Forthcoming OECD study examines pharmaceutical pricing policies, pricing data, and innovation

April 18, 2008
Mike Palmedo

On April 16, Elizabeth Docteur, Deputy Head of the OECD Health Division, presented the results of her research on the effect that national pricing policies have on prices of the same drugs in other countries, and their effect on future pharmaceutical innovation.  The full study, coauthored by Valérie Paris, Pierre Moïse, and Lihan Wei, will be released in June or July of this year. Her presentation as part of an AARP-sponsored panel on the pharmaceutical industry is available at the conference website: Healthcare '08 - Global Trends and Practices.

The OECD study notes the greater availability of pricing information. Not long ago, it was very difficult for policymakers to obtain timely, reliable data on what other nations’ government agencies were paying for drugs. Now, greater access to information through informal communications between policy makers has assisted external reference pricing. This has led to an observable relative convergence of prices among OECD countries (excluding the US), which has impacted the strategies of drug firms. The industry used to try to segment markets, but now they are more inclined to launch first where they can get the highest price, in order to set the global reference prices high. Sometimes they are willing to accept confidential rebates from governments in lieu of lower list prices, in order to keep the converging prices moving upward. Obviously, this is bad for the OECD countries with relatively lower incomes.

The study also compares the effects of different pricing policies on pharmaceutical innovation. Policies that set the price (or reimbursement level) of a new drug at the same level as the price of its lowest therapeutically equivalent competitor discourage investment in me too drugs. These policies should drive pharmaceutical research towards more innovative new products.

Since drug companies game the system when reference pricing compares prices across borders; and since pricing policies that seek to reward products with extra clinical benefit can lead to more innovative new medicines, the OECD study recommends the latter.

 

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