The Bulk Purchase of Pharmaceuticals: The Experiences of the United States, Europe, and New Zealand

Fraser Institute Studies in Health Care Policy, May 2013

80 Pages Posted: 30 Aug 2013

Date Written: May 3, 2013

Abstract

Pharmaceutical costs are escalating at a rate that outpaces inflation, forcing government providers to balance consumer needs against budgetary realities. Several strategies for better managing drug expenditures are attracting significant attention, including bulk purchase agreements. These agreements seek to reduce per unit costs by increasing the volume of product purchased. In pharmaceutical markets this is done by combining multiple purchasing entities, such as employers, states, provinces or municipalities, and the drugs they buy to secure lower prices for their medicines. However, because bulk purchase agreements are always employed in combination with multiple other cost-saving strategies, it is virtually impossible to tease out the singular impact or cost savings accruing to the bulk purchase agreement alone.

This study gathers ample anecdotal evidence to establish that these agreements consistently generate cost savings, ranging from modest to quite impressive. But while bulk purchasing agreements are beneficial to coverage and for taxpayers, they may not be good for patients’ health. Bulk purchase agreements may result in a situation in which the insured receive optimal brands in some areas, but less optimal brands in others. Frequent renegotiation (annually in some cases) can lead to abrupt changes in treatment for insured patients, leading to patient dissatisfaction and a potential for adverse outcomes, including lack of adherence, which in turn can lead to a requirement for more expensive treatment options, such as hospital admission. Another potential problem with bulk purchasing agreements may be a reduction in competition, leading to drug monopolies or limited numbers of drug suppliers. At the extreme, this reduction in competition may lead to drug shortages, which would harm patients.

Bulk purchasing agreements also have the potential to limit access to other medications that are not included in the agreements. As a result, prescription costs may shift to patients if the necessary medications are not part of such agreements, thereby requiring higher co-payments, or forcing patients to cover the entire cost of these drugs — or even go without. Finally, there can be an impact on innovation. Price pressure on the innovative pharmaceutical industry will reduce the incentives for pharmaceutical research and development, stifling innovation and reducing the number of breakthrough therapies in the pipeline.

Keywords: Health, Drugs Purchasing United States, Drugs Purchasing Europe, Drugs Purchasing New Zealand, Pharmaceutical industry, Drugs Costs

Suggested Citation

Acri née Lybecker, Kristina M.L., The Bulk Purchase of Pharmaceuticals: The Experiences of the United States, Europe, and New Zealand (May 3, 2013). Fraser Institute Studies in Health Care Policy, May 2013. Available at SSRN: https://ssrn.com/abstract=2317532

Kristina M.L. Acri née Lybecker (Contact Author)

Colorado College - Department of Economics & Business ( email )

14 E Cache La Poudre Street
Colorado Springs, CO 80903
United States
719-389-6445 (Phone)
719-389-6927 (Fax)

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