Healthy Skepticism Library item: 18323

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Publication type: news

Jack A
US claims of higher drug costs under fire
The Finanical Times 2010 July 4
http://www.ft.com/cms/s/0/4ae8b8a4-8798-11df-9f37-00144feabdc0.html?ftcamp=rss

Full text:

Claims by the US drugs industry that the US disproportionately funds research and development of new drugs by paying higher prices than Europe for its medicines have been undermined by a new study to be published soon.

Panos Kanavos and Sotiri Vandoros at the London School of Economics argue in their report that a rigorous like-for-like comparison shows that transatlantic differences in patented medicine prices are modest and declining over time.

In a forthcoming article in Health Economics, Policy and Law, the co-authors conclude that “public prices for branded prescription medicines in the US are comparable to those in key European and other OECD countries”.

Their findings are an embarrassment for the industry, and notably PhRMA, its powerful Washington, DC-based trade body. In the past PhRMA has argued that Europe’s ill-conceived public policies, including price controls and sluggish regulatory decision-making, have chilled innovation and raised doubts among private investors who help to underwrite research.

But the study confirms data released recently by several pharmaceutical groups, including AstraZeneca and GlaxoSmithKline. This data – confirmed informally by senior industry executives – suggests profits in the US are only marginally greater than in Europe.
EDITOR’S CHOICE
Move to end drug deals with generic rivals – Jul-02
Patent ruling boosts AstraZeneca – Jun-30

Past studies of drug price differences – including by the US General Accounting Office and by congressional officials – have suggested that US prices are at least one and a half times those of European prices.

Mr Kanavos says such comparisons are flawed, often comparing European list prices with US factory gate ones, which do not take into account the discounts negotiated between manufacturers and health insurers in the US. He says some previous studies have also taken unrepresentative samples.

By taking a basket of 68 of the leading branded prescription medicines, Mr Kanavos and his co-author conclude the 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, he also concludes that there is convergence over time, with innovative medicines becoming more expensive across the US, Europe and other countries.

His study concludes that Europe remains a relatively attractive market by volume and price, even though budget deficits have forced through aggressive price cuts in several EU states in recent weeks.

But Mr Kanavos demonstrates that manufacturers of branded drugs do not significantly cut prices to compete with lower cost generic rivals once patents expire. Governments typically have to ensure that prescribers switch to generic alternatives to save money.