[Ip-health] US claims of higher drug costs under fire

Ira Glazer ira.glazer at gmail.com
Mon Jul 5 01:45:30 PDT 2010


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
* and *GlaxoSmithKline<http://markets.ft.com/tearsheets/performance.asp?s=uk:GSK>
*. This data – confirmed informally by senior industry executives – suggests
profits in the US are only marginally greater than in Europe.

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.


More information about the Ip-health mailing list