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External price referencing (EPR) is applied more and more frequently worldwide by payers to control pharmaceutical prices. Together with the parallel trade of pharmaceuticals, EPR may result in lower pharmaceutical prices in higher-income countries and higher prices in lower-income countries, which implies that pharmaceutical expenditure grows more rapidly in the latter than in the former group. Our objective was to assess this hypothesis. We used hierarchical linear models on country-level panel data to show that-after controlling for compounding factors such as GDP, the proportion of the old-age population or life expectancy-the annual growth rate of pharmaceutical expenditure was 2.1% points larger in the lower- than in the higher-income members of the European Union between 2000 and 2008. This difference in trends became non-significant (0.6% points) after the onset of the global economic crisis. There was no significant difference between lower- and higher-income countries in the growth rate of non-pharmaceutical health expenditure in either period. Our results indirectly support the presence of price convergence of pharmaceuticals among European countries, and EPR and parallel trade may provide a reasonable explanation to the observed trend difference of pharmaceutical expenditure in the two groups of countries between 2000 and 2008. This higher growth rate of pharmaceutical expenditure put extra burden on public health care budgets in lower-income countries and resulted in disproportionately more cost-containment measures compared to higher-income countries after 2008. It remains to be seen whether the disappearance of the difference in trend growth rates due to special health policy interventions in countries with economic difficulties is temporary or permanent.

Implication of external price referencing and parallel trade on pharmaceutical expenditure: indirect evidence from lower-income European countries