Search results

Purpose – Pharmaceutical expenditures have an important role in Europe. The attempts to control expenditure have used a wide range of policy measures. We reviewed the main measures adopted by the European Union countries, especially in countries where governments are the largest third-party payers.

Methodology – To complement a literature review on the topic, data was gathered from national reviews of health systems and direct inquiries to several government bodies.

Findings – Almost all countries regulate prices of pharmaceutical products. Popular policy measures include international referencing to set prices (using as benchmark countries that have set lower prices), internal reference pricing systems to promote price competition in domestic markets, and positive lists for reimbursement to promote consumption of generics (including in some cases substitution by pharmacists of drugs prescribed by physicians). Despite the wide range of policy measures, it is not possible to identify a “silver bullet” to control pharmaceutical expenditures. We also identified two main policy challenges: policy coordination among countries within the European Union to maintain incentives for R&D at the global level, and the development of new relationships with the pharmaceutical industry; namely, the so-called risk-sharing agreements between the pharmaceutical industry and governments/regulators (or large third-party payers).

The World Health Organization estimated that in 1999 roughly one-third of the world's population lacked access to essential medicines that would have saved or improved their lives. Our analysis focuses on how pharmaceutical product patents restrict access to essential medicines in developing countries. It is well established that pharmaceutical product patents provide little incentive for pharmaceutical companies to develop new medicines designed to treat diseases prevalent in developing countries or to market in developing countries those patented medicines developed to treat diseases prevalent in developed countries. Economists have developed theoretical models showing that these incentives could be changed if (1) developing countries provided intellectual property protection for new pharmaceutical innovations and (2) an international regulatory framework were established to facilitate pharmaceutical companies setting lower prices in developing countries and higher prices in developed countries for patented medicines. We develop an index of property rights in pharmaceutical innovations covering 129 countries from 1960 to 2005. It shows that in 1960 only a handful of countries provided significant protection for pharmaceutical innovations, but by 2005 over 95 percent of countries in our sample provided significant statutory protections. However, an international framework to allow pharmaceutical companies to price discriminate has not been put in place. We conclude that international price discrimination mechanisms, compulsory patent licenses, and regional patent buyouts are not viable mechanisms for providing access to essential medicines to patients in developing countries. Global patent buyouts are more likely to achieve this goal, as they are not founded on an impractical separation of pharmaceutical markets in developing and developed countries and they provide critical incentives to develop new essential medicines.

Purpose – There is a particular need for health policy evaluations in terms of achievement of goals, which may help inform policy-making not only locally but for the wider international policy community. In this chapter, we review the impact of pharmaceutical regulation and policies in Israel on a range of health system performance goals that, in the pharmaceutical context, are mainly related to ensuring the availability, accessibility and affordability of medicines.

Approach – We assess pharmaceutical policies and their impact, within the Israeli National Health Insurance (NHI) system enacted in 1995, on the degree to which the following main policy goals are being achieved: containment of drug expenditures; sustainability and equity of financing for pharmaceuticals; efficiency of expenditure in the pharmaceutical sector; and availability and accessibility of pharmaceuticals.

Findings – The findings point to a number of accomplishments as well as outstanding challenges. The main accomplishment is successful cost containment of (public) expenditure on medicines. Government price regulation operates as a mechanism responsible for sickness funds’ (SFs) savings, over which the state has no information or monitoring. Although the package of publicly financed drugs is comprehensive, delays in reimbursement decisions and high level of cost sharing mean that medicines have become increasingly unaffordable for many patients, especially for low-income persons with chronic diseases.

Implications – Regulation of the pharmaceutical sector should focus on two aspects: decreasing the information gap between the SFs and the regulator and reforming the cost-sharing policy to increase affordability and equity.

There is sufficient evidence to prove that the improved health status of a nation’s citizens results in economic growth and development via improved functionality and productivity of labor. It is also commonly accepted that healthcare expenditure significantly influences health status through, for instance, improving life expectancy at birth and reducing morbidity, death, and infant mortality rates. Within healthcare, medicines account for a considerable share of health-related expenditure in both developed and developing countries. Therefore, it seems reasonable to assume that improved access to medicines is likely to contribute not only to the well-being of families and individuals but also to the economic growth and development in all societies. It has been widely advocated that pharmaceutical multinational enterprises (MNEs) can play an important role to address this problem, as they develop and supply a significant proportion of the drugs imported by low- and middle-income countries. This chapter is dedicated to a systematic review of literature in order to identify the strategies implemented by pharmaceutical MNEs to improve access to medicines in the low- and middle-income countries. A total of 76 research articles have been identified, and we have found that the main strategies of pharmaceutical MNEs are related to improving health outcomes through R&D, establishing partnerships for product development, pricing strategies to improve access to medicines, technology transfer, licensing agreements, and nonmarket efforts to improve access to medicines, among other strategies to overcome barriers imposed by intellectual property rights. We have also found that pharmaceutical MNEs’ strategies take place within a complex system and often involve interactions with a wide range of actors, such as international organizations, governments, private not-for-profit sector, universities and research institutes, and generic manufacturers. However, there is still a need for major progress in the field of access to medicines, and pharmaceutical MNEs should be more active in this field in order to avoid potential negative consequences, such as loss of legitimacy and compulsory licensing of their patented medicines.

Pedro Pita Barros reviews pharmaceutical policies adopted by health care systems in European (OECD) countries. He notes that cost-sharing for pharmaceuticals is higher than cost-sharing for other services. However, although pharmaceutical cost-sharing is pervasive across the European Union, concerns over equity have led most countries to adopt sliding fee schedules and even outright exemptions from copayments for vulnerable populations such as the elderly and low income households. The most common form of price regulation in these countries is reference pricing, either “external” (pegging pharmaceutical payments to lowest prices in a group of countries) or “internal” (pegging pharmaceutical prices to the lowest price within a therapeutic class), as well as outright administrative price controls. In his theoretical results, Barros shows that reference pricing lowers cost to consumers the most, followed by administrative price lists, while the pure coinsurance system yields the higher total cost. To foster innovation, Barros proposes adoption of innovative payment schemes based on supply-side risk sharing whereby payments to drug manufacturers are tied to treatment results and patient outcomes. Such schemes are akin to pay-for performance methods used to reimburse physicians in certain managed care settings in the United States.

With expenditures totaling $227 billion in 2007, prescription drug purchases are a growing portion of the total medical expenditure, and as this industry continues to grow, prescription drugs will continue to be a critical part of the larger health care industry. This chapter presents a survey on the economics of the US pharmaceutical industry, with a focus on the role of R&D and marketing, the determinants (and complications) of prescription drug pricing, and various aspects of consumer behavior specific to this industry, such as prescription drug regulation, the patient's interaction with the physician, and insurance coverage. This chapter also provides background in areas not often considered in the economics literature, such as the role of pharmacy benefit managers in prescription drug prices and the differentiation between alternative measures of prescription drug prices.

The existence of parallel imports (PI) raises a number of interesting policy and strategic questions, which are the subject of this survey article. For example, parallel trade is essentially arbitrage within policy-integrated markets of IPR-protected goods, which may have different prices across countries. Thus, we analyze fully two types of price differences that give rise to such arbitrage. First is simple retail-level trade in horizontal markets because consumer prices may differ. Second is the deeper, and more strategic, issue of vertical pricing within the common distribution organization of an original manufacturer selling its goods through wholesale distributors in different markets. This vertical price control problem presents the IPR-holding firm a menu of strategic choices regarding how to compete with PI. Another strategic question is how the existence of PI might affect incentives of IPR holders to invest in research and development (R&D). The global research-based pharmaceutical firms, for example, strongly oppose any relaxation of restrictions against PI of drugs into the United States, arguing that the potential reduction in profits would diminish their ability to innovate. There is a close linkage here with price controls for medicines, which are a key component of national health policies but can give rise to arbitrage through PI. We also discuss the complex economic relationships between PI and other forms of competition policy, or attempts to limit the abuse of market power offered by patents and copyrights. Finally, we review the emerging literature on how policies governing PI may affect international trade agreements.

George E. Cressman, Jr. is President and Founder of World Class Pricing, Inc. George spent 30 years in industry, and has been consulting in marketing strategy, competitive strategy, and pricing for 15 years. George provides marketing and pricing solutions for global business-to-business and business-to-consumer firms. George has been named Marketer of the Year by the American Marketing Association, and is a frequent speaker in management education programs.

Purpose – To analyse the development of pharmaceutical policy in the Dutch market for outpatient prescription drugs since the early 1990s.

Methodology – A literature review and document analysis is performed to examine the effects of pharmaceutical policy on the performance of the Dutch market for outpatient prescription drugs since the early 1990s.

Findings – Government efforts to control prices of pharmaceuticals were effective in constraining prices of in-patent drugs, but had an opposite effect on the prices of generic drugs. The gradual transition towards managed competition – that particularly gained momentum after the introduction of the new universal health insurance scheme in 2006 – appears to be more effective in constraining prices of generic drugs than earlier government efforts to control these prices.

Originality – Comparative analysis of the impact of price regulation and managed competition on generic drug prices in the Netherlands.

Implications – Implications of the changing role of health insurers are discussed for the future market for prescription drugs and role of pharmacies in the Netherlands.

Purpose – To evaluate the efficiency consequences of the Medicare Part D program.

Methods – We develop and empirically calibrate a simple theoretical model to examine the static and the dynamic welfare effects of Medicare Part D.

Findings – We show that Medicare Part D can simultaneously reduce static deadweight loss from monopoly pricing of drugs and improve incentives for innovation. We estimate that even after excluding the insurance value of the program, the welfare gain of Medicare Part D roughly equals its social costs. The program generates $5.11 billion of annual static deadweight loss reduction and at least $3.0 billion of annual value from extra innovation.

Implications – Medicare Part D and other public prescription drug programs can be welfare-improving, even for risk-neutral and purely self-interested consumers. Furthermore, negotiation for lower branded drug prices may further increase the social return to the program.

Originality – This study demonstrates that pure efficiency motives, which do not even surface in the policy debate over Medicare Part D, can nearly justify the program on their own merits.