The heterogeneity of markets for drugs in Europe

The cost of distribution of drugs in European countries is one of the factors causing differences in prices among countries. Twenty countries are analyzed, to demonstrate the differential impact of margins paid to distributors. In most cases, distribution channels include two intermediaries, a wholesaler-distributor and a pharmacist. Three models can be observed: a fixed margin in percentage, either on the ex factory price, or on the public price; a regressive margin model, with more or less complex formulas; and a loosely regulated model, within which the revenue of each actor is set by market competition under a global cap on the difference between ex factory prices and public prices. The multiplicative coefficient varies between 1.14 and 2.44 according to countries and to models. The prices in different countries of three drugs, omeprazole, setraline and ramipril were studied. The cost of distribution tends to increase the variability of the public price, when compared to the variability of ex factory prices. This may explain a part of the often observed difference in cost-effectiveness of a treatment across countries. The efficiency of distribution is also an important factor of the efficiency in health care services     

药品价格虚高的分析与政策建议

药品价格虚高已成为近年来药品市场中的一个突出问题。现行的药品价格管理形式与定价原则为经营者自主定价提供了较大的利润空间，企业虚列成本、流通环节费用过高、价格管理缺陷以及用药行为异化等构成了影响药品价格不良费用增长的主要因素。科学合理定价，从源头上拧掉药品价格的水分，清理整顿医药市场，强化监督，调整医疗收费价格，才能真正使药品价格维持在一个规范合理的水平。     

Regional regulators in health care service under quality competition: A game theoretical model

In several countries, health care services are provided by public and/or private subjects, and they are reimbursed by the government, on the basis of regulated prices (in most countries, diagnosis‐related group). Providers take prices as given and compete on quality to attract patients. In some countries, regulated prices differ across regions. This paper focuses on the interdependence between regional regulators within a country: It studies how price setters of different regions interact, in a simple but realistic framework. Specifically, we model a circular city as divided in two administrative regions. Each region has two providers and one regulator, who sets the local price. Patients are mobile and make their choice on the basis of provider location and service quality. Interregional mobility occurs in the presence of asymmetries in providers' cost efficiency, regulated prices, and service quality. We show that the optimal regulated price is higher in the region with the more efficient providers; we also show that decentralisation of price regulation implies higher expenditure but higher patients' welfare.     

Value‐Based Differential Pricing: Efficient Prices for Drugs in a Global Context

This paper analyzes pharmaceutical pricing between and within countries to achieve second‐best static and dynamic efficiency. We distinguish countries with and without universal insurance, because insurance undermines patients' price sensitivity, potentially leading to prices above second‐best efficient levels. In countries with universal insurance, if each payer unilaterally sets an incremental cost‐effectiveness ratio (ICER) threshold based on its citizens' willingness‐to‐pay for health; manufacturers price to that ICER threshold; and payers limit reimbursement to patients for whom a drug is cost‐effective at that price and ICER, then the resulting price levels and use within each country and price differentials across countries are roughly consistent with second‐best static and dynamic efficiency. These value‐based prices are expected to differ cross‐nationally with per capita income and be broadly consistent with Ramsey optimal prices. Countries without comprehensive insurance avoid its distorting effects on prices but also lack financial protection and affordability for the poor. Improving pricing efficiency in these self‐pay countries includes improving regulation and consumer information about product quality and enabling firms to price discriminate within and between countries. © 2013 The Authors. Health Economics published by John Wiley & Sons Ltd.     

Research note: price uncertainty and the demand for health care

Health care consumers in many developing countries face uncertain prices due to a variety of factors, including ad hoc price discrimination, uncertainty concerning diagnosis, and stock-outs of drugs and other supplies. The author explains that at a given average price, consumer demand should be inversely related to the degree of uncertainty in price. To the extent that cost recovery and means testing policies are formulated in ways that minimize price uncertainty to individual consumers, they should be able both to recover more resources and to target remaining subsidies more effectively, without reducing use. Demand analysis should use appropriate measures of consumers' expected prices, rather than average or actual prices, and include measures of the degree of price uncertainty in empirical models attempting to explain both the decision to seek care and the choice of provider. Further, recognizing that consumers often face highly uncertain prices for health care has important implications with regard to cost recovery, means testing, and demand analysis. These issues are discussed.     

Pharmaceutical companies' variation of drug prices within and among countries can improve long-term social well-being

Drug prices vary considerably across and within countries. On average, pharmaceutical companies charge lower prices in low-income countries than in industrialized nations. Manufacturers' ability to price products differently for different markets--a practice known as price discrimination--increases their profits overall. But it is also likely to result in greater investment in research and development, and therefore in more new drugs on the market. Although reducing price discrimination in order to cut costs might benefit consumers in the short run, it would harm them in the long run by reducing the number of new drugs developed.     

The End of the International Reference Pricing System?

All 28 EU member states except Sweden and the UK apply international reference pricing (IRP), international price comparison, external reference pricing or cross-reference pricing. The attractiveness of using prices of other countries as a benchmark for decisions within a national price control is obvious. Alternative models for price and reimbursement decision making such as value-based pricing (VBP), i.e. cost-effectiveness analyses, are more complicated. However, IRP provides incentives for stakeholders to take action not in line with optimal (welfare-maximizing) pricing. IRP is costly for two reasons. First, manufacturers are incentivised to limit or delay access to new innovative treatments in countries with small markets and/or a low income, which can be costly in terms of loss of health. Second, all countries also experience a loss of welfare (health) because IRP reduces the opportunities for differential pricing (Ramsey pricing), i.e. using the fact that the ability and willingness to pay differs between countries. Thus, IRP results in less sales revenue to finance research and development of new innovative drugs. We can now observe that payers and manufacturers are engaged in different types of risk-sharing schemes, price–volume negotiations, payback arrangements, confidential discounts, coverage with evidence developments, etc., all with the purpose of returning to the old model of price discrimination and Ramsey pricing. Shortly, real prices for use in IRP systems will cease to exist and, thus, we expect to soon see the end of IRP, a new system for price discrimination and an increasing demand for VBP.     

对药品价格问题的探讨

现行的药品价格管理形式与定价原则为经营者自主定价提供了较大的利润空间。企业虚列成本、流通环节费用过高、价格管理缺陷以及用药行为异化等构成了影响药品价格不良费用增长的主要因素。以药“补”医的国家特殊政策被错误理解为以药“养”医，观念的错误导致褒贬不一的医药分业和药品集中招标采购制度都未能从根本上解决药价虚高的问题。科学合理定价，从源头上拧掉药品价格的水分，清理整顿医药市场，强化监督，调整医疗收费价格，才能真正使药品价格维持在一个规范合理的水平。     

Prices of pharmaceuticals in poor countries are much lower than in wealthy countries

Keeping pharmaceuticals affordable in poor countries is important for public health. Economic models suggest that manufacturers should be able to charge substantially lower prices in those markets than in industrialized countries without drastically reducing their profits. We report the results of a study of thirty drugs in twenty-nine countries, showing that many prices are already substantially discounted in middle-income and developing countries, compared to prices in the United States and other industrialized countries, and do not exceed long-run marginal costs. We also argue that the so-called peak load pricing model offers an economic foundation for fair drug pricing in the case of developing countries, and is a better solution than other pricing models to the problem of how to reduce drug prices in these countries to the level of manufacturers' marginal costs.     

International prices and availability of pharmaceuticals in 2005

This paper compares pharmaceutical spending, availability, use, and prices in twelve countries in 2005. Drug spending per capita was higher in the United States than in other countries. The United States had relatively high use of new drugs and high-strength formulations; other countries used more of older drugs and weaker formulations. Thus, whether U.S. overall volume of use is lower or higher depends on the measure of volume and type of product. Comprehensive price indexes show foreign prices to be 20-40 percent lower than U.S. manufacturer prices, but only 10-30 percent lower than U.S. public prices. Generics are cheaper in the United States than in other countries.     

Estimation and comparison of ostomy appliance costs with tariffs in Belgium

This study estimated costs of production and distribution of ostomy appliances, and compared cost estimates with tariffs in Belgium. The cost model took into account manufacturing costs, overhead, R&D, warehousing, profits, and distribution margins. Data were derived from manufacturers, a decomposition of finished products, and interviews with stakeholders. The cost model generated estimated retail prices of €2.96 for one-piece appliances, €1.62 for two-piece pouches, and €2.06 for two-piece flanges. Production and distribution costs accounted for 40 and 60% of retail prices, respectively. Estimated retail prices corresponded well with tariffs for one-piece appliances and for two-piece pouches. For two-piece regular flanges, a substantial difference was observed between the calculated price of €2.06 and the tariff of €6.05. In the absence of publicly disclosed information on the cost structure of appliances, estimating ostomy appliance costs is valuable to reimbursement agencies when setting tariffs.     

Drug Prices and Value of Oncology Drugs in Italy

ObjectiveThe main objective of this study was to evaluate the potential role of efficacy data and other information available at the time of price and reimbursement (P&R) decision-making process within the definition of oncology treatment costs in Italy.MethodsThe study included all P&R dossiers submitted to the Italian Medicines Agency between July 2015 and December 2017. It prospectively collected the data of the P&R process starting from dossier submission up to the Italian Health Service reimbursement decision. The cost of treatment per patient was estimated using both the list price (“gross cost”) and the confidential net price (“net cost”) of drug packages and applied to the median duration of treatment. A 2-sample stage Heckman decomposition model was used to evaluate the potential role of efficacy data and other information available at the time of P&R decision making on the gross and net cost.ResultsA total of 37 oncology drugs related to 58 therapeutic indications were analyzed. The multivariate model showed that the variation of progression-free survival is the only variable predictor statistically associated with treatment cost, but this effect was observed only when confidential net prices were used (P=.026).ConclusionsConsidering the perspective of a developed country having a public healthcare service with a central reimbursement negotiation is determined a relevant reduction in the treatment cost purchased by public payers. This is a useful approach to guarantee the affordability of innovative oncology drugs and to contain public expenditures on healthcare. Furthermore, the negotiation of confidential discounts and agreement clauses in managed entry agreements seemed to reward oncology drugs displaying an added therapeutic benefit.     

Entry and price competition in the over‐the‐counter drug market after deregulation: Evidence from Portugal

In the last two decades, many European countries allowed the sale of over‐the‐counter (OTC) drugs outside pharmacies. This was expected to lower retail prices through increased competition. Evidence of such price reductions is scarce. We assess the impact of supermarket and outlet entry in the OTC drug market on OTC prices charged by incumbent pharmacies using a difference‐in‐differences strategy. We use price data on five popular OTC drugs for all retailers located in Lisbon for three distinct points in time (2006, 2010, and 2015). Our results suggest that competitive pressure in the market is mainly exerted by supermarkets, which charge, on average, 20% lower prices than pharmacies. The entry of a supermarket among the main competitors of an incumbent pharmacy is associated with an average 4% to 6% decrease in prices relative to the control group. These price reductions are long‐lasting but fairly localized. We find no evidence of price reductions following OTC outlet entry. Additional results from a reduced‐form entry model and a propensity score matching difference‐in‐differences approach support the view that these effects are causal.     

Pharmaceutical Pricing in Emerging Markets: Effects of Income,Competition, and Procurement

This paper analyzes determinants of ex‐manufacturer prices for originator and generic drugs across countries. We focus on drugs to treat HIV/AIDS, TB, and malaria in middle and low‐income countries (MLICs), with robustness checks to other therapeutic categories and the full income range of countries. We examine the effects of per capita income, income dispersion, competition from originator and generic substitutes, and whether the drugs are sold to retail pharmacies versus tendered procurement by non‐government organizations. The cross‐national income elasticity of prices is 0.27 across the full income range of countries but is 0.0–0.10 between MLICs, implying that drugs are least affordable relative to income in the lowest income countries. Within‐country income inequality contributes to relatively high prices in MLICs. Although generics are priced roughly 30% lower than originators on average, the variance is large. Additional generic competitors only weakly affect prices, plausibly because generic quality uncertainty leads to competition on brand rather than price. Tendered procurement that imposes quality standards attracts multinational generic suppliers and significantly reduces prices of originator and generic drugs, compared with their respective prices to retail pharmacies. ©2013 The Authors. Health Economics Published by John Wiley & Sons Ltd.     

Antiretrovirals for low income countries: an analysis of the commercial viability of a highly competitive market

Background

The price of antiretroviral drugs (ARVs) in low income countries declined steadily in recent years. This raises concerns about the commercial viability of the market of ARVs in low income countries.

Methods

Using 2 costing scenarios, we modeled the production cost of the most commonly used ARVs in low income countries in 2010 and 2012, and assessed whether, at the median price paid by low income countries, their manufacturers would still make profits. By interviews we consulted 11 generic manufacturers on the current state of the ARV market, and on what would be required to ensure their continued commitment to supply ARVs to low income countries.

Results

Using the lowest prices for active pharmaceutical ingredients (API) quoted to WHO, and applying published assumptions about the production cost of ARVs, our baseline estimate was that Indian generic manufacturers would have made profits on only 1 out of 13 formulations of ARVs in both 2010 and 2012, and publicly owned manufacturers would have made profits on 5 and 3 out of 13 formulations in 2010 and 2012, respectively. We needed to assume a 20% and a 40% lower API cost for our model to predict that publicly owned and Indian manufacturers, respectively, would make profits on the sale of the majority of their ARVs. Between 2010 and 2012, we estimate that - across the ARV portfolio - the gross profit on sales of ARVs to low income countries decreased with between 6% and 7% of their sales price. Generic manufacturers consider that current prices are unsustainable. They suggested amendments to the tender procedures, simplified regulatory procedures, improved forecasting, and simplification of the ARV guidelines as critical improvements to maintain a viable ARV market.

Conclusions

While recent price decreases indicate that there is still space for price reduction, our estimate that gross profit margin on sales decreased by 6 to 7% between 2010 and 2012 lends credibility to assertions by generic manufacturers that the ARV market in low income countries is under considerable price pressure. This might create problems for the quality and/or the continued supply of ARVs to low income countries.     

Evidence-Based Decision-Making in Asia-Pacific with Rapidly Changing Health-Care Systems: Thailand, South Korea, and Taiwan

Objective:  To review the use of evidence in the market approval process, reimbursement, and price control mechanisms for medicines and medical devices in Thailand, South Korea, and Taiwan.
Methods:  Documentary reviews supplemented by interviews with senior policymakers of relevant public health authorities.
Results:  Drug regulatory authorities play a vital role in the market authorization process by considering evidence on safety, efficacy and quality for new medicines, and bio-equivalence for new generic products of previously patented medicines. For the formulation of the reimbursement list, all three cases applied evidence on cost-effectiveness, to various degrees, with clear institutional structure, capacity, and functions. Only Thailand has specified an explicit benchmark on cost-effectiveness for inclusion in the reimbursement list. For price control, all have established mechanisms and processes for price negotiation. These mechanisms apply evidence on cost structure and relative prices in other countries to ensure affordable prices, especially with the patented drug industry. Thailand's universal insurance schemes use a capitation payment model which proves effective in implicit price control. To increase access to essential medicines that have patents on and high price, Thailand applied Trade-Related Aspects of Intellectual Property flexibilities; "government use of patent," for public noncommercial purposes to seven essential drugs in 2006 to 2008.
Conclusion:  Rapidly increasing health expenditure and universal health insurance systems have created greater requirement for proof of "value for money" in the approval and funding of new medical technologies. All settings have established clear mechanisms to apply appropriate evidence in the processes of market approval, reimbursement, and pricing control.     

The effect of patented drug price on the share of new medicines across OECD countries

The Government of Canada plans to implement new controls on the prices of patented drugs sold in Canada. The literature indicates that such controls delay drug launches. The Government of Canada, in its cost benefit analysis of the proposed regulatory changes, claims that they do not. To examine this claim, we use recent OECD country level data to estimate regression models of drug launches. These estimates suggest that higher drug list prices increase the number of launches of new medicines; the estimates are larger in the short term than in the longer term. If our estimates have a causal interpretation, then, consistent with the extant literature, drug list price reductions delay availability of new medicines in the OECD countries. We explore the implications of these findings.