The Pharmaceutical Market and Prescription Drugs in the Federal Republic of Germany: Cross-National Comparisons

Abstract

This paper examines the pharmaceutical market and prescription drug costs and consumption in the Federal Republic of Germany. Comparisons are made with the experience of other countries. It is argued that the pharmaceutical market in the Federal Republic is characterized by a relative abundance of pharmaceutical products and, as in other countries, is both limited by an inherently oligopolistic supply structure and modified by physician prescribing habits. The distribution system shows a tendency to supplier-administered prices owing to a noncompetitive retail structure, reinforced by the inclination of the statutory health insurance scheme toward price uniformity. Despite relatively higher promotional expenses than noted elsewhere, these factors are not conducive to the more meaningful price competition observed in some other countries with a more diversified distributive sector, such as the United States, or in other systems where tendencies toward oligopsony or near monopsony, e.g. Sweden and the United Kingdom, may provide some counterbalancing mechanisms aimed at the modification of retail prices. Recent per capita cost development is considered in the light of some cross-national comparisons. It is argued that in the countries studied, depending on the level of development, either a per prescription cost push or a cost increase pull due to increased utilization frequency is prevalent. This distinction would tend to refute the occasionally advocated view that cost increases are determined almost exclusively by increasing utilization, whether dynamically or as a function of time. In the Federal Republic, a relatively high level of utilization constitutes the main factor affecting the total per capita drug consumption cost. Nonetheless, owing to a comparatively lower per item cost, total costs are comparable to the outlay observed in some other countries. Both in the Federal Republic and in other countries with relatively stable utilization patterns, changes in the average per prescription cost may in the long run prove to be the dominant factor in the formation of total per capita costs for prescribed drugs.