European Cost Controls on Prescription Drugs Could Affect U.S. Medication Prices
To contain the rising health care costs that threaten to strain government budgets, European governments are implementing mandatory price cuts on many brand-name prescription drugs, a trend that could have a direct impact on prescription drug prices in the United States, the Wall Street Journal reports. Most European nations have state-sponsored health care systems, which gives European governments a "dominant role" in negotiating drug prices and banning direct-to-consumer drug advertisements. But because the United States is the only major industrialized nation without "some form" of government price controls for prescription drugs, pharmaceutical manufacturers often raise the prices of their products in the U.S. market to offset losses in Europe. Over the past few years, drug makers have increased the price of medicines in the United States by 2% or 3% annually, even as drug prices have been reduced in Europe. Although Europe represented the pharmaceutical industry's largest market a decade ago, because of price controls, it now accounts for just 22% of the $400 billion in global drug sales. The United States now accounts for 46% of global drug sales. "Step by step, the profitability of European markets is decreasing, and we're depending on the United States more and more. ... [E]ach year we increase prices a little in the United States. And each year we have to decrease a little in Europe," Jean-Francois Dehecq, CEO of French drug manufacturer Sanofi-Synthelabo, said. Former HHS Secretary Donna Shalala said, "Why should American taxpayers be subsidizing the Norwegians and the French and everybody else?" Shalala noted that the NIH, which is funded by U.S. taxpayers, has financed much of the research on which prescription drugs are based. "We have been subsidizing this research and in return we get to pay higher prices? It's not fair," Shalala said. But with U.S. lawmakers pressing to curb prescription drug prices, the strategy of offsetting European price cuts with increases in the United States may have come to an end, the Journal reports.
Fighting Back
The pharmaceutical industry is now starting to "fight back" against European price reductions, the Journal reports. The industry's "ultimate weapon" is "threaten[ing] to withhold innovative new treatments from European markets," although many companies have said that they hope never to resort to that option, the Journal reports. Instead, many brand-name drug manufacturers are "touting broader use" of generic drugs as a way for European countries to reduce drug costs. With the cost of many patented drugs so low in Europe, generic manufactures have little incentive to compete for market share, brand-name manufactures say. They add that if they were given "more leeway" in Europe to set higher prices, the generics market would expand. Christopher Viehbacher, president of GlaxoSmithKline's European pharmaceuticals business, said, "It's a pretty desperate situation when a representative of a big pharma company says 'Hey, you might want to consider generics or over-the-counter drugs,'" (Fuhrmans/Naik, Wall Street Journal, 6/7).