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© 2022 International Monetary Fund
WP/22/190
IMF Working Paper
Fiscal Affairs Department
Rationalizing Pharmaceutical Spending
Prepared by Manuel García-Goñi†
Authorized for distribution by David Coady
September 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: Pharmaceutical spending accounts for a large share of health spending worldwide. While pharmaceuticals are an indispensable component of effective modern health systems, and their benefits in terms of increasing life expectancy and improving quality of life are unquestionable, the large variation in pharmaceutical spending across countries suggests that there may be large efficiency gains to be realized. This paper reviews the existing literature and databases on the level and composition of pharmaceutical spending and estimates potential efficiency gains from increased use of generics. It also reviews how countries organize the procurement and tendering of pharmaceuticals and the implications for spending. Finally, the paper identifies the various channels through which spending inefficiencies can arise and identifies reform options for reducing pharmaceutical spending while ensuring quality health outcomes.
RECOMMENDED CITATION: García-Goñi, Manuel, 2022, “Rationalizing Pharmaceutical Spending,” IMF Working Papers 2022/190 (Washington: International Monetary Fund).
| JEL Classification Numbers: | H5, I1 |
| Keywords: | Pharmaceutical spending; pharmaceutical policy; generics; biosimilar; procurement; economic evaluation. |
| Author’s E-Mail Address: | mggoni@ucm.es |
| JEL Classification Numbers: | H5, I1 |
| Keywords: | Pharmaceutical spending; pharmaceutical policy; generics; biosimilar; procurement; economic evaluation. |
| Author’s E-Mail Address: | mggoni@ucm.es |
Contents
GLOSSARY
I. INTRODUCTION
II. THE ECONOMICS OF PHARMACEUTICALS
III. INTERNATIONAL DATABASES AND THEIR USES
A. Public Databases
B. Private Database
IV. EVOLUTION OF PHARMACEUTICAL EXPENDITURES AND THEIR COMPONENTS
A. Retail Pharmaceutical Spending
B. Pharmaceutical Expenditure in Hospitals
V. COST-CONTAINMENT POLICIES IN PHARMACEUTICALS
A. Medicine Waste
B. External Reference Price System
C. Promotion of Generics
D. Pricing and Entry of Innovative Products
E. Cost-sharing
VI. PROCUREMENT OF PHARMACEUTICALS
A. Developed Economies
B. Developing Economies
VII. POLICY REFORMS AND DATA AVAILABILITY
A. Avoiding Wasteful Spending
B. Innovative Medicines and Their Pricing
C. Pharmaceutical Expenditures in Hospitals and Biosimilars
VIII. CONCLUSION
ANNEX I. ANALYSIS OF THE IMPACT OF THE MARKET SHARE OF GENERICS IN PHARMACEUTICAL SPENDING
REFERENCES
Figures
1. Current Expenditure on Pharmaceuticals and Other Medical Non-durables
2. Share of Expenditures in Pharmaceuticals and Other Medical Non-durables
3. Percentage Value Share of Generics in Reimbursed Pharmaceutical Market
4. Percentage Volume Share of Generics in the Reimbursed Pharmaceutical Market
5. Annual Average Growth in Retail and Hospital Pharmaceutical Expenditures
Tables
1. Expected Change if Market Share of Generics
2. Estimated Annual Efficiency Gains when Market Share of Generics Increased to
A1.1. Regression Analysis on the Impact of the Volume Share of Generics on
A1.2. Current and Simulated Market Volume Share of Generics
Appendices
A1.1. Savings in Retail Pharmaceutical Expenditures
A1.2. Efficiency Gains by Reducing the Share of GDP Devoted to Retail Pharmaceuticals
A1.3. Savings by Reducing Health Expenditures per Person
A1.4. Efficiency Gains by Reducing the Share of GDP Devoted to Health Spending
A1.5. Change in the Share of Retail Pharmaceutical Expenditures in Health Expenditures
Glossary
| ATC | Anatomic Therapeutic Chemical |
| CEA | Cost-Effectiveness Analysis |
| DDD | Defined Daily Dose |
| EMA | European Medicines Agency |
| ERP | External Reference Pricing |
| EU | European Union |
| GDP | Gross Domestic Product |
| HIV | Human Immunodeficiency Virus |
| HTA | Health Technology Assessment |
| INAHTA | International Network of Agencies for Health Technology Assessment |
| INN | International Non-proprietary Names |
| IRP | Internal Reference Pricing |
| LMICs | Low-and Middle-Income Countries |
| MEA | Managed-Entry Agreements |
| NICE | The National Institute for Health and Care Excellence |
| OECD | Organization for Economic Co-operation and Development |
| PPP | Purchasing Power Parity |
| R&D | Research and Development |
| SDF | Specific Drug Funds |
| TRIPS | Trade-Related Aspects of Intellectual Property Rights |
| VBP | Value-Based Pricing |
| WHO | World Health Organization |
| WTO | World Trade Organization |
This paper was written during my time as a Staff Expert in FAD. The author would like to thank David Coady at the International Monetary Fund (IMF); and Christoph Kurowski, Ana Holt, Irina Nikolic, Denise Valerie Silfverberg and Marvin Ploetz at the WBG for helpful comments. The views expressed in this paper are those of the author and do not necessarily represent the views of the IMF or the Complutense University of Madrid, Faculty of Economics and Business. Campus de Somosaguas, 28223 Pozuelo de Alarcón, Madrid, Spain.
This paper was written during my time as a Staff Expert in FAD. The author would like to thank David Coady at the International Monetary Fund (IMF); and Christoph Kurowski, Ana Holt, Irina Nikolic, Denise Valerie Silfverberg and Marvin Ploetz at the WBG for helpful comments. The views expressed in this paper are those of the author and do not necessarily represent the views of the IMF or the Complutense University of Madrid, Faculty of Economics and Business. Campus de Somosaguas, 28223 Pozuelo de Alarcón, Madrid, Spain.