This chapter serves to provide context for the analysis of pharmaceutical pricing policy presented in later chapters of this report. It provides an overview of the pharmaceutical sector in OECD countries, identifying key cross-country differences and similarities. The chapter begins by describing pharmaceutical expenditure levels and cross-country differences in the value of consumption and in retail prices paid. It then assesses the role of the pharmaceutical industry in OECD economies, in terms of the levels of production, R&D and trade.

This chapter provides an overview of the key characteristics and activities of the global pharmaceutical industry. Its aim in so doing is to provide context for the subsequent analysis of the role of pharmaceutical pricing and reimbursement policy as determinants of key outcomes. It begins with an overview of the pharmaceutical industry and continues with discussions on trends in R&D, output and sales. A final section provides an overview of the product life-cycle management activities used by manufacturers in efforts to maximise profits.

The pricing and reimbursement policies used in OECD countries are described and analysed in this chapter. It begins with a description of the coverage schemes that serve to pool risks and defray the pharmaceutical costs borne by individuals. It continues by describing the pharmaceutical pricing schemes employed in OECD countries, including the methods used to limit pharmaceutical prices and define reimbursement price levels. A concluding section provides an overview of aspects of intellectual property rights and marketing authorisation policies that are most important in defining the pharmaceutical policy environment.

This chapter reviews OECD countries’ efforts to achieve prompt access to, and appropriate use of, effective medicines, to control pharmaceutical expenditure and to increase value for money in public pharmaceutical expenditures. It begins with an assessment of the role of pharmaceutical pricing and reimbursement policies in promoting public health. Analysis of the impact of pricing and reimbursement policies on pharmaceutical price levels follows. In the subsequent section, the means by which these policies are used to contain costs is examined. The final section looks at how successful pharmaceutical pricing and reimbursement policies are in getting good value for money in pharmaceutical spending

This chapter examines the transnational impact of national pricing and reimbursement policies. Pharmaceutical pricing policies, and their impacts on prices and availability of medicines, are becoming more exportable in a globalised market. This chapter documents these and assesses the extent of their transnational effects. The various strategies that manufacturers in a globalised pharmaceutical market use in response to national pricing policies are also examined. Finally, the extent to which pricing policies and manufacturers’ strategies have led to convergence among countries in pharmaceutical prices is assessed.

This chapter describes the determinants of R&D in the pharmaceutical sector and the key factors that contribute to R&D decisions. It next considers the role played by pharmaceutical pricing and reimbursement policies in influencing the level and type of innovation. It evaluates the incentives and disincentives for investment in R&D that may be created by pricing and reimbursement policies, and considers the extent to which these policies also influence the level of financing available for investment.

The OECD project on pharmaceutical pricing policy has taken a close look at the evolving market for pharmaceutical products and the ways in which pricing policies serve to shape that market, yielding a number of conclusions. As tools for meeting a range of pharmaceutical policy objectives, the approaches most widely used in OECD countries to arrive at prices for pharmaceuticals – external and internal price referencing – are problematic in a number of respects. International price benchmarking (or external referencing) is readily gameable by the pharmaceutical industry and – by reducing firms’ willingness to price to market – contributes to access and affordability problems in the lower-income OECD countries, some of which spend close to a third of their health-care resources on pharmaceuticals.