EU pricing dilemmas

Feb 01, 2010
Volume 22, Issue 2

Faiz Kermani
The EU consists of 27 member states representing a population of nearly 500 million people. This offers a huge market to the pharmaceutical industry, and with Croatia, the Yugoslav Republic of Macedonia and Turkey being candidates for future membership, there will be even more opportunities for business. Despite the size of the market and a continuing demand for new medicines, however, pharmaceutical companies claim that the EU has intrinsic characteristics that hamper profitability.

According to the European Federation of Pharmaceutical Industry Associations (EFPIA), North America accounts for close to 46% of world pharmaceutical sales compared with approximately 31% for Europe.1 The EFPIA has also highlighted that the pharmaceutical industry is the leading contributor to the EU 27 trade balance of any hightechnology sector, with approximately €38 billion contributed in 2008.1 As a result, it has been calling for the establishment of a more business-friendly environment for its member companies.

Pricing pressure

To an extent, pharma feels that it must differentiate pricing across the EU to deal with the nuances of each market, as well as to minimise profit losses that can come from countries with low sales potential. Therefore, there has never been a great desire by companies to establish a single European price for their products. Although the introduction of the euro eased business by having a common currency across a number of countries, it has also led to unexpected complications, particularly as European prices are now much more transparent to consumers and healthcare providers. Although it has always been an easy task to convert currencies, the pricing differences among member countries could previously be defended because of "currency fluctuations". It could also be argued that pricing comparisons were invalid because they depended on which rates were used for the analyses. However, such arguments can no longer be used now the euro has been established — or at least not to the same degree.

The author says...
A major irritation for Europe's pharma industry is the attitude of national governments to pricing. Although governments acknowledge that a vibrant pharmaceutical sector is both beneficial and necessary, they are struggling with rising healthcare costs, which has seen them target pharmaceutical pricing as a means to drive down expenditure, much to the displeasure of pharmaceutical companies. Different member states have devised different systems to control spending. Some of the main methods include reference pricing, procedural barriers, restrictions on dispensing and prescribing, and reimbursement. In several countries, different systems may be applied depending on the type of product. While some EU countries previously only considered national aspects of the pharmaceutical market for their pricing and reimbursement decisions, it is becoming increasingly popular to incorporate information on pricing elsewhere in the EU.

Most companies are unhappy with current pricing systems that exist across the EU because they believe they stifle their ability to innovate. Furthermore, as changes are routinely introduced by governments, companies must constantly monitor pricing systems. Unfortunately, there is no clear official guidance on how to harmonise the different pricing systems across the EU, and perhaps improve them. The EC Transparency Directive (89/105/EEC) simply states that the member states' procedures regarding the regulation of prices for medicinal products must be "based on objective and verifiable criteria" and justified accordingly.2 The Directive also sets the time limits for pricing and reimbursement decisions at a maximum of 180 days, but a number of countries have failed to meet this target. Perhaps the only positive point for the pharma industry is that the Directive also states that decisions "must be open to judicial appeal at national level".

To make matters worse for the industry, European governments have been known to impose dramatic price cuts. For example, in 2006, the Italian government decided to impose a 5% price cut on drugs used by the country's public health service, Servizio Sanitario Nazionale, to recoup money because of a 2005 spending deficit. This angered the national pharmaceutical association, Farmaindustria, which claimed that some products ended up being 40% cheaper than in other EU markets.3 Recently, the UK has experienced similar direct government intervention; in 2009, prices of prescription drugs to the UK's National Health Service were reduced by 3.9%, with an additional 1.9% price cut set for February 2010.4

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