPP): 108
    - Pharmaceutical Spending (per person, in percentage): 18.00
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.15
    - Health Spending (per person, in USD, PPP): 146
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.69
  - Italy
    - Pharmaceutical Spending (per person, in USD, PPP): 157
    - Pharmaceutical Spending (per person, in percentage): 26.67
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.22
    - Health Spending (per person, in USD, PPP): 213
    - Decline in the share of GDP devoted to Health Spending (in percentage): 1.01
  - Luxembourg
    - Pharmaceutical Spending (per person, in USD, PPP): 211
    - Pharmaceutical Spending (per person, in percentage): 37.92
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.29
    - Health Spending (per person, in USD, PPP): 285
    - Decline in the share of GDP devoted to Health Spending (in percentage): 1.36
  - Portugal
    - Pharmaceutical Spending (per person, in USD, PPP): 62
    - Pharmaceutical Spending (per person, in percentage): 15.36
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.08
    - Health Spending (per person, in USD, PPP): 84
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.40
  - Slovak Rep.
    - Pharmaceutical Spending (per person, in USD, PPP): 203.45
    - Pharmaceutical Spending (per person, in percentage): 0.03
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.27
    - Health Spending (per person, in USD, PPP): 27
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.13
  - Spain
    - Pharmaceutical Spending (per person, in USD, PPP): 85
    - Pharmaceutical Spending (per person, in percentage): 14.19
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.12
    - Health Spending (per person, in USD, PPP): 115
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.55
  - Switzerland
    - Pharmaceutical Spending (per person, in USD, PPP): 153
    - Pharmaceutical Spending (per person, in percentage): 15.93
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 0.21
    - Health Spending (per person, in USD, PPP): 207
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.99
  - Turkey
    - Pharmaceutical Spending (per person, in USD, PPP): 40
    - Pharmaceutical Spending (per person, in percentage): --
    - Decline in the share of GDP devoted to Pharmaceutical Spending (in percentage): 54
    - Health Spending (per person, in USD, PPP): 0.26
    - Decline in the share of GDP devoted to Health Spending (in percentage): 0.26
- Simulation findings and implications:
  - Potential savings (difference between current spending and simulated spending at 75th percentile) exceed 15 percent in countries such as:
    - Belgium (17.06 percent), Greece (25.74 percent), Ireland (18 percent), Italy (26.67 percent), Luxembourg (37.92 percent), Portugal (15.36 percent), Switzerland (15.93 percent).
  - Decrease in the share of GDP devoted to pharmaceutical spending greater than 0.10 percentage points estimated for: Belgium (0.16 percent), Greece (0.21 percent), Ireland (0.15 percent), Italy (0.22 percent), Luxembourg (0.29 percent), Spain (0.12 percent), Switzerland (0.21 percent).
  - Largest estimated annual current pharmaceutical spending per person savings (USD PPP): Luxembourg (211), Italy (157), Greece (155), Switzerland (153) — attributed to these countries’ low current shares of generics.
  - Countries with smaller simulated savings (e.g., Austria, Denmark, Slovak Republic) have current generics shares closer to the 75th percentile.
  - Realizing estimated gains requires strong political will and social support.

### Pharmaceutical expenditure in hospitals
- Relative growth patterns:
  - Growth rate of pharmaceutical expenditures in hospitals for selected OECD countries reporting this information is greater than that of retail pharmaceuticals.
  - Hospital pharmaceutical spending accounts, on average, for an additional 20 percent on top of retail spending (OECD, 2019).
  - Among reported countries:
    - Canada and Israel: relatively greater growth of retail pharmaceuticals.
    - Greece: substantial decrease in pharmaceuticals both in retail and hospitals.
    - Czech Republic, Germany, Korea, Spain: positive growth in both retail and hospitals, with hospital growth significantly greater.
    - Denmark, Finland, Iceland, Portugal: decreased retail pharmaceutical expenditure but increased hospital pharmaceutical expenditure.
- Drivers and procurement issues:
  - Retail spending growth patterns and price declines partially explained by pro-competitive policies in favor of generics during the 2000s (internal reference prices, generic substitution, price cuts during economic crises).
  - Hospital pharmaceutical expenditures driven by entry of innovative, high-priced products (e.g., oncology treatments, hepatitis C drugs).
  - Price-setting processes vary across systems; value-based medicine may permit higher prices whereas external reference pricing and lower-income contexts focus on listed price control.
  - Procurement at hospital level matters: fragmented procurement can weaken system-wide bargaining power and affect prices.
  - Policy needs: encourage quality and efficiency, tackle waste and corruption, cost-effective medicine selection, appropriate procurement strategy (WHO, 2010).
- Policy implication:
  - While retail pharmaceutical expenditure grew at a lower rate (or declined) since the financial crisis, hospital pharmaceutical spending has tended to expand and become a major concern; most expensive and rapidly growing technologies are intended for hospital administration.

### Cost-containment policies: key themes and evidence
- Decomposition of pharmaceutical expenditure growth: changes in prices, quantities, and therapeutic mix.
- Categories of cost-containment policies discussed:
  - Supply-side: controlling price, market composition, pricing and entry of innovative products, promotion of generics and biosimilars.
  - Demand-side: avoiding excessive consumption (e.g., copayments).
- A. Medicine waste
  - Wasteful clinical care: provision of services that fail to maximize health outcomes with available resources (OECD, 2017).
  - Global concerns:
    - Fewer than half of all patients treated in LMICs receive primary care according to clinical guidelines for common diseases.
    - Half of all medicines globally are inappropriately prescribed, dispensed, sold or used (World Health Organization, 2009, 2010).
  - Consequences of inefficient medicine use:
    - Incorrect diagnoses, treatment delays, overprescription of antimicrobials (antimicrobial resistance), underuse of effective care, overuse of ineffective care.
    - Many patients with HIV, tuberculosis, diabetes, or depression are untreated or undertreated in LMICs.
  - Effective measures:
    - Educational programs and communications for patients improve self-management and adherence and can avoid future care and pharmaceutical expenditure.
    - Direct communication between health professionals and patients before starting a new treatment has been shown to reduce medicine wastage by up to 30 percent (OECD, 2017).
- B. External Reference Price System (ERP)
  - Definition: ERP uses the price of a pharmaceutical product in one or several countries to derive a benchmark for setting or negotiating the price in a given country (WHO, 2015).
  - Usage: widely used across Europe, Latin America, Southeast Asia, Middle East, North Africa; application varies by basket size, country selection, price calculation method.
  - Best practices: baskets ideally include economically comparable and geographically close countries (Carone and others, 2012).
  - Concerns and limitations:
    - ERP may lead high-income countries to seek low prices from lower-income countries, creating difficulties for the latter.
    - Long-term lowering of prices could reduce pharmaceutical industry revenues and dilute R&D incentives, potentially slowing innovation and raising prices or reducing access in low-income countries (Danzon and Towse, 2003; Gill and others, 2019).
    - ERP can cause cross-border spillovers, price instability, and strategic manufacturer behavior (e.g., delaying access in low-price countries to protect prices elsewhere).
    - Implementation obstacles: differences in dosage, packaging, clinical guidelines, and reported prices (retail vs. ex-factory vs. wholesale).
    - ERP may incentivize confidential discounts or price–volume agreements to avoid lowering reported prices used in ERP, facilitating manufacturer price discrimination (Persson and Jönsson, 2016).
  - Policy suggestion from literature:
    - High-income or high-capacity countries should use more sophisticated pricing strategies (economic evaluation, cost-effectiveness analysis, value-based pricing).
    - Other countries may rely on ERP applied to economically comparable and geographically close countries.

*Italic: Source — IMF Working Papers, "Rationalizing Pharmaceutical Spending" (excerpts from wpiea2022190-print-pdf).*

### Box 1. 14 Best Practice Principles for Benchmarking in an ERP System

### Box 1. 14 Best Practice Principles for Benchmarking in an ERP System

### I. Objectives and scope of external price referencing system
- 1. ERP system objectives should be clear and align with country-specific health system objectives.
- 2. ERP systems should focus on in-patent products considered for the purposes of coverage, pricing, and reimbursement decisions.
- 3. Prices developed using ERP should not override conclusions of HTA or VBP approaches.

### II. Administration and operations
- 4. The ERP system should have administrative simplicity and transparency
- 5. Stakeholders should participate in the design and review of the ERP system
- 6. Stakeholders should be able to appeal regulator decisions
- 7. Reference countries should be selected based on similarities in economic status and health system objectives 
- 8. International implications of ERP implementation should be considered

### III. Methods for the conduct of external price referencing
- 9. Publicly available ex-factory prices should form the basis of the ERP system
- 10. The mean of prices in reference countries should be used
- 11. Patent status should be respected
- 12. ERP formula should avoid the impact of exchange rate volatility 

### IV. Implementation of external price referencing
- 13. Price revisions should be kept to a minimum and should be carried out consistently to avoid the perception of opportunistic behavior

*Box 1. 14 Best Practice Principles for Benchmarking in an ERP System — IMF Working Paper content*

### 14. ERP- based prices should be aligned with other tools used when negotiating

### 14. ERP- based prices should be aligned with other tools used when negotiating reimbursement

### ERP systems: design principles and effects
- If used, the ERP system should be transparent, simple, stable and sustainable, and designed to benefit all stakeholders, improve the accountability of decision making, reduce uncertainty for the pharmaceutical industry, and lower the risk of discrimination and corruption (Gill and others, 2019).
- Recent literature reviews: Gill and others (2019); Kanavos and others, 2017; Belloni and others, 2016; Vogler and others 2019; Fontrier and others, 2019.
- Gill and others (2019) provide 14 best-practice principles for benchmarking using the ERP system (Box 1).
- Vogler and others (2019) recommend regular evaluations of prices to bring down prices and avoid delay in the entry of innovative pharmaceuticals through strategic behavior of manufacturers.
- Policy implication: ERP is more justified in countries facing difficulties implementing cost-effectiveness analysis in price setting; when used, ERP should be transparent, simple, stable, and sustainable.

### Promotion of generics: supply, competition, pricing, and uptake
- Definition and nature:
  - Generics are bioequivalent replicas of brand-name drugs, containing the same active ingredients and with identical quality, safety, and efficacy profiles (Davit and others, 2009).
  - WHO defines generics as multi-source pharmaceutical products that are therapeutically equivalent and interchangeable (Belloni and others, 2016).
- Supply-side measures:
  - Speed approvals post-patent expiry, incentives for generic manufacturers, research exemption / Bolar provisions, expedited review relative to original product.
  - Address IP and free trade agreement impacts on access to generics, and first-generic market protection incentives.
- Competition-enhancing measures:
  - Promote entry of sufficient number of manufacturers and therapeutic substitutes (Kaplan and others, 2016).
- Pricing measures:
  - Set prices for generics relative to originator prices or via internal reference pricing (IRP).
  - Cost-plus pricing used especially in LMICs; auction/tendering common in high-income countries.
  - Transparency on prices fosters effective competition (World Health Organization, 2015; Kaplan and others, 2016).
- Country-specific note:
  - Spain uses a target price model that excludes public financing if price is above reference price; brands are generally set at the reference price (Puig-Junoy and Campillo-Artero, 2019).
- Demand-side measures:
  - Preferential procurement of generics, mandatory or promoted generic prescribing (France, Greece, Hungary, Japan), INN prescribing (Estonia, Portugal, Spain, France), mandatory pharmacist substitution (Belgium, France, Ireland, Japan).
  - Educational programs and media campaigns are important to overcome political and public resistance (examples: Austria, Estonia, France, Island, Ireland, Luxemburg, Portugal, Spain).
- Evidence on effective policies since 2008 in OECD:
  - Mandatory prescription using INNs, incentives for doctors and pharmacies, auctions and price cuts have lowered prices (Belloni and others, 2016).
  - Pharmacists’ role increases policy success (Puig-Junoy and Campillo-Artero, 2019; Berndt and Dubois, 2016).
- Implementation challenges in many countries, especially LMICs:
  - Ineffective enforcement of existing policies; need for combined approaches: INN prescribing, substitution, regulatory measures, financial incentives, sanctions, information provision, monitoring (Kaplan and others, 2016).

### Pricing and entry of innovative products: HTA, VBP, MEAs, and SDFs
- Innovation and HTA:
  - HTA defined as “a multidisciplinary process that uses explicit methods to determine the value of a health technology at different points in its lifecycle. The purpose is to inform decision-making in order to promote an equitable, efficient, and high-quality health system” (INAHTA).
  - HTA informs reimbursement/pricing decisions, can make reimbursement conditional on clinical/economic criteria (Carone and others, 2012).
- Value-Based Pricing (VBP):
  - VBP relates price to added therapeutic value through comparison with existing treatments; can provide R&D incentives.
  - HTA appears superior for obtaining value for money (Drummond and others, 2011).
  - VBP is difficult where no alternative exists (e.g., oncology, rare diseases) and many LMICs lack HTA capacity.
  - Limitations: strategic manufacturer behavior, time/resource intensity, discrepancy between prices charged and what health systems can afford (Claxton, 2016).
- Managed-Entry Agreements (MEA):
  - MEAs range from simple discounts/price–volume financial schemes to performance-based (outcome-linked) schemes (Vogler and others, 2017).
  - MEAs may be confidential (France, Spain) or public (Scotland, England, Belgium); final discount often unknown.
  - Advantages: feasible early access; disadvantages: potential price discrimination, need for legislative procurement frameworks, technical negotiation capacity, limited evidence on effectiveness.
- Specific Drug Funds (SDF):
  - SDFs (e.g., Cancer Drug Fund) ease early access with specific budgets but may be unsustainable as budgets rise (Claxton, 2016).
  - Risks: earlier approval with less information; post-access rejection by HTA can create difficulties; complicates economic comparison exercises.
  - Recommendation: use ‘only in research’ approach to restrict financed use to research resolving uncertainties.
- R&D cost consideration:
  - Wouters and others (2020) estimates the mean cost of developing a new drug in the range $314 million to $2.8.
  - Recommendation: orient R&D to develop missing essential medicines; propose an Essential Medicines Patent Pool (Wirtz and others, 2017).

### Cost-sharing considerations
- Cost-sharing (co-payments) reduces quantity consumed (Manning and others, 1987).
- Primary aim: reduce inefficient consumption beyond socially efficient level where marginal cost equals marginal benefit.
- Copayments are more effective for medicines with elastic demand.
- Common design features:
  - Low copayment levels for patients in need; variation by drug type or intended use (Portugal, Greece, Sweden, Iceland, Slovakia), socio-economic status, or age (Spain, Italy, Turkey).
  - Fixed amount per prescription (England) or percentage of price; maximum out-of-pocket limits (Australia, Finland, Japan, Germany) (Barnieh and others, 2014).
- Risks:
  - Poorly designed copayments can reduce adherence, shift expenditure from public to private, or lead to inappropriate cheaper substitutes (Wallace and others, 2008; Belloni and others, 2016; Morgan and Lee, 2017).

### Procurement of pharmaceuticals: tendering, challenges, and country experiences
- Role of procurement:
  - Crucial for cost-effective access to medicines, diagnostics, devices, equipment (OECD, 2017; Center for Global Development, 2019).
  - Success judged by delivery of drugs when and where needed (Seiter, 2010).
- Tendering:
  - Bulk purchases by central buyer via confidential bidding; designed to ensure availability at reasonable prices and quality standards (Wouters and others, 2017).
  - Benefits: monopsony power to reduce prices, cost containment, price transparency.
  - Risks: shortages, supply disruptions, reduced competition, market concentration (Dranitsaris and others, 2017; Heiskanen and others, 2017; Danzon, 2014).
- Typical procurement problems (Seiter, 2010):
  - Corruption, lack of motivation/training, planning based on past consumption or low-quality data, lack of price information, weak bid assessment capacity, political pressure for local suppliers.
- Developed economies:
  - Tendering pervasive in hospitals; examples:
    - Netherlands: insurers determine required medicines per population cluster; preferred medication labels for six months; cheapest product plus products within 5 percent price range eligible (Kanavos and others, 2009).
    - Germany: manufacturers invited to reduce list price via discount/rebate (Kanavos and others, 2009).
    - Denmark: price bids every two weeks to Medicines Agency promoting high competition (Vogler and others, 2017).
    - Belgium: an unsuccessful tender led to abandonment (Kanavos and others, 2009).
    - Andalusia (Spain): tendering by active ingredient (Espín and others 2019).
  - Tendering lowers prices and increases transparency but requires monitoring for supply disruptions and long-term market effects (Vogler and others, 2017; Carone and others, 2012; Kanavos and others, 2009).
- Developing economies:
  - Triple transition: reduced donor role, epidemiological shift to NCDs, movement toward universal health coverage (Center for Global Development, 2019).
  - Diagnostic issues in LMICs:
    - High variance of generic prices.
    - Some poorest countries pay some of the highest prices for generics; excess purchase of branded generics.
    - Heavy private-sector reliance reduces public monopsony power.
    - Low competition and high market concentration for essential medicines (Center for Global Development, 2019).
  - Evidence: benefits of pooled procurement depend on supplier concentration and market power (Dubois and others, 2019).
  - Brazil case: adding quality standards in tendering increased prices due to bioequivalence costs and insufficient generics (Bevilacqua, Farias and Blatt, 2011).
  - Recommendations: impose quality standards to attract multinational generics, strengthen procurement and supply-chain management, monitor supplier market power, explore international pooling (Center for Global Development, 2019).
- South Africa tendering example:
  - Government-operated since 1982; confidential bids every two to three years; price most important bid determinant (Wouters and others, 2019).
- TRIPS flexibilities:
  - TRIPS allows flexibilities for public policies; 't Hoen and others (2018) find flexibilities effective for procuring generic essential medicines; recommend routine use to sustain generic competition.

### Policy reforms and data availability: prioritized policies and data needs
- Overall aim: rationalize pharmaceutical spending, guarantee equitable and affordable access to essential medicines, ensure sustainable access to innovative medicines, and improve government capacity.
- Policies to avoid wasteful spending and improve effective coverage:
  - Policy #1. Invest to improve government capacities in research and data analysis, regulation and evaluation of medicines, or designing and implementing pharmaceutical policy and procurement.
  - Policy #2. Strengthen information systems, where feasible tracking pharmaceutical sales, prices, adequate prescribing and dispensing policies.
- Generics promotion policies and data:
  - Policy #3. Improve data regarding the implementation of policies promoting generics and their characteristics (interchangeability, incentives in prescription, mandatory substitution, etc.). Generally recommend generic substitution, IRP for interchangeable medicines, and INN prescribing.
  - Policy #4. Provide educational programs to physicians, pharmacists, health policy makers, and the broader population to overcome reluctance to generics.
- Procurement and tendering data:
  - Policy #5. Improve data on the tendering systems used and key variables (type of products and providers, price, concentration index, quality assurance, capacity and possibility of supply disruption, national/regional scope). Generally recommend centralized tendering; for small countries or LMICs, recommend international tendering.
  - Policy #6. Assure coverage of essential medicines in the benefit package, regulate their price, and reduce out-of-pocket spending for affordability, especially in LMICs.
- Innovative medicines and pricing data:
  - Policy #7. Create an Essential Medicines Patent Pool at the international level to orientate R&D efforts.
  - Policy #8. Improve data on the utilization of ERP per country and its characteristics (number of countries taken into account and which ones, algorithm used, etc.), crossed with information about prices reimbursed (as in EURIPID) to identify inefficiencies. Recommend a transparent, simple, stable and sustainable ERP for developing countries.
  - Policy #9. Improve data on the utilization of VBP, MEA or SDF with characteristics (e.g., VBP using mandatory cost-effectiveness analysis or an ICER threshold; MEA confidentiality, price–volume or performance-based; SDF with specific budget) to compare uses and identify deviations. Generally recommend VBP if feasible for developed countries; for SDFs, use ‘only in research’ restriction.
  - Policy #10. If VBP is implemented, link appraisal of costs and benefits of new drugs with national rebate agreements.
- Hospitals and biosimilars:
  - Policy #11. Improve availability of data on pharmaceutical expenditures in hospitals.
  - Policy #12. Improve availability of international data on market share of biosimilars (volume and sales) to analyze market, evaluate policies, and estimate savings.
  - Policy #13. Provide educational programs to overcome reluctance to biosimilars and regulate biosimilar participation in tendering.
- Data gaps and priorities:
  - Lack of international data on hospital pharmaceutical expenditures and biological products constrains policy analysis.
  - Need for improved monitoring of tendering, ERP usage, VBP/MEA/SDF implementation, generics and biosimilars uptake, and hospital pharmaceutical spending.

### Selected quantitative findings and statistics (as reported)
- Gill and others (2019) provide 14 best-practice principles for ERP benchmarking.
- Wouters and others (2020) estimates the mean cost of developing a new drug in the range $314 million to $2.8.
- Europe: 67 biosimilar medicines authorized centrally by EMA, corresponding to 17 active ingredients (European Medicines Agency, 2022).
- In 2018 in Europe, over 30 percent of all drug spending was on biological medicines, of which 1.5 percent are biosimilars (IQVIA Institute, 2019).
- Data from five European countries and the United States suggests a 20 percent reduction in price per treatment-day across eight products which could result in cumulative savings exceeding EUR 50 billion by the end of 2020 (OECD, 2017).
- Spain: García-Goñi and others (2021) estimate that in 2019 the savings from biosimilars relative to total pharmaceutical spending was 3.92%.
- Norway market shares: Anti-TNF alfas biosimilar market share 93 percent; Denmark 94 percent; Italy 35 percent; France 26 percent (OECD, 2019).

### Conclusion: balancing access, affordability, and incentives
- Key objectives: incentives for long-run innovation, early access to innovative products with value-based pricing, and promotion of generics and biosimilars.
- Risks and trade-offs:
  - Inefficient procurement/tendering can cause high prices or shortages; design must consider product quality, supplier competition and concentration, demand-side market power, and health system fragmentation.
  - Inappropriate ERP use can trigger launch delays in poorer countries and reduce long-run R&D incentives.
  - Where feasible, set prices for innovative products using cost-effectiveness analysis; otherwise use transparent ERP and strengthen bargaining via international cooperation.
- Overarching recommendation: governments should continuously review pharmaceutical policies aiming not merely to cut spending but to maximize access and health outcomes with efficient resource use.

*Source: wpiea2022190-print-pdf - 14. ERP- based prices should be aligned with other tools used when negotiating reimbursement*

### Annex I. Analysis of the Impact of the Market

### Annex I. Analysis of the Impact of the Market Share of Generics in Pharmaceutical Spending

### Regression analysis (Annex Table A1.1)
- Regression table excerpt (row labels and values preserved exactly as in source):
  - Increase of 10% in Share of
    - -35.880.500.000.520.020.00-48.483.110.12-0.230.000.00-0.050.000.00
  - GDP per capita
    - 0.000.000.130.000.000.930.030.010.000.000.000.000.000.000.00
  - Austria
    - 54.2522.130.02-0.700.670.301045.64145.060.000.110.230.63-0.070.060.20
  - Belgium
    - 42.6426.800.113.130.810.00602.80172.630.00-0.890.270.000.040.070.57
  - Denmark
    - -195.3520.180.00-5.350.610.00457.55132.280.001.450.210.00-0.370.050.00
  - France
    - 76.8529.250.013.030.890.00867.47189.650.00-0.090.300.760.180.080.02
  - Germany
    - 253.6627.000.00-0.580.820.481430.12174.260.001.000.280.000.280.070.00
  - Greece
    - 6.9254.970.9017.001.660.00-904.54350.600.01-5.580.560.000.500.140.00
  - Ireland
    - -14.9023.380.532.740.710.00262.67149.490.08-0.330.240.170.030.060.62
  - Italy
    - -26.5737.800.486.971.140.00-86.16243.550.72-3.260.390.00-0.030.100.76
  - Luxembourg
    - -230.9266.370.000.302.010.88-607.54414.840.141.530.660.02-0.050.170.78
  - Netherlands
    - -12.9320.300.53-4.930.610.001096.18133.400.000.690.210.00-0.280.050.00
  - New Zealand
    - ------308.56227.480.18-1.610.360.00---
  - Portugal
    - -23.4848.080.636.151.460.00-18.62308.720.95-3.620.490.000.030.120.80
  - Slovak Republic
    - 176.7255.440.0015.231.680.00-238.10352.630.50-5.780.560.000.420.140.00
  - Spain
    - -4.1438.710.926.471.170.00-72.78249.510.77-3.600.400.00-0.040.100.70
  - Switzerland
    - 204.2134.040.003.221.030.001246.75186.730.003.780.300.000.570.090.00
  - Turkey
    - -------1370.54389.310.00-9.430.620.00---
  - United Kingdom
    - 44.0334.330.20-1.721.040.10154.41196.650.43-1.640.310.00-0.050.090.60
  - Year dummies (selected rows)
    - 2001 30.5321.600.160.210.650.75131.66126.530.300.250.200.210.050.060.38
    - 2002 74.0021.640.000.530.660.42339.45123.800.010.520.200.010.120.060.03
    - 2003 92.7620.580.000.300.620.63412.60121.920.000.930.190.000.180.050.00
    - 2004 122.5220.530.00-0.700.620.26582.04122.110.001.310.190.000.210.050.00
    - 2005 143.6120.990.00-1.060.640.10633.71125.210.001.480.200.000.230.050.00
    - 2006 164.8221.600.00-1.660.650.01748.04129.260.001.610.210.000.220.060.00
    - 2007 193.6421.920.00-1.960.660.00868.15132.140.001.770.210.000.240.060.00
    - 2008 225.1122.120.00-2.630.670.001167.24130.480.002.200.210.000.250.060.00
    - 2009 236.8521.700.00-3.300.660.001379.22127.310.002.760.200.000.300.060.00
    - 2010 249.0522.290.00-3.690.680.001463.30131.920.002.790.210.000.270.060.00
    - 2011 241.8022.900.00-4.170.690.001463.07135.890.002.750.220.000.230.060.00
    - 2012 253.0123.360.00-4.970.710.001637.38138.870.002.920.220.000.210.060.00
    - 2013 272.8223.970.00-5.170.730.001754.55143.250.002.970.230.000.190.060.00
    - 2014 276.6124.980.00-5.430.760.001783.66149.370.002.990.240.000.170.060.01
    - 2015 296.9525.990.00-5.350.790.001823.43155.890.003.020.250.000.190.070.01
    - 2016 316.8426.560.00-5.340.800.001938.75159.900.003.150.250.000.210.070.00
    - 2017 328.6127.070.00-5.540.820.002038.50163.460.003.190.260.000.200.070.01
    - 2018 337.7648.180.00-5.371.460.002087.49186.190.003.060.300.000.210.130.10
  - constant
    - 321.0973.170.0014.592.220.00537.52465.300.2513.900.740.002.010.190.00
  - N
    - 206206255255206
  - Adj. R-squared
    - 0.89770.96120.95750.9380.9369

### Simulation: current and simulated market volume share of generics (Annex Table A1.2)
- Simulation increases market share to the 75th percentile (70.05 percent)
- Country-level values (Real market share of generics (volume) ; Market share if when lower increased to the 75th percentile)
  - Austria: 54.8 ; 70.05
  - Belgium: 37.3 ; 70.05
  - Denmark: 63.2 ; 70.05
  - Germany: 82.3 ; 82.30
  - Greece: 26.8 ; 70.05
  - Ireland: 40 ; 70.05
  - Italy: 26.2 ; 70.05
  - Luxembourg: 11.3 ; 70.05
  - Netherlands: 75.6 ; 75.60
  - New Zealand: 80.5 ; 80.50
  - Portugal: 52.8 ; 70.05
  - Slovak Rep.: 64.5 ; 70.05
  - Spain: 46.4 ; 70.05
  - Switzerland: 27.3 ; 70.05
  - Turkey: 59 ; 70.05
  - United Kingdom: 85.3 ; 85.30

### Figures and principal quantitative comparisons (captions and axis descriptions preserved)
- Annex Figure A1.1 — Savings in Retail Pharmaceutical Expenditures (when Market Share of Generics is Increased to the 75 Percentile: in USD PPP, 2017)
  - Two series plotted: "Annual Pharmaceutical Expenditures (per person, in USD, PPP)" and "Expected Annual Pharmaceutical Expenditures if market share goes up to the 75percentile (per person, in USD, PPP)"
- Annex Figure A1.2 — Efficiency Gains by Reducing the Share of GDP Devoted to Retail Pharmaceuticals (when Market Share of Generics is Increased to the 75 Percentile: in Percentage, 2017)
  - Two series plotted: "Current share of GDP devoted to Pharmaceutical Expenditures (in percentage)" and "Expected share of GDP devoted to pharmaceutical expenditures if market share goes up to the 75 percentile (in percentage)"
- Annex Figure A1.3 — Savings by Reducing Health Expenditures per Person (when Market Share of Generics is Increased to the 75 Percentile: in USD, PPP, 2017)
  - Two series plotted: "Annual Health Expenditures per capita in USD PPP (in percentage)" and "Expected Annual Health Expenditures per capita in USD PPP if market share goes up to the 75percentile (in percentage)"
- Annex Figure A1.4 — Efficiency Gains by Reducing the Share of GDP Devoted to Health Spending (when Market Share of Generics is Increased to the 75 Percentile: in Percentage, 2017)
- Annex Figure A1.5 — Change in the Share of Retail Pharmaceutical Expenditures in Health Expenditures (when Market Share of Generics is Increased to the 75 Percentile: in Percentage, 2017)
  - Two series plotted in figure captions: "Share of GDP devoted to Health Expenditures (in pecentage)" and "Expected Share of GDP devoted to Health Expenditures if market share goes up to the 75percentile (in percentage)"
  - And: "Current Share of Health Expenditures devoted to Pharmaceutical Expenditures (in percentage)" and "Expected Share of Health Expenditures devoted to Pharmaceutical Expenditures if market share goes up to the 75percentile (in percentage)"

*Annex I. Analysis of the Impact of the Market Share of Generics in Pharmaceutical Spending — Working Paper No. WP/2022/190*

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_Source: https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022190-print-pdf.pdf_