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2c. Economics: Pricing Tools to Improve Medicines Affordability - 2
Regulating Supply Chain Mark-Ups to Control Medicine Prices—A Review of the Literature in Low- and Middle-Income Countries
Independent public health consultant
Problem statement: Medicine prices are often an access barrier for the poor, especially in low-income countries. In order to increase financial access, policy makers may regulate the prices of medicines using a variety of means. The regulation of supply chain mark-ups is one strategy, but little is known about how common this intervention is in low- and middle-income countries (LMIC) and whether it is effective.
Objectives: To describe the evidence base for the regulation of supply chain mark-ups in low- and middle-income countries and whether it leads to lower medicine prices
Design: Literature review
Setting: International, public, and private sectors
Study population: Low- and middle-income countries
Outcome measure(s): Number of countries using pharmaceutical mark-up regulation, types of regulation, factors affecting implementation of the policy and its effectiveness
Results: Mark-ups are commonly regulated in high-income countries (HIC). Around 60% of LMIC report regulating wholesale or retail mark-ups. HIC use a variety of regulation methods and may apply different mark-ups to separate groups of pharmaceuticals. LMIC commonly use fixed percentage mark-ups, with few applying regressive mark-ups. Mark-up regulation is seldom used as a means to promote generic medicines. Little information is available about the impact of mark-up regulation on medicines prices or supply chain stakeholder viability. Ineffective enforcement and lack of regulation of manufacturer or retail prices are likely to lead to failure. Mark-up regulation has an impact on wholesaler and retailer viability.
Conclusions: Evidence on the implementation, effect, and enforcement of mark-ups in LMIC is sparse. Regulation of mark-ups as part of comprehensive price regulation will probably lead to reduced medicine prices, but there may be unexpected effects on the supply of medicines. Without regulation of either the manufacturer’s selling price or the retail selling price, mark-up regulation is unlikely to be effective. Mark-ups that include a regressive component with or without fixed fees probably lead to better outcomes that fixed percentage mark-ups through their influence on financial incentives.
Funding source(s): Health Action International – Global
Efficiency of Public Procurement of Medicines in the Philippines
Health Action International
Problem statement: Medicine prices in the Philippines have been relatively high compared to other countries with similar wealth in the region for last 2 decades. In addition, there are long-standing concerns about prices and availability of essential medicines procured by public sector hospitals and local government units (cities, provinces, municipalities).
Objectives: To assess the efficiency of public procurement systems used at various levels of the health care system in the Philippines through evaluation of the procurement prices of a selected basket of essential medicines
Design: Procurement price data for a basket of 50 medicines was collected December 2008 through February 2009 from objectively verifiable document sources (contracts, invoices etc).
Setting: DOH-retained, provincial, and municipal hospitals in 6 different regions of the Philippines
Study population: Total of 5 DOH, 6 provincial, and 5 municipal facilities
Outcome measures: The unit prices were converted to a median price ratio (MPR) by dividing by the unit price from an international reference price (Management Sciences for Health 2007).
Results: DOH-retained hospitals had greater procurement efficiency than provincial and municipal hospitals (summary MPRs 2.2, 3.2, and 3.9, respectively). Although some facilities procured generic essential medicines at prices comparable to international markets, most procurement entities were procuring medicines at levels much higher than the reference prices, e.g., doxycycline, diazepam, and fluoxetine procured at 13–40 times international prices. Extreme variability in the efficiency of public procurement was observed, e.g., ciprofloxacin and doxycycline had maximum procurement prices more than 40 times the minimum observed. Variations were unrelated to procurement volume. Health facilities operating revolving funds had higher availability of medicines but also higher prices.
Conclusion: There is an urgent need to improve efficiency of public sector procurement of medicines through improved transparency and good governance, more efficient management, and enhanced financing in the Philippines.
Funding source: Health Action International, The Netherlands
Can Competition Law or Other Competition-Promoting Policies Reduce Medicine Prices in Developing Countries?
Independent, United Kingdom
Problem statement: Medicine prices for originator brands and generics in many developing countries’ pharmaceutical markets are a high multiple of prices paid in competitive international procurement. A wide range of prices is observed for generic substitutes. This paper is one of a series of reviews of the evidence for policies to reduce medicine prices in developing countries, consistent with the goals of availability and quality.
Objectives: The paper reviews evidence on the impact of competition in pharmaceutical markets at each stage of the supply chain on medicine prices and the conduct of pharmaceutical companies in developing countries. The paper has a particular focus on the use of competition law, but also comments on other policies that affect medicines price competition.
Design: Literature review and case study of the application of competition law to the pharmaceutical market in South Africa since 1998
Settings: South Africa was selected for case study as one of very few middle-income countries with actively implemented competition law, applied to multiple pharmaceutical cases.
Policies: Competition law, other competition-promoting policies
Results: Good evidence is available from OECD countries for the potential benefits of use of competition law to deter or counteract anticompetitive behaviour in medicines markets. But few developing countries have been able to implement competition law effectively. South Africa’s competition law has been applied to landmark cases involving multinational firms, local generic manufacturers, wholesaling/distribution, private sector retail pharmacy, and public procurement. There is some theory and evidence that in countries with weak legal systems and state institutions, powerful business interests, and lack of political will to confront these interests, competition law may be ineffective or have unintended effects.
Conclusions: It is difficult for developing countries to implement competition law effectively until certain preconditions are in place, including an adequately functioning judicial system; effective third-party enforcement of law and regulation; and adequate human and budget resources for competition authorities. Middle- and low-income countries with sufficient institutional capacity could learn from South Africa’s experience with building specialist capacity for implementation of competition law, choosing strategically important cases to create precedents and provide guidance to improve the functioning of competition. In countries with weak institutions, other policy levers may be more feasible and effective in promoting generic competition, such as increasing openness to imports of quality-assured generics, and deregulation to allow consolidation of retail pharmacy so as to increase efficiency and increase buyer power to obtain discounts from suppliers.
Funding sources: Health Action International Europe and WHO
Evolution of Generic Medicine Market Share in the Pharmaceutical Retail Sector of 21 Low- and Middle-Income Countries Between 1999 and 2009: Time-Series Analysis
1National Institute of Public Health, Mexico, Mexico; 2Harvard Medical School and Harvard Pilgrim Health Care Institute; 3IMS Health; 4Center for Global Health and Development, Boston University
Problem statement: Pro-generic medicines policies have been promoted as core strategies to achieve more cost-effective use of medicines in all national health systems. However, there is little published evidence of their effect over time in many low- and middle-income countries (LMICs). As a first step, it is important to describe the evolution of the generic medicines markets in various LMICs over time.
Objectives: To study the market share by volume sales of generic medicines (both branded and unbranded) versus total pharmaceutical retail sector of 21 LMICs between 1999 and 2009
Design: Time-series analysis of annual sales volume in standard units, by region and country
Setting: Retail sales data obtained from IMS Health
Study Population: 21 LMICs as defined by the World Bank from 3 different geographical regions: Latin America (LAC: Argentina, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Mexico, Peru, Uruguay, and Venezuela); Middle East plus South Africa (ME: Egypt, Jordan, Morocco, Tunisia, and South Africa); Asia (Bangladesh, Indonesia, Malaysia, Pakistan, Philippines, and Thailand).
Outcome: (1) “Generic market share” defined as the percentage of aggregate annual sales volume of generic medicines (sold under proprietary name) plus unbranded generic medicines (sold under their international non-proprietary name) out of total annual medicines sales volume (innovator medicines plus all generic medicines); (2) “unbranded generic market share” defined as the percentage of annual sales volume of unbranded generic medicines out of total medicines sales volume
Intervention: No specific interventions identified, but at least 15 of the 21 study countries have a national medicines policy, which typically includes pro-generic policies.
Results: The share of the total market volume of the 21 countries studied relegated to generic (unbranded and branded) medicines increased from 67% to 76% in this 10-year period, with the largest increase in the LAC region (from 60% to 76%). Notably, total market fraction of unbranded generic medicines for LAC nearly tripled from 8% to 22.5% during this time period, with Venezuela, Peru, Brazil, and Colombia showing large individual increases. Asian countries had the highest generic volume share over time; however, volume share of unbranded generics decreased in Asia in the study period (from 11% to 7%). For the ME, the volume share of generic medicines was relatively constant over time.
Conclusions: Volume share of generic medicines differs substantially by country and region, as does the share of branded versus unbranded products. The large increase in LAC might be a result of more comprehensive pro-generic policies, but this requires far more rigorous and in-depth economic and policy analyses. Retail sales data provide an important tool for pharmaceutical policy evaluation and a promising mechanism to examine the impacts of specific pro-generic policies in each country.
Funding source: Information not provided
Taxes on Medicines
Health Action International, Amsterdam
Problem statement: Price is an obstacle to access to medicines, and in many countries, taxes add 25 to 30% to the retail price of medicines. Yet the epidemiology of medicine taxation has barely been studied, and policy experience with tax changes and tax policy options is little documented.
Objective: To identify, describe, analyse, and discuss sales taxes on medicines, their impact on revenue generation and on medicine affordability, and their impact (positive and negative) when reduced, abolished, or reintroduced
Design: Descriptive study based on literature review and analysis of the WHO/HAI database on medicine prices
Setting: Over 60 countries at all income levels were studied for tax practices as applied to medicine, and literature was reviewed on evidence of price-responsiveness to medicine price changes.
Results: Medicine tax data are presented for over 60 countries. Taxes are often the third biggest component in a medicine’s retail price, after manufacturer’s selling price and distribution mark-ups. Taxes are often levied cumulatively at local, state, and national levels. Medicine taxes yield between 0.5 and 1.6% of total government revenue for a sample of countries assessed. Countries at all income levels raise taxes from the sales of medicine. Yet some countries, including low-income countries, specifically exempt medicines from all taxes. The price-responsiveness of demand for medicines has been measured in several settings and shown to be positive but less than one, meaning that an increase in price, other things being equal, will reduce demand and vice-versa. Some groups of people (i.e., the poor and the elderly) are more sensitive to price changes than others.
Conclusion: Evidence about peoples’ price-responsiveness for health care in general and medicines in particular is reviewed, and the economic case for and against taxing medicines is assessed. Arguments for orienting tax systems away from medicines and toward health- and welfare-damaging goods and actions are presented, with some estimates of the magnitude of potential revenue generation. Higher taxes on alcohol, tobacco, sugary soft drinks, and fatty foods are shown to have sufficient potential to offset tax losses from reductions in tax on medicines in different settings.
Funding source(s): Health Action International, Amsterdam