U.K., Norway, Sweden Offer Cheapest Pharmaceuticals in Europe, Report Says

The project "Comparison of pharmaceutical prices in Europe" conducted by the Institute for Research in Economics and Business Administration (SNF), on behalf of the Norwegian Pharmacy Association (Apotekforeningen), suggests that price levels of prescription drugs in Norway are among the lowest in a basket of countries composed of 10 comparable European countries (Austria, Belgium, Denmark, Finland, Germany, Ireland, the Netherlands, Sweden and United Kingdom). These nine countries constitute Norway's basket of reference pricing countries and are used to set maximum pharmacy purchasing prices for prescription drugs in the country. The maximum price is calculated as the average of the three lowest reference prices, ensuring that Norwegian pharmaceutical prices always are amongst the cheapest in Europe. The report is available here.

Results

The study shows that the United Kingdom, Norway and Sweden are the three cheapest countries in the reference group while Ireland, Belgium and Germany are classified among the most expensive ones. The United Kingdom is overall leading the ranking but Norway clearly takes the lead for generics subject to reference pricing. Norway was also found to have the lowest (percentage) pharmacy margins when looking at all substances while the United Kingdom bet others when only taking into account patented drugs.

The report concludes that prescription drugs are about 17% less expensive in retail prices in the United Kingdom where low margins explain why drugs are cheaper at pharmacy level. When looking at wholesale prices, Norway is the cheapest country with the United Kingdom being slightly more expensive (+0.4%). On-patent prescription drugs in the United Kingdom have been found to be on average 19.8% cheaper than Norway at pharmacy level while prices in Sweden are on average 6.9% more expensive. Meanwhile, Belgium is the most expensive country with on-patent drugs on average 68.4% higher than Norway at pharmacy prices. Norway is definitively the cheapest country when looking at prices of generic drugs under reference pricing, the second cheapest country being Sweden were prices are still 13% higher than in Norway.

Differences between retail and wholesale prices also show that pharmacy profit margins are especially high in Finland and Ireland.

Prescription Drug Markets

The report makes a clear distinction between supply-side (which tends to directly control drug prices) and demand-side regulations (which tends to control drug spending through the reimbursement system) in each prescription drug market.

Demand-Side Regulation

The drug demand is in the basket of countries mainly regulated through reference pricing (for generics and/or branded products), generic substitution and patient co-payments. International reference pricing is used as a price cap regulation in most studied countries except in Denmark, Germany and United Kingdom. As illustrated in the table below, almost no regulatory instruments are used in Austria, Ireland and the United Kingdom to stimulate generic competition, contrary to Norway where a stepped-price system for generic pricing came into effect in 2005. Meanwhile, even though Germany is, with the Netherlands, one of the only countries to have introduced a therapeutic reference pricing system, prices in the country remain among the highest in the basket of reference, and more generally in Europe.

Supply-Side Regulation

Instruments used to control the supply vary significantly from one country to another but all countries—except the United Kingdom, where pharmacy remuneration is based on fee-for-services—apply mark-up (fixed, linear or regressive) regulation at pharmacy level. The report underlines regressive and flat-fee mark-up schemes are increasingly used as a means to discourage the dispensing of expensive drugs in the ten countries.

Outlook and Implications

Low prescription drug prices in Norway are the result of a stringent control on prices and mark-ups in the on-patent drug segment and of several successful measures aimed at stimulating the generic segment. While generic substitution is encouraged via the "preferred product" policy, the stepped-price system ensures cheap generic pricing, which places the country as a leader when it comes to reducing the cost of off-patent drugs.

Pharmaceutical price levels are however likely to widely fluctuate in the short-to-medium term as several countries among Norway's basket of reference countries are implementing major cost-containment measures. This is the case for Finland which introduced a generic reference pricing in April 2009, likely to put a serious downward pressure on prices in the off-patent segment, leading to lower prices as well in Norway. In the same way, Germany—whose system currently tends to encourage high pricing of branded drugs—is in the process of overhauling its drug pricing scheme, with the aim to impose price negotiations to on-patent drug makers. In the meantime, a three-year freeze on pharmaceutical prices is very likely to be effective as of 1 August 2010, if the parliament agrees to the drug package presented by the coalition government. Measures should significantly reduce pricing levels of on-patent drugs in the country, which will inevitably lead to a Europe-wide decrease in prices, since Germany is a reference for many member states.