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Cross-national price differences for pharmaceuticals: how large, and why?
1Health Care Management Department, Wharton School, University of Pennsylvania, Philadelphia 19104, USA. danzon@wharton.upenn.edu
Journal of Health Economics
|August 18, 2000
Summary
US drug prices are not higher than in other developed countries when using comprehensive, weighted indexes. Differences in drug prices reflect product characteristics and regulatory environments, not just higher US costs.
Area of Science:
- Health Economics
- Pharmaceutical Policy
- Comparative International Analysis
Background:
- Conventional wisdom suggests higher drug prices in the United States compared to other nations.
- Previous international drug price comparisons are often flawed due to unrepresentative samples and unweighted price indexes.
- Understanding cross-national price variations is crucial for pharmaceutical policy and economic analysis.
Purpose of the Study:
- To construct bilateral drug price and quantity indexes for seven major countries (US, Canada, France, Germany, Italy, Japan, UK).
- To challenge the assumption of significantly higher US drug prices using comprehensive, weighted data.
- To investigate the factors driving cross-national drug price differences, including product characteristics and regulatory influences.
Main Methods:
- Development of Laspeyres (US-weighted) and Paasche (foreign-weighted) bilateral price and quantity indexes.
- Utilization of comprehensive drug data across seven high-income countries.
- Application of quasi-hedonic regression analysis to control for product characteristics.
Main Results:
- Bilateral indexes refute the notion that US drug prices are substantially higher than in other comparable nations.
- Cross-national price variations are significantly explained by differences in product characteristics and their implicit prices.
- Strict price regulation is associated with lower prices for older and globally diffused drug molecules.
- Generic competition effectively reduces prices in less-regulated markets with more price-elastic demand.
Conclusions:
- The study provides a more accurate assessment of international drug price levels, challenging previous findings.
- Pharmaceutical regulatory regimes play a significant role in shaping drug prices across different countries.
- Factors beyond simple price comparisons, such as product attributes and market regulation, are key determinants of drug pricing.