International Pharmaceutical Spending Controls: France, Germany, Sweden, and the United Kingdom

By Gross, David J.; Ratner, Jonathan et al. | Health Care Financing Review, Spring 1994 | Go to article overview

International Pharmaceutical Spending Controls: France, Germany, Sweden, and the United Kingdom


Gross, David J., Ratner, Jonathan, Perez, James, Glavin, Sarah L., Health Care Financing Review


INTRODUCTION

While the United States has traditionally allowed the free market to determine drug prices, the rising cost of prescription drugs has increased the financial burden on vulnerable segments of the U.S. population. In addition, widely reported disparities in prescription drug prices between the United States and other industrialized countries have heightened interest in policies to control pharmaceutical prices. In response to this situation, some members of Congress have proposed Federal regulations limiting prescription drug prices. However, critics of pharmaceutical price regulation, within and outside the pharmaceutical industry, have asserted that U.S. adoption of regulations that reduce drug prices would cripple U.S. pharmaceutical companies' ability to develop life-saving and life-improving drugs. Because the United States has not regulated drug prices in the past, our country's experience does not provide the evidence necessary to evaluate the potential effectiveness of drug price regulations. Several European countries, however, have employed government policies to control pharmaceutical prices and, indirectly, expenditures.

Four European countries that have research-based pharmaceutical industries--France, Germany, Sweden, and the United Kingdom--have each developed a set of government controls to limit the growth of prescription drug prices and expenditures. As part of their national health insurance systems, these four countries provide universal prescription drug benefits, and each faces a continuing challenge to restrain increases in national spending on pharmaceuticals. In this persistent struggle, each country has developed spending control strategies consistent with two premises: first, that drug manufacturers can, if left unchecked by regulation, charge prices substantially above their marginal (or incremental) costs, because patents and marketing efforts protect them from competitors; and second, that insurance coverage and physician responsibility for prescribing discourage comparison shopping by consumers, who lack incentives to seek out the most cost-effective drugs and have limited knowledge about alternative medications. In designing approaches to dampen pharmaceutical spending, governments have tended to rely more on regulations and sanctions than on policies to strengthen competition and sharpen incentives.

The scope of pharmaceutical cost containment strategies is broad, targeting not only price but other determinants of drug spending. At least until the late 1980s, however, efforts to restrain drug prices had focused largely on controls at the point of sale--that is, at the prices charged, for example, by drug manufacturers to drug wholesalers, or by pharmacists to consumers. These traditional policies seem to have restrained prices, but increases in drug utilization and higher prices for new drugs have pushed up drug spending. Faced with this further stress on their national health care budgets, government officials in the countries we studied have concluded that, as a tool for restraining pharmaceutical spending, controls on prices alone are not sufficient. As a result, each country has introduced or is developing a distinctive set of policies to supplement its traditional regulatory approach. These policies are designed to reduce the growth in prescriptions written, encourage the use of drugs that are more cost-effective, and shift some of the burden of higher drug spending from the national health insurance system to consumers, physicians, and drug manufacturers.

This article reviews the cost-containment policies of these four countries and their effects on prescription drug prices and spending levels. The analysis is drawn from a more extensive review of these countries' policies done by the U.S. General Accounting Office (1994a).) This article focuses on the pharmaceutical prices and spending control policies that have been adopted by these countries. …

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