Markups and Fixed Costs in Generic and Off-Patent Pharmaceutical Markets

There is wide dispersion in pharmaceutical prices across countries with comparable quality standards. Under monopoly, off-patent and generic drug prices are at least four times higher in the United States than in comparable Englishspeaking high income countries. With five or more competitors, off-patent drug prices are similar or lower. Our analysis shows that differential US markups are largely driven by the market power of drug suppliers and not due to wholesale intermediaries or pharmacies. Furthermore, we show that the traditional mechanism of reducing market power – free entry – is limited because implied entry costs are substantially higher in the US.

Effects of Volume-Price Contracts on Pharmaceutical Prices: A Retrospective Comparative Study of Public Hospitals in Hubei of China

Background: Pharmaceutical expenditure has been increasing worldwide. Many countries have attempted to contain the increase through collective bargaining, including in China. In 2015, the Chinese government introduced a new policy to empower regional governments to reduce pharmaceutical prices through its existing tendering system which enables a lower price for products with higher procurement volumes. Xiangyang municipality in Hubei province took a lead in piloting this initiative.Objectives: This study aimed to evaluate the effects of the volume-price contract initiative on pharmaceutical price procured by the public hospitals in Xiangyang.Methods: A retrospective comparative design was adopted. The price of cardiovascular medicines (349 products under 164 International Nonproprietary Names) procured by the public hospitals in Xiangyang was compared with those procured in Yichang municipality in Hubei. A total of 15,921 procurement records over the period from January 2017 to December 2018 were examined (Xiangyang started the volume-price contract initiative in January 2018). Generalized linear regression models with a difference-in-differences approach which could reflect the differences between the two cities between January 2018 and December 2018 were established to test the effects of the volume-price contract initiative on pharmaceutical prices.Results: On average, the procurement price for cardiovascular medicines adjusted by defined daily dosage in Xiangyang dropped by 41.51%, compared with a 0.22% decrease in Yichang. The difference-in-differences results showed that the volume-price contract initiative resulted in a 36.24% drop (p = 0.006) in the price (30.23% for the original brands, p = 0.008), in addition to the therapeutic competition effect (31.61% reduction in the price, p = 0.002). The top 100 domestic suppliers were highly responsive to the initiative (82.80% drop in the price, p = 0.001).Conclusion: The volume-price contract initiative has the potential to bring down the price of pharmaceutical supplies. Higher responses from the domestic suppliers are evident.

Leveling the Playing Field: Industrial Policy and Export-Contingent Subsidies in India–Export Related Measures

In India–Export Related Measures, the United States challenged a range of Indian measures as prohibited export-contingent subsidies, and a WTO panel largely agreed. This article examines the factors at play in the United States’ decision to bring the challenge. At the level of policy, the United States case reflects India's graduation from the protections afforded developing nations’ export-contingent subsidies under the Agreement on Subsidies and Countervailing Measures. A closer examination, however, shows that India ramped up its export-contingent subsidies just as the SCM Agreement required it to wind those subsidies down. Moreover, the expanded Indian subsidies led to increased import competition with the politically influential metals and pharmaceutical sectors in the United States, which pushed the US challenge. We reflect on the larger implications of the challenge for the future of trade rules on industrial policy. In particular, we note that the United States pursued a trade enforcement policy that would have the effect of increasing pharmaceutical prices in the United States, by reducing subsidies for imported generic drugs, at a time when the Trump administration allegedly was trying to reduce the price of prescription drugs. This disconnect suggests the need for both greater transparency in trade policy and greater governmental coordination on the connection between trade policy and other policy priorities.

Drug importation: limitations of current proposals and opportunities for improvement

Drug importation is a policy proposal to help alleviate rising pharmaceutical prices. Restrictions on drug importation stem from the Federal Food, Drug, and Cosmetic Act but authorization of importation can be made by the Health and Human Services (HHS) Secretary. During the Trump administration a number of states passed laws to develop a drug importation programs, however, none have been authorized by HHS. Limitations of these importation programs include sole reliance on Canada, exclusion of high-cost drugs like biologics, and persistent legal hazard of the Personal Importation Program. Potential revisions to current law include expansion of countries approved for importation, inclusion of biologics, and codifying protection for personal importation. Drug importation policies are not a panacea to address rising pharmaceutical prices but may blunt prices while more permanent solutions are pursued.

Other US Value Assessment Frameworks

The Institute for Clinical and Economic Review (ICER) is not the only organization that has attempted to bring value assessment to the United States to address high pharmaceutical prices. With the federal government’s continued reluctance to embrace formal value assessment during the 2010s, other organizations introduced their own approaches. These groups included medical societies with a history of evidence-based clinical guideline development. Examples include the American Society of Clinical Oncology, National Comprehensive Cancer Network, and the American College of Cardiology/American Heart Association. Memorial Sloan Kettering Cancer Centre weighed in with its online “DrugAbacus” tool. This chapter argues that these other frameworks have serious limitations, including a focus on a single clinical area, use of arbitrary scoring systems, and a lack of transparency. ICER has therefore emerged as the dominant framework for assessment of drug pricing and coverage policy.

How the United Kingdom Controls Pharmaceutical Prices and Spending: Learning From Its Experience

To control costs and improve access, nations can adopt strategies employed in the United Kingdom to control pharmaceutical prices and spending. Current policy evolved from a system created in 1957 that allowed manufacturers to set launch prices, capped manufacturers’ rates of return, and later cut list prices. These policies did not effectively control spending and had limited effects on purchase prices. The United Kingdom currently controls pharmaceutical spending in 4 ways. (a) Since 1999, it has typically paid no more than is cost-effective. (b) Since 2017, for medicines that will have a significant budget impact, National Health Service England seeks discounts from cost-effective prices or seeks to limit access for 2 years to patients with the greatest need. (c) Since 2014, statutes and a voluntary scheme have required branded manufacturers to pay the government rebates to recoup the difference between the global pharmaceutical budget and actual spending. (d) For hospitals, generics and some patented drugs are procured through competitive bidding; community pharmacies are reimbursed through a system that provides an incentive to beat average generic market prices. These policies controlled the growth of spending, with the largest effects following budget controls in 2014. Changes since 2008 have reduced savings, first by paying more than is cost-effective for cancer drugs and then by applying higher cost-effectiveness thresholds for some drugs used to treat cancer and certain other drugs.

Factors Impacting Pharmaceutical Prices and Affordability: Narrative Review

Increasing prescription drug pricing often reflects additional work stress on medical professionals because they function as financial advisors for patients and help them manage out-of-pocket expenses. Providers or prescribers wish to help patients with prescription costs but often lack related information. Healthcare plan providers try to display prescription and drug cost information on their websites, but such data may not be linked to electronic prescription software. A mark-up is defined as the additional charges and costs that are applied to the price of a product for the purpose of covering overhead costs, distribution charges, and profit. Therefore, the policies implemented in the pharmaceutical distribution chain might include the regulation of wholesale and retails mark-ups and pharmaceutical remuneration. If mark-ups are regulated, countries are highly recommended to use regressive mark-ups rather than fixed percentage mark-ups. This narrative review provides insights into the framework of pharmaceutical mark-up systems by describing different factors impacting pharmaceutical prices and affordability. These include the interplay of medicine pricing and the supply chain, the impact of pertinent laws and regulation and out-of-pocket expenditure.

6.F. Round table: What is the evidence for and against price transparency in pharmaceutical pricing and procurement?

Although the potential for price transparency in pharmaceutical systems has been widely debated, there has been less discussion of the empirical basis to inform policymaking in this area. The lack of price transparency is viewed as one of the biggest barriers to joint pharmaceutical procurement, an initiative that has the potential to drive down pharmaceutical prices by pooling the purchasing power of smaller populations and thus improve the affordability of medicines. However, critics of the call for increased transparency in pharmaceutical pricing argue that such policies would lead to price inflation, particularly for countries with lower ability to pay or limited negotiating power. Given the widespread use of negotiated confidential discounts granted to different payers by manufacturers and the pervasiveness of international reference pricing as a policy mechanism for determining pharmaceutical prices, transparency policies would not only affect countries directly implementing them. As a result, policy-makers are often reluctant and unsure about how to proceed; this became readily apparent in the discussions around the Transparency Resolution at the World Health Assembly in May 2019. A concise overview of the evidence on the consequences of transparency policies is lacking. This panel draws on a wide-ranging literature review that sought to answer the following key research questions: Is there empirical evidence that examines the effect of price transparency on price development (within countries implementing the policy as well as other countries) In the area of pharmaceuticals? Regarding other types of healthcare goods and services? Regarding products from other industries? What insights can we learn from the available evidence and how transferrable is evidence from other healthcare dimensions or other industries to the issue of price transparency for pharmaceuticals? In this workshop we will bring together researchers to discuss the type of evidence available the extent to which it is empirically grounded. The workshop aims to address this issue and highlight evidence gaps for and against price transparency policies. Each panellist will talk for a maximum of 10 minutes presenting insights from their work; audience members will be actively invited to share their insights and reflections. Key messages The debate on price transparency in pharmaceutical systems needs to advance by looking at the full range of evidence available. Highlighting evidence gaps can endorse real world experiments to test theoretical arguments.