France and Spain had the highest levels of pharmaceutical consumption out of 30 developed nations in 2005, followed by the USA and Australia. Although US drug prices were 30% higher than the 30-nation average, prices in the other three nations were below average, says a new report from the Organisation for Economic Cooperation and Development (OECD).

The OECD’s 30 member nations spent, on average, $401 per person on pharmaceuticals during 2005. The USA’s spend was the highest, at $792, and Mexico’s was the lowest at $144 - just 18% of the US amount. However, variations in spending levels across the 30 nations were relatively low, it says.

Mexico also had the lowest volume of drug consumption per capita, at under 25% of the OECD average and less than half that of Poland, the second-lowest country. However, it was not among the nations with the lowest average drug prices; these were Poland, Turkey, the Slovak Republic, the Czech Republic, Korea, Greece, Hungary, Spain and Australia, where prices were 68%-81% of the average. Canada and Germany’s price levels were similar to the USA’s, and the highest were in Iceland (159%) and Switzerland (185%).

Pharmaceuticals account for only around 17% of total health expenditures in most countries, and the bulk of drug spending is publicly financed in all but four OECD countries – the USA, Canada, Poland and Mexico. Out-of-pocket spending is generally more important as a source of funding than private insurance, which is significant in only the USA, Canada, the Netherlands and France, it says.

Turning to the industry’s effects on national economies, the report notes that all 15 of the world’s top drugmakers (in terms of global sales) have their headquarters in an OECD country, with about half of these in the USA and the rest in Europe - France, Germany, Switzerland and the UK. The USA accounts for 39% of global production and Europe for 36%, while the two biggest net exporters of pharmaceuticals are Ireland, where the sector accounts for 11% of Gross Domestic Product (GDP) and Switzerland, where it represents 3%.

In 2006, the top 10 drugmakers accounted for nearly half the value of world sales. As the market is increasingly global, trade and policy practices make market segmentation and corresponding by-country price differentiation difficult, particularly within Europe, where multinationals have encouraged their subsidiaries to set prices within narrow price corridors, says the report. New active ingredients are launched in an average of 10 countries, although firms often release multiple versions of patented products in different markets to reflect consumer preferences and to reduce opportunities both for prospective buyers to make external price comparisons and for wholesalers to engage in parallel trade, it adds.

Price controls
All OECD countries have introduced some degree of drug price regulation. Canada and Mexico cap the prices of all patented drugs, whether or not they are covered by public insurance, but most nations regulate the prices of products which are subsidised in this way, whether or not they are patent-protected.

The most widely-used price-setting policy is external benchmarking, which sets the price limit based on what other countries pay, but it has several drawbacks for governments, says the report. First, companies launch their products first in countries where they can set a price freely at market entry (such as Germany and the USA) or negotiate relatively high prices (eg, Switzerland). Second, there is a risk of benchmarking to artificially high list prices because payers negotiate confidential rebates, reducing the real price paid. Together with the threat to industry profits posed by parallel and cross-border trade, this practice contributes to convergence of list prices and affordability problems in lower-income countries, it says.

Another commonly-used policy compares prices with those for alternatives already on the market and, usually, award a price premium only for products that are assessed as having extra therapeutic advantages. In Germany and a growing number of other countries, the drug’s reimbursement is capped by the price of products considered similar, so if patients buy more expensive products they pay the difference out of their own pocket.

Finally, around a third of OECD countries are now using pharmacoeconomic assessment to decide whether a medicine is worth what its maker proposes to charge, although few of them have formal programmes for original assessment and valuation. Such assessment can help obtain good value for money and provide important market signals as to what sorts of investment are most useful, but it remains a “technically challenging and value-laden exercise,” the OECD concludes.

The report’s findings will be discussed at the OECD’s pharmaceutical pricing symposium on October 27-28, which will be led by former Mexican health minister Dr Julio Frenk. “Pharmaceutical pricing is a real challenge for policymakers who want both to get good value for money and to support pharmaceutical innovation. While getting the best possible bargain today might mean fewer new medicines to meet health challenges in the future, policies that consider the benefits new medicines provide relative to their cost can help to meet both objectives,” says Dr Frenk, who will become dean of the Harvard School of Public Health next January.