Austere times in Europe continue to challenge local governments to reduce healthcare spend. Leveraging Europe’s reference pricing policies, Eurozone countries are driving down the cost of pharmaceutical drugs. One recent article reports that drug prices have been cut as much as seven billion euros for this region. Greece, one of the most severely hit countries, has received a significant reduction in drug pricing, sitting on average ~20% lower than the next cheapest country in Europe.

Pharmaceutical companies highlight that the most burdened countries are not the only ones who are benefiting. They note that the discounted prices given to countries like Greece are causing a ripple effect to other European nations. Eli Lilly’s CEO, John Lechleiter, points out that allowing non-burdened countries to reference the price of the more challenged countries disconnects drug prices from a country’s ability to pay. Andrew Witty, CEO of GlaxoSmithKline, agrees and has long promoted tiered pricing where drugs are priced according to each market’s ability to pay.

Long-Term Effects May Not Be Positive

While these countries have experienced significant reductions on medication costs, some argue the long-term effects may not be positive. With these price pressures, the incentives for new drug innovation may diminish due to the expensive and high-risk nature of drug development. Additionally, these pricing systems may cost countries access to new drugs. Lilly and partner Boehringer Ingelheim just decided to abort a launch of a diabetes drug in Germany due to their new pricing system.

Lower Prices Have Affected Supply and Demand

Lower drug prices have also affected drug supply and demand dynamics. In Greece, an estimated 25% of medicines arriving in the country are being immediately re-exported for profit, causing, in part, shortages within the country. The issue is complex, but as cash becomes more limited, these parallel export trades are expected to continue. As a result, many drug makers have stopped or are planning to stop supplying to Greece, and other countries face similar sanctions.

There’s no simple solution. It’s a time of austerity for much of the world. European governments need to reduce healthcare costs, while pharmaceutical companies need to continue to invest and recoup their R&D, manufacturing, and distribution costs for drugs. Cash strapped countries like Greece need opportunities to turn a profit, while their constituents need access to the drugs getting exported. Briggs Morrison, executive vice president for global medicines development at AstraZeneca, argues that countries need to seek cost savings through investing in innovative medicines to keep patients healthy and out of acute care. Finding the balance in all of this will be no easy task.