Can Big Pharma Reduce Their Regulatory Submissions Cost?

Health Care Financ Rev. 1994 Bound; fifteen(three): 127–140.

International Pharmaceutical Spending Controls: France, Germany, Sweden, and the United kingdom of great britain and northern ireland

Abstract

French republic, Germany, Sweden, and the United Kingdom each apply unlike types of policies for decision-making prescription drug spending. Until recent years, these policies have relied heavily on regulating prices charged by drug manufacturers, with unlike systems providing varying degrees of pricing freedom. While these policies appear to have brought some degree of price restraint, they have not prevented continued growth in prescription drug spending. As a result, each country is supplementing its policies with measures aimed at physicians and consumers and targeted at reducing a perceived over-utilization of pharmaceutical products.

Introduction

While the Usa has traditionally immune the free market place to determine drug prices, the rising cost of prescription drugs has increased the financial burden on vulnerable segments of the U.S. population. In addition, widely reported disparities in prescription drug prices betwixt the The states and other industrialized countries have heightened interest in policies to command pharmaceutical prices. In response to this situation, some members of Congress have proposed Federal regulations limiting prescription drug prices. Yet, critics of pharmaceutical cost regulation, within and exterior the pharmaceutical industry, have asserted that U.S. adoption of regulations that reduce drug prices would cripple U.S. pharmaceutical companies' ability to develop life-saving and life-improving drugs. Because the United States has not regulated drug prices in the by, our country's experience does not provide the evidence necessary to evaluate the potential effectiveness of drug price regulations. Several European countries, however, have employed government policies to control pharmaceutical prices and, indirectly, expenditures.

Four European countries that have research-based pharmaceutical industries—France, Germany, Sweden, and the United Kingdom—have each developed a ready of government controls to limit the growth of prescription drug prices and expenditures. As part of their national health insurance systems, these four countries provide universal prescription drug benefits, and each faces a continuing challenge to restrain increases in national spending on pharmaceuticals. In this persistent struggle, each country has developed spending control strategies consistent with two premises: first, that drug manufacturers tin, if left unchecked past regulation, charge prices substantially above their marginal (or incremental) costs, considering patents and marketing efforts protect them from competitors; and second, that insurance coverage and md responsibility for prescribing discourage comparison shopping by consumers, who lack incentives to seek out the most cost-effective drugs and have limited knowledge near alternative medications. In designing approaches to dampen pharmaceutical spending, governments have tended to rely more on regulations and sanctions than on policies to strengthen competition and sharpen incentives.

The telescopic of pharmaceutical cost containment strategies is broad, targeting non only price merely other determinants of drug spending. At least until the late 1980s, nevertheless, efforts to restrain drug prices had focused largely on controls at the indicate of auction—that is, at the prices charged, for example, by drug manufacturers to drug wholesalers, or by pharmacists to consumers. These traditional policies seem to have restrained prices, but increases in drug utilization and higher prices for new drugs have pushed up drug spending. Faced with this further stress on their national wellness care budgets, government officials in the countries we studied have concluded that, as a tool for restraining pharmaceutical spending, controls on prices alone are not sufficient. As a upshot, each country has introduced or is developing a distinctive set up of policies to supplement its traditional regulatory approach. These policies are designed to reduce the growth in prescriptions written, encourage the use of drugs that are more cost-effective, and shift some of the burden of higher drug spending from the national wellness insurance system to consumers, physicians, and drug manufacturers.

This article reviews the toll-containment policies of these four countries and their effects on prescription drug prices and spending levels. The analysis is drawn from a more all-encompassing review of these countries' policies done past the U.Southward. General Bookkeeping Office (1994a). This article focuses on the pharmaceutical prices and spending control policies that accept been adopted by these countries. It does non evaluate the potential effect of these policies on drug research and development such problems are examined in the larger U.Southward. General Accounting Function written report.

Drug Prices and Affordability

The United states of america, while the world's leader in new drug development, is besides a leader in drug prices. Drug prices have driven much of the increase in total outpatient expenditures on prescription drugs in the Us. Drug expenditures nearly doubled betwixt 1980 and 1991 (from $15.eight billion to $29.ii billion), even after adjusting for inflation.¹ Much of this increase was driven by increases in prescription drug prices, which rose by more than twice the rate of inflation between 1980 and 1991.²

American health care consumers in general are particularly sensitive to these increases because of the high proportion of drug expenditures that are not covered by health insurance. While outpatient prescription drugs are a relatively small amount of full health care costs—less than v percentage in 1991—more than one-half of this amount is paid out of pocket (compared with eighteen.1 percent of spending for physician services and 3.iv percent for hospital care [Letsch, 1993]). The greatest burden of these out-of-pocket costs is probable to fall on the elderly, who as a group both use more than drugs and are less likely to have insurance coverage for those drugs, because the Federal Medicare program does not offer outpatient prescription drug coverage.

Every bit several contempo studies evidence, prescription drug prices in other countries are generally lower than in the United states (U.S. Regime Bookkeeping Office, 1992, 1994b; Association Belge des Consommateurs, 1989; Reekie, 1984). Some of these countries have relatively little drug research and development, only others accept relatively strong innovative drug industries. For example, France, Germany, Sweden, and the United Kingdom are habitation to firms that adult more 25 percent of new drug entities from 1970 to May 1992 (Redwood, 1993).

Affordability of drugs to individual consumers is not as much of a problem in these other industrialized countries as it is in the United States. Many of these countries have universal health insurance systems that provide pharmaceutical drug coverage at piddling or no out-of-pocket cost to consumers.^three

Universal drug coverage has shifted the brunt of paying for drugs from the individual to the insurance system, thereby creating an incentive for the government to restrain spending growth and to maintain the fiscal stability of the health insurance system. In addition, the relatively high level of drug spending in several European countries has made restraining drug spending growth fifty-fifty more than of import to authorities officials. For example, while total pharmaceutical spending in 1990 equanimous most eight percent of total health spending in the United States (as it did in Sweden), it accounted for almost 11 percent of health care costs in the Great britain, almost 17 percent in France, and over 21 percentage in Germany (Figure 1). Given the financial weight of the pharmaceutical sector, each of these countries has looked to this sector for a significant contribution to the national effort at slowing the growth of overall health care spending.

Pharmaceutical Expenditures equally Percent of Total National Wellness Care Costs: 1990

Drug Manufacturer Regulations

Each country has regulations that are designed to limit—either directly or indirectly—the price that drug manufacturers charge to wholesalers (or to retailers that buy directly from the manufacturer). These policies differ in the extent that manufacturers are free to set launch prices for new products too as to increment prices on existing products. (Prices are too regulated at subsequent links in the distribution concatenation. The fees charged by wholesalers and pharmacists typically are not allowed to exceed a set ceiling.⁴ These fees can be calculated as a fixed amount per prescription or as a percentage of price.)

Regulations targeted at drug manufacturers' prices in the 4 countries embody one of 3 mechanisms: (1) product-by-product toll controls; (2) limits on insurers' reimbursement levels; or (3) profit controls.

Production-By-Product Price Controls

These controls are the most direct form of cost regulation, in that they largely bar manufacturers from selling their drug products at prices above those approved by the government (or other paying authority). In the 2 countries nosotros studied where product-past-product price controls have been used for outpatient prescription drugs—French republic and (until 1993) Sweden—both new production prices and price increases were regulated by the government. New product prices emerge from negotiations between the government and each drug manufacturer. The criteria for setting these prices include the therapeutic value of the drug, the price of comparable treatments, and the contribution of the drug's sales to the national economic system.^v Price increases in both countries are allowed only with prior regime blessing.^vi

Limits on Insurer Reimbursement Prices

These price controls set an upper limit (or reference price) on the corporeality the insurer can pay for groups of identical or equivalent drugs. Drug manufacturers are free to set any launch price or toll increase that they choose, only consumers must pay the difference betwixt that price and the reference price. Manufacturers' ability to charge a price that is higher than the reference price is express by consumers' willingness to incur out-of-pocket costs for pharmaceuticals.

Germany and Sweden illustrate different ways that reimbursement prices can be calculated. In Federal republic of germany, a drug's reference cost is computed substantially every bit the average of the prices of that drug and similar products.⁷ In Sweden, the reference price for a drug is set at 10 percent above the toll of the least expensive generic equivalent In Germany, drugs are not covered under the reference price system (RPS) if they do not have a sufficient number of comparable products, while in Sweden, only one generic equivalent is needed to set a reference price. In Federal republic of germany, the statutory health insurers (known as sickness funds) pay the price that manufacturers set up for drugs without a reference price (less the required patient copayment).^eight By contrast, in Sweden the government negotiates the prices that can exist charged for these drugs with manufacturers.⁹

Profit Controls

This regulatory method, used in the United Kingdom, is a more indirect form of drug spending control. A manufacturer that introduces a drug product into the U.K. market may freely ready its launch cost at any level, as long equally company profits practise not exceed a negotiated target. More precisely, the National Wellness Service (NHS), which in result is the national wellness insurer, negotiates a turn a profit ceiling with most drug manufacturers.¹⁰ Through this process, the authorities relates each manufacturer'southward profits and hence, indirectly, their prices, to the level of investment in pharmaceutical production and research and development in the land for the purpose of supplying drugs to NHS.¹¹ Even under this profit control scheme, still, drug manufacturers are nonetheless subject to drug price regulations. While manufacturers freely set up prices when introducing new drugs—so long as profits exercise not exceed the target level—they cannot increase drug prices without prior authorities approving.

Manufacturer Pricing Regulation Effects

The drug spending controls applied in these four countries have had mixed success at restraining the level of pharmaceutical expenditures. On the 1 paw, drug prices in these countries have grown relatively slowly under the price and turn a profit controls—less than the rate of general inflation.¹² Merely while price restraint has probably kept total drug spending lower than information technology would have been otherwise, total drug spending—which is afflicted by the quantity of drugs sold every bit well as their prices—has continued to rise faster than the countries' governments are willing to accept.

From 1985 to 1991, the countries with the most straight types of price controls—France and Sweden^thirteen—had the everyman average rates of increase in drug prices (Effigy 2).¹⁴ In the United Kingdom, which has the most indirect type of price control, nominal drug price increases were the highest of the countries we reviewed; withal, even U.Thou. drug prices rose relatively slowly—at virtually one-half the general rate of inflation. By contrast, during the aforementioned period (1985-91), pharmaceutical prices in the The states increased at an average annual charge per unit that was more than twice the full general inflation rate.

Pharmaceutical Toll Changes: 1985–91

While the toll restraint may have helped achieve some moderation in the growth of drug spending, the countries we examined had express success in restraining the growth in total pharmaceutical expenditures during the same time period (Effigy iii). The relative increases in pharmaceutical spending were greater for countries with direct price controls than for those with more indirect approaches. In France and Sweden, the countries that employed direct cost controls, the average annual growth in pharmaceutical spending from 1985 to 1990 was comparable to that in the U.s.a.. In Germany and in the United Kingdom, pharmaceutical spending grew at a slightly slower charge per unit than in the United states. Nevertheless, pharmaceutical spending in Frg and the United Kingdom grew more rapidly than overall aggrandizement.¹⁵

Pharmaceutical Expenditure Growth^one:1985–90

¹Inflation-adjusted.

²United kingdom data are for the period 1985–89.

SOURCE: Organization for Economic Cooperation and Development: OECD Health Data file 1993.

Why has Pharmaceutical Spending Continued to Rise?

The increase in pharmaceutical spending does not necessarily imply that the controls were ineffective at restraining drug spending. Indeed, these policies may have kept drug expenditures from rising higher than they would have otherwise.^sixteen However, the rise in drug spending suggests that factors outside the purview of these regulations outweighed any restraining impact that price and profit controls may take had on drug expenditures.

Increases in Drug Utilization

Increases in drug utilization probable provide one source of these spending increases. As Figure 4 shows, drug utilization grew more apace than drug prices in the iv countries we reviewed, suggesting that greater utilization accounted for a big amount of the growth in drug spending. By contrast, in the United States drug utilization grew far less speedily than drug prices, thereby suggesting a greater office for drug price increases in explaining spending growth.

Growth in Utilization and Prices: 1985–90

Increases in utilization can come from both population growth and increases in the elderly population—both of which occur independently of price and profit controls. Increases in the elderly population can exist of detail importance in explaining higher spending levels, since the elderly are more probable to have higher per capita drug use than the non-elderly. Each of the countries nosotros reviewed has experienced increases in the elderly population, particularly in persons 75 years of age or over (Table 1).

Table 1

Growth of the Elderly Population every bit Percent of Full Population in the U.s. and Selected European Nations: 1985–91

Age Group and Yr	France	Sweden	Germany	United Kingdom	United States
65 Years of Age or Over:
1985	12.eight	17.4	fourteen.8	15.i	11.9
1991	14.1	17.vii	15.4	fifteen.8	12.7
75 Years of Age or Over:
1985	six.3	vii.four	half dozen.nine	6.4	iv.eight
1991	7.0	viii.1	7.two	7.0	v.2

Higher Prices for Newer Drugs

Increases in drug spending may also be caused by the use of newer, more than expensive drugs. Despite the control mechanisms in place in these four countries, new drugs tend to have higher boilerplate prices than the drugs they supplant, increasing the force per unit area on drug budgets even when consumption levels remain constant These new products, which tin can range from innovative treatments to modest improvements over existing products, tin strain drug budgets when they supersede less expensive medications.¹⁷ Higher new drug prices have been cited as a item trouble in the United Kingdom, where companies are free to prepare new drug prices so long equally their profits remain within the target range.

The price and profit controls used in these countries generally do not provide patients and physicians with an incentive to choose products that are less expensive. Of the systems that we reviewed, merely the reference toll systems, used in Germany and Sweden, create incentives for consumers to choose lower priced products. Under this system, a unmarried reimbursement rate applies to drugs that are considered therapeutically equivalent or comparable to i another; if the toll exceeds this level, then the consumer pays the remainder. By dissimilarity, neither direct price controls nor profit controls create incentives for consumers or physicians to cull a

New Spending Control Mechanisms

Increased Reliance on Cost-Shifting Policies

The health care financing systems in the countries we reviewed take been strained by the blueprint of increases in pharmaceutical spending that approach or outstrip the growth of gross domestic production These strains take resulted in the adoption of major changes in the drug reimbursement policy in Germany and Sweden, proposals for major changes in such policy in French republic, and modifications in both Federal republic of germany and the Uk that are intended to make physicians more enlightened of drug costs. These new policies—sometimes working within the context of existing price and profit controls, and sometimes non—are designed to meet ii objectives: (1) to shift the burden of increased pharmaceutical spending from regime to consumers, physicians, and drug manufacturers; and (2) to stimulate price contest in the pharmaceutical sector by encouraging consumers and physicians to choose more price-effective medications.¹⁸

Increases In Consumer Cost Sharing

One approach used to reduce drug spending is to increment consumers' financial responsibility for prescription drugs. From 1989 to 1993, all four countries have increased the patient'southward share of drug costs (Tabular array 2).

Table 2

Pharmaceutical Cost-Containment Policies in Selected European Nations: 1989-93

Country	1989	1991	1993
France	Copayment of 0, xxx, lx, or 100 percentage of drug cost, depending on the item drug.	Copayment of 0, 30, 60, or 100 percent of drug toll, depending on the particular drug.	Copayment of 0, 35, 65, or 100 pct of drug price, depending on the item drug (effective summer 1993).
Deutschland	Copayment of three DM per prescription. Starting June 1, drugs nether the reference cost organization: Patients pay the amount by which retail price exceeds the reference cost. Drugs non under the reference cost organisation: iii DM per prescription.	Drugs under the reference cost arrangement: Patients pay the amount by which the retail price exceeds the reference price. Drugs not under the reference price system: 3 DM per prescription.	Copayment of 3-vii DM, depending on the price of the drug.1 In addition, the consumer pays any corporeality by which retail cost exceeds the reference price.
Sweden	Flat copayment of 90 SEK for up to 10 drugs written on same prescription form.	Flat copayment of 90 SEK for upwards to 10 drugs written on same prescription course, for a maximum prescribing period of 90 days.	Copayment of 120 SEK for outset prescription and 10 SEK for additional prescriptions obtained from the pharmacy at the same time, for a maximum prescribing period of 90 days. In addition, the consumer pays any corporeality by which the drug's price exceeds the reference toll.
United Kingdomtwo	Apartment copayment of £two.80 for drugs covered by NHS.3	Apartment copayment of £3.forty for drugs covered by NHS.3	Flat copayment of £4.25 for drugs covered by NHS.iii

Higher copayments may take the dual purpose of (1) shifting some of the fiscal burden of pharmaceuticals away from the national health insurance organization and toward consumers, and (2) raising consumer price-consciousness about their prescriptions, thereby reducing alleged overutilization of drugs.

Sure features of some copayment policies tin be expected to limit their effectiveness at restraining drug spending. First, copayments that cover simply certain drugs or certain segments of the population will reduce spending less than would more comprehensive cost sharing. For example, until 1993, at that place were no copayments for German pharmaceuticals covered under the reference cost system (so long every bit the drug'south price did not exceed the reference price). Therefore, consumers had no incentive to reduce consumption of those items. In the Great britain, copayment exemptions for the elderly, the poor, children, and meaning women (among others) eliminate all price sharing for nearly 80 pct of prescriptions written.

Second, copayments that are the aforementioned corporeality for every prescription cannot affect the pick between more and less expensive medications. If the consumer'due south copayment is identical for an expensive drug and for a cheaper substitute, the consumer has no reason to choose the less expensive medication.

Third, the small size of the copayments may also limit their ability to reduce the number of prescriptions filled. Notwithstanding, raising the copayment could nowadays a financial barrier to poor households or to people who need to use a high volume of pharmaceuticals.

Encouraging Less Expensive Prescriptions

To an increasing extent, pharmaceutical payment reforms in the countries we reviewed—peculiarly in the United Kingdom and Germany—are designed to encourage economic prescribing by physicians and to emphasize the utilise of less expensive drugs. These policies recognize the vital part of the medico as the principal decisionmaker regarding choice of pharmaceuticals and, to varying degrees, necktie financial incentives for physicians to the prescribing choices that they brand. The United Kingdom uses a 2-pronged strategy for encouraging physicians to exist agents for lower pharmaceutical spending:

• Starting time, the government provides information to individual physicians almost their prescribing habits (relative to those of their colleagues). Physicians receive a periodic report on the number and price of the drugs they prescribed, compared with norms for physicians in their geographical surface area. The authorities as well provides physicians with information on the safety and cost-effectiveness of alternative drug products. This information is intended to allow the physicians to make more responsible choices nearly prescribing.

• Second, dr. spending targets are used to restrict pharmaceutical sales. Since 1991, physicians in the United Kingdom have been subject to the Indicative Prescribing Scheme (IPS), which sets financial targets for physician prescribing.¹⁹ Under IPS, doctors are given a fiscal criterion, referred to as an indicative corporeality of prescribing. Physicians' indicative targets are based on several factors, including historical expenditures, demographic composition of their patients, and drug price inflation. These targets are non bounden caps, although physicians who consistently prescribe more than their targeted amounts can be singled out for advice and detailed monitoring, and, in a concluding resort, cases of gross over-prescribing can be penalized.²⁰

Germany also instituted pharmaceutical budgets on physicians, but these controls—implemented in 1993 equally part of a comprehensive health financing reform—identify more stringent financial controls on physicians than exercise the United kingdom'south policies. Since January 1993, Germany has had a global upkeep for pharmaceuticals, which, if exceeded, is offset past a reduction in the ambulatory care physician budget In 1993, the full pharmaceutical budget for office-based physicians was set at about 24 billion Deutschmarks (DM [about $fifteen billion]). While 1993 pharmaceutical spending did non exceed this level, any cost overrun up to 280 million DM (about $175 million) would have been offset past a Marking-to-Mark reduction in the 1994 ambulatory care md upkeep (The cost overrun would also be borne by pharmaceutical manufacturers if it reached 280 million DM, up to some other 280 one thousand thousand DM.) For virtually regions, the 1994 budget is set at the 1993 level, and all cost overruns will exist borne by like reductions in the ambulatory intendance physician budgets.²¹

The global budgets in Germany announced to have had an impact in the short fourth dimension that they have been in consequence.²² Total prescription drug costs for sickness funds declined past about 20 percent in the first half of 1993, compared with the same period in 1992, and total 1993 drug spending was really less than the budgeted amount and, therefore, less than 1991's total. In addition, in the first half of 1993, doc prescribing vicious below the 1992 level by about 17 percent.

Several reasons have been suggested for the drop in drug spending in Germany. First, physicians substituted cheaper generic drugs for more expensive, make-name drugs. Every bit a event, sales of the cheapest generic drugs increased in some cases by as much every bit 250 pct Second, many patients—especially those with long-term illnesses—obtained their prescriptions in December 1992 (earlier the police force took issue) and thus did not demand to learn their drugs in the first few months of 1993. 3rd, physicians have been less willing to prescribe drugs with hundred-to-one efficacy (east.g., anti-varicosis drugs) or drugs for weather that can exist treated in different ways (east.1000., dietary drugs).²³

Citizens and officials in both countries have been concerned about whether the budgets are reducing access to pharmaceuticals. In the United Kingdom, some observers believe that the budgets are constraining physicians' ability to prescribe the most effective drugs and respond to special patient needs, such as those of the elderly. However, authorities officials believe that the doc budgets could, instead, increase the quality and price-effectiveness of prescribing, and and so improve patient care. In Deutschland, some officials have expressed concern that the older drugs that physicians are prescribing in order to save costs may be less effective than newer, more innovative products. Notwithstanding, there is no firm evidence either to back up or contradict this contention.

Stringent Drug Manufacturers' Controls

While many of the contempo policy changes in the countries reviewed have applied to patient and md practices, France, Germany, and the United kingdom of great britain and northern ireland—to differing degrees—have also made efforts at reducing payments to manufacturers. These efforts have taken three forms: (1) across-the-lath cost cuts; (2) limits on total manufacturers' sales; and (3) limits on the types of drugs eligible for reimbursement.

All-embracing Price Cuts

I method used to reduce pharmaceutical spending is across-the-board cuts in payments to drug manufacturers. France, Federal republic of germany, and the Uk take used this mensurate in recent years. France'due south most recent toll reductions occurred in 1991, when the authorities ordered that pharmaceutical prices be cut by two.5 percent. Frg implemented across-the-board price cuts in 1993, when the government ordered a 5-percent reduction in the price of drugs not covered past the RPS, and a reduction in over-the-counter (non-prescription) drug prices to 2 percentage beneath the May 1992 price level. The government too mandated a toll freeze on affected drugs that volition be in event through 1994. The Uk too implemented global price cuts in 1993, ordering a 2.v-per centum cost cut on all products, which is to be followed past a three-year price freeze.

Budgets

Of the countries we reviewed, only Germany has imposed budgets that apply to manufacturers. Every bit described in the previous section, Germany'southward 1993 global budget sets full limits on annual pharmaceutical spending. While physicians were to bear part of the upkeep overrun—the first 280/DM million in 1993—subsequent overruns (up to 280/DM million) would have come from the pharmaceutical manufacturers. However, under the 1994 budget, manufacturers volition not have to deport the fiscal burdens of overruns if physicians exceed the budget.

France may adopt drug budgets for manufacturers. In 1991, the French authorities proposed a drug payment system in which manufacturers would each have a upkeep for total drug sales to the social insurance system. Under this framework, manufacturers would have been able to set prices freely, as long every bit their total revenues from sales to the national wellness system did not exceed the budget. This proposal was never enacted, due to political opposition. However, in January 1994, representatives of the pharmaceutical industry and French regime reached an informal understanding that, if implemented, would include many aspects of this 1991 proposal.

Limiting Drugs Eligible For Reimbursement

Governments tin limit the drugs eligible for reimbursement through lists that explicitly place specific drugs as ineligible for reimbursement. Drugs may be excluded from the payment system because they (ane) offering questionable therapeutic value or (2) take prices that are loftier relative to alternative medications of like or equal therapeutic value.²⁴

Three of the countries we studied are either establishing or expanding negative drug lists in an attempt to limit prescription drug dispensing. In Jan 1994, French republic established a list of 24 drugs and procedures which will not be reimbursed. The United Kingdom is in the procedure of excluding boosted drugs from its reimbursable lists. Federal republic of germany currently has a non-reimbursable drug list, just, later 1995, plans to replace this with a list of drugs that are eligible for reimbursement.

Conclusions

Though toll controls on prescription drugs take been prominent in Europe, they practise not frazzle the variety of techniques and philosophical orientations that U.S. decisionmakers can consider. To command pharmaceutical expenditures, France, Germany, Sweden, and the U.k. use an assortment of policies, some regulatory and some market-based. The residuum struck varies from land to country—ranging from controlling corporate and physician deportment past legal and administrative sanctions to strengthening competition past reshaping incentives. For example, France has emphasized the regulatory approach past imposing stringent product-by-product toll controls. By dissimilarity, the Uk has evolved a more than eclectic strategy: turn a profit controls—a relatively flexible regulatory approach that allows companies considerable pricing freedom—are coupled with policies to acuminate competition among drug companies by encouraging physicians to prescribe less expensive medicines.

All the same none of the policy combinations used in these countries has yielded the degree of spending restraint that each authorities has desired. At best, these governments accept seen mixed success—while pharmaceutical prices were restrained, total drug spending continued to grow (albeit at different rates in each country). Information technology is too soon to tell whether the new policies aimed at consumers and physicians, in conjunction with existing toll and/or profit controls, can further limit spending increases. Similarly, evidence is express as to whether these new policies will limit consumers' access to important medicines.

What lessons, then, exercise these countries' experiences offer U.S. policymakers as they consider how to contain the costs of a universal prescription drug do good? The evidence seems to support two different sets of lessons that, in terms of policy changes, signal in opposite directions. At to the lowest degree in this case, the film one sees depends on one's perspective.

From the perspective of the pragmatic regulator, two distinct messages emerge. First, when a country adopts a universal drug benefit, its policy goal necessarily shifts from restraining drug prices to restraining drug expenditures. In the United States, the current debate has centered on drug prices, because high prices can impede many people's access to prescription drugs. However, if the source of payment were to shift from consumers' pocketbooks to the public treasury, the potential obstacle to admission would be the total expenditures that the political organisation tin can behave—that is, pharmaceutical toll times quantity. As the French feel shows, strict controls on drug prices are non sufficient to restrain growth of drug utilization and total pharmaceutical spending.

The regulator's 2nd lesson flows from the get-go Since control of overall spending implies 2 goals—limiting quantity every bit well equally price—then the regulator needs distinct instruments to achieve those goals. Whether regulatory or market oriented, policies to restrain drug prices will ordinarily differ from those used to reduce what is perceived as unnecessary drug consumption. Moreover, the pragmatic regulator volition discover that new market place incentives, which brand physicians and consumers enlightened of the costs of prescription drugs, are not only useful additions to the policy menu, just may be necessary to achieving control of pharmaceutical spending.

Such are the lessons for the pragmatic regulator—but a unlike set of conclusions emerge for the abet of market forces. This observer might draw three conclusions from the European efforts to control prescription drug prices and spending: first, that regulatory efforts have (at least in part) failed to meet their goal of spending control; second, that these failures accept spurred additional controls and greater regulatory complication; and 3rd, that this pattern of regulatory ineffectiveness and growth reflects a failure to create a market surround that fosters appropriate cost consciousness among providers and consumers. Rather than rely on the European experience, proponents of a more market-based strategy may expect to the United States, where the pharmaceutical market is undergoing major structural change. The increased office of managed care is unleashing competitive forces in the pharmaceutical sector that could potentially achieve many of the price and spending restraints desired by policymakers in both the United States and Europe.

This clash of regulatory and market-oriented perspectives echoes similar conflicts in other policy areas, from health insurance to housing. But these conflicts are non all ideological; in the present example, advocates for each arroyo tin can find some support for their position in the European feel. However, each side should acquit in mind that the debate cannot be foreclosed on the footing of this evidence lone. Political considerations—based on unlike perceptions of the role of regulations versus reliance on market forces—play an of import role in that argue. In improver, pharmaceutical pricing policies must reflect the potential bear on that whatsoever regulations have on pharmaceutical research and evolution—a relationship that is uncertain at all-time, and in whatsoever effect is across the scope of this article.

Footnotes

David J. Gross is with KPMG Peat Marwick. Jonathan Ratner, James Perez, and Sarah L. Glavin are with the U.S. General Accounting Office (GAO). The views presented in this article are those of the authors and do not necessarily reflect the opinions of KPMG Peat Marwick, GAO, or the Health Care Financing Administration.

^oneSome portion of this increment may exist attributable to a general movement of handling from inpatient to outpatient settings over this menstruum.

²Some research indicates that prescription drug price indexes may over-sample medium-anile drugs that undergo above-average toll increases, and under-sample younger products that feel less-than-average toll increases, thereby overstating annual average drug toll aggrandizement (Berndt, Griliches, and Rosett, 1992). Alternatively, these indexes may understate annual changes in average drug prices because they generally practise not mensurate the affect of new drugs, many of which enter the market at relatively loftier prices.

^threeThere are besides fewer networks for buying prescription drugs in other countries than in the United States. For example, in the countries nosotros studied, consumers generally purchase their pharmaceuticals from retail pharmacists. By dissimilarity, while most Americans buy their pharmaceuticals at retail pharmacies, many purchase through mail service order houses and managed care organizations (Schondelmeyer and Thomas, 1990).

⁴The exception to this is in Sweden, where wholesaler fees are non subject to government regulation, merely are negotiated betwixt wholesalers and manufacturers.

^vIn addition, Sweden based its allowable price on the price charged for the drug in other countries, and, in item, on the cost in the manufacturer's dwelling house country.

^viIn France, the government prohibits price increases for drugs that have been on the market less than 2½ years. Later that time, prices can only be increased through a directive, which raises or lowers the prices of all drugs on the market by a set per centum. In Sweden, the government tries to keep drug price increases within the rate of aggrandizement.

^viiThree dissimilar categories are used to define sets of similar drugs: (ane) drugs with the same active ingredients (for example, brand name drugs and their generic equivalents); (2) drugs with therapeutically comparable active ingredients (for example, beta-blockers or H-2 antagonists); and (3) drugs with therapeutically comparable effects (for instance, different aspirin combinations). The reference price for a particular drug is adjusted for variations from the average product'due south strength and parcel size.

^eightIn Federal republic of germany, many single source products that lack comparable products cannot be assigned reference prices. Furthermore, other products do not nonetheless take reference prices because of the technical difficulties in ascertaining which products have comparable therapeutic ingredients or actions. As of July 1993, well-nigh half of pharmaceutical products in Deutschland had reference prices. In 1993, the German language authorities simplified the process by which drugs are put into comparable groups. The regime hopes that this simplification volition let for the eventual inclusion of 70 per centum of drugs into the RPS.

⁹These negotiations are performed for patented drugs that do not have generic substitutes and for over-the-counter drugs that the manufacturer wants included nether the reimbursement system. Factors going into the negotiations include the basis of the drug'southward therapeutic value, the price of the particular drug in other countries, the price of comparable products in other countries, and the extent to which the drug'southward usage substituted for more than expensive treatments. No negotiations accept place for non-reimbursable drugs (for instance, drugs sold in hospitals); instead, manufacturers are able to price these drugs freely.

¹⁰The Britain's profit control scheme applies to all firms with sales to NHS of over £0.five one thousand thousand (nigh $740,000) per year.

¹¹Under the United Kingdom's profit control scheme, which excludes generic drugs, manufacturers' profits are regulated in 2 ways, depending on their capital investment in the country. Manufacturers with sizeable upper-case letter investment are permitted to price drugs in line with target turn a profit levels, based on their return on capital—current turn a profit levels on sales to the NHS are prepare at 17 to 21 percent of the capital invested in the country, and devoted to supplying make-proper noun (i.eastward., not-generic) prescription drugs to NHS. Other manufacturers selling in the U.K.'due south drug market place also have target profit levels, but these are based on their return on sales. Manufacturers tin can justify keeping additional profits (upwardly to 25 percent over their target level) if the additional profits are owing to new products or to increased operating efficiency.

¹²The general inflation rate is measured by the growth in the toll deflator for gross domestic production (Gross domestic product) in each land.

^thirteenSwedish information are for the catamenia 1985-xc.

^xivDrug price aggrandizement tin occur even under regulatory schemes which largely restrict drug toll increases, such equally those in French republic and the United kingdom of great britain and northern ireland. This is because the pharmaceutical price index, on which drug price inflation is based, is composed of a market basket of drugs that changes over time. Every bit new drugs become office of this market place basket, the cost of this handbasket can increase if the toll of those new drugs exceeds the average toll of the other drugs in the previous market basket.

^fifteenInformation on pharmaceutical spending in the United Kingdom are for the period 1985-89.

¹⁶Analyses of the effects of Germany'south RPS propose that drug prices and spending were lower after the imposition of reference pricing than they would have been otherwise. We were not able to identify any formal studies on how the policies used in France, Sweden, or the United Kingdom affected drug spending, nor were there sufficient information for doing a before-and-after assay on the policies' effects.

¹⁷Even when use of these medications replaces more expensive non-drug treatments, they tin can increase the pharmaceutical budget. Consider the hypothetical instance of a new medication that costs $1,000, but reduces the need for surgery that would price $25,000. Each time that the medication is prescribed in lieu of surgery, infirmary costs would be reduced by $25,000, but prescription drug spending—accounted for in another budget—would exist increased by $1,000.

^xviiiSweden's recent payment reform was imposed, to some extent, for an additional reason—to respond to a European Customs directive that requires fellow member countries to brand public the rules governing pricing of prescription drugs. The directive does non interfere with the right of countries to control prices or reimbursement by any method they cull, provided the method used is "transparent" and does not discriminate between strange and domestic drug manufacturers. Sweden is not a European Customs fellow member, but has practical for membership.

¹⁹Some physicians in the United Kingdom—25 percent as of April 1993—are subject area to an alternative budgeting scheme, known as the GP fundholding scheme. Under this scheme, which is voluntary, physicians who are in relatively large group practices are given a practice budget, which is intended to cover all prescribing costs for patients as well as the cost of some hospital services, outpatient services, administrative services, and visiting and district nurse services.

^xxThe provisions requiring physicians to justify this prescribing behavior are separate from and predate IPS.

²¹Well-nigh regional physicians' associations chose to accept the 1994 upkeep set at the 1993 level rather than negotiate a upkeep based on real 1993 expenditures.

²²No systematic bear witness exists on the effects of IPS in the United Kingdom.

²³At that place was a disproportionate subtract in the prescription of drugs that are considered to exist therapeutically controversial and drugs that are considered to be therapeutically meaningful. For instance, drugs in the former grouping include circulatory drugs and vitamins (which declined 29.9 percent and 29.1 percentage, respectively). Drugs in the latter group include antibiotics and anti-diabetic drugs (which declined five.ii percent and 0.7 percentage, respectively).

²⁴In Germany, drugs will exist excluded from reimbursement only if they accept questionable therapeutic value; in France, Sweden, and the Britain, reimbursement decisions take into account a drug'due south price as well every bit its therapeutic value.

Reprint Requests: David J. Gross, Ph.D., Policy Economic science Group, KPMG Peat Marwick, 2001 M Street, NW., Washington, DC 20036.

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Source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4193451/

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