Europe's Drug Import Example
Letter to the Editor
The Washington Post
September 30, 2004
Last year I led researchers at the London School of Economics in testing whether the practice of reimporting prescription drugs in Europe saved consumers billions in drug costs…
Reimporting prescription medicines has flourished in the European Union because national health policies in some member countries, such as Greece, Italy and Portugal, have led to declines in the local prices of patent-protected prescription medicines — as much as 70 percent in some northern E.U. member states. Those countries include two of the five largest pharmaceutical markets in the world, Germany and Britain. This is similar to the pricing imbalance between the United States and Canada.
We looked at 19 top-selling drugs in six Northern European “destination countries” of imports — Denmark, Germany, the Netherlands, Norway, Sweden and Britain. The 19 drugs — which treat heart, gastrointestinal and mental health ailments — account for almost a quarter of all prescription drug sales in Europe.
Our study found combined sales of reimported versions of these drugs saved health care payers in Northern Europe a minuscule 0.3 percent to 3.6 percent of their annual drug budgets, or slightly more than $100 million. Moreover, these savings were not passed on to consumers, and drug prices in Northern and Southern Europe did not become more similar.
The biggest gains from selling imported drugs — more than $650 million, or 46 percent of the sales of all products studied — went straight to the repackagers.
Panos Kanavos
London
http://www.washingtonpost.com/wp-dyn/articles/A60984-2004Sep29.html
And…
Prescription-Drug Prices
By Richard G. Frank, Ph.D.
The New England Journal of Medicine
September 30, 2004
A key feature of the pharmaceutical industry is that drugs can be manufactured at a variable cost of pennies per pill, but drug companies incur high fixed research-and-development costs to bring new drugs to market. If manufacturers were paid prices that reflected their variable costs, as other industries are, the average cost of a drug would not be covered, and the companies would lose money. The implication is that with lower prices, drug-company profits will diminish and research-and-development efforts may be reduced, resulting in a diminished flow of new drugs. There is therefore a constant tension between drug policies that control today’s prices and those that promote tomorrow’s innovative products.
Prices for brand-name prescription drugs are 35 to 55 percent lower in other industrialized countries than in the United States. The central reason for these price differentials is that Canada and most European countries (13 of the 15 countries in Western Europe) directly regulate the prices of prescription drugs. High U.S. prices are said to be necessary to cover the costs of research and development for new and better drugs…
http://content.nejm.org/cgi/content/full/351/14/1375
And…
Financing Drug Research: What Are the Issues?
Center for Policy and Economic Research
By Dean Baker
September 21, 2004
The immediate cause of high drug prices is government granted patent monopolies, which allow drug companies to charge prices that are often 400 percent, or more, above competitive market prices.
Patent monopolies are one possible mechanism for financing prescription drug research. Rapidly increasing drug costs, and the economic distortions they imply, have led researchers to consider alternative mechanisms for financing drug research. This paper outlines some of the key issues in evaluating patents and other mechanisms for financing prescription drug research.
As economic theory predicts, government granted patent monopolies lead not only to deadweight efficiency losses due to the gap between the patent protected price and the competitive market price, but also to a variety of other distortions. Among these distortions are:
1) excessive marketing expenses, as firms seek to pursue the monopoly profits associated with patent protection - data from the industry suggests that marketing costs are currently comparable to the amount of money spent on research;
2) wasted research spending into duplicative drugs - industry data indicates that roughly two thirds of research spending goes to developing duplicative drugs rather than drugs that represent qualitative breakthroughs over existing drugs;
3) the neglect of research that is not likely to lead to patentable drugs;
4) concealing research findings in ways that impede the progress of research, and prevent the medical profession and the public from becoming aware of evidence that some drugs may not be effective, or could even be harmful.
This paper examines four alternatives to the patent system… All four of these proposals finance prescription drugs in ways that allow most drugs to be sold in a competitive market, without patent monopolies. These proposals also would eliminate many of the economic distortions created by the patent system.
These proposals, along with other plausible alternatives to the patent system, deserve serious consideration. Current projections for drug spending imply that patent supported prescription drug research will lead to ever larger distortions through time. For this reason, it is important to consciously select the best system for financing prescription drug research, not to just accept the patent system due to inertia.
http://www.cepr.net/publications/patents_what_are_the_issues.htm
Comment:
As I’ve said before, “We don’t need to reimport drugs from Canada; we need to import Canadian drug prices.”
The greatest contributor to perverse drug pricing in the United States is patent monopolies. Dean Baker explains the reasons that the pharmaceutical industry is providing sometimes questionable quality at unacceptably high prices. He then discusses alternatives to the patent monopolies that would significantly improve pricing and quality while still enabling most drugs to be sold in a competitive market.
Baker provides us with a starting point on the path towards attaining greater value in prescription drugs through more rational financing of drug research. Let’s start down that path… ASAP!