Drug manufacturers have too much power in price negotiations, says OECD

16 Jan 17

Power needs to be shifted out of the hands of drug manufacturers in order to ease pressure on public health spending caused by a proliferation of high-cost medicines, the OECD has said.


Spending on drugs accounts for around one-fifth of all health spending on average across OECD countries. While this has not significantly increased, or even decreased, since the financial crisis, spending has become increasingly skewed towards expensive “speciality medicines”.

This means health systems around the world are experiencing skyrocketing prices, often as a result of drugs being overpriced when they first enter the market. The OECD noted that price increases are also often not clearly linked to any commensurate benefits for patients.

In a report published today on the impact of new technology on health care systems, the OECD highlighted an imbalance in negotiating power between drug manufacturers and those paying for their products in some market segments as problematic.

This and other factors – including poor cost assessments, the purchase of drugs that aren’t cost effective, and significant pressure to fund drugs for severe but rare diseases – increases the price burden for those purchasing medicines.

The report found that launch prices for drugs treating diseases like cancer are rising steeply without any commensurate rise in benefits for patients. In the US, for example, the launch price of oncology drugs per life-year gained has multiplied by four in less than two decades in constant terms, and now exceeds $200,000.

Meanwhile, health insurers or public providers are struggling to pay for expensive speciality medicines that target rare diseases like cystic fibrosis, and even new treatments that are cost effective in the long-term are having a big impact on budgets.

The OECD’s report, which also looked at the impact new technologies are having in health care systems, recommended governments work to increase transparency, cooperate with one another and launch international joint procurement initiatives to increase their negotiating power.

Innovative pricing methods could also be used to the same effect. For example, agreements that link the final price of a medicine to its actual performance or bundled payments could help put power back into the hands of payers.

The report also looked at how to manage the ingress of new technology into the health care system, how to make sure potential benefits are realised, and ways to make better use of data.

It offers guidance on how to steer and encourage more research and development, adapt regulation to new technologies, and harness the potential of health data while managing the risks it poses. 

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