Are pharmaceuticals still inexpensive in Norway?

A price comparison of prescription-only pharmaceuticals in Norway and 9 western European countries (SNF Report 06/09)

By Kurt R. Brekke, Ph.D., Tor Helge Holmås, Ph.D., Odd Rune Straume, Ph.D., Institute for Research in Economics and Business Administration, Norway

Abstract

This report compares prices of pharmaceuticals in Norway with prices of similar pharmaceuticals in the following nine countries: Austria, Belgium, Denmark, Finland, Germany, Ireland, the Netherlands, Sweden and United Kingdom. We have data for all pharmaceuticals within the 300 most selling (in sales value) prescription bound substances in Norway for the first six months in 2008. First, we select the most selling package in Norway within each substance, and compare prices for this package with the nine reference countries, computing bilateral price indices. Second, we calculate volume-weighted average prices per dose for each substance at the wholesale level (AIP) and the pharmacy level (AUP). We compute (bilateral and global) indicies for (i) all substances, (ii) on-patent substances, (iii) off-patent substances, and (iv) substances subject to the reference pricing scheme called “trinnpris”. We also compare prices and pharmacy margins using regression analysis. The main result is that Norway has among the lowest prices in Western Europe irrespective of whether we look at the overall index or the index for the patent or the generic market segment. For the substances under “trinnpris” regulation, Norway has clearly the lowest prices. We also find that Norway has among the lowest pharmacy margins in the sample. Finally, we analyse the development in prices from 2007 to 2008. Most countries, except for Denmark and Finland, have a nominell price increase in this period. The increase in Norway is, however, weak compared with the reference countries. Low prices and margins, as well as a slow growth in nominell prices, can be explained by the strict regulation of prices (and margins) in the on-patent-segment combined with competition stimulating incentives in the generic segment (trinnpris).

(The following is an unauthorized translation of Chapter 1.3 Results, made by The Norwegian Pharmacy Association May 2009).

Results

The main result is that Norway is among the cheapest of the 10-country group, whether seen in terms of all substances, patent protected substances or substances subject to generic competition. For pharmaceuticals that are included in the “trinnpris” (step price) system, Norway is clearly the cheapest. With respect to all substances, the UK is generally cheapest, regardless of whether we compare prices for equivalent packs or (volume weighted) average prices per substance. Norway is generally the second cheapest, while Belgium and Ireland are generally the most expensive. In the generics segment, Austria and Denmark are cheaper than Norway when we compare the prices of equivalent packs, while Denmark and the UK are cheaper for volume-weighted average prices for each substance. Norway is generally cheapest for “trinnpris” pharmaceuticals.

The results from the price index analyses are surprisingly robust. There is little variation between the bilateral and global price indices with respect to the ranking of countries according to how cheap/expensive they are. There is also little variation in the extent to which we base the indices on bilateral price comparisons (comparison in pairs between countries) or global price comparisons (substances sold in all countries). The exception is price comparisons between equivalent packs versus volume-weighted average prices. Here, both the quality rankings and the quantitative differences are stated in the price indices somewhat differently. This illustrates the potential problems linked to representativeness with respect to price comparisons based on equivalent packs.[a]

The previous study included some non-prescription sales in the data. This was due partly to the fact that some of the pharmaceuticals required prescriptions in Norway but not in the reference countries. It was also due to some pharmaceuticals having dual sales in the sense that small doses of the substance can be sold without a prescription. In this study, we have looked more closely at what happens if we exclude all non-prescription sales. We found that some countries, including Norway, became cheaper. The UK is still cheapest for all substances, but the gap is reduced. In the generics segment however, Norway is now the absolute cheapest.

We also looked at price development from 2007 to 2008. First, we compared the change in the price indices, where we saw that the ranking is relatively robust. However, most countries have had a better development than Norway in the sense that they in 2008 have a lower price index [than in 2007]. There are four sources for changes in the price indices: (i) selection of substance/pharmaceutical, (ii) consumer vectors (consumption patterns), (iii) rate of exchange and (iv) pharmaceutical prices. We looked first at the significance of rates of exchange by calculating the price indices for 2008 starting with the rates of exchange for 2007. We found a clear pattern in that all countries had a higher index. In other words, the weakening of the Norwegian krone in relation to other currencies (the Euro, British pound, Danish krone) explains why Norway appears to be somewhat more expensive compared with 2008. Then we limited the selection to the substances that are common for the countries in both years and looked at the change in nominal prices in each country’s own currency. This enabled us to see the changes in pharmaceutical prices. We found that most countries had a nominal price increase for all substances (with the exception of Denmark and Finland). Norway had a nominal price increase of 1.9 per cent with is relatively little in relation to the other countries where prices have also increased. In the generics segment there is however a general nominal price reduction in most countries. The price reduction in Norway is among the largest.

Regression analysis is a form of analysis that takes both precision and representativeness into consideration. Regression analyses can be used to study price differences between countries while simultaneously correcting for various conditions that can affect the prices, for example pack size. With this type of analysis, we can also correct for the fact that not all countries are represented by the same substance in the data set. The main result was, as for most of the price indices, that Norway is among the cheapest countries whether we look at all substances or substances under patent or where the patent has expired (including “trinnpris”). As is the case for price indices, the UK was generally the cheapest for all substances and in the patented segment. Denmark however is now cheaper than Norway for all substances and in the generics segment. The other countries have significantly higher prices than Norway. However, the differences are less than indicated by the price indices. One reason for this could be that the prices are not weighted by Norwegian consumer vectors. We also looked more closely at the pharmacy margins measured as the difference between the AIP[b] and the AUP[c]. Here we found that only Denmark has lower margins than Norway when we look at all substances. In the patented segment, the UK has lower margins than Norway while in the generics segment Denmark once again has lower margins than Norway.

An interesting question is what explains the differences in prices and margins. In the report, we review theories for price determination in pharmaceutical markets, and provide an overview of the regulatory regimes at work in the different countries. With respect to the patented segment, it is not surprising that pharmaceuticals are cheaper in Norway. The reason is that the maximum price for each pharmaceutical is set equal to the average of the three cheapest prices for the same pharmaceutical in the nine “basket” countries that are included in the selection. This must, as defined, result in Norway having prices that are more reasonable in this segment.

With respect to the generics market, the results are perhaps less obvious. Here there is reason to assume that the price level in the individual country depends on how efficient the country’s regulatory regime is in stimulating generic competition. In Norway, Denmark and Sweden, which are typically cheapest in this segment, a series of competition-enhancing instruments (generic substitution, generic reference pricing, percentage patient charges etc.) are used. Ireland, which has the highest prices in the generics market, is one of the countries that makes use of the fewest competition-enhancing instruments.
 

The report is also available in Norwegian