Does Reimportation Reduce Price Differences for Prescription Drugs? Lessons from the European Union

Autor: Jennifer S. Allsbrook, Margaret Kyle, Kevin A. Schulman
Rok vydání: 2008
Předmět:
Zdroj: Health Services Research. 43:1308-1324
ISSN: 1475-6773
0017-9124
DOI: 10.1111/j.1475-6773.2008.00838.x
Popis: Cross-national differences in prescription drug prices have been a topic of much discussion in the media and in policy circles (Baker 2004; Bright 2006). Researchers have described some of the underlying causes of these price differences, including international exchange rates and differences in patient demand and national income. Government regulations, such as price controls and reimbursement policies, can also contribute to price differences by fixing prices or reducing the price sensitivity of patients or their agents (Danzon and Chao 2000; Stuart et al. 2000; Danzon and Furukawa 2003). One way to reduce price differences would be to remove restrictions on the flow of prescription drugs across markets (i.e., to permit arbitrage). “Parallel trade,” or “reimportation,” has been proposed to allow people in countries with higher drug prices to acquire prescription drugs from countries with lower prices. In the United States, President Bill Clinton signed legislation in October 2000 to permit parallel trade under strict safety rules (Medicine Equity and Drug Safety Act 2000). Regulations to implement the legislation have not been developed, however, due to concerns about safety and logistics (Rubin 2000). Thus, parallel trade remains illegal in the United States. However, the question of whether parallel trade would reduce prescription drug prices in the United States and other countries without parallel trade remains open. With parallel trade being illegal in the United States, we set out to examine data from the European Union, where parallel trade is permitted. Parallel trade is part of a comprehensive effort to move toward a single market for all goods, including prescription drugs, in the European Union (Farquason and Smith 1998). Nonetheless, safety concerns still exist and there are strict rules governing such trade. A parallel importer must obtain licenses to import products of identical chemical composition for each dosage form, dosage strength, and market of origin. The cost of the license is approximately €1,500 in most countries, or €3,480 for products approved through the European Agency for the Evaluation of Medicinal Products. If the product has packaging in a different language, a different brand name, or a different pack size, the parallel trader may also incur repackaging costs (Arfwedson 2004). In economics, the law of one price states that identical tradable goods should have the same price in all locations (or the difference cannot exceed transportation costs). If not, it would be profitable for someone to arbitrage the price difference indefinitely and make infinite earnings (Mankiw 2007). Indeed, parallel traders act as arbitrageurs by purchasing products in low-price markets and reselling them in high-price markets. This trade can affect price dispersion in two ways. First, migration of products from low-price to high-price markets can reduce the average price paid for a particular product in high-price markets, especially if parallel traders sell their imports at lower prices than the original products in the high-price market, thus narrowing the price difference between markets. Second, manufacturers may reduce the prices of their products in high-price markets to match lower prices offered by parallel importers or in response to the threat of parallel trade. Thus, even if parallel trade does not actually occur, its possibility may constrain prices. In theory, firms could also raise prices in low-price markets to make parallel trade less appealing. In practice, however, price controls in the European Union allow little flexibility in this regard. Indeed, many countries impose mandatory price reductions over time. The specifics of price control policies have been described in detail elsewhere (Jacobzone 2000). The effect of such policies is that any price change in a country with price controls tends to be a reduction rather than an increase. The impact of parallel trade also depends on the incentives of key agents in each country to substitute parallel imports for (presumably more expensive) original products, much like the development of a market for generic versions of off-patent drugs. Some institutional features of particular countries may dampen such incentives, such as additional regulations on the profits of pharmacists, and patient copayments that are generally the same whether a drug is a parallel import or an original product. However, Kanavos et al. (2004) have noted that “traditionally high-price countries seem to have mature policies in place enabling their health insurance systems to benefit somewhat from parallel importation of pharmaceuticals.” The legalization of parallel trade and the elimination of exchange-rate fluctuations resulting from the adoption of the euro in most European Union countries should have reduced the dispersion of prescription drug prices in the European Union. We would expect to see a greater reduction in price dispersion over time in the European Union than in places where parallel trade is not allowed. For example, Goldberg and Verboven (2004) found such a reduction in automobile price dispersion in the European Union during a similar time period. In other sectors of the economy, such as gas, electricity, and telecommunications, price dispersion in the European Union fell from 1985 through 1999, and the standard deviation of the price index for tradable goods fell from 0.11 in 1990 to 0.05 in 1999 (European Commission 2001). However, little evidence on the effect of parallel trade exists. When the British House of Commons considered the question of international exhaustion of trademarks in 1999, its Committee on Trade and Industry noted, “[whilst] we appreciate that it is difficult to determine empirically the precise size and character of the flow of parallel imports, we share the Minister's concern that very little empirical research has been undertaken into the potential effects of international exhaustion” (House of Commons 1999). Evidence regarding the impact of parallel trade on price dispersion for prescription drugs is limited. Previous studies examined the effect on prices for top-selling drugs in select markets, but not how prices have changed across the European Union relative to changes in other countries (Ganslandt and Maskus 2004; Kanavos et al. 2004; Enemark, Pederson, and Sorensen 2006). Therefore, we analyzed price dispersion of a larger set of prescription drugs in the European Union over a 12-year period to address these questions.
Databáze: OpenAIRE
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