Thank you very much, Mr. Chairman. As you said, my name is Sofia Wallström. I'm the director general of the Swedish Dental and Pharmaceutical Benefits Agency, the TLV. I want to thank you for the invitation to address the committee today, and I hope that our experiences can be beneficial to your work.
First, I will give you some background. Sweden is a medium-sized European country. The Swedish population reached 10 million in January this year. The population density is approximately 22 inhabitants per square kilometre. The population is geographically unevenly distributed. As in Canada, the inland and northern parts are scarcely populated, while the major urban areas are located along the coastline of the southern part of Sweden.
Swedish health care is a national health service system. Provision of health care is regulated by law, incorporates equal access to services based on need, and emphasizes a vision of equal health for all. The health care system provides coverage for all residents of Sweden, regardless of nationality. The Swedish system is highly decentralized, with three independent governmental levels: the national government, the regional county councils, and the local municipalities. They are all involved in health care.
The county councils have the main responsibility for providing health care, and there are 21 county councils that own and operate most of the health care facilities, such as hospitals and primary care centres. The 290 local municipalities are responsible for providing nursing home care, social services, and housing needs for the elderly.
The Swedish health care system is funded primarily by taxes, and the county councils and the municipalities have the right to levy taxes and determine tax rates. Principal health policy objectives and frameworks are determined at the national level, but the actual provision of services is done by the county councils and municipalities. The county councils are solely responsible for the funding of in-patient pharmaceutical expenditure. Costs for out-patient pharmaceuticals are formally financed by the county councils, but the government gives a special grant that covers the county councils' costs for out-patients' medicines.
Patients pay a limited part of the actual costs for visits and treatments. Patients pay a fee when visiting a health care service centre and when treated in a hospital. The maximum annual amount is 1,100 Swedish kronor, which is about 116 euro, and includes pharmaceutical treatments. In a separate system patients also pay a copayment of a maximum of 2,200 Swedish kronor, which is about 230 euro per year, for out-patient pharmaceuticals included in the pharmaceutical benefits scheme.
The Dental and Pharmaceutical Benefits Agency is the governmental agency responsible for pricing and reimbursement decisions on medicines used in out-patient care. The criteria for reimbursement are laid out in the Act on Pharmaceutical Benefits and can be summarized in three principles: the human value principle, the need and solidarity principle, and the cost-effectiveness principle. All of these criteria are to be considered and weighed together by the TLV. This means that, for new pharmaceuticals, TLV uses health and economic analyses as important bases for our decisions.
For products that have been on the market for some years but for which the patent has not expired or there is no generic substitution, Swedish prices a couple of years ago were very high. To deal with this, we had new legislation in 2013, and we now have an automatic price cut of 7.5% when a drug has been on the market for 15 years.
When it comes to the generic market, Sweden has obtained among the lowest prices in Europe for generic drugs. Generic substitutions for pharmaceuticals in pharmacies have been mandatory since 2002. For products with this kind of competition, pharmacies are obliged to offer the equivalent medicine with the lowest price per unit. Each month TLV informs which product in each package-sized group has the lowest retail price per unit, and it should be dispensed at pharmacies that month. The preferred product is appointed through a monthly auction at TLV, where the product that the pharmacies should offer is decided.
Competition between manufacturers has resulted in significant price reductions of these drugs. After three months, the price will fall by 40% on average, and after two years, the price should fall further, to 35% of the price before the competition arose. As the prices fall, volumes increase, which means that more patients get access to effective treatment. Also, financial resources are made available for other care, since the decrease in price is larger than the increase in volume.
I will now make a few comments on our work in the face of challenges with new pharmaceuticals. We see that quite a few of the new pharmaceuticals address high unmet medical needs and are judged to have a positive risk-benefit balance. However, they often come with a challenge. They are high priced, so it's hard to decide on price and reimbursement when many new drugs reach the market earlier in the development phases and have a larger uncertainty in their documentation. To meet these challenges, TLV has established a national platform for collaboration and dialogue with the pharma companies and the county councils. A managed entry agreement between the county councils and a pharmaceutical company may be one of several factors considered when TLV decides on price and reimbursement status. Risk sharing via managed entry agreements is an increasingly important tool to manage these uncertainties associated with scarce data.
Managed entry agreements between county councils and pharmaceutical companies also have potential as powerful tools to create competition and stimulate price dynamics within established therapeutic areas where, for various reasons, competition and price pressure have not arisen. One example is biologicals, where price competition rarely arises, despite the market entry of biosimilars. This work is now being implemented in practice and to date, agreements have been reached in several areas, including hepatitis C, heart failure, and cancer.
We're now moving forward both to institutionalize and expand the use of these risk-sharing models. We increase our efforts to include a proper plan for renewal of our decisions, based on follow-up and post-launch evidence generation. We aim to develop this further to allow early decisions, early access, and link it to continued development of knowledge.
In summary, the Swedish system provides universal health coverage mainly financed by taxes. Both in-patients and outpatients are covered. For outpatients, there is a copayment system with thresholds in place for pharmaceuticals with generic competitions. After patents expire, we have some of the lowest prices in Europe. For products older than 15 years, when there is no generic competition, there is an automatic price cut of 7.5%, which gives us a good precondition to face challenges, such as new, high-priced, innovative drugs or drugs aimed at rare diseases. Of course, our pricing decisions in our reimbursement work is being made more complex, as pharmaceuticals reach the market earlier with a larger uncertainty in their documentation. Our work and decisions are becoming more complex based on scarce data. Our value-based approach with health technology assessment is an important basis and we're now in the process of developing this further to meet these new challenges.
With this, I would like to conclude my intervention. Once again, thank you for this opportunity.