Pharmaceutical Pricing in Europe: Is Differential Pricing a Win-Win Solution?

7 Pages Posted: 25 Aug 2015

See all articles by Martina Garau

Martina Garau

Office of Health Economics

Adrian Towse

Office of Health Economics

Patricia M. Danzon

University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Date Written: February 1, 2011

Abstract

Most European Member States, particularly the former EU15 countries, have national systems providing universal access to health care, including pharmaceuticals. Given pressure on public budgets and rising expenditure for healthcare, national governments have introduced mechanisms to regulate healthcare services provision and set prices of pharmaceuticals. As pointed out by the 2008 OECD Report on Pharmaceutical Pricing Policies (OECD, 2008), one of the policies pursued to constrain pharmaceutical prices is International Reference Pricing (IRP). This uses prices paid in other countries as a benchmark for setting domestic price levels. For example, in Spain the Ministry of Health set prices based on, among other factors, the price of the same medicine established in the other 26 EU countries.

Traditionally, there has been only limited use by higher income countries of lower income countries’ prices. However, there is evidence that this is changing, mainly due to the increasing financial difficulties faced by some EU Member States. The objective for governments is to “import” low pharmaceutical prices from other countries to reduce their own health care expenditures.

Greece, in its response to economic crisis in 2010, introduced a series of new regulations to decrease pharmaceutical prices. After initial temporary price cuts, causing two pharmaceutical companies to withdraw their products (Watson, 2010), Greece implemented an IRP system where prices are reviewed and set three times per year based on the average of the three lowest prices available in 22 EU countries (the EU 27 excluding Denmark, Estonia, Malta, and Sweden) leading to an average price reduction of the reviewed products of 20% (IMS Pharma Pricing and Reimbursement, November 2010).

At the other end of the economic spectrum, Germany, the EU Member State with the strongest economy, in an effort to reduce its health budget, has endorsed a series of proposals to reform the market for pharmaceuticals and, in particular, its price-setting system. The bill endorsed by the German parliament in late 2010 will significantly limit the ability of companies to set the price of newly approved pharmaceutical products by introducing, among other measures, the use of IRP.

The European Commission is trying to support the interest of Member States in IRP by facilitating the exchange of information on prices paid for pharmaceuticals amongst Member States.

Suggested Citation

Garau, Martina and Towse, Adrian and Danzon, Patricia M., Pharmaceutical Pricing in Europe: Is Differential Pricing a Win-Win Solution? (February 1, 2011). Available at SSRN: https://ssrn.com/abstract=2639694 or http://dx.doi.org/10.2139/ssrn.2639694

Martina Garau (Contact Author)

Office of Health Economics ( email )

12 Whitehall
London, SW1A 2DY
United Kingdom

Adrian Towse

Office of Health Economics ( email )

12 Whitehall
London, SW1A 2DY
United Kingdom
+44 207 747 1407 (Phone)
+44 207 747 1419 (Fax)

HOME PAGE: http://www.ohe.org

Patricia M. Danzon

University of Pennsylvania - Health Care Systems Department ( email )

3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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