Regulating The Pharmaceutical Industry In The European Union: A Dilemma Of Achieving A Single Market

Abstract

Pharmaceutical pricing and reimbursement regulations create a dilemma to achieve a single pharmaceutical market in the European Union (EU). Although considerable progress has been made in the past years in harmonization of the pharmaceutical markets, the pricing decisions or systems have continued to be operated on a national basis, which results in price differences across the member states. These price differences create opportunity for parallel trade which, in combination with the EU single market principle calling for the free movement of goods, could lead to reduction in price differences. Among the harmonization efforts by the European Commission, national decisions on pricing and controls, plus parallel trade dilemma, we attempt to analyze the bilateral drug price differences using a sample of countries that represent from strict to relatively less pharmaceutical regulations. Almost all member countries regulate pharmaceutical prices, either directly or indirectly, in the EU, which creates less or more price differences despite market integration. This paper is simply aimed at analyzing price differences in the European pharmaceutical market, employing annual 1994–2003 IMS Health Data from five EU countries (Germany, the United Kingdom, France, Italy and Spain) on prices of molecules used to treat cardiovascular disease. The analysis includes a two step approach. First, we calculate the common use of Laspeyres and Paasche weighted price and quantity indices to make comparisons for both bilaterally matched molecules (considering Spain as the base country) and diffused molecules that are available for five countries. Second, we adopt a hedonic price regression to control observable quality and market characteristics and then re-analyze price differentials. The study concludes that price differences still exist, but are decreasing over time. Even though the results are sensitive to sample and methods used, we found implicit evidence that harmonization efforts by the European Commission may ease reducing price differences in the long run, but it should not be interpreted as moving toward complete elimination of price differences due to complexities in this industry.