[Ip-health] HPW: Price Transparency In Medicines Markets – Scrutinizing Evidence Behind The Claims

Suerie Moon suerie.moon at gmail.com
Mon May 27 02:02:27 PDT 2019

Health Policy Watch

Price Transparency In Medicines Markets – Scrutinizing Evidence Behind The

24/05/2019 by Editorial team

*As the debate over a draft resolution supporting greater price
transparency for medicines in national and global markets intensifies
with closed-door consultations among countries at the 72nd World Health
Assembly continuing late into the night, Health Policy Watch continues to
feature diverse “Inside Views” on this charged issue. Here, Suerie Moon,
MPA PhD, faculty member at the Graduate Institute of Geneva and Harvard
T.H. Chan School of Public Health and researcher into medicines access
policies, examines the evidence behind the debate over whether greater
transparency can really help reduce prices.*

By Suerie Moon

An initiative to address high prices by increasing the transparency of
medicines markets
taken center stage
week at the World Health Assembly. At issue is the opacity
<https://www.bmj.com/content/360/bmj.k840> of many aspects of the
pharmaceutical sector. It is difficult – and often impossible – to get
reliable information on actual medicines prices as well as costs of inputs
to those prices such as: expenditures on research and development of a
drug; comprehensive clinical trial results; and the extent or duration of
patent protection on a health technology.

As the possibility of serious action by governments increases, a number of
claims about the impacts of transparency have begun to circulate. But what
is the evidence behind them?

Claim #1 is that transparency of drug prices will raise prices in
low-income countries – which can be perceived  as a thinly-veiled threat
against the poorest. The argument goes: because rich countries will not
accept major price differentials, sellers will have an incentive to raise
prices on those least able to pay. (Notably, sellers always have an
incentive to raise prices, whether for the poor, rich or in-between.)

But medicines prices vary widely because they are the result of many
determinants, including negotiating leverage of sellers and buyers,
underlying cost structures, regulation, volumes of supply and demand,
degree of competition, information, political mobilization
<https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3078828/> and social norms.
Some of the most transparent and reliable global price data we have is for
HIV <https://www.who.int/hiv/amds/gprm/en/> drugs and vaccines
These data show that price differentials over 200-fold
<https://www.who.int/hiv/amds/gprm/en/> between high- and low-income
countries have been sustained for years.

Most likely, the pharmaceutical industry’s concern is not the low-income
countries, but rather the wealthy and upper middle-income countries where
they earn the majority of their revenue
. Better information
prices agreed in other countries strengthens the negotiating leverage of
buyers (e.g. through reference pricing <https://youtu.be/v7EmUfU5k1Y>

Indeed, this dynamic can bolster the incentive for a pharma firm to raise
prices in countries with less bargaining power, so as not to undermine the
price that might be obtained in larger markets. Sellers may also delay or
withhold a medicine from smaller markets to avoid setting a price that
might undermine their leverage elsewhere – a problem highlighted by the
representative from Cyprus
the World Health Assembly earlier this week.

Finally, it has been argued that price transparency can raise prices
by facilitating
collusive price-fixing
<https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4019947/> in markets with
small numbers of competitors. Yet many new medicines enjoy monopoly market
conditions – there aren’t any competitors with whom to collude.
Nevertheless, these are real issues, which should be addressed. Fortunately
there are a range of policies that can be considered, such as tiered
pricing based on objective cost and affordability indicators
<https://nextbillion.net/tiered-pricing-suerie-moon-part-2/> or competition
law enforcement <https://scholarship.law.uci.edu/ucilr/vol6/iss3/3/>. Both
would be more – not less – effective with increased transparency.

Claim #2 is that medicines prices already match a country’s ability to pay
in a carefully-calibrated global system of tiered pricing that would be
upset by price transparency. There are indeed discernible price tiers in
place in a few areas
<https://nextbillion.net/tiered-pricing-by-suerie-moon/> – notably for HIV
medicines, vaccines and contraceptives. But even in such cases, a tiered
price does not necessarily mean an affordable price
<https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3214768/> that matches a
country’s capacity to pay.

Furthermore, in the profit-generating high- and upper-middle income
countries, drug prices are largely the result of negotiation – not a
systematic global tiered-pricing system. Countries with less negotiating
leverage, such as smaller or less wealthy markets, can end up paying more
larger, richer ones. The status quo neither guarantees affordability nor
systematically favors the less wealthy – transparency can’t ruin a Garden
of Eden that doesn’t exist.

Claim #3 is that the pharmaceutical industry is unable to calculate R&D
expenditure on a successful product – it is simply too difficult. Yet
businesses make cost calculations every day to inform strategic decisions.
In 2014, when the US Senate investigated
Sciences’ $84,000 price tag on the hepatitis C drug sofosbuvir, the company
disclosed (upon demand) that it had spent $943 million on R&D – indicating
that they had the data readily available.

Some academic researchers have estimated average R&D expenses per medicine
using either confidential data shared by industry
<https://www.ncbi.nlm.nih.gov/pubmed/26928437>, or aggregated
<https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/2653012> –
but these estimates are often contested
<http://www.unsgaccessmeds.org/final-report>. Furthermore, R&D costs vary
widely by type of technology and disease
<https://gatesopenresearch.org/articles/2-23>, making broad averages
inadequate for policymaking. And reasonable differences
<https://www.sciencedirect.com/science/article/pii/S0168851010003659> exist
in methodology. Requiring disclosure of R&D expenditures and the
methodologies underlying the calculations would help policymakers to
assess whether
a drug price is fair
<https://reg.unog.ch/event/28787/material/slides/14.pdf> and better design

Claim #4 is that transparency of R&D expenses will result in prices that
just barely cover costs, and profits will therefore be inadequate to
re-invest in future R&D.

If only it were so simple. As noted earlier, drug prices are the
end-product of complex interactions between many factors – buyers cannot
dictate cost-plus pricing.

Ultimately, it should be acknowledged that transparency alone won’t
automatically reduce prices or uniformly improve access to critical
medicines for those who need them. But it will address the information
asymmetry that currently heavily disadvantages buyers. Hopefully, it will
also re-inject a bit of sanity into a situation where drugs priced in
the hundreds
of thousands
 to millions
dollars are becoming the new normal

At the end of the day, good governance demands transparency
The pharmaceutical sector should not be an exception to this rule. Whether
the WHA resolution on transparency being negotiated this week is ultimately
approved, and whether it is a strong or weak
<http://apps.who.int/gb/ebwha/pdf_files/WHA72/A72_ACONF2-en.pdf> resolution,
all governments should consider taking national action to mandate increased
information disclosure from an industry whose decisions have life-or-death

Suerie Moon, MPA, PhD
Director of Research, Global Health Centre and Visiting Lecturer, Graduate
Institute of International and Development Studies, Geneva
Adjunct Lecturer, Department of Global Health and Population, Harvard T.H.
Chan School of Public Health
suerie.moon at graduateinstitute.ch   Tel: +41-22-908-5845   Skype ID:

Office:  Bureau P2-712, Maison de la Paix, Chemin Eugène-Rigot 2, 1202
Geneva, Switzerland.

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