Health systems
Equitable pricing of newer essential medicines for developing countries: evidence for the potential of different mechanisms
The price of equity: mechanisms for differential pricing of essential medicines
Authors:
C. Grace; Department for International Development (DFID): UK
Publisher:
World Health Organization , 2003
The disease burden in developing countries is large and growing, but funds to tackle it are limited. Differential drug pricing is one way to increase access to essential medicines. A study commissioned by the World Health Organization (WHO) and the UK Department for International Development (DFID) analyses the existing and potential impact of several differential pricing mechanisms. Each has pros and cons and the final choice of methods will depend on local circumstances.
The study assesses the impact of voluntary and other pricing mechanisms according to several criteria. These include: the effects on prices and further drug research and development; the potential scope of products, diseases and buyers affected; the size and socio-economic status of the population who would benefit; each mechanism’s predictability, sustainability, transparency and political/legal feasibility.
Differential pricing is economically feasible because variable costs make up only 15 per cent of the total costs of producing a medicine and because poor countries contribute so little to overall pharmaceutical sales. Pharmaceutical companies could use differential pricing to maximise profits on products that are sold in both low and high income markets.
Looking at each mechanism in turn, the study finds that:
- bulk purchasing can reduce prices in many different environments and in combination with other differential pricing mechanisms
- voluntary tiered pricing agreements have had limited impact on disease scope and access. Concerns include a lack of transparency, anti-competitiveness and high transaction costs relative to benefits
- there are now a few examples of voluntary licences that have been issued for differential pricing. Their impact is not yet clear
- compulsory licences are potentially an important tool to increase access to medicines. No developing country has yet invoked a compulsory licence, but they have been an effective bargaining tool in negotiating reduced prices
- delayed patent protection could effectively achieve differential pricing in the short term. But most developing countries already observe patents and low-priced copies of patented drugs are increasingly rare, so this mechanism has little relevance
- patent waivers would apply only to drugs for diseases common in both developing and developed countries. They could provide a transparent, predictable and economically logical framework, but are unlikely to be politically feasible
- price controls at the retail level have the greatest potential to reduce the cost of drugs to the consumer, but could result in withdrawal of products from the market
The study does not try to prescribe which mechanisms should be used by policy-makers. Instead, the author highlights some general policy-related considerations:
- market segmentation is a crucial pre-condition to the willingness of firms to engage in voluntary differential pricing. All stakeholders, including developed and developing country governments and the pharmaceutical industry, must co-operate to tackle price and product leakage. International organisations can help this collaboration
- many governments could improve their procurement practices at country and regional level and increase demand pooling
- price is only one of the factors limiting access to essential drugs. Others include availability of resources, rational use and selection of medicines, health systems and infrastructure
Note: The full text links to a prepublication draft available from the DFID Health Resource Centre
