European Association of Euro-Pharmaceutical Companies

It is natural that prices might differ between countries given that value judgements in healthcare differ and that there is a varying willingness and ability to pay.

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Prices also differ because, as commercial enterprises, pharmaceutical companies will naturally aim to obtain the highest price each national market will bear, and so distinguish between countries to reflect differences in the ability to pay. Price differentiation is known to yield higher profits than uniform pricing (the so called Ramsey pricing theory).

Manufacturers can also control the sequence of launches across Europe so as to limit the opportunities for the authorities to depress these prices in major markets through application of international price referencing.

The only thing that stops prices of innovative medicines spiralling out of control is some degree of government intervention and competition from parallel trade. The role of the EU in pharmaceutical pricing is limited to enforcing the price transparency Directive, which does not attempt to control or harmonise prices but merely ensures that price setting is transparent and does not discriminate by country of origin of the product.

The current American market for medicines provides an example of what can happen when no parallel trade is permitted and where the federal government does not intervene.

Americans already pay the highest prescription drug prices in the world, and these continue to soar. They have risen at three times the rate of inflation over the past four years. Without the legal certainty of having incoming parallel trade enshrined in US law, an estimated one million Americans regularly cross the border in person or use foreign-based internet pharmacies to obtain more affordable medicines.