Competition and Regulation Issues in the Pharmaceutical Industry

The pharmaceutical sector is a dynamic, research-intensive industry that is fundamentally influenced by a web of regulations designed to: a) promote research and innovation in the design and production of drugs; b) protect consumers from potentially harmful effects of drugs; and c) to control public and private expenditure on drugs. These objectives are sometimes in conflict and may require a balancing of the interests of producers and consumers. Since most consumers have some form of health insurance, their incentives to control their purchases of pharmaceuticals or to purchase from the most efficient pharmacist are limited. Health insurers seek to control pharmaceuticalexpenditure through various policies such as co-payments, lists of approved drugs and maximum reimbursement levels for different drugs. If reimbursement levels for pharmacists are set at a national or regional level, incentives for entry by new pharmacists are excessive in certain locations, typically leading to restrictions on the establishment of new pharmacies. Well thought out reform of this industry has the potential to reduce pharmaceutical expenditures while maintaining the quality of the drugs consumed.