The impotence of price controls: failed attempts to constrain pharmaceutical expenditures in Greece

While the prices of pharmaceuticals are relatively low in Greece, expenditure on them is growing more rapidly than almost anywhere else in the European Union.

To describe and explain the rise in drug expenditures through decomposition of the increase into the contribution of changes in prices, in volumes and a product-mix effect.

The decomposition of the growth in pharmaceutical expenditures in Greece over the period 1991-2006 was conducted using data from the largest social insurance fund (IKA) that covers more than 50% of the population.

Real drug spending increased by 285%, despite a 58% decrease in the relative price of pharmaceuticals. The increase in expenditure is mainly attributable to a switch to more innovative, but more expensive, pharmaceuticals, indicated by a product-mix residual of 493% in the decomposition. A rising volume of drugs also plays a role, and this is due to an increase in the number of prescriptions issued per doctor visit, rather than an increase in the number of visits or the population size.

Rising pharmaceutical expenditures are strongly determined by physicians' prescribing behaviour, which is not subject to any monitoring and for which there are no incentives to be cost conscious.