The policy issue: A single market with 27 prices

The policy issue addressed here is the fragmentation of pricing and procurement of innovative medicines in Europe. Marketing authorisation has been centralised at the European Medicines Agency since 2004, and clinical assessment is being progressively unified under the EU Health Technology Assessment (HTA) Regulation, mandatory for oncology products since 2025 and for all new medicines by 2030. Yet the decisions that determine whether and when patients are treated, like price and reimbursement, remain strictly national. The same patented molecule is sold at very different net prices across the European Economic Area, and launched on very different dates: patients in smaller and lower-income member states often wait a year or more after German or French patients for access to the same innovation.

This is not a transitional imperfection that market integration will erode. It is the equilibrium outcome of a system in which each national regulator negotiates alone with a global monopolist, while the rules each country has adopted impose externalities on all the others. Thirty years from now, Europe should have replaced this system, not patched it.

Why national pricing fails: Externalities by design

Two mechanisms link national negotiations. The first is external reference pricing: most European countries cap or benchmark their prices on prices observed in other member states. Research has long shown that referencing induces firms to delay or forgo launches in low-price countries, since a low price conceded in Lisbon or Warsaw mechanically erodes revenues in referencing markets (Danzon and Chao 2000, Danzon et al. 2005, Kyle 2007). Maini and Pammolli (2023) estimate that these strategic delays reach up to a year in low-price EU markets. Looking at reference rules, one can count roughly 300 cross-references among European countries, including circular ones. France, for example, references Spain and Italy, which in turn reference European averages that include France. Each country individually gains from referencing its neighbours, but collectively regulators are trapped in a prisoner’s dilemma that delays access precisely where affordability matters most, and firms internalize every concession across the whole continent.

The second mechanism is parallel trade. Within the single market, wholesalers can legally arbitrage price differences, and parallel imports now exceed €6 billion a year, reaching a quarter of some national markets. Arbitrage redistributes rents to intermediaries rather than to patients, payers or innovators, and pushes firms towards packaging differentiation to defend price discrimination (Ganslandt and Maskus 2004, Kanavos and Vandoros 2010, Dubois and Saethre, 2020). Dubois et al. (2022) model price negotiations as a game between a global firm and interdependent national payers and show that reference pricing linkages can raise prices and reduce access in the very countries used as references, because the firm rationally sacrifices small markets to protect large ones. The structural estimates carry a general lesson: when markets are linked, negotiating separately is a strategic error.

The vulnerability is now geopolitical as well. Successive US administrations have proposed capping American prices on international benchmarks, and most-favoured nation (MFN) pricing has returned to the centre of US policy. Simulations show that such rules would compress international price differences mainly by raising prices in referenced countries, including the largest European markets, rather than by lowering them in the US, because firms will not jeopardise revenues in a market that accounts for some 40% of global spending to preserve smaller ones (Dubois et al. 2022). If Europe continues to negotiate as 27 separate payers, the price of innovative medicines risks being set, de facto, in Washington. A continent that negotiates as one would not face that asymmetry: the European pharmaceutical market is comparable in size to that of the US.

Where Europe should stand in 2050: One wholesale price, many contributions

Europe should procure innovative on-patent medicines through a single European negotiation. A European procurement agency, building on the joint clinical assessment now performed under the HTA Regulation and on the institutional precedent of joint COVID-19 vaccine purchasing, would negotiate, for each new medicine, one wholesale price valid across the entire Single Market, together with launch conditions guaranteeing simultaneous availability in all member states.

However, willingness and ability to pay for health differ substantially across member states, and a uniform burden would either price poorer countries out or force the negotiated price down to levels that undermine innovation incentives. The economics of pharmaceutical pricing has long recognised that differential pricing across heterogeneous markets with Ramsey-style price discrimination is the efficient way to fund the global public good of innovation (Danzon and Towse 2003, Grossman and Lai 2004). The proposal here is to keep the efficiency of discrimination while removing its market pathologies: discriminate through transfers, not through prices.

Concretely, the innovator would face one price and one buyer. What each member state effectively contributes to the European payment would be governed by a contribution key reflecting income per capita, epidemiological need and consumption volumes, with side transfers between national payers settling the difference between the common wholesale price and each country’s assigned effective price. Richer member states would knowingly contribute more per unit than poorer ones, exactly as efficient discrimination requires, but this differentiation would live in intergovernmental accounting rather than in the market, with transfers settled annually at the portfolio level through an EU budget instrument rather than negotiated drug by drug. The economic logic is that of decoupling the reward to innovation from the distribution of its financing – the same principle that underlies advance market commitments (Kremer et al. 2020) and the joint European financing of innovation rewards analysed by Dubois et al. (2022), where free riding on other countries’ contributions is the central obstacle that only an agreed sharing rule can overcome. The key would therefore be agreed ex ante as a standing rule, before any specific medicine is on the table, much as member states already finance the EU budget through a contribution key based on gross national income.

The gains are cumulative. A single wholesale price makes parallel trade pointless: with no wholesale price differences to arbitrage, the €6 billion intermediation rents dissipate. External reference pricing within Europe disappears by construction, and with it the strategic launch delays it generates: simultaneous, Europe-wide access becomes a contractual clause rather than a hope and a European level health insurance system can emerge. Bargaining power is transformed as the counterparty is no longer Portugal or Belgium but a payer representing 450 million insured patients, while the credibility of a European “no” disciplines prices in a way no national regulator can. A single European structure is far more robust against US MFN rules than 27 national ones.

Innovation incentives need not suffer; this is a design choice, not an afterthought. The European price should be set to reflect the aggregate value of the medicine across Europe, informed by the joint clinical assessment, and the system can commit to revenue adequacy over the patent life. Firms would trade somewhat lower margins in the richest markets for immediate access to the entire continent, saving on the transaction costs of 27 parallel negotiations, and ending parallel-trade leakage. Moreover, under a US MFN policy, the equilibrium price would be one in which Europe’s preferences matter, with pharmaceutical firms selling to both the US and Europe at the same price and earning potentially larger revenues than under the current system. Empirical evidence that innovation responds strongly to expected market size (Acemoglu and Linn 2004, Blume-Kohout and Sood 2013, Dubois et al. 2015, Dubois 2025, 2026) implies that guaranteeing the full European market at launch is itself an innovation incentive.

From here to there

The building blocks exist. Joint clinical assessment will cover all new medicines by 2030, removing the informational excuse for divergent valuations. The Beneluxa initiative (Belgium, Netherlands, Luxembourg, Austria, and Ireland since 2018) has shown since 2017 that joint price negotiations among sovereign states are administratively feasible; the COVID-19 vaccine programme showed they can operate at continental scale under pressure. The revision of the EU pharmaceutical legislation in December 2025, with the adoption of European-level Transferable Exclusivity Extensions to reward antibiotic innovation against priority pathogens, and the creation of HERA provide institutional vehicles. What is missing is the political decision to move from voluntary coalitions to a standing mechanism, and the hard bargaining over the contribution key, which is, in truth, a negotiation over solidarity, comparable to those Europe has already resolved for its budget.

A realistic sequencing would start with a voluntary ‘procurement union’ open to all member states, covering a defined class of products such as advanced therapies and other high-cost innovations where national budgets are most strained, with national reimbursement decisions remaining sovereign. Membership would expand as the access and price gains materialise, as they did for other variable-geometry European projects. Over time, participation should become the norm and fragmentation the exception.

By 2050, Europe should then converge on a European Health Insurance system covering essential medicines. Europe invented social health insurance and built the world’s deepest single market, yet it still buys its most valuable medicines as 27 rivals in a game each of them loses. Choosing, today, to build a single European procurement system with one wholesale price and equity through transfers is not a projection of current trends; it is a break with them, and probably the only answer to a US MFN policy that would otherwise force each country either to increase spending on innovative medicines very substantially or to lose access, leaving the US to finance those innovations alone. In fact, the US itself would benefit from European-level price setting, as innovative firms would gain as much from selling at an intermediate price on both continents as from selling only at a higher price in the US. It is also the condition for Europe to remain a continent where medical innovation is both financed and accessible to all its citizens.

References

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