Differential pricing and access to medicines: issues and options Andrew Creese Essential Drugs and...

Differential pricing and access to medicines: issues and options

Andrew CreeseEssential Drugs and Medicines Policy

Health Technology and PharmaceuticalsWorld Health Organization

October 2002

Tech briefing Oct 2002

Differential pricing - The adaptation of prices charged to the purchasing power of governments and households in poor countries

To improve affordability of key drugs while maintaining incentives for innovation

ARVs for HIV/AIDS the most publicized case Antimalarials, resistant TB drugs, medicines for OIs, and others are

also expensive therapies The case applies to non-patented as well as patent protected

products. Already practised with reductions over 90% - key factors -

bulk purchasing - competition - skillful negotiation Feasibility has been demonstrated

economically feasible because of pharmaceutical cost structures compatible with WTO TRIPS agreement


Source: WHO/DAP (1998)

Percentage of population with regular access to essential drugs (1997)

1 = <50% (36)1 = <50% (36)2 = 50-80% (68)3 = 80-95% (33)4 = >95% (41)5 = No data available (1)

government health spending is down

developing countries lack insurance

75%to 90% of spending out-of-pocket

treatment of simple pneumonia may cost 3 months’ wages in Africa

medicines 25%- 65% of total health spending

Financing, pricing, delivery, other constraints mean that 1/3 still lack regular access to essential medicines


Price is one of several key factors influencing access to essential drugs

1. Rational

selection

4. Reliablehealth and

supplysystems

2. Affordable

prices

3. Sustainable

financing

ACCESS


Several actors and factors contribute to the final price of a drug

Actors: manufacturers distributors retailers governments purchasers

Factors: market characteristics policies of firms policies of governments

Final purchase price

Producer’s price

Distributor’s margin

Retailer’s margin

Taxes & duties


Indicative annual cost per person for triple therapy in Africa (US $) had decreased 95% by 2001

$0

$2,000

$4,000

$6,000

$8,000

$10,000

1996 1997 1998 1999 2000 2001 2002

UN Drug Access Initiative

Domestic production

Accelerated access initiative

February-April 2001 offers

Experience with AIDS drugs, contraceptives, other medicines shows differential pricing is feasible

????


Implementing differential pricing - what it entails

Segmented markets - high and low price zones

Prevention of physical backflow from low to high price markets, avoidance of reference pricing of DP products in high price zones, product differentiation.


Different paths can bring about differential pricing for single-source products; will have different effects

Pric

e im

pact

R&

D e

ffec

ts

Feas

ibili

ty

Sus

tain

abili

ty

Mar

ket

segm

enta

tion

1. Voluntary agreements - bilaterial and multilateral

2. Voluntary licensing - transfer of technology

3. Compulsory licensing - non-exclusive

4. Systematic patent waivers - defined group of countries


Possible constraints and some unanswered questions

Leakage of products - segmenting markets product differentiation by manufacturers supply chain management by purchasing organizations regulatory controls import and export controls

Leakage of prices - international reference pricing The real threat to “core markets”?

Competition law - “collusion” restricted even in a worthy cause


A “web” of international price comparisons has developed - much of it over the last 5 years

Source: Ed Schoonveld, Market Segmentation and International Reference Pricing in Report of WHO-WTO Workshop on Differential Pricing and Financing of Essential Drugs, April 2001

Countries which use price comparisons in price-setting or whose prices are referenced


An enabling environment for differential pricing needs contributions from several stakeholders

Public policy makers in high income countries Public policy makers in low income countries Multilateral bodies Research-based pharmaceutical companies Generic producers Purchasing bodies - public, private and NGO Advocacy and consumer groups


UK high level working group on access to medicines

Members: government departments - treasury, trade, health, international development UK research-based industry (ABPI, GSK, AstraZeneca) Foundations (Wellcome, Rockefeller) EU directorates - trade, development “UN system” - WTO, WHO, Richard Feachem Uganda’s High Commissioner to UK

Recommending to Prime Minister (2003 G8 target launch): Voluntary DP scheme focused on HIV/AIDS, TB and malaria medicines “in the first

instance” All sub-Saharan Africa and other Least Developed Countries For public and not-for-profit NGOs Prices “close to cost of production” (without R&D and marketing costs) Monitoring mechanism to be set up and report yearly


Coming next (if you can take it)…Alternative paths to DP - what’s the evidence base?

Voluntary

Bulk purchasing and competitive tendering

Bilateral negotiations

Voluntary licensing (in the context of differential pricing)

Delaying or reversing patent protection in LDCs, as allowed by the Doha Declaration

Non voluntary

Compulsory licensing Price controls Government led patent

waivers (semi-voluntary)


Selected criteria for comparing payoff of various differential pricing mechanisms

Bulk

purchasing

Bilateral

negotiations

Vountary

licensing

Compulsury

licensing

Delay patent

protectionPatent waivers Price controls

Price reduction high low medium high high high high

Negative for R&D low low low medium medium low medium

Product scope wide narrow narrow medium narrow narrow wide

Disease scope wide wide medium medium medium medium wide

Buyer scope narrow narrow medium narrow wide wide wide

Domestic manufacturing no no yes yes no no no

Population/income yes yes yes no no no no

Scale high low medium low low medium medium

Impact poor? medium low low medium high medium high

Predictability medium low medium low high high high

Sustainability high low low low low high medium

Transparency medium low medium high high high medium

Political feasibility high high medium low low low medium

Legal feasibility high medium high medium high high high

Transaction costs low high medium high high medium high

Negative competitive effects low high low low low low low

Retail price impact low low low low low low high

Differential pricing and access to medicines: issues and options Andrew Creese Essential Drugs and...

Documents

Transcript of Differential pricing and access to medicines: issues and options Andrew Creese Essential Drugs and...