Pricing Pharmaceuticals in a World Environment

Abstract

Abstract International comparisons of pharmaceutical prices are playing an increasing role in public policy toward the pharmaceutical industry. Many countries including Italy, Spain, Portugal, and Canada refer to prices of drugs in other countries when setting allowable prices in their own country. In the United States, the Congress and many other consumer organizations have been eager to know if U.S. drug prices are higher than those in other industrial countries. Although earlier studies (e.g., Reekie 1984, Schut and Van Bergeijk 1986, Szuba 1986, Pharmacy Freedom Fund 1990, U.S. Department of Health and Human Services [USDHHS] 1990) have indicated that prescription drug prices are generally higher in the United States than in foreign countries, these studies have been criticized for methodological shortcomings, leading some to discount their conclusions. In the early 1990s, the Congress requested the Government Accountability Office (GAO) to compare ex-manufacturer prices in the United States to those of drugs sold in Canada and the United Kingdom. The GAO found significant price differences at the manufacturers’ level between the United States and these other countries. In fact, all frequently dispensed prescription drugs included in their analyses were priced higher in the United States than they were in the United Kingdom and Canada. The GAO reports had an explosive effect on both the Congress and the pharmaceutical industry. Upon receiving the first report on the U.S.-Canada comparison in early 1992, a hearing was immediately held before the Subcommittee on Health and the Environment of the Committee on Energy and Commerce in the House of Representatives. Legislative bills targeted at regulating prescription drug prices were proposed at once, including the Prescription Drug Prices Review Board Act of 1993, sponsored by Congressman Fortney Stark (D-CA).