4. Effective use of pharmaceuticals

Within the context of functioning health systems, essential medicines are those that should be available at all times, in adequate amounts, in the appropriate dosage forms and with assured quality, at prices both the individual and the society can afford (Quick et al., 2002[1]). The importance of access to essential medicines is recognised in the Sustainable Development Goals (SDGs). SDG 3.8 mentions the importance of “access to safe, effective, quality and affordable essential medicines and vaccines for all” as a core component of Universal Health Coverage (UHC) (WHO, 2017[2]).

Ensuring access to essential medicines can make an important contribution towards improving public health. In countries where access is not guaranteed, or where high out-of-pocket payments prevail, patients may forego or postpone filling prescriptions and purchasing medicines, or may be entirely unable to access care for financial reasons (Goldman, Joyce and Zheng, 2007[3]) (Niëns et al., 2010[4]). This can lead to more rapid progression of disease and poorer health outcomes. High out of pocket costs for medications are not limited to low- and middle-income countries, but have also been identified in some high-income countries in Europe, particularly in relation to the treatment of chronic diseases (Arsenijevic et al., 2016[5]).

In Latvia, the pharmaceutical sector has been at the centre of attention in recent years. It is broadly recognised that it has become costly both for patients and the public payer, impairing patient access to needed therapeutics, and generating substantial pressures on public finances. The objective of this chapter is to describe and analyse the current landscape of the pharmaceutical sector in Latvia and to propose policy options to address the ongoing challenges.

The chapter begins by describing the organisation of the Latvian pharmaceutical system, the institutions involved, and the general regulatory arrangements. It then describes how, despite a solid legal and organisational framework, the outpatient pharmaceutical sector presents significant issues of concern in Latvia. Discrepancies between current levels of medicines consumption and the epidemiological profile of the population have been observed, and despite increasing expenditure on medicines, Latvians face substantial difficulties in accessing needed medicines. Finally, the chapter outlines some policy options for enhancing patient access and providing better financial protection from the costs of ill health, while at the same time improving the efficiency of public spending on medicines.

The legislation and policies governing the pharmaceutical sector are well defined in Latvia. The pharmaceutical department of the Ministry of Health, the State Agency of Medicines (SAM) of Latvia, the National Health Service (NHS) and Health Inspectorate (HI) are the main institutions responsible for the development and implementation of pharmaceutical-related policies.

In order for a pharmaceutical product to access the Latvian market, the SAM (or the European Medicines Agency for centrally-authorised products) must first have granted marketing authorisation that allows the medicine to be sold on the Latvian market. According to the Latvian Ministry of Health, as of 2018 4 252 medicines were registered in Latvia.

The SAM is the national regulatory authority for pharmaceutical products and is responsible for assessing the quality, safety and efficacy of human medicines. The SAM issues marketing authorisations, maintains the register of medicines, schedules medicinal products according their access status (prescription or over-the-counter), and is responsible for pharmacovigilance, including the collection of adverse event reports. It also issues licences to manufacturers and regulates pharmaceutical manufacturing, wholesaling, retailing and importing/exporting activities (Behmane D, 2019[6]).

Since 2019, the SAM has also had responsibility for Health Technology Assessment activities (see Box 4.1). This was previously a responsibility of the NHS, but the function was split in that year and some of the staff were transferred to the SAM. The NHS remains responsible for reimbursement decisions, usually relying on budget impact analysis (see the section below).

The NHS is the responsible institution for decisions regarding the reimbursement of pharmaceuticals and the inclusion of products in the positive list (see Box 4.2). To have a product included in the positive list, a pharmaceutical company must submit an application to the NHS containing the opinion of the SAM, together with an assessment of comparative effectiveness and cost-effectiveness of the medicine for the intended patient group (see Box 4.3).

Regulation No. 899 (on the Reimbursement of Expenditures for Medicinal Products and Medicinal Devices) determines the conditions for the reimbursement of outpatient medicines. The NHS evaluates applications on the basis of the information provided by companies and the results of HTA evaluations conducted by the SAM. It eventually makes a decision for or against the inclusion of a medicine in the positive list.

Clinical factors that are weighed in the evaluation include the burden of disease and the therapeutic value of the medicine. Economic criteria include the results of cost-effectiveness analyses and the expected budget impact of the reimbursement decision for public finances. The basis for the evaluation is the common Baltic guidelines for economic evaluation of pharmaceuticals (see Box 4.3), which, with minor changes, have been adapted to each of the Baltic states’ national legislation.

The list of publicly covered outpatient pharmaceuticals consists of four parts.

  • List A includes groups and sub-groups of interchangeable pharmaceutical products, for which the NHS reimburses at a single “reference” price. The groups may consist of products containing the same active ingredient, or groups of products within the same class considered therapeutically substitutable (e.g. ‘statins’, angiotensin II receptor antagonists).

  • List B consists of reimbursed products that cannot be substituted or interchanged.

  • List C contains high unit-cost pharmaceutical products with annual treatment costs exceeding EUR 4 300. The number of patients to be treated with list C medicines is defined on an annual basis. Prescription of a medicine included in list C must be requested by a group of specialists and is approved by the NHS on an individual basis.

  • List M contains pharmaceutical products for pregnant women, women up to 70 days post partum and children under 24 months.

Lists A and B comprise 1 727 products (corresponding to 424 different molecules or combinations of molecules) and list C comprises 33 (corresponding to a similar number of molecules). The limited numbers of products in lists B and C largely reflect budget constraints.

Medicines included in the positive list are also classified into one of three reimbursement categories (100%, 75%, and 50%, see Table 4.1). The reimbursement category depends on the indications for which a particular medicine has been approved (i.e. disease-specific eligibility, see Box 4.4) (Silins and Szkultecka-Dębek, 2017[7]).

As of 1 April 2020, retail pharmacies dispense the product with the lowest price (i.e. the reference price for the group). Where a patient refuses the medicine offered by the pharmacy and requests a different product within the reference group, the medicine is no longer eligible for reimbursement and the patient must pay the full price for all the medicines on the same prescription (see next section). In addition, a prescription fee of EUR 0.71 per item applies to any medicine reimbursed at 100% (with exemptions for selected patient groups, e.g. children and asylum seekers).

Prices for medicines in list A are updated quarterly (1 January, 1 April, 1 July and 1 October) by the NHS. Other changes to the lists of reimbursed medicines are made by the NHS on the first day of each month.

Pricing policies are defined as “regulations and processes used by government authorities to set the price of medicines or to exercise price control” (Vogler and Zimmermann, 2016[11]). They are closely linked to reimbursement policies where a third-party payer covers the cost of the medicine. The price of a medicine is the sum of three elements: the ex-factory (or manufacturer’s) price (i.e. the price at which the manufacturer sells it), the distribution margins or mark-ups (wholesale and retail) and any taxes (e.g. VAT). Price regulation can be applied at any step of the distribution chain, for example through control of manufacturers’ prices or through the regulation of distribution margins and mark-ups. In Latvia prices are fully regulated for reimbursed medicines but only partially regulated for non-reimbursed products.

For medicines not included in the positive list the principles for the determination of prices are defined in Regulation N 803 “Regulation on pricing principles for medicinal products”. For these products, only the distribution chain margins are regulated, which means that for each non-reimbursed medicine the pharmacy prices are the same in any community pharmacy throughout the country. The regulation of the margins for non-reimbursed medicines is organised as follows:

  • The wholesale price is calculated by multiplying the price declared by the manufacturer by a percentage margin and adding an additional fixed margin and the VAT (see Table 4.2). The percentage and fixed margins are defined in the regulation and depend only on the price declared by the manufacturer.

  • The price at which a pharmacy sells a non-reimbursed medicine is determined by multiplying the procurement price (either the ex-factory or wholesaler’s price without VAT) with a percentage margin and adding a fixed margin and the VAT (see Table 4.3).

Marketing authorization holders declare ex-factory prices to the SAM twice a year (or when prices are changed or a new product is placed on the market). The retail prices are then calculated and published on the agency’s website for consumers and other interested parties.

For medicines in the positive list, manufacturers’ prices are negotiated between the NHS and the market authorization holder and distribution margins are defined in Regulation N°899 on “Procedures for reimbursement of expenses toward the purchase of medicinal products and medical devices for the outpatient care”.

Manufacturers’ prices are indirectly regulated by virtue of cost-effectiveness evaluations, and in parallel through external price referencing (EPR, see Box 4.5). Comparator countries are the Czech Republic, Denmark, Estonia, Lithuania, Poland, Romania, the Slovak Republic and Hungary. The manufacturer’s price of a reimbursable medicinal product may not exceed that of the third lowest manufacturer price of the same medicinal product in the reference countries, and may also not exceed the manufacturer price in Estonia and Lithuania.

After manufacturer’s prices are set, distribution margins for reimbursable medicines are also defined:

  • Wholesaler price is calculated by adding the wholesale margin to the ex-manufacturer’s price. Wholesalers’ margins are defined in Table 4.4.

  • The pharmacy retail price is defined by multiplying the wholesaler price with a percentage margin and by adding to it a fixed margin and the VAT. Margins for reimbursable medicines are presented in Table 4.5.

VAT for general goods is set at 21% but is 12% for both reimbursed and non-reimbursed medicines. Reduced rates of VAT for medicines are common in the EU, but at 12% Latvia’s rate remains higher than in several countries, e.g. 2.1% in France, 5% in Lithuania and Hungary.

There are 86 wholesale companies in Latvia, albeit with the top ten accounting for 80% of the total market. This is a very high number for a rather small country like Latvia (just as a comparison, Australia has only three wholesale companies) and limits possible economies of scale. In the retail sector, pharmaceutical services may only be provided by municipal pharmacies (which are public entities), or by private community pharmacies operating under government licence. For private pharmacies, the law requires that at least 50% of the shares must be owned by a certified pharmacist, or at least half the board must consist of certified pharmacists.

The retail sector is quite concentrated, with a high degree of horizontal integration. Horizontal integration refers to a situation where a single person (or corporation) owns more than one community pharmacy. It may allow economies of scale, but it can also lead to limited competition and even monopolies when the same person or entity controls a significant share of the market through one or several chains of community pharmacies (WHO Regional Office for Europe, 2019[14]; OECD, 2014[15]). Based on information shared by the Ministry of Health, the Latvian pharmaceutical retail market is currently dominated by five chains, which represent 69% of the total market and account for a total value of around EUR 255 million. Only 20% of community pharmacies are owned by pharmacists, the rest belonging to one of the chains operating in the country. This situation is the consequence of changes to the regulation of community pharmacies introduced in 2010 which gave non-pharmacists the right to own pharmacies, and thus created the potential for large consortia to be established. It is also worth noting that only a limited public health role is devolved to pharmacists (see below).

Despite the existence of a comprehensive and well-established legal and organisational framework, access to outpatient medicines remains sub-optimal in Latvia. There are significant inconsistencies between the levels of utilisation of certain medicines and those that may be expected given the epidemiological profile of the population. There are also important access issues for patients. These are driven by a number of factors:

  • Despite medicines representing a growing share of the health system’s budget, the magnitude of overall public expenditure on health is low, limiting the number of medicines publicly covered and requiring high out-of-pocket payments;

  • As a result, the current reimbursement system is not adequately protecting patients (and particularly vulnerable populations) from the costs of ill-health;

  • Widespread misconceptions around generic medicines give rise to significant inefficiencies; and

  • The extent of horizontal integration in the retail pharmaceutical sector limits competition.

Latvia has the third highest level of treatable mortality in the EU, with more than half of it attributable to cardiovascular diseases (OECD/European Observatory on Health Systems and Policies, 2019[16]). Pharmacotherapies play a key role in both primary and secondary prevention of such chronic diseases (Wald and Law, 2003[17]; Law, Wald and Rudnicka, 2003[18]; Law et al., 2003[19]).

Despite this situation, cardiovascular drug consumption levels are among the lowest in the OECD. Consumption of antihypertensive drugs in Latvia, is particularly low (192 Defined Daily Doses per 1 000 inhabitants per day, see Box 4.6 and Figure 4.1) given the burden of cardiovascular diseases in the country but also in comparison with levels of consumption across the OECD (327 on average) and in the other Baltic States (335 in Estonia, 367 in Lithuania). Similarly, the use of cholesterol-lowering agents is low in Latvia (93 DDDs per 1 000 inhabitants per day), almost 20% below the OECD average (Figure 4.1).

Diabetes is the fifth cause of death in Latvia and the mortality rate from this condition has increased by 50% between 2000 and 2016. The country also reports some of the highest mortality rates from this condition in the EU (OECD/European Observatory on Health Systems and Policies, 2019[16]). Yet, the use of anti-diabetic drugs in Latvia is among the lowest reported in the OECD (Figure 4.2). At 49 DDDs per 1 000 inhabitants per day it is nearly one-third below the OECD average (69 DDDs per 1 000 inhabitants per day).

Mental health is also a major public health issue in Latvia. The country reports the second highest mortality rate from suicide in the EU (after Lithuania) and the fourth in OECD countries, with more than 18 deaths per 100 000 population in 2016 (OECD, 2019[21]). This is well above the OECD average (almost 12 per 100 000 inhabitants). Despite this, the level of anti-depressant consumption in Latvia is the lowest reported, 18 DDDs per 1 000 inhabitants per day, only one-quarter of the OECD average and just over half of what is reported in Lithuania (Figure 4.3).

Analyses of the consumption figures of major groups of medicines in Latvia clearly show significant discrepancies with the actual burden of disease. This may be attributable in part to differences in medical practice or clinical guidelines, but is more likely to reflect financial and potentially other limitations in access to outpatient medicines for a substantial proportion of the population.

The low levels of medicines consumption in Latvia are linked to the low level of spending on medicines. In 2018, Latvia spent USD PPP 492 per capita on medicines (EUR 412, adjusted for purchasing power parity), among the lowest levels in the OECD (Figure 4.4).

After inpatient and outpatient care, pharmaceuticals (excluding those used in hospitals) usually represent the third largest item of health care spending, accounting for 16% of health expenditure on average in OECD countries. Considering that demand for medicines is quite price inelastic, it is logical to expect that in countries with a smaller health care budget in absolute terms, pharma will absorb a more important share of their overall health budget. This explains in part why in Latvia outpatient medicines account for 27% of current expenditure in health (Figure 4.5), the second highest level in OECD countries after Hungary.

Over the past ten years, pharmaceuticals have represented a growing share of health expenditure in Latvia, accounting for 21% in 2008 and reaching 27% in 2017. This steady increase is striking when compared to the situation in the two other Baltic States, where the proportion of health expenditure on pharmaceuticals decreased or remained stable over the same period (Figure 4.6).

As shown in Figure 4.7, public expenditure on pharmaceuticals has increased at a slower pace than the overall growth in pharmaceutical spending, meaning that the proportion borne by patients increased over years. Out-of-pocket expenditure on pharmaceuticals accounted for 59% of total expenditure on medicines in 2011 (USD 165, EUR 176) and peaked at 65% (USD 255, EUR 213) in 2015.

Across OECD countries, government programs and compulsory insurance schemes play the largest roles in pharmaceutical funding. On average, these mechanisms cover 59% of spending on pharmaceuticals. By contrast, in Latvia more than 60% of pharmaceutical spending is out-of-pocket payment, one of the highest proportions reported, and only 38% is publicly covered (Figure 4.8). This means that in Latvia the majority of the expenditure on retail pharmaceuticals is currently borne by patients themselves.

Financial barriers in access to care are a frequently reported issue in Latvia. The proportion of the Latvian population reporting unmet needs for medical treatment is among the highest in Europe. In 2017, 6.2% of the population reported having foregone medical care due to costs, distance to travel, or waiting times – well above the EU average of 1.7%. Moreover, financial barriers to access disproportionately affect lower income groups. In 2017, Latvians in the lowest income quintile reported much higher levels of unmet needs for medical and dental care due to cost (9.9% and 25.5% respectively) than those in the highest income quintile (0.9% and 3.3% respectively) (OECD/European Observatory on Health Systems and Policies, 2019[16]).

Difficulties in accessing care are closely related to the high levels of out-of-pocket spending in Latvia, reaching 39% of total health expenditure in 2018 (the second highest level in the EU) (OECD/European Observatory on Health Systems and Policies, 2019[16]). Such high levels of direct payments by patients are responsible for the high incidence of catastrophic health spending in Latvia. In 2013, almost 13% of the Latvian population experienced catastrophic health spending (see Box 4.7 and Figure 4.9), a major increase from the 2010 level of 10.6% and the second highest proportion documented in the EU. The incidence of catastrophic health spending is heavily concentrated among the poorest quintile of the population. Importantly, in all quintiles catastrophic spending was almost exclusively due to the costs of outpatient medicines. Outpatient medicines accounted for about 70% of all catastrophic out-of-pocket payments, rising to around 80% for the poorest quintiles (WHO Regional Office for Europe, 2018[8]).

Access to outpatient medicines accounts for half the total out-of-pocket payments reported by Latvian households. Several studies have shown that financial barriers to accessing necessary medicines are strongly correlated not only with poorer health outcomes but also increased use and cost of other health services (Goldman, Joyce and Zheng, 2007[3]; Kesselheim et al., 2015[22]). In the case of Latvia, the high levels of out-of-pocket payment on pharmaceuticals are related to the limited size of the public budget for health (government and compulsory health insurance schemes represent only 57% of the current expenditure on health as opposed to 79% in the EU on average) (OECD/European Observatory on Health Systems and Policies, 2019[16]) but also to the general arrangements of the reimbursement system.

Outpatient medicines are a key source of financial hardship because of the reliance on patient out-of-pocket payments (in this case, in the form of co-insurance, which is rather regressive1), the existence of a prescription fee, the exclusion of medicines from the annual cap on out-of-pocket payments and the rather limited size of the positive list (see below). In addition, the reimbursement system is structured around a reference price for each molecule, which creates the possibility of extra financial burden for patients (as they may have to paying an extra co-payment if the cheapest alternative is not available or entirely out of pocket if they choose not to accept it). The Ministry of Health estimates that in 2017, EUR 25 million were paid by patients because they were not provided with (or did not choose) the cheapest available alternative of a prescribed reimbursed medicine.

In order to improve access to outpatient medicines, in July 2019 the Latvian Government approved amendments to regulations on the reimbursement of medicines. The objective is to reduce the cost of medicines and patient co-payments for reimbursable medicines via better price control. In accordance with this new regulation, as of April 2020, the following measures are enforced:

  • The external reference pricing system will be revised and the basket of reference countries changed.

  • A price ceiling for medicines subject to reference pricing will be introduced (the most expensive alternative will have to be less than double the price of the cheapest one).

  • At least 70% of a doctor’s yearly prescriptions must be by International Non-proprietary Name (INN, see Box 4.8), which should improve the dispensing by pharmacists of least priced alternatives.

  • For medicines subject to internal reference pricing, it will be mandatory for pharmacies to keep stocks of the cheapest alternative.

Another policy that partially explaining the high level of out-of-pocket payments for pharmaceuticals is the exclusion of outpatient medicines from the general cap on user charges. User charges per person per year for all publicly financed health services, except outpatient medicines, are capped at EUR 569 per year. This is a relatively large amount in Latvia, equal to one and a half month’s minimum wage, and is unlikely to offer protection for poorer households. Only a few population groups are exempt from cost-sharing for outpatient medicines: e.g. households with an income below EUR 128 per family member per month, asylum seekers, and patients under 18. While there is no overall cap on out-of-pocket payments for outpatient medicines or for other health services in the other Baltic states, reforms introduced in recent years in both Estonia and Lithuania have reduced the financial burden related to outpatient medicines, see Box 4.11 (WHO Regional Office for Europe, 2018[8]).

The size and content of the positive list may also contribute to the high levels of out-of-pocket costs for medicines. Of the 4 252 products registered in Latvia, 1 760 (41%) are at least partially reimbursed by the NHS (i.e. products that are part of one of the reimbursement lists). However, some core essential medicines such as aspirin (anticoagulant), glibenclamide (anti-diabetic), penicillin and erythromycin (antibiotics) are currently not among the reimbursed products. The WHO Model List of Essential Medicines (World Health Organization, 2019[23]) serves as a guide for the development of national and institutional essential medicine lists and is updated and revised every two years by the WHO Expert Committee on Selection and Use of Medicines. The latest edition details the 433 drugs deemed essential for addressing the most important public health needs globally. A high-level comparison with the list of molecules reimbursed by the Latvian NHS reveals that only 165 of 433 (40%) of the molecules currently reimbursed in Latvia are also part of the WHO Model List. This figure implies two things: first, that some important medicines are not covered by the NHS (some of them are mentioned in the previous paragraph); second, that at the same time the NHS reimburses a large number of medicines molecules that do not necessarily constitute a priority. One example is fixed-dose combinations, which may reflect inefficient spending as they can often be more expensive than the aggregate costs of the constituent products2 (Hong, Wang and Tang, 2013[24]; Sacks et al., 2018[25]).

Overall, the current reimbursement system for outpatient medicines in Latvia does not provide adequate protection against the costs of ill-health. The co-insurance rate of 25% or 50% for many medicines (100% where the reference product is declined) associated with a reimbursement amount calculated on a reference price, disproportionately affects patients suffering from chronic diseases and those with conditions requiring more expensive medicines. Comprehensive exemption arrangements for co-payments on reimbursed outpatient medicines are also missing. While targeted exemption from co-payments applies to some population groups such as children under 18 years, vulnerable groups such as pensioners or patients suffering from chronic conditions do not receive any form of protection against the financial burden of the costs of their medicines.

Improving access to needed therapeutics in Latvia requires a major review of the reimbursement system, including an examination of how reimbursement decisions are made and motivated, but also an increase in the funds available, through both additional public investment and disbursement of savings achieved through improved efficiency.

Many countries view generic and biosimilar markets as an opportunity to increase efficiency in pharmaceutical spending. In Latvia, the first prescription of a reimbursed medicine must in theory include its International Non-proprietary Name (INN), and for multi-source medicines, pharmacists are obliged to propose to patients the cheapest versions of the medicines prescribed. In addition, pharmacists are allowed to substitute pharmaceutical products prescribed by brand name with generics unless the prescribing doctor has expressly stated otherwise.

In Latvia, the market penetration of generic medicines is quite substantial. Generics represent 74% of the market by volume (see Figure 4.10), one of the highest levels in the OECD, and some 20 percentage points above the OECD average. In terms of value, generic medicines account for 43% of the total pharmaceutical market. This level is also high when compared with countries with similar levels of generic penetration by volume (Canada, the Netherlands) and may reflect higher prices of generics relative to other medicines (off-patent originators and on-patent medicines).

Despite the level of generic penetration, distrust in generic medicines is frequently reported among prescribers and patients in Latvia, which may limit further efficiency gains. Indeed, people’s preferences are an important obstacle in implementing effective generic policy. Several studies report that a high proportion of patients tend to believe that generic medicines are of lower quality and less effective than originator medicines, and as a result may feel negatively about policies promoting their utilisation (Colgan et al., 2015[26]). A recent study conducted in Latvia estimated that only 21% of the population would opt for generic medicines and that the opinion of a physician was the most important factor when choosing between generic and brand-name medicines (Salmane Kulikovska et al., 2019[27]). Such distrust towards generics may partly explain why, as previously noted, patients paid EUR 25 million out-of-pocket in addition to the statutory user charges in 2017, by choosing a more expensive alternative than the reference priced product. It is therefore important that both the authorities and health care professionals provide objective and unbiased information about generic medicines to patients to increase their acceptance.

Latvia should also do more to increase spending efficiency with generics. Many countries have implemented incentives for physicians and pharmacists to boost generic markets, which can lead to price reductions. Over the last decade, France and Hungary, for example, have introduced incentives for GPs to prescribe generics through pay-for-performance schemes. In Switzerland, pharmacists receive a fee for generic substitution; in France, pharmacies receive bonuses if their substitution rates are high, see Box 4.12 (OECD, 2019[21]). In Latvia, there are currently no financial incentives for doctors to prescribe more generics nor for pharmacists to dispense cheaper alternatives (since margins are the same for all the products, generics and originators). Possible options to consider are discussed in the next section but could for example include the introduction of incentives related to generic prescribing as part of general practitioners’ pay-for-performance program; the creation of a specific distribution margin system for generics for pharmacists or the application of a fixed retail distribution margin or mark-up for generics (i.e. an absolute value) at the same level as, or even higher than that of the originators. Indeed, current retail margins, which are linked to wholesale prices, make the selling of cheaper alternatives unattractive to pharmacists.

Facilitating the market entry and inclusion in the positive list of biosimilars could also lead to substantial savings on costly medicines. Biological medicines contain active substances from a biological source, such as living cells or organisms. When such medicines no longer have monopoly protection, “copies” (called biosimilars) of these products can be approved. Biosimilars can create price competition and improve affordability. A biosimilar is granted regulatory approval by demonstrating sufficient similarity to its reference biological product in terms of quality characteristics, biological activity, safety and efficacy. In Latvia, the potential of biosimilars has not been fully realised. Indeed, regulatory arrangements dictate that an off-patent medicine may only be added to the positive list if the originator is already reimbursed. In the case of biosimilars, some originators are very expensive biological medicines that the authorities may have decided not to add to the reimbursement list for financial reasons, thus blocking the inclusion of any subsequent biosimilar version despite a more affordable price. Changing such arrangements could allow the introduction of biosimilars of reference products not yet reimbursed, which would improve patients’ access (see Box 4.9). Biosimilar uptake could be further increased using other incentives commonly in place in other countries (incentives for prescribers, substitution by pharmacists, etc.).

Finally, it is also important to note that in Latvia roughly one-third of all pharmaceutical expenditure goes to over-the-counter medicines (Figure 4.11). The extent of use of non-prescription medicines is among the highest reported in OECD countries and further contributes to the high levels of out-of-pocket expenditure. One possible contributing factor may be the overall structure of the retail sector, where a very competitive environment may be encouraging community pharmacies to push sales to increase income. Clearly further investigation of this issue is warranted.

As previously noted, the retail pharmacy sector in Latvia reflects a high level of horizontal integration. In OECD countries, the number of community pharmacies per 100 000 population ranges from seven in Denmark to 88 in Greece; with an average of 29 (Figure 4.12). This variation can be explained in part by differences in common distribution channels (some countries relying also on hospital pharmacies to dispense medicines to outpatients while others, like the Netherlands, still have doctors dispensing medicines to their patients). Latvia reports 40 community pharmacies per 100 000 inhabitants, the fourth highest rate in the OECD.

Such a high figure may not necessarily be a problem unless the pharmacies are poorly distributed across the country. In fact, the density of pharmacies is extremely high in Riga and in the big urban centres, but much lower in rural areas. In addition, the high urban density of pharmacies may induce an increased degree of competition among them. As a result of an increasing trend towards horizontal and vertical integration in the Latvian retail pharmaceutical sector, many pharmacies are now owned by wholesalers who have an interest in supplying “their” pharmacies with the products they distribute. Financial pressure on pharmacies is high and they tend to carry minimal stocks, and this can impair patient access. A national poll released in August 2020 reported that almost two-thirds of users of state-reimbursed medicines had experienced lack of availability of prescribed reimbursable medicines in retail pharmacies in the preceding months. In 29% of cases, the situation was resolved by purchasing medicines in another pharmacy. Increased competition also encourages pharmacists to sell more over-the-counter medicines and to dispense higher priced alternatives to patients to ensure their financial survival. Overall, the high density of pharmacies in Latvia constitutes an additional factor contributing to patients’ difficulties in access to and affordability of medicines.

In addition, the role of pharmacists as providers of public health services is not sufficiently recognised or valued in the country. Indeed, the role of the community pharmacist has changed over recent years in most OECD countries. The increasing burdens of chronic disease and multi-morbidity require them to tailor advice to the complex needs of individual patients, while the shift away from hospital care means pharmacists are increasingly providing other services, within community pharmacies or as part of integrated health care teams. Although their main function remains to dispense medications, community pharmacists are increasingly providing direct care to patients as well as medicine adherence support. In Latvia, no specific public health function is currently devolved to pharmacists, despite an expressed willingness to contribute more to the general public health effort. Their contribution could, for example, include more reviews of patients’ prescription regimens, vaccination services or monitoring of certain health metrics (e.g. HbA1c).

This chapter has described the current situation of the outpatient pharmaceutical market in Latvia. Overall, the pharmaceutical system possesses solid and well-functioning institutions and the regulation of the sector is well-defined. Prices of all medicines are regulated and the reimbursement procedure and management of the positive list rely on objective principles.

However, outpatient medicines not only represent a growing challenge for public finances but at the same time patient access is becoming more and more difficult. Indeed, pharmaceuticals represent more than one-quarter of current health expenditure, but Latvians still bear directly the costs of almost two-thirds of pharmaceutical expenditure.

The current situation can be explained by a conjunction of various elements. First and foremost, the low level of public expenditure on health limits the number of medicines that may be publicly covered. Second, the current reimbursement system is not providing adequate protection for patients (and particularly vulnerable populations) from the costs of ill health. Third, the health system is not optimising the expenditure of current pharmaceutical budgets because some of its features (such as broad misconceptions around generic medicine and prescribing by brand name) lead to substantial inefficiencies. Finally, the configuration of the retail pharmaceutical market sector gives rise to misaligned competitive behaviours and does not foster access.

The policy options shown below have been developed based on these findings. They are organised around each of the functions of the pharmaceutical sector and are intended to improve patient access to outpatient medicines while at the same time supporting the authorities in their efforts to control the rising costs of this dimension of the health system. They are summarised in Table 4.6 together with the likely financial implications. However, it should be reiterated that increased public investment in health in general, and in pharmaceuticals in particular, is needed. Overall, Latvia spends much less on health per capita and as a share of GDP than most other OECD countries. Such low levels of public spending on health reflect the relatively small size of government (public spending represents 37% of GDP) but also the relatively low priority given to health, as less than 9% of overall public spending is allocated to this sector, compared with an average of 16% in the EU as a whole. Significant progress in access to medicines will remain extremely difficult if the level of resources invested in the system is not increased.

As mentioned above, the regulation of prices in Latvia is well-established. Manufacturers’ prices of reimbursed medicines are controlled through External Price Referencing and the authorities have already initiated a revision of the reference countries, which goes in the right direction since the previous list included countries either not regulating prices (Denmark) and/or having higher GDP per capita (e.g. Czech Republic, Hungary).

However, the control of the distribution margins presents various issues. First, two regulations coexist: one for reimbursed and one for non-reimbursed medicines, without any obvious reasons to justify the dichotomy. Second, for medicines there is no ceiling to wholesalers’ mark-ups (see Table 4.4). This arrangement can be extremely costly for the third-party payer and by extension, for patients. Third, there is no difference in the regulation of the distribution margins for generics and originators. A single scale, with margins based on value, necessarily encourages pharmacists to dispense more expensive alternatives to increase their income.

Removing the differences in the regulation of margins between reimbursed and non-reimbursed products and replacing them with a scheme favouring generics can increase generic uptake, which can lead to price reductions. Pharmacists also need to be remunerated in a way that encourages them to dispense the least expensive products. Instead of mark-ups that encourage dispensing of more expensive drugs, fixed fees per prescription or differentiated mark-ups (between originators and generics for instance) could lead pharmacists either to equipoise, or create and incentive to dispense generics, respectively. Some countries recently changed their policies to incentivise pharmacists to dispense generics. In 2012, Portugal changed pharmacists’ remuneration from fixed (flat rate regardless of price) to regressive margins (decreasing margins with increasing prices). Other countries have gone even further. In Switzerland and Belgium, for example, pharmacists receive an additional fee for generics substitution. France introduced a pay-for-performance scheme for pharmacists in 2012 with a bonus for achieving generic drug dispensing targets, see Box 4.12 (OECD, 2017[29]).

Introducing a ceiling on wholesalers’ mark-ups could contribute to containing public expenditure on pharmaceuticals and reduce patients’ out-of-pocket expenditure. Most OECD countries regulate wholesalers’ mark-ups, relying either on a regressive scheme (as in Latvia), or on a linear scheme (as in Italy, Spain and Poland). Frequently, countries also limit the maximum possible mark-up for wholesalers; it is capped at EUR 30 in France and EUR 7.54 in Spain. As reported in Table 4.2 and Table 4.4, there is no similar ceiling on wholesalers’ margins for non-reimbursed and reimbursed medicines in Latvia.

Disconnecting community pharmacists’ remuneration from the price of medicines is also an option for consideration. A substantial number of OECD countries have uncoupled the prices of medicines and the remuneration of community pharmacists. In France, distribution margins comprised 81% of the remuneration of community pharmacists in 2014. In 2019, with the progressive introduction of various dispensing fees, this had declined to 26% (LEEM, 2019[30]). This evolution also limits the impact of price reductions on pharmacy incomes. This is particularly relevant as the determination of medicine prices do not involve pharmacy representatives, although affects their remuneration if it relies on mark-ups. Various countries have introduced prescription fees to complement the mark-up remunerations (e.g. Denmark, France), while others have in some aspects almost entirely disconnected remuneration from mark-ups (e.g. Australia, New-Zealand, see Box 4.10). Uncoupling medicines prices and pharmacy remuneration in Latvia could facilitate better control of pharmaceutical expenditure while safeguarding pharmacy remuneration.

The structure of the reimbursement system is complex, and at times confusing. In particular, the rationale for the use of three levels of reimbursement is difficult to understand and the basis for the allocation to different levels is unclear. For example, a medicine that is reimbursed at 75% for an asthmatic patient may only be reimbursed at 50% for a patient with COPD.

Also, as demonstrated in the previous sections, the current features of the system do not provide adequate financial protection for patients. The range of medicines publicly covered is arguably insufficient, with several essential medicines missing from the reimbursement lists. There is also no cap on co-payments which disproportionately affects vulnerable populations, such as patients with chronic conditions.

Revising the current positive lists (list A; B, C and M) to add some current important therapeutic options not currently covered, specifically those targeting the biggest health issues in Latvia (cardiovascular disease, mental illness, diabetes), would improve patient access. As presented in the previous sections, of the 4 252 products registered in Latvia, 1 760 (41%) are at least partially reimbursed by the NHS (i.e. part of one of the positive lists). A comparison of the reimbursement lists with the WHO Model List of Essential Medicines showed that only 165 of 433 (40%) molecules on the EML were currently reimbursed in Latvia. This implies that some essential medicines are not covered by the NHS and that the NHS provide coverage of many medicines that may not necessarily constitute a priority (such as combination products). A revision of the content of the positive lists would enable better alignment of the benefit package with the burden of disease in the Latvian population. Further clarification of how these lists are reviewed and revised would also be helpful.

In addition, the overall level of out-of-pocket payments on outpatient medicines should be reduced through a combination of the following measures:

  • Include co-payments on medicines in the calculation of the general cap on out-of-pocket payments and lower the overall threshold of this cap to enhance the degree of financial protection.

  • Consider revising the reimbursement arrangements, starting with an increase in the reimbursement rate of pharmaceuticals included in the lowest reimbursement category (50% of the price of the cheapest alternative is reimbursed); a possible option could be to include all the medicines part of it into the current 75% reimbursement category.

  • Designate additional vulnerable populations from co-payments on outpatient medicines (for example, pensioners ).

As already reported, several publications have shown that financial barriers to accessing necessary medicines are not only strongly correlated with poorer health outcomes, but also with increased use of and expenditure on other health services. In the case of Latvia, outpatient medicines are the most important source of financial hardship because of the general structure of the reimbursement scheme: the reliance on co-insurance rather than flat co-payments, the existence of a prescription fee, and the exclusion of medicines from the annual cap on out-of-pocket costs. This system disproportionately affects vulnerable populations, such as people on low-incomes and those with chronic conditions. Co-insurance payments – that is, co-payments set as percentage of the price - are inequitable, and shift financial risk from the payment agency to the patient, thereby exposing them to health system inefficiencies. Caps in overall out-of-pocket spending can protect people if they are applied to all patient contributions over time, rather than being focused on specific items or types of service. In the case of Latvia, excluding outpatient medicines from the general calculation of the cap on out-of-pocket payments weakens the protection the cap provides to patients, since the majority of out-of-pocket costs arise from outpatient medicines. The measures suggested above could transform the reimbursement arrangements in ways that would substantially improve the Latvian population’s protection from the costs of ill-health. The other Baltic states have made substantial progress on that direction in recent years and their experiences could inform system redesign (see Box 4.11).

As mentioned above, some efficiency gains could be pursued that would support patient access while at the same time contributing to the control of the public spending on pharmaceuticals. The recent decisions of the authorities to have at least 70% of the prescriptions written using INNs is a step in the right direction, as is the introduction of a ceiling on the prices of reimbursed medicines. However, widespread misconceptions about generic medicines will remain an obstacle to any attempts to increase their uptake.

Improving the knowledge and acceptability of generic medicines among patients and health professionals is necessary. This could be achieved via new information campaigns and further efforts around initial and continuous professional education. Several countries have carried out information campaigns to promote the use of generics, explaining their equivalence and interchangeability with originator medicines (e.g. Belgium, Denmark, France, Greece, Italy, Portugal and Spain). While no formal evaluation is available, these policies, together with patent expiries of several blockbusters in recent years, have contributed to the significant increases in the market share of generics observed over the past decade in several countries (OECD, 2017[29]).

Physicians also need to be incentivised to prescribe by INN. They can be encouraged to prescribe cheaper products by creating explicit guidelines on the prescription of the cheapest alternative as first-intention medication or nudged by prescription software that highlights price differences for products which are therapeutically equivalent. Financial incentives can also be used to encourage them to prescribe generics. Several countries use financial incentives targeting prescribers. In Belgium, since 2005, physicians who issue at least 400 prescriptions annually are evaluated on whether they prescribe a certain required percentage of “cheap medicines”. The scheme, updated in 2015, has set between 16% and 65% target share of “cheap medicines” across different medical specialities, with an average of 42%. Germany uses similar target levels and has introduced financial penalties for physicians who do not reach them. In recent years, France (in 2009) and Hungary (in 2010) introduced incentives for GPs to prescribe generics through a pay-for-performance (P4P) scheme (see Box 4.12) (OECD, 2017[29]).

Another means of improving the overall efficiency of the Latvian pharmaceutical system would be to facilitate biosimilar entry to the positive list. As described in the previous section, in Latvia, the full potential of biosimilars has not been realised. The regulatory arrangements require that an off-patent medicine can only be added to the positive list if the originator is already reimbursed. In the case of biosimilars, originators are very expensive biological medicines that the authorities may have decided to not cover for financial reasons, thus blocking the inclusion of biosimilar versions in the reimbursement list despite more affordable prices. Changing such arrangements could allow the introduction of biosimilars which would improve patients’ access and reduce public spending where the more expensive reference products are already listed (see Box 4.9).

Finally, the role of pharmacists in the health system could be substantially enhanced. In OECD countries, community pharmacists are increasingly recognised as key health professionals delivering important contributions to the well-being of both individuals and communities over and above their role in dispensing medicines. They are often both the first and last point of contact between a patient and the health system. Countries that remunerate pharmacists on a fee for service basis for additional patient services include, among others: Australia, Canada, Denmark, France, Japan, the Netherlands, New Zealand and Spain. In France, the role of pharmacists in prevention has been expanded since 2018. They are now permitted to administer influenza vaccinations to older people and other at-risk groups for whom the vaccine is recommended. They receive a vaccination fee for this activity, paid by the Health Insurance Fund. Since February 2019, they may also dispense medicines for a continuing a treatment regime of at least three months, even when the prescription has expired (e.g. treatments for hypertension and diabetes, contraception) (European Commission, 2019[35]). As new clinical services are adopted, they may be compensated by a fee for service, a fee for performance (such as achieving a generic substitution target) or a capitation fee (WHO Regional Office for Europe, 2019[14]). In Latvia, providing an expanded professional service role for community pharmacists could contribute to better management enhanced health outcomes as well as better management of the pharmaceutical sector.

This chapter has described the general functions of the Latvian pharmaceutical sector and many of the current issues in the efficient administration and sustainability of it. The system appears to have solid legal and organisational foundations but grapples with the increasing costs of, and demand for outpatient medicines. For patients, the current flaws in the system lead to very high levels of out-of-pocket costs in accessing needed medicines, in turn contributing to high rates of catastrophic spending on health. One of the positive findings of this analysis is that substantial improvements to the system could be made with modest increased cost and effort for the public authorities. However, it is important to reiterate that the overall current level of public spending on health in general (and on medicines in particular) remains among the lowest in OECD countries.

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Notes

← 1. Where patient contributions are structured as co-insurance, the amount paid is a fixed percentage of price of the medicine and therefore increases as the price of the medicines increases. This not only means that patient contributions for more expensive medicines are less affordable, but also that patients cannot anticipate in advance what they will be expected to pay at the pharmacy for a given item. This uncertainty also contributes to failure to fill prescriptions. (WHO Regional Office for Europe, 2019[39])

← 2. Even if fixed-dose combinations drugs can lead to better adherence and control of the disease compared to the corresponding free-combination of the same molecules, their increased cost may not be offset by the clinical benefits brought in.

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