Chapter 1 Introduction
Switzerland's healthcare landscape is going through a period of continuous upheaval with the recent adoption of revisions to the Ordinance on Health Insurance (KVV) as announced by the Federal Council in September 2023. The changes aim to expedite access to crucial medicines, ensure fairness in therapeutic access and address any cost-saving measures within the healthcare system. These changes bring about additional obligations of rebates, which need to be granted by the pharmaceutical companies distributing medicines in Switzerland.
However, the introduction of fixed or new rebates opens a window for a VAT refund opportunity akin to the Boehringer Ingelheim case. In this blog post, our regulatory and VAT experts will dive deeper into the tax-relevant changes to the KVV.
Chapter 2 Background
KVV Art. 71a-c: ensuring access to vital healthcare
The regulation of medicine reimbursement in special cases by obligatory health insurance providers in Switzerland is governed by KVV Art. 71a to c. Each year these articles handle over 40,000 cases1, playing a crucial role in providing access to innovative and life-saving medications in special circumstances. KVV Article 71a pertains to the reimbursement of off-label usage of Specialty List (SL) medicines, while KVV Article 71b covers non-SL medicines in special cases, which usually are not reimbursed by the obligatory health insurance. KVV Article 71c addresses the reimbursement of innovative medicines which, while not yet authorised by Swissmedic, are imported from third countries where the drug has been approved for use on patients.
The reform of the Swiss healthcare landscape
The Federal Council approved the revision of the Health Insurance Ordinance (KVV) during its meeting on 22 September 2023 alongside the Health Insurance Benefits Ordinance (KLV) and the Ordinance on Medicinal Products (VAM), which are not part of this blog post. This revision aims to expedite access to essential medicines, ensuring the accessibility of fair and equitable therapy. Additionally, the revisions seek to promote cost savings in the healthcare system, promoting the sale of generics and biosimilars. Notably, a key concern highlighted by the Federal Office of Public Health (BAG) is the inconsistent treatment of similar cases by various health insurance providers, emphasising the problematic nature of pricing negotiations between health insurers and pharmaceutical companies.2
Chapter 3 A VAT deep dive into changes in KVV Art. 71a and 71b
Changes to KVV Art. 71a
There has been an introduction of post-exposure prophylaxis against the outbreak of fatal diseases or diseases causing severe chronic health impairments, such as HIV prophylaxis3 (para. 1 lit. c).
Another new addition is paragraph 2, in which the Federal Department of Home Affairs (EDI) determines price reductions based on benefit assessment categories (please refer to Tab 1) for rebates on therapies which are life-saving or prevent severe chronic impairments (requirements outlined in para. 2 lit. b and rebates in para. 3 lit. b).
The revised article introduces a change to the way rebates are calculated in paragraph 3, which are now specifically based on the ex-factory price (FAP) on the SL, whereas until 31 December 2023 rebates had to be lower than the price on the SL without any further legal requirements.
An additional requirement added to paragraph 3 is the stipulation that the health insurer needs to make sure that the costs are proportionate to the therapeutic benefit, which is why the benefit assessment categories, as previously mentioned, have been introduced in paragraph 23.
Notably, the rebates are now fixed, and can be as high as 30% for medicines linked to obligatory health insurance services and the newly-added post-exposure prophylaxis (para. 3 lit. a), and up to 50% for therapies which are life-saving or prevent severe chronic impairments (para. 3 lit. b).
| Benefit Category | New or Patent-protected SL medicines | Generics, Biosimilars, SL-Medicines with expired patent |
| A (significant benefit) | 30% | 10% |
| B (considerable benefit) | 35% | 15% |
| C (considerable expected benefit) | 40% | 20% |
Tab 1: Benefit category medicines as published by the BAG4
It’s important to note that an additional 10% rebate on Swissmedic-authorised therapies and indications will be applied after twelve months4.
Further to the above rebates, the insurer can lower the price for a drug further if there is a cheaper generic drug available (para. 4 lit. a), or if the drug has to meet certain rules in order to be reimbursed (e.g. price models) (para. 4 lit. b). The price that the insurer pays for the drug for the most important indication is used as the starting price for the reduction.
Changes to KVV Art. 71b
Before 2024, pharmaceutical companies engaged in negotiations with insurers for the price of non-SL medicines used in special cases which are reimbursed by the health insurance. During those negotiations, pharmaceutical companies may have offered potential and voluntary rebates. KVV Art. 71b (until 31 December 2023) only stipulated that insurers and Market Authorisation Holders (MAH) would negotiate the price without additional requirements for rebates.
However, as of 1 January 2024 with the KVV revision, MAHs are obliged to provide discounts on non-SL medicines utilised in special cases, as is outlined in the revised paragraph 2.
These mandated rebates mirror those stipulated in KVV Art. 71a paragraph 3 outlined in the above section for KVV Art. 71a in this blog post.
Changes to KVV Art. 71c
The requirements stipulated by the revised article have not undergone major changes; similarly to KVV Art. 71b it encompasses all situations outlined in KVV Art. 71a para 1. However, a noteworthy change in KVV Art. 71c is the insurer's new-found authority to request the importation of the finished drug from a country where the reimbursement costs for the insurance are the lowest.
This stands in contrast to the previous requirement in place until 31 December 2023, where the healthcare provider had the responsibility of cost considerations. Additionally, the health insurance now has the ability to negotiate the price directly with the MAH, a capability they did not previously have. Here too, potential Rebates could be negotiated.
Chapter 4 VAT refund opportunity
Typically, a pharmaceutical company sells its medicines to a distributor, either at FAP for SL medicines or at the prevailing market price of the non-SL medicines. The distributor then supplies these medicines to various outlets such as hospitals and pharmacies.
When rebates are applied under KVV Art. 71a and b, the health insurance claims the rebate through a credit note by means of an invoice issued to the MAH entity. This is because the health insurance has reimbursed the public price for SL medicines or the full market price of non-SL medicines to the patients or healthcare providers.
Historically, rebates claimed by health insurance under KVV Art. 71a and b were commonly presented with value-added tax (VAT) on the credits. However, a recent trend has emerged where many insurers issue credit notes without value-added tax. This shift aims to mitigate any potential value-added tax risks on the insurer’s side.
In scenarios where credit notes are issued without value-added tax, the MAH experiences a reduction in remuneration. This reduction is typically not considered from a VAT perspective, and the rebate might not be deducted from the taxable turnover. Consequently, there is a potential opportunity for reclaiming VAT for rebates granted for SL drugs as well as non-SL drugs and potentially imported finished drugs, depending on invoicing arrangements.
Important, the prerequisite for potential VAT refunds for non-SL medicines is that a rebate had previously been negotiated between the MAH and the health insurance and claimed under KVV Art. 71b. Moving forward, such rebates are mandated by the revised KVV Art. 71b para 2.
Chapter 5 Future-proofing finances: an opportunity for Swiss pharma companies
For pharma companies that provided discounts on SL and non-SL medicines under KVV Art. 71a, b and c up until 2023, there is an opportunity to reclaim VAT as they can deduct the overpaid VAT from their VAT statements.
Additionally, from 2024 onwards pharma companies must provide rebates on non-SL medicines used in special cases. This essentially puts KVV Art. 71b in a similar position as KVV Art. 71a from a VAT perspective.
However, it is important to note that it is not recommended to reclaim VAT on rebates without a ruling from the Swiss tax authorities confirming this treatment.
PwC has successfully obtained such rulings for several of its pharma clients (multinational, SME and start-up companies), who could reclaim significant amounts of VAT covering the past five years.
We would be more than happy to discuss the potential VAT refund opportunity for your company and the necessary next steps with you in more detail in person. Please do not hesitate to contact us.
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