US And European Prices Aren’t So Different After All
11 CommentsBy Ed Silverman // July 6th, 2010 // 8:04 am
The difference in prices of brand-name meds in the US and Europe are actually modest and declining over time, according to a forthcoming study, possibly undermining claims that higher US prices are needed to fund research and development efforts, The Financial Times reports (UPDATE: registration may be required).
The study, which was conducted by researchers at the London School of Economics, is due to be published in Health Economics, Policy and Law, and concludes that “public prices for branded prescription medicines in the US are comparable to those in key European and other OECD countries.”
You may recall that PhRMA argues the tightly controlled pricing policies in European countries dampen R&D innovation and investment. But the FT writes that the study confirms data released recently by several drugmakers suggesting profits in the US are only marginally greater than in Europe. This comes just after a study funded by Novartis finds that cutting prices thwarts drug development (back story).
The FT notes that the US General Accounting Office, among others, have released studies indicating US prices are at least one and a half times those of European prices. But the LSE’s Panos Kanavos says such comparisons are flawed, often comparing European list prices with US factory prices, which do not reflect discounts negotiated between manufacturers and US health insurers.
The study compared 68 leading brand-name meds and found US prices are a maximum of 25 per cent higher than European ones, and below Mexican levels. Based on a comparison of prices between 2004 and 2007, they say prices converge over time, with innovative medicines becoming more expensive across the US, Europe and other countries.
The upshot: the researchers say Europe remains a relatively attractive market by volume and price, despite recent price cuts enacted in some countries due to budget deficits (see here and here).
Salient point
25% higher is still pretty high. People were up in arms about the price of gas a couple of years ago when it was about 25% higher than it is now.
BP Watch
So, prices should come down about 25% in the US. Then US patients and payers will pay the same as in Europe. It’s only fair!!
pharmavet
Would Ed or someone with a subscription to FT kindly post a link to the entire article.
Thanks
econ student
“prices should come down about 25%”…do you also want taxes to go up 30% so we can be like Europe - it’s only fair? do you have any idea what you are talking about or are you just anti-pharma. Pull your head out of your rear good fellow.
Salient point
Unfortunately, when it comes to economics, what’s fair & what’s effective are often at odds. If the US cut its medical costs to Euro levels, prices would be “fairer” & more Americans could afford their treatments–but there would be hardly any profit motive in drug development & long-term medical progress would suffer.
Which leaves the US in the all-too-familiar position of carrying the load for the rest of the world.
pharmavet
Econ student, you should know that drug prices do not obey the laws of supply and demand.
Medical inflation, which most economists regard as almost a fixed cost (rising at 2-3X the CPI) also helps to ensure a guaranteed profit margin for pharmaceuticals, whether we like it or not. Those profits have now been squeezed by Payers, so that drug companies must look elsewhere for revenues. Just like the auto industry, the Pharma industry in the US is in what I would call the late mature phase of an industrial life cycle. Most growth will come in emerging markets and other ex US countries.
Denise
Has anyone found the link to the paper, which according to the FT can be found in “Health Economics, Policy and Law”? If so, could you please post it?
Ed Silverman
Hi Denise,
I don’t believe the study is available yet.
Regards
Ed S
econ student
points taken pharmvet, especially with regards to the life cycle of pharma. However, regardless of economic theory, I can’t stomach the whinners who want all of Europe’s good without its bad.
JPB
I would like to see more real info comparing specific drug prices in the US, the EU and Canada because there sure is more than a 25% difference. (There is one drug that I researched that costs $67 in the US for a 1 month supply and is available in Canada for $16 for 1 month.)
keiner
ehhmmm, there is no “EU” price for any given drug. E.g. in Germany, a pharma company is free to bill ANY price they want to the compulsory healthcare insurance (including some discount or for limited drugs fixed prices might be set).
In the UK the prices are fixed federally, as for example in France.
As a result, the price levels may vary for some countries (say Greece, Portugal) to other (e.g Germany) by 30% to 50% (or more).
Would be interesting to see, how a “European” price was calculated, as based on this data you can come up with ANY result you want :-)