Pharmaceutical Price Controls Harm Patients, Don't Save Money

A recent study by The Boston Consulting Group (BCG) raises serious questions about the effectiveness of government price controls on pharmaceuticals. The study, commissioned by the Warner-Lambert Co. (Morris Plains, NJ), suggests that price controls may actually harm patients without achieving significant long-term savings.

"Governments imposing price controls are not getting what they bargained for," said Arnon Mishkin, the BCG VP who oversaw the study. "They aren't achieving the long-term savings they hoped for, and patients are often denied access to the newest drugs for years after they are available to the rest of the world."

The BCG study examined government policies in ten developed countries, including Canada, France, Germany, Italy, Japan, the Netherlands, Spain, Switzerland, the United States, and the United Kingdom.

"This is the first study examining government interventions in the pharmaceutical market from the standpoint of all three main stakeholders in the debate: governments that spend the money, companies that manufacture the products, and most importantly, patients," Mishkin stated.

"Price controls and other market interventions delay research and limit access to new drugs and therapies," said Anthony H. Wild, president of Warner-Lambert's Pharmaceutical Sector. "This important study by The Boston Consulting Group also demonstrates that price controls have not saved money in the long run."

Among the study's key findings:

• In the 1990s, rates of growth in pharmaceutical spending in many markets with widespread interventions have been no different from those in markets with few.
• Widespread access to new drugs for widely under-treated conditions such as heart disease and depression have been delayed in many G-7 countries that have price control policies in place.
• Japan, which has severe market restrictions, has less access to new medical therapies than any other G-7 nation. Of the 230 new pharmaceutical products launched around the world since 1985, more than half are not available in Japan.
• In the United Kingdom, statins, an important new weapon in the fight against high cholesterol and heart disease, are prescribed less than half as often as they are in the United States.
• One-third fewer Germans are receiving the newest life-saving drugs for heart disease and depression.

The BCG study suggests several actions for governments seeking to reform their pharmaceutical markets:

• Encourage competition among manufacturers as a means of controlling drug costs to patients.
• Adopt policies that encourage research into new products but control healthcare costs in the long run. Innovation will be rewarded and cost savings achieved if producers are allowed to recoup research investments early in a product's life cycle in exchange for tighter controls later.
• Encourage policies that create greater access to treatments so doctors and physicians, not government bureaucrats, are making treatment decisions.
• Encourage development of needed new drugs by strengthening intellectual property protections throughout a product's life span.

"This study adds important new information for the healthcare debate raging in Europe, Japan and the U.S.," said Wild. "As policymakers debate these important issues, we hope they will consider the findings of this study and its implications for ways to achieve cost savings without sacrificing the best interest of patients."

Key Points From the Executive Summary

• Market interventions such as price, volume, and spending controls are widely used in both the public and private sectors to manage pharmaceutical and other healthcare spending.
• Pharmaceutical spending can also be managed by encouraging free market competition in the form of free pricing for, and competition between, patented products allied with competition from generics once patents expire.
• Although introduced to contain overall spending while retaining wide access to new medicines, market interventions such as price controls have often been counterproductive In particular, government interventions in the pharmaceutical market have often failed to achieve desired long-term outcomes.
• Some forms of intervention, particularly those aimed at curbing demand, have contained, or reduced, drug spending in the short term.
• Market interventions have not reduced longer-term pharmaceutical spending growth: pharmaceutical spending growth rates in the1990s in many markets with widespread interventions have been no different from those in markets with few interventions, such as the U.S.
• Irrespective of their impact on spending levels, market interventions often have unanticipated second-order consequences, such as spending increases in other parts of the healthcare budget.
• Market interventions can also worsen health outcomes
• Negotiations on reimbursement, volume limits, formulary access, or other interventions can delay widespread access to new therapies
• Market interventions are correlated with a slower rate of diffusion of innovative therapies—in countries with market interventions some new classes of therapy have been adopted more slowly than in markets with few interventions, such as the U.S.
• Market interventions can reduce the economic incentives for pharmaceutical manufacturers to conduct clinical trials and promote their innovations, thereby reducing awareness among physicians and patients regarding appropriate use and benefits of new drugs.
• Market interventions can also affect the incentives for pharmaceutical manufacturers to compete with one another and to invest in innovations.

Many forms of market intervention limit the incentives for market participants to engage in price competition, particularly after patent expiration. As a result, prices may not fall as they would in markets where this competition occurs.

Certain forms of market intervention encourage companies to direct R&D toward developing local market products with limited therapeutic advantage, rather than towards developing products for the global marketplace

An agenda for governments seeking to reform their pharmaceutical markets should contain the following elements:

• Continued commitment to maintaining a strong system of intellectual property protection.
• Emphasis on reducing barriers to competition, for both patented and off-patent (generic) products.
• Move toward market pricing across the product life cycle, allowing the market to reward innovation early while rewarding low costs later.
• Consideration of ways to encourage active decision-making by both physicians and patients that is scientifically and economically informed.
• Shift in the direction of a free market model that encourages innovation and competition is possible—and need not lead to a rise in overall drug or healthcare spending.
• Increased use of, and competition between, low-priced generic products could, in many markets, lead to savings that could fund relaxation of price controls on on-patent products.

The full study, Ensuring Cost-Effective Access to Innovative Pharmaceuticals: Do Market Interventions Work?, is available from Warner-Lambert.

For more information: Laura Peralta-Schulte, Director, Government Affairs and Public Policy Worldwide, Warner-Lambert Co., 1667 K St. NW, Suite 1270, Washington, DC 20006. Tel: 202-862-3840. Email: Laura.peralta-schulte@wl.com.