[Ip-health] US does not comply with pharma TPP demands

Sean Flynn sflynn at wcl.american.edu
Mon May 2 06:26:01 PDT 2011



At a meeting with PIJIP and Public Citizen on TPP before the Chile round, USTR would not state whether they were pushing for a pharma chapter in TPP. It now appears very likely they are. It is at least clear that Pharma is mounting a full court press for a pharma chapter and that likely means they have received positive signals that the USTR is willing to push for the idea. 


It should be noted that drug reimbursement programs in the U.S., the main one of which is in Medicaid, do NOT follow the same “due process” rules being demanded of New Zealand and other TPP members.


Most federal level pharmaceutical programs in the U.S., such as in the VA hospitals, are direct purchase programs. These programs achieve prices on par with, and likely often lower than, NZ (or Korea) pays. But such direct purchases are exempt from the Korea agreement and all other pharmaceutical programs negotiated by the US to date, which only apply to pharmaceutical “reimbursement” programs. 


Medicaid is the largest government drug reimbursement program in the U.S. It does not give pharmaceutical company appeals to formulary listing decisions or meet the other demands of the Korea pharmaceutical chapter. Medicaid is carved out of the Korea agreement, however, because that agreement only applies to “national” level programs, and a footnote explains that Medicaid is a state program.


So the USTR here, to the extent it pushes the Pharma agenda, will be advocating for a standard that restrains NZ’s and other TPP members’ programs, but is carefully drawn to place no restraints on similar programs operating in the U.S. 


Whether it has achieved that standard in fact in Korea is being questioned. It appears, for example, that the very popular “340b” program of providing discounts for health facilities that serve the poor in the U.S. is not covered by the Medicaid Korea carve-out and does comply with the Korea pharma chapter requirements. 


For more information, see the many letters from U.S. state officials opposing pharmaceutical chapters in TPP, Korea and Australia at 




Of course, there is a huge difference between TPP and the Korea and Australia FTAs. Only the former would bind developing nations. One key “flexibility” in TRIPS and its globalization of pharmaceutical patent standards is that countries remain free under TRIPS to exercise other price restraining programs to improve the affordability of patented medicines, such the kind regulated under the Korea and Australia FTAs. If Peru, Malaysia, Vietnam and the other developing country members of TPP accept a pharmaceutical chapter, it could constrain their ability to promote access to medicines and the right to health in their countries. 


Sean M Fiil Flynn

Associate Director

Program on Information Justice and Intellectual Property (PIJIP) 

American University Washington College of Law
4801 Massachusetts Ave., NW 
Washington, D.C. 20016
(202) 274-4157            


Recent news on Pharma’s press for a restriction on reimbursement programs in TPP:


Radio report:


American pharmaceutical companies have stepped up their attack on Pharmac at a crucial stage in free trade negotiations which include New Zealand and the United States. (3′50″)





Inside US Trade - 04/29/2011

U.S. Companies Want Disciplines On New Zealand Drug Agency In TPP


Posted: April 28, 2011


U.S. drug companies are eager to include transparency and due process requirements found in the Korea-U.S. free trade agreement (KORUS) in a final Trans-Pacific Partnership (TPP) deal, partly in order to impose new disciplines on the New Zealand government and help them to sell drugs in New Zealand.


The Pharmaceutical Research and Manufacturers of America (PhRMA) is flagging New Zealand's Pharmaceutical Management Agency -- which is responsible for negotiating pricing and managing reimbursement for drugs within New Zealand's national pharmaceutical budget -- as a problem that needs to be addressed in the TPP talks.


This New Zealand agency -- known as PHARMAC -- has a "sole focus on driving down costs" that "comes at the expense of the respect for intellectual property, transparency to the public and patient access to better health outcomes," PhRMA argues in an April 2011 lobbying document obtained by Inside U.S. Trade.


In its document, PhRMA goes so far as to state that New Zealand ranks fourteenth out of the 19 countries that comprise the Organization for Economic Cooperation and Development (OECD) when it comes to deaths from treatable conditions, implying that New Zealand could benefit from greater access to U.S. brand-name drugs.


The "deficiencies" of PHARMAC highlight the need for "transparency and basic due process in the pricing, reimbursement and regulation of pharmaceutical products and medical devices" in a final TPP deal, it adds.


PhRMA has long urged USTR to address pricing and reimbursement of pharmaceuticals in New Zealand. At the same time, the sharpened criticism of PHARMAC in the TPP context may reflect the fact that USTR is planning on tabling a complete proposal for intellectual property (IP) protections in the TPP talks by mid-June.


So far, USTR has only tabled text on less controversial IP areas, and has not tabled key provisions related to IP protections for pharmaceuticals. However, U.S. Trade Representative Ron Kirk said this week that the United States would table proposed text in all areas text by the next round, which is slated for the week of June 20.


New Zealand has a national health care system, but U.S. drug companies do not have a "market access" problem in New Zealand, a New Zealand government official said.


U.S. drug companies are free to sell drugs at the price they choose into the New Zealand "private market," so long as it is approved for use by New Zealand authorities, the government official said.


That said, the vast majority of New Zealand patients participate in the national system, meaning that U.S. drug companies are most interested in ensuring that New Zealand patients have access to their drugs under that national system and that the New Zealand government provides them with an adequate price for their drugs.


In order to gain access to the national health care system, a U.S. drug company must first submit its drug for "approval" by PHARMAC. If PHARMAC grants a drug such approval, that essentially means that PHARMAC is interested in providing that drug through the national health care system, the New Zealand official explained.


At that point, PHARMAC may enter into negotiations with the U.S. drug provider on the amount of money that the New Zealand government will pay the provider for a particular drug, known as the "reimbursement rate." New Zealand patients pay hardly anything for the drugs themselves, the official said.


In those reimbursement talks, the New Zealand government has to consider a variety of different factors.


For instance, it would examine whether it can afford a particular drug, and if it is worth purchasing for the national system in light of other available alternatives. Because PHARMAC has a fixed budget each year, the government is keen to get the best "value for money." It cannot afford to reimburse every available pharmaceutical, the official stressed.


In some instances, a pharmaceutical that has been "approved" by PHARMAC ends up sitting around in the system because the government has decided that it cannot afford that drug, or has chosen to reimburse a competing drug instead.


However, PHARMAC can reconsider an "approved" drug that has stalled if, for instance, the provider chooses to lower its asking price, or can show it has new benefits. Sometimes, a drug company with a stalled drug may drop its asking price prior to expiration of that drug's patent, to gain some brand recognition in New Zealand, the official said.


U.S. drug companies raise several objections to the way PHARMAC operates, and want USTR to include KORUS provisions on transparency and due process in a final TPP deal. Doing so would be a "huge improvement," Harrison Cook, vice president of international government Affairs at Eli Lilly, said in an interview this week.


Overall, the effect of PHARMAC is that U.S. drug companies do not prioritize the New Zealand market, he said.


In its lobbying document, PhRMA alleges that PHARMAC uses "coercive negotiating tactics" with drug providers, such as "demanding price reductions on certain products in exchange for listing newer products" in the national health care system. This problem relates to the fact that PHARMAC has a fixed budget, industry lobbyists said.


Likewise, Cook signaled in the interview that PHARMAC's fixed budget means that U.S. drug companies do not always receive fair prices for their products. "They've got a cap-fixed budget, and then if you want to bring a new product in, you somehow have to work the price so their overall budget doesn't expand at all," he said.


"So let's say I've got product A in the system. I would now like to bring Product B in. In order to do that, I can't receive any more budget than I do for product A. So, I discount Product A in order to get a 50 percent discounted price on Product B. So I've got two products in the system, but I'm actually at the same level of budget," he explained.


KORUS-like provisions would help to fix this problem, Cook said. "The core provision around the transparency portion of the KORUS pharmaceutical chapter deals with the principle that the value of patented pharmaceuticals be reflected in the practices of the system," he said.


This could be a reference to a part of Chapter 5 of the KORUS, which states that each party must ensure that reimbursement rates are either "based on competitive market-derived prices" or "appropriately recognize the value" of a drug in its reimbursement rate.


The PhRMA lobbying document charges that the "coercive negotiating tactics" used by PHARMAC also include "waiting out patent terms before listing medicines." An industry source said that once patents expire, listing the drug has little benefit for drug companies because generic alternatives can become available after the patents expire.


The New Zealand government official denied that PHARMAC "runs out the clock" on patents before listing them under the national health care system.


Overall, U.S. drug companies also claim that PHARMAC suffers from a lack of transparency. The KORUS transparency provisions "are designed to . . . create some ground rules or boundaries . . . so that there is a full understanding of what the rules are, why the decisions are being made," Cook said in the interview.


For instance, another drug industry source said it was unclear to many U.S. companies what PHARMAC wants to see in a submitted dossier in order to grant approval to a particular drug. This source also said that doctors, patients and other stakeholders should have more of a voice in the PHARMAC process.


KORUS contains a wide variety of due process and transparency provisions when it comes to government reimbursement decisions for drugs. For instance, it calls on each party to the KORUS to "make available an independent review process that may be invoked at the request of an applicant directly affected by a recommendation or determination." Cook also flagged such a bolstered appeals process as an important step forward.


KORUS also contains many other provisions on transparency. For instance, it requires parties to "disclose to applicants within a reasonable, specified period of time all procedural rules, methodologies, principles, criteria . . . and guidelines used to determine pricing and reimbursement of pharmaceutical products."


It also states that parties shall "provide applicants with meaningful, detailed written information regarding the basis for recommendations or determinations of the pricing and reimbursement of pharmaceutical products or medical devices, including citations to any expert opinions or academic studies relied upon in making such recommendations or determinations."


The New Zealand government does make available information on how PHARMAC operates. For instance, a public document states that PHARMAC decisions on how medicines should be funded falls into the three broad areas of clinical, economic and commercial assessment, and provides further guidelines on each of those criteria.



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