International Drug Pricing

The following information has been taken from "Pharmaceutical Data", a publication of the Association of the German Pharmaceutical Industry (BPI)

Differences in prices

A medicinal product with the same or a similar trademark may be sold for different prices from country to country. This is not surprising. In each country, the pharmaceutical industry and the prices of medicinal products are subject to a whole series of different laws, governmental intervention and other framework conditions which means that it would be a mere coincidence if the prices of identical medicinal products happened to be on the same level in different countries. This is the conclusion of the Swiss Anti-Monopolies Commission and the "Price Monitor" in their annual report for 1991 which compared the Swiss prices for medicinal products with those in other countries.

Some of the reasons for price differences:

State regulation

State regulation of prices is the main reason for the most dramatic differences in price since the effect it has on pharmaceutical prices is more or less arbitrary. Price regulations are not oriented towards the business needs of the manufacturers but often towards the financial situation of the statutory health insurance. This creates artificial differences. All the same, a pharmaceutical manufacturer cannot orient the prices of his products in other countries towards the lowest regulated price, because this price does normally not allow full cost covering.

The consequence of this state intervention is that from country to country there are sometimes major price deviations and variable gross margins which are different from product to product and which contribute towards the overall range bearing the cost for research development as well as administration, so that a profit can be made.

A pharmaceutical manufacturer can accept imposed price concessions as long as his overall range of medicinal products permits an acceptable economic return or the sum of all prices in countries in which he offers a certain medicinal product for sale leads to a sufficient income to cover costs and to earn a return on the capital invested.

Exchange rate fluctuations

The fixing of pharmaceutical prices by the state cannot be separated from the problem of exchange rate fluctuations. Exchange rate fluctuations linked with more or less fixed medicinal product prices over longer periods alone can lead to domestic pharmaceutical prices being far higher than prices in other countries.

This situation has been accurately described in an issue of the magazine of "Sueddeutsche Zeitung": "a few years ago a pizza cost 5,000 lira. It then cost German tourists roughly DM 14.-. Today a pizza costs 7,000 lira but Germans would only have to pay DM 7.-. No one can keep pace with that."

Trade margins and taxation

The pharmaceutical manufacturers, alone, cannot be held responsible for the different prices. Even medicinal products which are sold in different countries at the same ex-factory price may end up with different retail prices. This is due to the fact that the trade margins laid down by the state for pharmacies and the wholesale trade as well as taxation deviate from each other. This may lead, for example, to a price difference of almost DM 7.- even for a relatively low-priced medicinal product which a manufacturer sells for DM 10.- to the wholesale trade in Germany and Portugal. In some countries, including the Federal Republic of Germany, the statutory trade margins are fixed in a degressive manner: a low-cost medicinal product has a proportionally higher mark-up than an expensive medicinal product.

There are not just major differences between the general VAT rates in the EU. In many countries reduced tax rates are applied to medicinal products, in some countries they are not taxed at all.

Different production costs

In the different countries manufacturers are confronted with different costs. For instance, -wage and labor costs vary considerably from country to country.

Different treatment habits

The medical schools and the methods of treatment used in the individual countries also differ to a marked degree from each other. This affects turnover, costs and, by extension, the prices of medicinal products.

Competition

When Fixing their prices manufacturers take into account their own costs as well as the price and quality of other competitive products in the respective countries. When deciding on a price, the manufacturer must ensure that his products are competitive.

German prices of medicinal products compared with the EU average

According to a study by the umbrella organisation of pharmacists, ABDA, which is based on a study by the European consumer protection organization, BEUC, the prices of medicinal products in Germany were only slightly above the average level in the European Union at the beginning of 1994. If the EU average is taken as 100, then this study reveals a level of 105 in Germany. Prices proved to be higher in the Netherlands (148), Ireland and Denmark (133), the United Kingdom (123) and Belgium (116). Now, the German price level is probably the same as the EU average.

This development, alone, will probably lead to a less emotional discussion of the price differences as well as offering an answer to the question whether the expenditure by the sickness funds on medicines could not be reduced by importing medicinal products from low-price countries with a state-controlled price policy.

Pharmaceutical market no exception

Price differences between individual countries in Europe are not a special feature of the pharmaceutical market. This also applies to other products. The European Consumer Protection Organization, BEUC, looked at the prices for cars in the spring of 1992. For one and the same model it observed price deviations of up to 41 %. The difference in the highest and lowest price for a car in the upper medium class was DM 18,000.

For more information you can visit  the Association of the German Pharmaceutical Industry (BPI) at http://www.bpi.de    or contact us.

last modified: 05/30/06 11:33