Cost-Containment Mechanisms for Essential Medicines, Including Antiretrovirals, in China - Health Economics and Drugs Series No. 013
(2003; 30 pages) [French] [Spanish] View the PDF document
Table of Contents
View the documentAcknowledgements
View the documentTerms of reference
Close this folderIntroduction
View the documentCost-effective medicine selection
View the documentPrice information
View the documentInternational open tendering
View the documentVoluntary discount agreements
View the documentVoluntary licensing
View the documentCompulsory licensing
View the documentLocal state production
View the documentGovernment price controls
View the documentReduction of import and other taxes for essential medicines, and rational dispensing practices
View the documentPublic investment in R & D for new medicines: A mid- to long-term strategy
View the documentBackground and experiences with voluntary agreements
View the documentCountry rights to be protected in voluntary agreements for reduction of prices of medicines
Open this folder and view contentsCompulsory licensing - practical aspects and procedures
View the documentConcluding comments
View the documentList of persons contacted
View the documentFurther reading

Government price controls

Price regulation and negotiations

A competitive marketplace is the best way to ensure low prices for medicines. Proper organization of the market and application of anti-trust (monopoly) laws should facilitate price competition. However, if pharmaceutical markets do not become competitive, governments may choose to institute price controls.

Control or regulation of medicines prices may be based on:

a) actual costs (cost-plus pricing based on manufacturer's or importer's cost plus a fixed mark-up),

b) controlling companies' profit margins, or

c) comparison with prices in other countries or prices of other medicines in the same therapeutic category (yardstick, benchmark, or reference pricing). Once initial prices are established, decisions must then be made about price increases.

Reimbursement controls

A further means of controlling costs to the government is to establish different levels of reimbursement and to increase the proportion of the cost paid by the consumer for certain products (those not included in the national essential medicines list, for example).

Economic evaluation

Medicines selection decisions and the establishment of standard treatments involve judgements about relative therapeutic value. The economic evaluation of medicines is a systematic method to identify which of a series of alternative therapies will achieve medical objectives most cost-effectively. It forms part of a newly-emerging discipline called pharmacoeconomics.

Economic evaluation is being used in some industrialized countries to determine whether the magnitude of the benefit of a new medicine justifies the cost and then to subsidize those medicines that produce the greatest output in improved health in return for the lowest cost.

Policy-makers are faced with a lack of unbiased and accurate information on the trade-offs between competing product options. Economic evaluation is useful because it offers a logical framework for considering a new medicine for subsidy, for drug formulary management, or for price-setting. Yet it is not a proven means of budgetary control. It is a complex, time-consuming and resource-intensive process. Nevertheless, it would be a way to ensure that the medicines budget represents value for money. Frequent reassessment of decisions is necessary as more information becomes available.

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