Pharmaceutical cost-sharing systems and savings
for healthcare systems from parallel trade
Department of Economics, Georg-August-Universit
This paper studies the consequences of parallel trade, that is, trade outside the manufacturer’s
authorised distribution channel, on healthcare systems. In particular, a coinsurance scheme (con-
sumers pay a percentage of the drug price) and an indemnity insurance scheme (reimbursement is
independent of the drug price) are compared with respect to changes in copayments and public
health expenditure under parallel trade.
Over the last decades, healthcare expenditure has risen sharply in many countries. Governments
typically regulate pharmaceutical prices directly, for example, via price caps. Another approach to
containing pharmaceutical expenditure is promoting the substitution of higher priced brand-name
drugs by less expensive equivalents. This may include generic versions after patent expiry. Alter-
natively, parallel imported drugs are de facto identical, lower priced versions of (locally sourced)
brand-name drugs, which are imported without the permission of the manufacturer. That is, whole-
salers or parallel traders may buy the drug in one country and resell it in another country where
the price is higher (Vandoros & Kanavos, 2014). Parallel imports are legal within the European
Economic Area but excluded if coming from non-member states (Ganslandt & Maskus, 2007;
Maskus, 2000). Substantial price differences between countries give rise to this kind of arbitrage.
These price differences may emerge from pharmaceutical manufacturers price-discriminating
between different countries and/or different national pharmaceutical regulations (Enemark, Møller
Pedersen, & Sørensen, 2006; EU Commission, 2003). Pharmaceutical parallel trade had a volume
of €5.4 bn in the European Union in 2015 (EFPIA, 2017). Destination countries are high-price
countries, for example, Germany, the Netherlands, Sweden and Denmark, where pricing is rela-
tively free; source countries are characterised by strict price regulation, for example, Spain, France,
Portugal, Greece and Italy (Kanavos & Costa-Font, 2005).
Whereas the exploitation of these arbitrage opportunities is intended to contain pharmaceutical
expenditure in the destination countries, empirical evidences ambiguous. Kanavos, Costa-Font,
Kanavos and Vandoros (2011) show that for the five largest EU pharmaceutical markets (Germany, UK, France, Italy and
Spain), Germany has the highest retail prices for in-patent drugs (23% higher than the average), followed by the UK (at the
average), Spain (5% lower), Italy (6% lower) and France (14% lower).
In the destination countries, the share of parallel imports in market sales ranges between 7% in Ireland and 24.9% in
Denmark (EFPIA, 2017).
© 2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/twec World Econ. 2018;41:1664–1694.