Health policies and data

Pharmaceutical Pricing Policy project

 

Aims | Context | Pharmaceutical pricing policies in OECD countries | Impact of pricing policies and the way forward
Contact | OECD Health Working PapersRelated event | Previous OECD studies on pharmaceuticals

 
OECD Health Policy Studies (released in September 2008): Pharmaceutical Pricing Policies in a Global Market
Also available in French: Les prix des médicaments sur un marché global

Aims

The OECD Pharmaceutical Pricing Policy project had two main objectives:

  • To add to the base of information about pharmaceutical pricing policy in OECD countries and develop a taxonomy and framework for making international comparisons of policies.
  • To analyse cross-national impacts and implications of policies, particularly with respect to the impacts on pharmaceutical prices paid in other countries and on pharmaceutical R&D.

The policy study published by the OECD is based on six case studies, an extensive review of the literature, and analysis of relevant data. The report provides context for the analysis of pharmaceutical pricing policies in OECD countries, describes pricing policies employed by the OECD zone and assesses their impact.

Context

On average, OECD countries spent 401 PPP USD per person on pharmaceuticals in 2005, and half of OECD countries had per capita spending within 20% of the average. The United States had the highest level of expenditure, at 792 PPP USD, and Mexico, the lowest (see related chart).

Pharmaceutical expenditures - in common with healthcare spending overall - continue to outstrip the average growth of OECD economies (see related chart). The pharmaceutical sector accounts for about one fifth of health spending, on average, in OECD countries, rising to a third of health expenditure in Hungary and the Slovak Republic, where pharmaceuticals account for 2 percent of GDP (see related chart).

Nine OECD countries account for more than 80% of global sales of the pharmaceutical industry, the United States alone accounting for 45%.

Pharmaceutical pricing policies in OECD countries

The pharmaceutical market is complicated by several factors. Insurance subsidises pharmaceutical expenditures, reducing financial barriers to access and increasing the use of medicines. Patent protection provides industry with a monopoly on the market and opportunities to benefit from high prices and profits. Most countries regulate prices for at least some part of the pharmaceutical market, in an effort to ensure affordable access to medicines.

Though the rationale and scope of price regulation differ from one country to the other, OECD countries use very similar instruments: international benchmarking (reference to what other countries pay), therapeutic referencing (reference to the prices of existing competitors) and economic evaluation are often used to cap prices or reimbursement prices of pharmaceuticals.

Impact of pricing policies and the way forward

Today’s pricing policies promote a convergence of list prices at levels that are less affordable for lower-income OECD countries. Prices of innovative products are too often defined with reference to what others pay, as opposed to the value offered. This practice encourages firms to launch drugs in countries where it can set a price freely at market entry or negotiate high prices. It also distorts the signals that the market sends about the value of new medicines. Beyond this, confidential rebates between buyers and firms create a gap between the list price and the real price paid, meaning that payers benchmark to artificial prices.

About a third of countries have begun to use pharmaco-economic assessment to decide whether a medicine is worth what its manufacturer wants to charge.  This approach, although technically challenging, is promising because it evaluates the costs and benefits of a medicine, and explicitly links purchasing decisions to a drug’s ability to deliver a desired health outcome for a particular population. It gives better signals to industry as to which new drugs are highly valued, and so could help promote the right level and type of R&D investment.

As countries vary in income, health care costs and epidemiology, it would be expected that the economic value of a new drug would vary accordingly. One possibility for the future development of the pharmaceutical market would be for policy-makers to agree that variation in prices and expenditures is appropriate and desirable, and to define prices for a product based upon its value in that country. While attractive as an approach to increase affordable and access while promoting valued innovation, such a scenario depends on the continued success of manufacturers in limiting the extent of parallel and cross-border trade.

Contact

Ms. Valérie Paris: valerie.paris@oecd.org

 

OECD Health Working Papers

Related event

October 27, 2008 - OECD High-level symposium on Pharmaceutical Pricing Policy.

Read the agenda.

Read the Statement by A. Gurría at the OECD High-Level Symposium on Pharmaceutical Pricing Policy.

Presentations:

Previous OECD studies on pharmaceuticals

 

Related Documents

 

Value in Pharmaceutical Pricing

 

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