US embassy cable - 05PRAGUE147

UNCLAS SECTION 01 OF 02 PRAGUE 000147 
 
SIPDIS 
 
STATE FOR EUR/NCE AND EB/TPP/MTA/IPC 
COMMERCE FOR 4232/ITA/MAC/MROGERS 
STATE PASS USTR FOR LERRION 
 
E.O. 12958: N/A 
TAGS: ETRD, KIPR, EZ, USTR 
SUBJECT: CZECH GOVERNMENT TAKES NOTICE OF WARNINGS ON 
PHARMACEUTICAL MARKET ACCESS 
 
REF: PRAGUE 76 
 
1.  Summary: U.S. pharmaceutical companies' concerns about 
obstacles to market access in the Czech Republic will be 
raised in their 2005 Special 301 submission.  Embassy Prague 
has raised with the GOCR the pharma industry's complaints 
about the discriminatory effect of Ministry of Health setting 
of reimbursement levels for the national health insurance and 
Ministry of Finance setting of maximum prices, as well as 
other practices that tend to restrict market access.  The 
pharmaceutical industry's complaints are now beginning to get 
attention from the GOCR.  The Ministry of Health is preparing 
new rules for determining reimbursement with the input of the 
pharma companies, although it remains to be seen if the 
result will be helpful or not.  The right to appeal the 
Ministry of Health's reimbursement decrees remains unclear. 
Our contact at the Ministry of Health has promised to review 
specific claims of discrimination.  Similarly, the Ministry 
of Foreign Affairs has promised to study the impact of the 
Ministry of Finance maximum price decrees.  End Summary. 
 
2.  The Embassy has followed up the Ambassador's letter and 
meeting with the Ministry of Trade and Industry reported 
reftel with meetings with the Ministry of Health and Ministry 
of Foreign Affairs.  The intent of these meetings is to use 
the leverage provided by the Special 301 process to ensure 
that the relevant Czech officials take notice of the U.S. 
pharmaceutical industry's concerns and begin to take action 
to address them. 
 
HEALTH MINISTRY WORKING ON NEW REIMBURSEMENT SYSTEM 
--------------------------------------------- ------ 
 
3.  On January 24, we met with Katarina Bartikova, head of 
the Pharmacy Department of the Ministry of Health.  As such, 
she is the official in charge of the process of setting 
reimbursement levels for the national health insurance 
system.  Bartikova has been in her job since December, 
although she worked for the Pharmacy Department prior to a 
hiatus during which, she said, she was working for an 
American pharmaceutical company that she refused to name. 
Bartikova said she is determined to bring more transparency 
to the reimbursement process.  She is preparing a new process 
for determining reimbursement levels with what she terms 
clear standards.  Bartikova has met five or six times since 
December with MAFS (the International Association of 
Pharmaceutical Companies, the local association of U.S. and 
European pharma companies) to discuss what the standards 
should be. (Note: based on her prior work at the Ministry, 
local representatives of U.S. pharmaceutical companies view 
Bartikova as an adversary.  They are skeptical of her 
commitment to setting fair standards.) 
 
4.  The new standards for reimbursement mentioned by 
Bartikova are apparently still a work in progress.  The paper 
she showed us is relatively clear about the information that 
must be gathered by the Ministry, but it remains rather vague 
about the rules that will be applied to that information to 
reach a decision on a level of reimbursement. 
 
5.  Regarding the actual setting of reimbursement levels, we 
agreed that there will always be tension between the 
Ministry's desire to keep costs as low as possible and the 
pharma industry's desire that its products be reimbursed to 
the full extent possible.   Bartikova agreed as well that the 
industry should have an opportunity to argue that a 
particular patented product has such special properties that 
it belongs in a different therapeutic category than the 
generic, with a correspondingly different reimbursement, even 
if it treats the same disease.  One of the problems the U.S. 
industry has had heretofore has been getting a fair chance to 
make that argument. 
 
5.  With respect to claims that the system of reimbursement 
discriminates in favor of domestic products in the same 
therapeutic category as imported products, Bartikova said 
that each such case depends on the facts and asked us to 
provide particulars.  With the pharma companies' permission, 
we have shared with her the detailed statement of their 
concerns that will likely form the basis of their Special 301 
submission. 
 
6.  Although the pharma industry has long been critical of 
the "categorization committee" that advised the Minister of 
Health on reimbursement decisions, it was dismayed when 
Minister Emmerova's dismissed it last year because of its 
inattention to "social democratic values" in its work. 
Bartikova did not seem convinced of a need for such a 
committee in the first place and was not in a hurry to 
reconstitute it.  She said that the new standards should be 
in place before appointing a new committee can be considered. 
 She also linked the companies' right to appeal the 
Minister's final reimbursement decree to the establishment of 
standards.  She was unwilling to say whether or not she 
believed such decisions are appealable. 
 
MINISTRY OF FOREIGN AFFAIRS DEFENDS THE STATUS QUO 
--------------------------------------------- ----- 
 
7.  On January 27, we met with Jana Reinisova, Director of 
the Domestic Markets and Sectorial Policies unit of the 
European Union Department of the Ministry of Foreign Affairs. 
 Reinisova gave us a paper (cleared with other interested 
ministries) responding to concerns raised by USTR in a recent 
telephone conversation with the Czech Embassy in Washington. 
For the most part, the paper contains flat denials of the 
allegations as they were understood by the MFA from the Czech 
Embassy.  It also contains figures on the growth of public 
expenditure for drugs and on the growth of Czech expenditures 
for medicines produced by the U.S. company Eli Lilly. 
According to the Ministry, these expenditures have grown from 
Kc 556.6 million ($24.2 million) in 2001 to Kc 787.1 million 
($34.2 million) in 2003, with expenditures for the first half 
of 2004 already at Kc 475.8 million ($20.6 million). 
 
8. We discussed with Reinisova the current top concern of the 
pharmaceutical industry, which is a new decree of the 
Ministry of Finance that, according to a legal analysis 
commissioned by MAFS, subjects domestically-produced drugs to 
a simpler calculation of maximum price than imported drugs. 
The producer of imports must submit information on direct 
costs of material, direct salaries, other direct costs, 
indirect costs and profit.  The pharma companies contend that 
this formulation is disadvantageous to them.  Reinisova was 
not familiar with the new decree but promised to study it. 
 
SPECIAL 301 WILL PUT THE PROBLEM IN FOCUS 
----------------------------------------- 
 
9.  Comment: The Czech government has historically been 
sensitive to the possibility that it may be placed on the 
Special 301 watch list.  The Ambassador's letter (reftel) and 
the USTR inquiry to the Czech Embassy have already put the 
working levels of the Ministries of Health, Foreign Affairs 
and Trade and Industry on their mettle to defend the Czech 
system as it affects imported products.  A strong response 
from the GOCR to Phrma's formal Special 301 submission can be 
expected.  The industry's complaints seem to be influencing 
the Ministry of Health to attempt to create at least a veneer 
of transparency for the reimbursement process.  The 
involvement of MAFS in determining the standards is 
encouraging, but it remains to be seen whether the ultimate 
result will allow the pharmaceutical companies to get a 
handle on how reimbursement prices are actually set and 
create a basis for a reasoned appeal if necessary.  End 
Comment. 
 
CABANISS