Medicines pricing

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The essential point is that doctors in most countries have great difficulty in estimating the cost of their prescriptions accurately and that across countries and training systems the main factor that influences doctor's drug price awareness is the cost of the drug to the patient as feed back to them by the patient. While factors such as market freedom, differential pricing formulas and distortions in perception all can play a role in determining a drug price, it seems that human factors rule. Actually doctors generally want cost information but find it inaccessible. They consistently overestimate the cost of inexpensive drugs and underestimate the cost of expensive ones with 31% of off the cuff estimates within 25% of the true cost. [1]. There can be marked variation in public funding arrangements. However general guides to drug cost do exist, similar to the British National Formulary in the UK. The potential impact of economic analysis in guiding prescribing where cost issues are viewed by the prescriber as marginal seems small.

Contents

Drug costs

Drug costs are determined by very complex mixture of commercial market decisions, managed market decisions, regulatory action, development costs and individual illness and very rarely reflect the drugs clinical effectiveness. In the case of medicines without a manufacturing license the medicine may only be procurable in a totally unregulated market, while a licensed medicine is likely to have regulation that produces major cost implications in it self but more predictable pricing in the larger economies. In smaller economies it has been known for medicines to be effectively unavailable following commercial marketing decisions as a result of central price controls.

Sole marketing authorisation holders

This is an area of market regulation but even so has resulted in the total medication bill in most markets increasing well above the rate of inflation. Not all of this increase has been driven by real innovation, but a fair bit is due to this.

Generic medications

While generics account for a large portion of current pharmaceutical expenditure, most of the potential savings associated with their use have already been realized.

Generic medicines fall most in price up to the stage where three manufacturers enter the market but there is a direct relationship between competition and number of products in a market[2].
Relationship between number medication license holders and price USA 2008-14[2]
Destabilisation of the market by monopoly supply or only a few manufacturers can lead to medication shortages. In most markets long term price inflation in this sector of the market stayed at close to the general inflation rate, but there have been recent issues due to market consolidation and generic only manufacturers who enter only the most potentially profitable monopoly market situations. Such lead in the USA market to multiple ten times price hikes from about 2014.

Biosimilar medications

Similar to generics and often direct substitution is safe leading to effective price competition. However due to patent expiry during the second decade of the 21st century the potential savings associated with their use are only starting to be realized [3].

Specials and unlicensed medications

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The absence of price control in this segment of the market has resulted in many providers charging "what the market will bear" especially if they are in a monopoly supply situation

Market controls

Almost all health economies with some form of regulated market and tariff for healthcare related activity not paid for by the patient themselves will have special provision for high cost drugs such as chemotherapy.

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In publicly funded healthcare systems such as the NHS the true cost of a treatment is risk shared over a population. This will also be be case with universal compulsory health insurance. This raises the ethical issue of the value assigned by the funding population to a particular health gain for an individual. NICE and the SMC are organisations that help provide advice, often based of QUALs and a particular health gain threshold. The political context is all however as the UK pharmaceutical industry is major employer and contributor to the countries economy. This means that the NHS may have little real control over its drug costs as political decisions may have major impact and unintended consequences including the distortion of healthcare prioritisation

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GPs have indicative drugs budgets as an instrument of promoting cost awareness. Tariff is a similar instrument for secondary care providers. Unlicensed medicines and high cost drugs can create distortions in evidenced based delivery with such systems

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The USA medicines market gives the most evidence that market monopoly results in high prices and competition drives down price

Procurement

As in most countries high cost medications are brought by only a small number of providers, rather than individual patients central at scale pharmaceutical procurement aims to purchase high-quality products at the lowest-possible prices. PHARMAC in New Zealand and the UK NHS have been doing this for over a decade and most other health systems have followed. In the Netherlands, the introduction of thpreference policy in 2008 resulted in an average of a 84% reduction compared with the pre-preference policy price[4], and this was sustained or bettered over the next 4 years.

Drug tendering

Procurement can destabilise the market by eliminating competition. Single-supplier tenders are thought to provide suppliers with an incentive to offer their most competitive pricing, although there is increased risk of supplier default resulting in drug shortages [3]. Canada experienced drug shortages of specialized medications, apparently linked to the consolidation of manufacturers to a single supplier[5]. In 2014, Greece moved from a single supplier to a three-supplier model for hospital procurement, as the previous model had resulted in significant shortages[3].

References