The pharmaceutical sector – containing costs and ensuring fair access

Newsletter 2008-4

Publication date : 2009-01-17

Pharmaceuticals represent a booming market with expenditure rising rapidly in most Member States. But the market is also atypical and very imperfect as, generally, consumers are neither the ones taking the decisions on whether to use a drug – mainly because they do not have the necessary knowledge and information – nor the ones bearing the costs. What’s more, exclusive property rights aimed at stimulating innovation in pharmaceutical companies can hinder competition, pushing up costs.

In order to overcome these market inefficiencies and ensure that quality pharmaceuticals remain universally accessible at a reasonable price, most governments have put strict regulations in place.

The German Peer Review, held on 30th June and 1st July 2008, looked into how price negotiations and tendering procedures between health insurers and pharmaceutical companies, as well as risk-sharing agreements between pharmaceutical companies and health care providers, and pre-accords on budgets for the treatment of illnesses, can contribute to the policy objectives of cost containment, access to medicines and reward for innovation.

Lessons learned

Countries with limited health care budgets are under increasing pressure as globalisation of the pharmaceutical market and intellectual property rights cause prices to converge upwards, especially for new drugs.

From the experiences presented, it emerged that governments would do well to shift away from obsolete cost containment practices still in use, such as price controls, and move towards demand management policies, focusing primarily on doctors and pharmacists.

Price negotiations between health insurers and pharmaceutical companies and, particularly rebate contracts, offer major potential savings. But it remains uncertain whether such contracts comply with EU public procurement laws and some have already been challenged in the courts.

Risk-sharing deals covering new and often expensive drugs, for which healthcare outcomes are uncertain, can also contribute to cost containment while improving access and stimulating innovation. Agreements about paybacks and price-volume deals can also be helpful in limiting budgets.

However, such schemes are not automatically transferable from one country to another, due to different health care systems and market situations.

The review nevertheless emphasised that industry and other stakeholders, such as the insurers, consumers and doctors’ associations, should all be involved in the discussion on cost containment solutions. It also underscored governments’ role in boosting competition by promoting transparency on pharmaceutical markets, especially as regards information on product efficacy and safety, prices paid by consumers and insurers, price-setting, reimbursements and other regulatory mechanisms.