Pharmaceutical pricing in Europe: time to take the right direction

A price stems from the intersection between supply and demand curves in any common market. However, there are special markets where consumers do not pay for goods directly, and prescription drugs are a well-known example in healthcare. Drugs are mainly funded by public expenditure in well-established welfare systems like those of the Western European countries. However, the present era of austerity in public funding has made financial resources scarce in most European nations. Currently, the leading tendency for pharmaceutical pricing in Europe is direct negotiation with pharma companies. However, these negotiations are administratively burdensome, with costs not necessarily offsetting savings. Moreover, since any trade negotiation implies some degree of confidentiality to be effective these strategies are scantily transparent. When prices are set for many products through unavoidably arbitrary decisions, the final consequence is an irrational allocation of financial resources. Here, we raise a proposal to restore a reasonable balance between public equity objectives of health authorities and private profit incentives of the pharma industry in Europe, switching from pricing to budgeting. The underlying rationale of our proposal is to stop setting arbitrary prices in a context of market failure.