Is the Global Fund Heading Backwards on Access to Medicines?
Suerie Moon from the Harvard School of Public Health warns against falling back on stale solutions for ensuring access to essential medicines.
For nearly a decade, a bright spot on World AIDS Day has been steady growth in the number of people in developing countries accessing lifesaving HIV treatment, which increased 40-fold from 2002-2012. But this year, Board discussions at the Global Fund to Fight AIDS, Tuberculosis and Malaria have set off alarm bells about a potential retreat from the time-tested pro-generic policies that enabled such progress. At issue is a proposed “blue-ribbon Task Force” on tiered-pricing of medicines for middle-income countries (MICs), spearheaded by the Global Fund together with the GAVI Alliance, UNDP, UNICEF, UNITAID, and the World Bank.
Data sources: UNAIDS and MSF (http://utw.msfaccess.org/)
“Tiered pricing” refers to pharmaceutical companies setting prices on (usually widely-patented) medicines at levels below those charged in high-income markets. At first glance, it sounds reasonable enough – lower prices for poorer countries. But, as summarized in a 2011 study, evidence from the past ten years shows that tiered pricing is in practice a feeble access strategy. First, it is demonstrably less reliable and effective than generic competition in achieving affordable prices for quality medicines. A 2010 study found that PEPFAR saved $323 million from 2005-2008 by purchasing generics rather than tiered-priced HIV drugs. Analogous cost-savings estimates for the Global Fund are not available, but could easily be an order of magnitude higher. Generic competition, often enabled by governments using flexibilities in intellectual property rules, has been central to improving medicines affordability in developing countries.
Second, tiered-pricing policies are voluntary programs of pharmaceutical companies and frequently arbitrary, especially with respect to MICs. Companies may offer the lowest prices to low-income countries, but prices and policies for MICs are all over the map. Companies may offer discounts on some drugs but not others, to some high-burden countries but not others, for a limited time or with strings attached. The rationale underlying a given price is generally not transparent, and the prices offered are not necessarily affordable.
Illogically, the proposed Task Force would be jumping to conclusions, pre-supposing that tiered-pricing is the answer to the question rather than wrestling with the question itself: how to make medicines affordable in middle-income countries? This question applies not only to vaccines or HIV drugs, but is relevant to all therapeutically-important widely-patented medicines, including those for non-communicable diseases.
The rise of the MICs is challenging pre-existing arrangements in the development aid system, including the informal norm that “rich” countries pay higher prices for patented medicines to cover R&D costs, while “poor” countries purchase generics (at least for some priority diseases). But this rich/poor classification is neither as easy nor useful as it once was. MICs now include over 100 countries, home to over two-thirds of the world population, with 75% of the world’s poor and a majority of the global burden of disease, with per capita incomes spanning from $2.84 to $33.56/day. At the same time, the pharmaceutical industry is relying heavily on MICs for worldwide growth to offset flat sales in Europe and the US. In this complex context, will a strategy of voluntary price discounts really deliver affordable prices for the MICs?
Other approaches, such as tiered-royalties or tiered-lump-sum payments for R&D, could capture the dynamic efficiencies of generic competition, while reaping proportionally greater contributions for R&D from the MICs. Alternatives like these merit greater analysis and attention. Indeed, instead of falling back on stale solutions, the Global Fund and broader global health community should explore new ideas that will ensure that all countries can afford essential medicines.
Suerie Moon is Research Director and Co-Chair of the Forum on Global Governance for Health at the Harvard Global Health Institute and Lecturer on Global Health at the Harvard School of Public Health.
Competing Interests: SM is a member of the UNITAID Proposal Review Committee.
Suerie Moon has identified some of the main problems with the tiered pricing model, but more could be said about its origins and its durability. Drug companies currently maximize profits in middle-income countries with high income inequality by focusing on high-profit sales to elites. But there are growing middle-classes and increased use of on-patent medicines in countries like Brazil, India, and China, and drug companies are looking for pricing models in those countries that would add to their profits. Segmenting internal markets and having a new tiered price for public sectors can add significantly to profits if this approach is legitimized. Even here, drug companies will not set prices to maximize sales so that more people get the medicines they need. They will price to get the maximum returns from public sector health budgets, from insurers, and from out-of-pocket payments, and again many of the poorest patients will go without.
Drug companies like this strategy because they continue to hold all the cards and can make decisions unilaterally. They can continue to increase prices over time, they can end discounts when they chose (contractually or unilaterally), and they can discriminate between similarly situated middle-income countries by imposing secrecy about prices and discounts given.
Because these same drug companies have preferential access to government officials in the U.S. and Europe and have captured their allegiance , those governments fight tooth and name to perpetuate and expand the intellectual property regime upon which the pharmaceutical empire rests. By maintaining tight control over production, supply, and price, and with the collusion of rich countries, drug companies preclude generic competition which produces much more affordable medicines over the long run in low- and middle-income countries.
Thus, with tiered pricing, the drug industry kills two birds with one monopolistic stone – it maximizes its profits by selling higher volume to another distinct segment of the market and it solidifies its embargo of cheaper generic equivalents.
The alternatives are many, but they rest primarily on low- and middle-income countries and global health initiatives like the Global Fund and UNITAID promoting generic competition. Research and development must still be supported, but not at the cost of unstable and ultimately unsatisfactory tiered pricing policies. The Global Fund, UNITAID, UNICEF, GAVI, UNDP, and the World Bank should reorient their efforts towards alternative strategies that encourage coordinated use of TRIPS-complaint flexibilities and new models that simultaneously reward therapeutically targeted research and increase affordable access to the benefits of scientific advancement.
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Dr Moon’s argument is very compelling. Regarding savings to PEPFAR, a more recent study notes even larger savings of $934 million: “OGAC estimates that the President’s Emergency Plan for AIDS Relief (PEPFAR) has saved $934 million since fiscal year 2005 by buying generic instead of branded products.”