The Vicious Circle of the EU Drug Pricing System

A new study of drug pricing in Europe identifies plenty of problems, but doesn't offer much in the way of new answers-and drug firms are disappointed that the recommendations leave intact what is frequently referred to as a vicious circle in the system.

The European Commission released the "Study on enhanced cross-country coordination in the area of pharmaceutical product pricing" in late February, as its latest contribution to an increasingly anguished debate in Europe over how to get good drugs to patients at a price that health systems can afford. But this lengthy document isn't likely to make much difference, despite its exhaustive review of the current situation, and a host of possible scenarios that it advances.

Crucially, it ducks one of the central issues: in a Europe of 28 countries with very different levels of national wealth and healthcare budgets, inequities of access are bound to appear, unless some form of compensating mechanism is put in place. The study fails to address this dilemma squarely, and its recommendations are consequently of limited value.

As the study points out, most countries in Europe rely on a system known as external price referencing (EPR) to fix the price they allow drugs to be sold or reimbursed at. This means that about 30 countries make a comparison with the price in other countries before they agree a price for the drug to be available at home. National authorities get some sense of reassurance that they are not going to be paying much more than other national authorities.

But there is a downside to the system, as the study itself acknowledges.  Drug firms naturally tend to launch their products first in countries with the highest prices, so that subsequent referencing by other countries will play to the advantage of the company. As a result, there is usually a delay in market entry in low price countries in order to avoid negatively impacting the international benchmark; the product may even not be launched at all in some low-priced countries.

The report acknowledges as much. "Medicine shortages that have increasingly been observed in European countries in recent years might be attributable to strategic launches of the pharmaceutical industry in response to the commonly-applied EPR policy. Moreover, manufacturers are likely inhibited from offering lower prices to lower-income countries, and thus reduce affordable access."

At present, there is some informal compensating mechanism in place. A company may choose to provide a drug in a low-priced country at a discount, but on condition that the price remains confidential. The recommendations in the study would effectively prevent that compensating mechanism from operating.

The study urges the creation of a European medicine price database that would include details of discounts. "The report recommends focusing on improvements to existing EPR schemes as a concrete first step, and aiming to achieve improvements in access to medicines across Europe via exploring options of collaboration within the current EPR structure. The report recommends… referencing to actual prices paid, thus considering possible discounts, rebates and similar financial arrangements."

But pharmaceutical companies have made it quite clear that if information about discounts was to become common property and circulate among all European countries, then they would simply stop offering discounts to poorer countries. The losers would be patients in those poorer countries, where the products may then not be marketed at all, or where budgetary constraints in the national health system would mean that it would be available to fewer patients because each treatment would cost more than if a discount has been agreed.

Again, the study recognizes the challenge: "The disclosure of confidential prices is highly politically sensitive and might not be feasible in the short-term." It offers a timid and partial response to the dilemma with an imprecise suggestion for national policymakers "to elaborate strategies, together with other countries, about a possible consideration of confidential discounts."

But this will not provide a way out of the vicious circle; as long as EPR remains the norm, companies will be at risk of receiving prices arbitrarily lowered by irrelevant comparisons, governments in poorer countries will be at risk of passing up the opportunities for prices adjusted to their national wealth, and patients there will be  at risk of exclusion from useful treatments.

It's time for another look at this - and a rather better one.