Differential pricing of new pharmaceuticals in lower income European countries

Abstract

Pharmaceutical companies adjust the pricing strategy of innovative medicines to the imperatives of their major markets. The ability of payers to influence the ex-factory price of new drugs depends on country population size and income per capita, among other factors. Differential pricing based on Ramsey principles is a ‘second-best’ solution to correct the imperfections of the global market for innovative pharmaceuticals, and it is also consistent with standard norms of equity. This analysis summarizes the boundaries of differential pharmaceutical pricing for policymakers, payers and other stakeholders in lower-income countries, with special focus on Central-Eastern Europe, and describes the feasibility and implications of potential solutions to ensure lower pharmaceutical prices as compared to higher-income countries. European stakeholders, especially in Central-Eastern Europe and at the EU level, should understand the implications of increased transparency of pricing and should develop solutions to prevent the limited accessibility of new medicines in lower-income countries.

Keywords::

• Central-Eastern Europe
• confidential pricing agreements
• international price referencing
• patient access
• pharmaceutical pricing policy
• Ramsey optimal pricing
• risk-sharing

Financial & competing interests disclosure

The authors have no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending, or royalties.

No writing assistance was utilized in the production of this manuscript.

Key issues

• • Perfect competition for a usual good, results in economically efficient equilibrium price and quantity.

• • In global markets, the price in different locations is adjusted to the equilibrium of local demand and supply. As the demand is subject to the ability to pay, the price of products is reduced in lower income countries.

• • Manufacturer monopoly, payer monopsony and informational externalities results in market failures in the provision of patented pharmaceuticals.

• • Pharmaceutical pricing decisions in one country influence drug prices and consequently health benefits of patients in other countries, given the widely applied practice of international reference pricing.

• • Global manufacturers have an incentive to keep the ex-factory price of their new prescription drugs within a relatively high and narrow price corridor in order to prevent the erosion of their global average price.

• • For pharmaceutical manufacturers, Central-Eastern Europe countries are important from an international price-setting point of view: currency fluctuations induce global price erosion through a domino effect, as reference pricing is updated regularly in many countries.

• • Current market failures of pharmaceuticals include limited patient access to innovative medicines in lower-income countries, and countries eroding prices below their ability to pay.

• • Confidential pricing agreements and risk-sharing in financing of pharmaceuticals in lower-income countries may mitigate these problems.

• • European stakeholders, especially in Central-Eastern Europe and at the EU level, should understand the implications of increased transparency of pharmaceutical pricing and should develop solutions to prevent the limited accessibility of new medicines in lower-income countries.