How Pharmaceutical Pricing Varies Globally

US consumers spent an average of $792 each pharmaceuticals in 2005, almost double the level of industrialized countries as a group, according to a new OECD report.

The 200-plus-page report, Pharmaceutical Pricing Policies in a Global Market, shows that pharmaceutical spending, on average across OECD countries, was $401 per person in 2005, with half of OECD countries spending within 20% of the average.

While richer countries tend to spend more per person on pharmaceuticals, other factors are at work as well. Per capita income accounts for less than a quarter of the spending variations, the report finds.

France and Spain paid below OECD-average retail prices in 2005 and also where the highest per-capita consumers, while the U.S., Canada and Germany paid 30 % more than the OECD average. The highest retail pharmaceutical prices were found in Iceland and Switzerland, exceeding the OECD average by more than 50%. About half of all medicines sold in the U.K, the U.S. and the Netherlands are generics. In France, Spain and Italy that drops to less than 15%.

The report also finds that price regulation does not always result in lower prices:

“While private insurers universally face pressure to extract the best possible price which their relative market power will permit, regulators and public schemes seek to balance cost-containment objectives with others, such as public health improvement, as well as industry policy goals and considerations of support for future pharmaceutical innovation, which may mean that they fail to push their market power as far as they might to obtain the lowest possible price.”

For this reason, it is not necessarily the case that price regulation will always result in lower pharmaceutical prices than would be obtained in an environment characterised by competing private insurers.

All OECD countries have introduced some degree of price regulation for pharmaceuticals. While two countries, Canada and Mexico, have chosen to cap the price of all patented drugs on the market, whether or not they are covered by publicly financed coverage schemes, most OECD countries regulate the prices of medicines whose use is subsidised through such schemes, whether or not the medicines are on-patent.

The most common pricing policy is known as external benchmarking, in which a price limit is set according to a formula based on what other countries pay. This practice has several drawbacks. First, the pharmaceutical industry launches its products first in countries where it can set a price freely at market entry (e.g., Germany, the U.S.) or negotiate relatively high prices (e.g., Switzerland). Second, there is a risk of benchmarking to artificially high list prices because payers negotiate confidential rebates, reducing the real price paid. Together with the threat to industry profits posed by parallel and cross-border trade in pharmaceuticals, this practice contributes to convergence of list prices and affordability problems in lower-income countries.

Another common way to set drug prices is to compare them with prices for therapeutic alternatives that are already on the market. Usually, a price premium is awarded only for products that are assessed as having extra therapeutic advantages. In Germany and a growing number of other countries, the amount patients are reimbursed is capped by the price of products considered similar, so if patients buy more expensive products they pay the difference out of their own pocket.

Pharmacoeconomic assessment - evaluating the costs and benefits expected from a product - can be used to decide whether a medicine is worth what its maker proposes to charge. This can help obtain good value for money while furnishing important market signals as to what sorts of investment are most useful. It remains, however, a technically challenging and value-laden exercise.

Comments

[john s. gordon:]

as usual the u.s consumer of branded drugs subsidizes the rest of the world. lack of a national health care system with forced price negotiation with the manufacturers creates this condition.
> jack

2008 Sep 25 08:54 AM