Pharmaceutical Pricing in Europe: Weighing up the Options

Rising healthcare costs, particularly pharmaceutical expenditures, have led to the implementation of several pharmaceutical pricing regulations and policies throughout the world. This paper undertakes a critical review of current policies, along with a discussion of alternatives for both on‐patent and off‐patent drug pricing mechanisms. Traditional direct and indirect price controls have failed to balance the objectives of efficiency and equity. Direct price controls do not restrain growth of costs and may not address the need for innovation. Indirect price controls fail to contain costs and do little to create a competitive off‐patent pharmaceutical market. For the on‐patent drug markets, we evaluate the use of profit controls, government purchase or auction of patents and Ramsey pricing. Each of these has its own merit, yet the integration of the often separate price and reimbursement decision‐making processes would seem to hold the most promise for governments and purchasers to obtain value for money. This approach could send signals to the industry to help direct research towards clinically relevant areas.