Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices.. 4.2 Studies of International Differences in Drug Prices

04/01/2000

The US General Accounting Office (GAO) conducted one of the first widely cited studies of international price differences in prescription drugs in1992 (GAO 1992). The study compared 200 frequently prescribed drugs in the US and Canada sold by the same manufacturer in both countries. These drugs represented 54 percent of all prescriptions dispensed in US pharmacies in 1990. Since the drugs were supplied in a variety of sizes, strengths and dosage forms, the GAO selected a single commonly used US product for comparison. In Canada, 121 of the 200 were found to be identical to US dosage form, strength, and pack size. The remaining 79 products were not available for comparison. The GAO used the wholesale acquisition cost (WAC) to represent the American manufacturers' prices and the best available price (BAP) from the February 1991 Ontario Drug Benefit (ODB) formulary to represent Canadian prices. The study found that the 121 products cost an average of 32 percent more in the United States than in Canada.

This study represented an important first step in examining the issue of international drug price differentials. However, it also highlights a number of methodological issues discussed earlier (Schweitzer 1997, Danzon 1997). The inability to match more than 60 percent of the drugs originally selected for comparison raises the issue of product selection bias. How does the exclusion of certain products affect the measured price differentials? Those products matched were leading branded patented products in the United States, while the generic equivalents of these products were excluded from the study. If the price differentials for the generics were less than for the brand products, then the GAO procedures would overstate the true differences between the two countries. For those products matched on product strength and dosage form but not pack size, prices were imputed based on the unit price from the ODB formulary. In doing so Canadian prices appear lower, since the ODB unit price is based on the largest pack size available, not the most common pack size used in the US. The wholesale price list used to price US products did not include the discounts and rebates available to large purchasers. This too, tends to overstate the real differences in drug prices between the two countries. The GAO study also assumed that American drug consumption patterns for the products examined were the same as Canadian patterns when they are not (Katz et al, 1998, Pilote et al, 1994, Rouleau et al, 1993). Finally, the GAO used currency exchange rates and did not include a comparison based on the PPP. For all of these reasons, the main study conclusion that drug prices are lower in Canada must be treated with caution (Schweitzer 1997, Danzon 1997). Since 1992, other studies have been published that address some of the methodological concerns present here.

In 1994, the GAO followed up its earlier report with a comparative study of drug prices in the United Kingdom and the United States (GAO 1994a). Of the original 200 US drugs, only 77 were directly matched with products in Britain. In this study, the US price was based on the non-federal average manufacturer price (non-FAMP) from the Department of Veterans Affairs. The non-FAMP is a weighted average of the WAC, the list prices charged to wholesalers, and the lower prices charged to large purchasers such as HMOs. British prices were based on the national wholesale listing. These prices were then adjusted by a standard 12.5 percent discount rate provided to UK wholesalers. The exchange rate was taken as £ 0.5598 per dollar and the purchasing power parity (PPP) was £ 0.652 per dollar. Significant differences in prices were found between the United States and Britain. The GAO estimated that the 77 frequently dispensed drugs cost wholesalers 60 percent more in the US than in the UK.

This study advanced the field in measuring international drug price differences. The most important methodological advances were the use of a US price list that incorporated large purchaser discounts and comparisons based on both currency exchange rates and the PPP. Nonetheless, the study still has methodological shortcomings. By matching on brand name, pack size, manufacturer, strength, and form almost two-thirds of the original products selected for review were dropped from the study sample. As in its earlier Canadian analysis, the GAO imputed pack size price differences based on a single unit price, excluded generic equivalents of the branded products under study, and failed to consider differences in drug consumption patterns between the two countries (Schweitzer 1997, Danzon 1997).

In 1998, Danzon and Kim undertook a study designed specifically to assess the sensitivity of international drug price comparisons to the methodological issues described here. The study examined single ingredient cardiovascular products available between October 1991 and September 1992 in the US and eight OECD countries. The drugs included generic, over-the-counter, and brand name products. All pricing information was obtained from IMS sales data in the various countries. Two methods of product matching were employed; one based on the international product name (IPN), the other by anatomical therapeutic class. The researchers addressed the issue of dosage forms and strengths by converting all products to grams of active ingredient and the number of standard units, thereby permitting aggregation over all dosage forms, strengths and pack sizes. The authors address the issue of international differences in drug consumption patterns by using price indices weighted to reflect utilization rates in the US (a Laspeyres index) and each of the comparator countries (Paasche indices).

Danzon and Kim found that prices for cardiovascular drugs were generally lower in OECD countries than in the US regardless of the specific price index employed the matching criteria used, or the unit measure selected. The robustness of the results to alternative measurement approaches lends particular credibility to the study findings. However, it is worth noting that Danzon and Kim found much closer parity in international drug pricing than in previous studies, and in some cases the direction of the price advantages depended on the choice of methodology. For example, the reported price differentials for cardiovascular drugs in Canada compared to the US ranged from 16.6 percent higher to 6.9 lower depending on which price index was used. Consistently greater price differentials were found when using a Laspeyres index weighted to quantities of drugs used in the US compared to Paashe indices with foreign quantity weights. A similar range of positive and negative price differentials was reported between the US and Japan. Prices in the UK were all lower than in the US, ranging from 28 percent to 54 percent less depending on the index and matching algorithm. The price differentials between the US and Germany, France, Italy, Switzerland, and Sweden were comparable to the US and UK.

The real value of the Danzon and Kim study lies not in its specific findings relating to cardiovascular drug prices, but rather in its approach to making international drug price comparisons. The finding that measured price differences are sensitive to the methods selected is scarcely a surprise. However, the fact that certain methodological choices tend to produce consistently higher (or lower) measured price differentials than other choices should help inform future work in this area.

In 1999, the advocacy group Public Citizen conducted a survey of international prices for five newer antidepressants and three antipsychotic drugs in 17 North American and European countries (Sasich et al. 1999). Not all of the drugs were marketed in every country. All eight were available in the US, Canada, and Sweden, but only five were marketed in Portugal. The researchers contacted one English-speaking pharmacist in each country to obtain the pharmacy acquisition cost for an average 30-day supply for each available drug. Drug costs were converted to US dollars at the exchange rate for that day. Although this study determined that US drug prices were double those in the 17 other countries on average, this finding lacks credibility because of the small sample sizes (one pharmacist per country), poor product matching, failure to consider price discounts or rebates, failure to include generics (in Canada, for example, a generic version of one of the study drugs, Prozac (fluoxetine) has been available since the mid-1990’s), and finally, the failure to consider the impact of different drug consumption patterns on domestic prices.

Although the tools for making credible cross-national comparisons in drug prices have not been perfected, they have reached a level of sophistication that demands the attention of researchers and critics alike. Of the studies reviewed here, the Danzon and Kim analysis of cardiovascular drug prices sets a clear standard for others to follow. Their results confirm the widely held belief that Americans pay more for their prescription drugs than do Europeans, but the differences are lower than reported elsewhere. Moreover, depending on how prices are measured, cardiovascular drugs may actually cost more in Canada and Japan than here. Whether similar patterns hold for other drug groups has yet to be determined. Until further studies are done, the issue of who pays more is still an open question.

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