Remarks by Angel Gurría, OECD Secretary-General

OECD Conference Centre, Paris, 27 October 2008

Minister, Ambassadors, Dr Frenck, Ladies and Gentlemen,

Welcome to the OECD High-Level Symposium on Pharmaceutical Pricing Policy. With us today are senior officials from over 20 countries, our international partners --- the World Health Organization and the European Commission --- and delegates from our social partners, BIAC and TUAC. Your attendance pays tribute to the importance of the issues we will be discussing.

We are all aware of the importance of medicines to save and cure. However, these health gains come at a cost that most OECD countries cover out of the public purse. And affordability is becoming more and more of a challenge. In the OECD area, pharmaceutical expenditures grew by more than 5% annually in real terms between 1997 and 2005, faster than other types of health care expenditures and faster than real GDP growth in most OECD countries.

On average, pharmaceutical spending in OECD countries now accounts for one-fifth of total health expenditures, and up to 30% in some Eastern European countries and Korea. These cost pressures mean that it is essential to obtain the best possible value for the money we spend on drugs, as the scope for increasing expenditures is limited.

OECD societies have adopted the view that the use of effective medicines should not be the prerogative of the wealthy. Patients should have access to the medicines they need, irrespective of their ability to pay. But countries differ in the approaches and the degree of success achieves to ensure affordable access. Access to needed drugs is sometimes compromised by the lack or inadequacy of health insurance coverage. In other cases, budget constraints may lead decision makers to exclude effective drugs from coverage on the grounds that they are too expensive. Some of the newer cancer drugs, for example, fall into this category of drugs that are either rationed or not covered.

Even in relatively wealthy OECD countries, many people do not get all the medicines they need. In seven European countries, for instance, two-thirds to three-quarters of patients with high blood pressure do not receive medicines they need to control their condition. The WHO has estimated that, on average, only 50% of patients in developed countries comply with prescribed long-term therapies for chronic disease. This reflects, at least in part, financial barriers to access, especially for low-income patients.

On the other hand, there is also evidence of over-use or misuse of pharmaceuticals: for example, some antibiotics are too often prescribed for patients who do not need or cannot benefit from them. Cross-country data also suggest a sub-optimal use of cheaper generic alternatives to medicines whose patents have expired.

For example, more than 40% of pharmaceuticals sold in Germany, the United Kingdom and the United States are generics. But in Belgium, Italy, Portugal and Spain, these products have less than a 10% market share. Thus, most ─ if not all ─ OECD countries, could get better value for money for their large pharmaceutical expenditures. 

But we have to recognise that ensuring affordable access and getting good value for money are not the only goals that policy makers pursue. Pharmaceutical policies should also promote and foster valuable innovation in the pharmaceutical sector. As in other industries, private investment in R&D of new drugs is motivated primarily by expected returns on investments, given the scientific opportunities and the comparative advantages of particular firms.

But some characteristics of the pharmaceutical market raise doubts whether a socially optimal level and direction of R&D investment will be reached. Take the case of prescription medicines: by shielding patients from the full costs of the medicines they consume and by providing innovators with the exclusive rights to sell their products for a given period, market signals are distorted. This creates a risk of over-investment in the development of new drugs because companies make more money on these drugs than they would if patients had to pay the full price. But the distortions can also work in the opposite direction: cost-containment pressures may lead regulators, payers and purchasers to make pricing and reimbursement decisions that ultimately result in under-investment in the development of new, more effective drugs.

Generally, relative prices provide market signals that steer investment towards particular types of innovation. Consumers are willing to pay more for a new drug if the additional benefits it offers are judged to be worth the added cost.

But the practices used to establish prices or reimbursement levels for innovative drugs suggest that prices may not always reflect the value-added of a particular medicine, especially when prices in one country are set by reference to what is paid in countries where health care costs, income and epidemiology are different. And with a dearth of information on the effects and benefits of a new product, compared with existing treatment alternatives, there is a real risk of placing a premium on what is new while failing to set strong incentives for developing something better.  Investment in so-called “me-too” drugs is an example of the former.

These are tough challenges. I believe this symposium will shed more light on how best to address them. That said, we are not looking for a one-size-fits-all solution. Health systems vary from country to country. And policy makers may legitimately weight objectives differently when faced with a trade-off between affordable access and cost-containment, or between getting a drug at a bargain-basement price today and ensuring investment in valued innovation for tomorrow.

The OECD has been investigating these issues since 2005 following a mandate that we received from the first-ever meeting of OECD health ministers. In addition to extensive analytical work and interactions with national experts, we conducted six country case studies which form an integral part of the pharmaceutical pricing project. Most of you will have seen our new report Pharmaceutical Pricing Policies in a Global Market, which summarises our findings.

What have we learned? Let me highlight a few key results.

First, the globalization of the pharmaceutical market is creating new challenges. It has become a widespread practice to use drug prices paid by other countries to cap reimbursement levels. Attempts to stave off the threat of parallel and cross-border trade of drugs have contributed to convergence of list prices in innovative pharmaceuticals, at price levels that can be difficult for lower-income countries to bear. And to avoid jeopardizing profits in a world where pharmaceutical markets are increasingly interlinked, manufacturers sometimes delay or defer launch of new medicines in countries which are not willing to match the prices paid in other countries.

At the same time, governments and health insurers are increasingly entering into confidential agreements with drug manufacturers that reduce the effective price paid. This reduces transparency in pricing policy processes and outcomes.

Second, it’s not just about the prices. Much attention in policy discussions has been paid to pharmaceutical prices, their implications for expenditure and for the profits of the industry that support future investment. But spending and profits are also affected by the volume of drugs purchased, the mix of products consumed over the product life cycle and by the costs of doing business. All of these factors differ across countries and are directly affected by policies, as well as industry practices.

Pharmaceutical policy encompasses support for R&D, intellectual property rights, market authorization regulations, subsidies for insurance coverage to ensure access to effective medicines, coverage policies including cost-sharing, and incentives for physicians to prescribe and pharmacists to dispense. Pricing and reimbursement policy is an important piece of the puzzle, but we can’t afford to lose track of the big picture. To accomplish the goals concerning access, affordability and innovation which OECD countries have set, it is important to have a consistent framework for pharmaceutical policy making. As a specific example, policies to promote use of generics and price erosion when medicines go off patent can help to contain costs and to improve value for money in pharmaceutical expenditure.

Finally, now more than ever, “we’re all in this together”. In a globalized pharmaceutical market, national policies can no longer work in isolation. Policy makers have an interest in cooperating to more effectively address the challenges I mentioned, but also to fill gaps in data and evidence that are needed to inform policy decisions, through collaborative efforts to generate and share information on the relative effectiveness of new medicines, for example.

OECD countries have to take the lead here since they account for more than 80% of the value of global pharmaceutical sales. They serve as the home base for the world’s top-selling companies, and they benefit domestically from the bulk of private industry’s pharmaceutical R&D investments.

I am sure you will have a stimulating discussion of these challenges today and I am delighted to hand over the proceedings to your Chair, my old friend Dr Julio Frenck, who has just been appointed to the prestigious post of Dean of the Harvard School of Public Health.