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Selected research from leading health care experts whose findings have a direct bearing on public policies effecting medical progress. Research is chosen based on its quality and relevance by the Medical Progress Today editorial staff.

Selected Research

An Exploratory Analysis of Pharmaceutical Price Disparities and Their Implications Among Six Developed Nations
Joseph Calfee, Ph.D., Elizabeth DuPre, Mario Villareal, American Enterprise Institute, 4-1-06

Calfee and his co–authors compare American drug prices to those in five other industrialized nations and find that while prices for so called "follow-on" drugs in the same class (i.e. new competitor drugs for treating high cholesterol or depression after the first breakthrough therapy in that category comes on the market) may be significantly lower, prices for first in class drugs are about the same. The problem is that "follow–on" drug research is often very valuable, and the burden for such research (because of European pricing restrictions) falls disproportionately on U.S. consumers.

In our study of 43 drugs, prescription drug prices in several wealthy nations (Australia, Canada, France, Germany, and the U.K.) were much lower than in the U.S. on average, well below relative per capita GDP. There was relatively little difference among the five foreign nations. All this is consistent with previous research. After separating less-unique from more unique drugs, however, important new findings emerged. Relative prices for less-unique drugs, which are subject to strong competition, were at about half the U.S. level. We suggest that this reflects the exercise of monopsony power that does not exist in the U.S., where buyers as well as sellers compete. On the other hand, relative prices for highly unique drugs tended to be approximately proportional to per capita GDP or higher. Remarkably, biotech drugs were priced at or above U.S. levels in Canada and France.

These results carry uneasy implications for the future of pharmaceutical research. The follow-on drugs that make therapeutic classes competitive also amplify the incentives to conduct new R&D within these classes even as R&D incentives for pioneer brands disappear with the approach of patent expiration. Our results suggest that price controls operate to blunt these incentives for follow-on drug research, leaving most of the burden to U.S. purchasers. Because these follow-on R&D results are often extremely valuable, the implications merit substantial concern.

In contrast, biotech drug prices in foreign nations appear to be above profit-maximizing levels, which we suggest is caused by political forces in the U.S., while foreign revenues, as one would expect, are very low. This, too, undermines research incentives, especially for creating highly innovative drugs.



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