Cross-Country Interactions in Pharmaceutical Regulations

The pharmaceutical sector is among the most regulated industries worldwide. Before receiving market authorization, all products must undergo a well-defined procedure in which the relevant supranational authorities (i.e. FDA and EMA) ensure that specific safety and efficacy standards are met. Nevertheless, the advancements over the years have been significant, with several examples of cutting-edge life-saving treatments that would have been inconceivable in the past. Hand in hand with pharmaceutical breakthroughs, however, comes the rise of the price of new medicines. In the EU, where healthcare systems are mostly public and universal, national regulators face the challenge of guaranteeing affordable access to the newest treatments available with tighter budget constraints. For this reason, every new product must demonstrate that the benefits generated are worth the price that is reimbursed by the public payer, based on objective health technology assessments (HTA). Alternatively to (or on top of) the HTA evaluation process, which requires technical expertise and costly infrastructure, a national regulator can simply set other countries’ prices as a benchmark to determine whether new medicines are worth the price paid domestically. This criterion is also referred to as external reference pricing (ERP). ERP criteria have been quite attractive due to their simplicity, but they embed a crucial drawback: they create a mechanism of complex interdependencies across national price regulations, where countries reference to and, at the same time, are referenced by foreign regulators. I address the impact of introducing HTA as well as the role of such interplays across regulations, following a combination of theoretical and empirical approaches. In particular, in the first Chapter, I show that more stringent regulations have successfully reduced the prices of anticancer drugs in Germany. The second Chapter takes a theoretical perspective to delve into the consequences of the interplay across different national pharmaceutical price regulations. I show that, in a context where ERP is widely adopted, a ban on confidential discounts—aimed at restoring the firm’s ability to price discriminate—would disproportionately benefit the ERP adopter at the expense of the firm and of the country whose prices are considered as benchmarks by the ERP adopter itself. However, total Welfare would ultimately increase with fully transparent ERP schemes. Finally, the third Chapter (co-authored with Paolo Pertile and Simona Gamba) provides evidence of the price increase in countries that are included in the ERP list of a national regulator. To the best of our knowledge, this is the first empirical contribution to the literature and represents the present work’s most novel finding.