Research to analyze price controls on medication

UC3M/DICYT Many governments control medicine costs in order to protect consumers from these situations and so that public spending does not soar. It is sometimes a necessary evil, but in many occasions there are alternative tools that can be used instead of direct price controls on medicines; these instruments increase the efficiency of the pharmaceuticals market and lower the prices of the products. This is one of the main conclusions of research carried out by economists from Universidad Carlos III de Madrid (UC3M) that analyzes the intervention of the price of medications in Spain.

Many governments control medicine costs in order to protect consumers from these situations and so that public spending does not soar. It is sometimes a necessary evil, but in many occasions there are alternative tools that can be used instead of direct price controls on medicines; these instruments increase the efficiency of the pharmaceuticals market and lower the prices of the products.

This is one of the main conclusions of research carried out by economists from Universidad Carlos III de Madrid (UC3M) that analyzes the intervention of the price of medications in Spain.

Government intervention to regulate the price of medication in Spain is currently a particular feature that is almost non-existence in other sectors, according to the experts. In addition, it is surrounded by complex objectives that are often in conflict with one another: the public’s access to different treatments, foment innovation, the control of public spending on healthcare and the promotion of a sector that generates income, employment and exports. “Reulating the price of medicines is complex and sometimes produces effects that are the opposite of those that are sought,” points out the tenured professor of Applied Economics at UC3M, Félix Lobo, who has recently published the book “The intervention of drug prices in Spain” (Springer Healthcare, 2013).

The book, which is the first in a series of book titled “Salud y Sociedad” (“Health and Society”) endorsed by the Abbot Foundation Chair of Economics of Drugs (Cátedra de Economía de los Medicamentos UC3M-AbbVie), is intended to offer an overview of economic regulation and empirical studies on the price of medication in Spain, from an economists point of view. “We have demonstrated that there are alternative instruments that can fulfil the objective of lowering prices and increasing efficiency without resorting strictly, in every case, to direct regulation of prices,” comments Félix Lobo. “Another conclusion,” he adds “is that regulation can also be good for society, by promoting generic medicines that, by creating competition in the marketplace, lead to lower prices and, therefore, greater efficiency, which in turn maintains quality in medicinal treatments.”

This study includes a set of recommendations for creating more efficient markets while still guaranteeing the equality and distributive fairness that are characteristic of the welfare state. Among the most important of the fundamental issues to be considered here are: the reinforcement of the responsible administrative bodies; the limitation of the area affected by price controls; la promotion of policies that foment competition and policies regarding demand; transparency, predictability and objectivity in all processes; and the development and supervision by the National Government of economic evaluation as the basis for decisions regarding pricing and funding. “We also suggest that a team of experts carry out a careful study of possible reforms; among them could be a system of pricing for innovative products based on their therapeutic value, and formulas for payment based on results, thus passing on some of the risks of developing and launching them,” explains Professor Lobo.

The book is based on some original research carried out by this professor of Economics in recent years, such as a study published with Roger Feldman, of the University of Minnesota (USA), in the Journal of Health Politics, Policy and Law on the effects that the names of generic medicines have on social welfare. “The fact that there is an International Nonproprietary Name, created by the World Health Organization 60 years ago, has enabled improvements in public health by avoiding errors in administering medicines,” comments the researcher, who also states that this has had positive effects on the development of the generic medicine market, which allows for lower prices in comparison with brand name medications.