Pharmaceutical pricing in Europe: time to take the right direction

A price stems from the intersection between supply and demand curves in any common market. However, there are special markets where consumers do not pay for goods directly, and prescription drugs are a well-known example in healthcare. Drugs are mainly funded by public expenditure in well-established welfare systems like those of the Western European countries. However, the present era of austerity in public funding has made financial resources scarce in most European nations. Currently, the leading tendency for pharmaceutical pricing in Europe is direct negotiation with pharma companies. However, these negotiations are administratively burdensome, with costs not necessarily offsetting savings. Moreover, since any trade negotiation implies some degree of confidentiality to be effective these strategies are scantily transparent. When prices are set for many products through unavoidably arbitrary decisions, the final consequence is an irrational allocation of financial resources. Here, we raise a proposal to restore a reasonable balance between public equity objectives of health authorities and private profit incentives of the pharma industry in Europe, switching from pricing to budgeting. The underlying rationale of our proposal is to stop setting arbitrary prices in a context of market failure.

[The European enigma of pharmaceutical pricing: still solvable?]

The attempt to regulate pharmaceutical pricing has a long tradition in Western European countries and various solutions have been experienced in recent decades to try to control public pharmaceutical spending. Nonetheless, drug prices have become increasingly out of control and unsustainable even in the richest European countries. In a situation of "market failure" such as the pharmaceutical one, in fact, two totally opposite needs collide: the main objective of the health authorities of universal access to essential drugs, versus the aim of the pharmaceutical industry to maximize turnover in order to guarantee high returns on investments. We are therefore convinced that the growing threat of drug prices that are too high must be solved with drastic solutions. The goal of this contribution is therefore to first summarize the current situation of pharmaceutical pricing in Western European countries, then debate the main issues currently discussed and finally propose a radically alternative scenario that moves from prices to the budget.