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More and more is possible in healthcare. New technologies and better treatments mean we are living longer, while the quality of our lives is improving. This high-quality care comes at a price. We spend a relatively large amount on healthcare in the Netherlands; almost 4,200 euros annually per capita.
The total healthcare expenditure per Dutch inhabitant will continue to grow. But that is not because we spend more and more money on medicines. In fact, the medicine costs grow much slower than the total costs of healthcare.
In 2018, the Netherlands spent nearly 78 billion euros on healthcare. Of that amount, 5.7 billion euros went to medicines. This amount corresponds to approximately 7 percent of the care budget. The reason that the medicine costs increased only slightly is due mainly to volume growth: ever more medicines are being prescribed.
Source: State Budget 2018; Farminform 2019
Over the past decade, the total government expenditure on healthcare has increased from 56 to 78 billion euros. The expenditure for medicines decreased significantly less between 2008 and 2018: from 4.9 to 5.7 billion euros.
The share of medicines in the healthcare budget decreased in this period from 8.9% to 7.3%. This is due to the faster increase in other healthcare costs.
In the Netherlands, we spend relatively little on medicines compared to other high-income countries. Total spending per year, per capita, amounts to approximately 376 euros in the Netherlands, while the average is 604 euros.
However, in the Netherlands we pay almost as much for total healthcare as other high-income countries. This is due to the fact that the Netherlands spends a relatively large amount on hospital and long-term care.
Source: Journal of the American Medical Association: Healthcare spending in the United States and other high-income countries (2017)
Source: Farminform, 2018
When determining the impact of a medicine on the healthcare budget, it is often only viewed at the time when the drug costs the most. But the expenditure on a medicine is never stable. Because other companies also make medicines for the same disease, competition sets in. As a result, the price can already decrease by an average of 2% per year after a few years or even months.
When the patent on a drug expires, usually about 10 years after a medicine has been registered with the EMA, other companies can copy the medicine. As a result, the competition increases further, resulting in prices falling by an average of 85%. The medicine is then available for a fraction of the original price. Patients can then profit from the innovation for decades to come.
Consumer prices have increased considerably over the past 20 years. For example, prices of housing, transportation and education increased by an average of 2% per year.
Medicine prices increased just 0.5% per year in the same 20 years.
Total expenditure on medicines increased slightly more than this percentage because the total medicine use increased. And that is due to the fact that more Dutch use medicines (especially due to ageing) and the use per capita is growing.
Source: Statistics Netherlands, 2019
Source: Farminform, 2019
Although the total expenditure on medicines is fairly stable, there is a shift within that total. Hospitals are accounting for an increasing proportion of total drug costs.
The shift is mainly caused by the transfer of certain medicine groups (e.g. for rheumatoid arthritis) from the public pharmacy to the hospital budget between 2011 and 2015. New medicines are also being administered more often in the hospital, for example cancer medication.
The sales of medicines provided in the hospital (intramural) has increased since 2008 from 1 billion to 2.7 billion euros. The sales of medicines provided by the public pharmacies (extramural) fell in this same period from 3.9 to 3 billion euros.
The Wet Geneesmiddelen Prijzen [Medicines Prices Act] (WGP) determines the maximum prices for medicines in the Netherlands. Based on prices from four different countries (France, United Kingdom, Belgium and Germany), an average price is established that is applied as the maximum price in the Netherlands. As a result, we never pay the top price in the Netherlands, but always what is reasonable compared to our neighbouring countries.
Because prices change continuously, the WGP is recalibrated twice per year. That recalibration saves society an average of 172 million euros annually. At the beginning of 2019, Minister Bruins (Medical Care) sent a proposal to the Lower House of Parliament, proposing to replace Germany with Norway as reference country. If this legislative proposal is adopted, the maximum prices will fall even more. That can make it less attractive for drug companies to provide their medicines in the Netherlands.
Source: FarmInform, 2019
Source: Deloitte, 2018: Unlocking R&D productivity
The return on research and development (R&D) of new drugs has decreased considerably over the past 8 years. The rate of return is the ratio between investments of the companies in R&D and the expected revenue from the medicines developed.
This rate of return provides the best insight into the long-term profitability of drug companies.
According to a recent Deloitte study, the average rate of return of pharmaceutical companies on R&D decreased to 1.9 percent in 2018. Deloitte’s sample shows that this is due to the fact that the development costs are increasing significantly, but the peak revenue is decreasing. The decreasing rate of return makes it more difficult to finance drug development in the long-term.
Medicines are invaluable to people. For example, the life expectancy with cancer has increased significantly over the past decades, and HIV is no longer a death sentence. However, the pharmaceuticals sector also adds value to society in many other ways. For example, medicines often prevent the need for other care, such as surgery, transplants and hospitalisations.
In addition, medicines prevent many costs that arise due to disability (for instance by rheumatism), or absenteism costs (for example due to the flu). In addition, the sector also provides a high level of economic value: it provides jobs, provides work to other sectors (for example, transport) and contributes to the growth of the Dutch economy. Therefore, society amply recovers its investment in the medicine sector.
Source: McKinsey, 2018: Holistic perspective on the value of medicines (Portugal)
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