Health costs, including the cost of pharmaceuticals, have been rising throughout the world for 35 years. Governments are determined to reduce public expenditure on health; pharmaceuticals are an obvious if frequently an inappropriate target. Cost containment measures include positive and negative lists, permission for more over-the-counter drugs, reference pricing and other price and profit controls, generic substitution, patient copayments, and drug budgets for general practitioners.
These methods have been tried in various European countries and their experiences are reviewed. The advantages and drawbacks of the methods to patients, physicians, and the pharmaceutical industry are discussed. The question of elasticity of demand for pharmaceuticals is reviewed in an Appendix and a value varying between −0.44 and about −1.3 is obtained.
The industry response to cost containment has been mixed. Some of the research-based companies have followed confrontational policies with their governments; others have tried collaborating. Companies aim at “satisficing” the market, that is, making the best profits they can consistent with not generating adverse publicity. The generics companies, which appear at first sight to profit from cost-cutting measures, are actually vulnerable to competition in generics from the research-based companies. Most companies are following policies of risk minimization and this is reflected in the large number of mergers in recent years.
One change that has come about is that policy makers are collaborating internationally. The idea that multinationals can confront governments in Europe is now seen to be untrue, although it may be successful in the United States. The best prospect for pharmaceutical companies is to reach agreements with governments which enable them to flourish if they are innovative and to survive if they are not. This policy has so far been successful, and the industry seems to have emerged largely undamaged from the pressures of the early 1990s.
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Burstall, M.L., Reuben, B.G. & Reuben, A.J. Pricing and Reimbursement Regulation in Europe: An Update on the Industry Perspective. Ther Innov Regul Sci 33, 669–688 (1999). https://doi.org/10.1177/009286159903300304