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Europe's Pharmaceutical 'Free Ride' Might Not Be So Free after All; European Drug Prices Are 25-35% Lower Than the US -- but a New Study from Bain & Company Suggests Americans Might Be Getting the Better Deal.

Article Excerpt
Business Editors/Health/Medical Writers

NEW YORK--(BUSINESS WIRE)--Feb. 23, 2004

Europe is getting a "free ride" on US labcoat-tails where pharmaceutical research and development is concerned. That's the argument being made by US government and business leaders, who complain that Americans pay a disproportionate share of Europe's drug bills. Their refrain is that pharmaceutical R&D spending has largely shifted to US shores, where Americans shoulder the lion's share of drug development costs. Meanwhile, they argue, European consumers are enjoying the fruits of that labor - at prices 25-35% lower than Americans pay.

But a new study from Bain & Company suggests that the conventional wisdom that underlies this debate - Europe profits, while the US pays - is wrong. Bain's research shows that the social and economic costs to Europe, in the form of delayed access to drugs, poorer health outcomes, lowered investment in research capabilities and a drain placed on high value pharmaceutical jobs, make the model anything but free.

"Europe has to realize the free ride is not free," said Paul Rosenberg, Bain vice president and co-author of the study, adding, "we're not talking about altruism here - this is about enlightened self-interest by governments and business leaders alike."

Assessing the 'Free Ride' Scorecard

At first glance, Europe seems to be in an enviable position. It spends 60% less per capita on pharmaceuticals than does the US - a gap that has roughly doubled since 1992, when European governments spent about 30% less per capita than the US. That trend has translated into major European savings: if Europe's pharmaceutical spending per capita had increased at the same rate as the US, Europe would have spent an additional $160 billion in 2002 and $840 billion cumulatively, over the preceding decade.

European governments are largely responsible for these cost differences resulting from various marketplace interventions, including:

-- fixed reimbursement prices in France;

-- set reference prices in Germany;

-- profit...