All pharmaceuticals in Sweden are distributed and sold to the general public by the state-owned National Corporation of Swedish Pharmacies (Apoteket AB). It operates hospital pharmacies under one-year contracts with the county councils, as well as community pharmacies. There are 900 pharmacies nationwide and another 1000 accredited agents - mainly grocery stores in rural areas. Before a new drug or medical product can be sold, it must be approved and registered by the MPA - a national authority responsible for regulation and surveillance of the development, manufacture and sale of drugs and other medicinal products.

There are approximately 6000 registered pharmaceutical preparations in Sweden. The three main medical areas of use, according to the anatomical therapeutic chemical classification system, in pharmaceutical sales are the central nervous system (19.6%), the cardiovascular system (13 .9%) and the alimentary tract and metabolism (11 .9%) (Swedish Association of the Pharmaceutical Industry 2004). The three largest groups at the second level, according to the anatomical therapeutic chemical classification system, are psychoanaleptic drugs, anti-asthmatic drugs and analgesic drugs.

The level of consumption of pharmaceuticals has increased from 1518 to 1632 defined daily doses per 1000 inhabitants per day between the years 2000 and 2003 (National Corporation of Swedish Pharmacies 2004; our own calculations). In 2003, the per-capita expenditure on drugs was SKr 3518 (€390).

The patient pays the entire cost of prescribed pharmaceutical preparations, up to SKr 900. Above this value, a rising scale of subsidy operates, with a high-cost ceiling, which means that the patient never has to pay more than SKr 1800 in any 12-month period.

LFN has the responsibility of deciding if a medicine or specific product should be subsidized. The Board makes its decisions primarily based on the cost-effectiveness of various products. LFN may decide to reimburse a drug for a narrower indication than the one for which the drug has been licensed for marketing by the MPA. From 1 October 2002, any prescribed drug, which qualifies for a subsidy, have to be exchanged for the cheapest comparable generic alternative available at the pharmacy. It is the MPA that decides which drugs are exchangeable.

Since 1998, the central government has allocated conditional grants for drugs to the county councils. The grants are selected after negotiations between the Federation of Swedish County Councils and the central government. The cost of this pharmaceutical benefit had been increasing by approximately 10% per annum (in current prices) between 1984 and 2002. However, during 2003 the increase in costs was only 2%, partly because of the introduction of generic substitution and the expiry of patents (National Board of Health and Welfare 2003c). In 2003, the costs of pharmaceutical preparations constituted approximately 15% of total health care expenditure. When hospitals purchase pharmaceuticals solely for their own use, they negotiate any discounts directly with suppliers, although the process is regulated under the Law on Public Purchase. Within the county councils' health districts, pharmaceutical committees draw up drug formularies listing which pharmaceuticals are to be used, primarily for outpatient care.