The payback on pharmaceutical spending: the 2018 budget law, stress tests for pharmaceutical governance
The payback of hospital pharmaceutical spending, which requires companies to cover 50% of expenditure in excess of the limit set by law (the other 50% is borne by the Regional governments), in the first three years of application (2013- 2015) was marked by numerous appeals lodged by pharmaceutical companies with the Regional Administrative Courts. Through the 2018 Budget Law the Legislator made an attempt to define the correct VAT treatment, but the subsequent litigation before the Regional Administrative Courts, for the payback of the 2016 pharmaceutical spending, affected the corrective actions envisaged by the budget law. The new guidelines issued by MP Grillo provide for the establishment of a technical committee for a new governance of this sector.
A few weeks after the possible definitive solution for the payback on pharmaceutical spending for the three-year period 2013-2015, referred to in paragraphs 394 et seq. of the 2018 Budget Law, it can be said that the stress test has failed. Pharmaceutical companies are again resorting to legal actions to solve the 2016 payback issue; a stalemate that also calls into question the years from 2013 to 2015.
Who’s paying the price? The Regional governments burdened by the 2013-2015 paybacks and the 2016 payback, which recorded a negative balance of € 780 million and the pharmaceutical industry, which has already paid € 880 million euros for the years 2013-2015 and € 580 million for 2016.
Yet, the Legislator had taken action through the 2018 budget law to define the correct VAT treatment, calculated on gross drug prices, which the pharmaceutical industry had to return to the Regions and Autonomous Provinces, from 2013 to 2015 (pursuant to art 15 of Decree Law No. 95/2012), as payback (partial and 50%) of hospital pharmaceutical spending in excess of the limit established by law.
The legal issue that is the subject of administrative and tax litigation is the possibility of recovering the VAT applied by companies on products sold. According to document no. 945-27/2015 of the Italian Revenue Agency, the exceeding of the pre-established hospital expenditure threshold is “a partial condition subsequent established by law, […] which affects the monetary obligation leading to a price revision”.
When the aforesaid condition is met, there are the conditions for issuing a credit note for the VAT charged on the sale of pharmaceutical products (pursuant to Article 26 of Presidential Decree No. 633/1972).
In this regard, the Legislator confirms that the AIFA, Italian Medicines Agency, will have to determine the payback amounts due to the exceeding in 2016 of the gross pharmaceutical expenditure limit, in compliance with the legislation in force.
All this, however, has not happened and the wave of litigation is on the rise again. The bone of contention remains the final allocation of corporate spending budgets for the year 2016, while the re-design of a new governance of the pharmaceutical system remains central, with one of the objectives being to avoid the use of mechanisms, such as precisely the payback on hospital pharmaceutical spending.
Thus, a valid governance model should resort to the payback as an exceptional instrument only, rather than taking for granted the presence of an excess amount to be covered. The payback is, by its very nature, an imperfect solution with which to tackle the sustainability issue: available resources should be allocated in such a way as to avoid the excess pharmaceutical spending, while the current management model seems focused on defining mechanisms for covering the excess spending rather than on solving the problem at its root.
The challenge of health spend sustainability also requires combining new forms and tools to cover the pharmaceutical spending, starting in the very short term from a payback mechanism that is at least simplified through, for example, offsetting between spending limits so that the resources envisaged for the sector remain within the same area.
Last but not least, within the four planned directions envisaged by MP Grillo, we note the reform of the pharmaceutical governance. On 1 August, the Technical-Institutional Committee was set up with the strategic objective of “verifying the acts and measures that regulate the pharmaceutical governance, identifying the main critical issues and developing regulatory solutions, suggesting innovative proposals for both medicines and medical devices”. If we analyse who are the members of the Committee, we can see that the industrial stakeholders in the sector have not been included. Yet, like for other Ministries, the transparent administration section applicable to the Ministry of Health envisages the possibility for representatives of interest groups to enrol in the specific list.