Name of Lead Author: Fernando Lamata
Organization: Regional Health Service, Madrid
In every country of the world many people have been unable to access the drugs they needed. This is a violation of the human right to health and in many cases the right to life.
Implementation of the current monopoly model for the sale of drugs has created serious inconsistencies with policies that promote human rights, such as the right to health. This implementation does not allow guaranteed access to drugs to millions of people around the world due to high drug prices, preventing the resolution of significant public health problems. Nor does this model guarantee research and the availability of drugs as a function of health needs. This model is also very inefficient.
Three strategies are proposed, effective in the short, medium and long terms, to contribute to re-balancing the system of drug innovation, development, production and access, thus contributing to all individuals’ being able to live with health and dignity (2030 Sustainable Development Agenda, Goal 3).
1) As long as the patents system is maintained, implementation of the model must be changed, promoting and fostering the negotiation of fair prices, at close to production cost (manufacturing cost plus R&D), plus a reasonable profit (5%). To that end, the negotiating power of governments against the pharmaceutical multinationals most be increased, through timely measures. Promotion of these measures by the Office of the General Secretary would be very desirable.
2) When fair prices are not applied, the application of mandatory licenses must be encouraged and made widespread.
3) Replace the monopoly system with a system in which drug research and development is carried out from public research platforms, and drugs are manufactured and sold at generic prices.
The current system for setting drug prices and financing research, based on monopolies granted by patents, functions well for companies, but poorly for patients, healthcare systems and society. Let us examine the model’s inconsistencies:
a) Exaggeratedly high prices: setting of prices by “value,” while at the same time maintaining a monopoly (the patents model).
Access to drugs that contribute to maintaining and regaining health and avoiding premature death is a basic human right. This right is being violated. Millions of people around the world cannot access the drugs they need because they or their healthcare systems cannot pay the high prices demanded by manufacturers. These extremely high prices divert resources needed to address other health problems from thousands of people, and endanger the viability of healthcare systems.
Companies that manufacture products try to apply the highest price that can be paid by the market (in this case, patients or healthcare systems). In an open market, competition would reduce prices by bringing them close to manufacturing cost. Parliaments and governments approve drug patents to protect innovative companies, granting them a monopoly and exclusive sales. A monopoly allows them to overcharge for 10-20 years in order to recoup research costs. That and no other is the justification for monopolies.
However, in recent years, many pharmaceutical companies have used monopolies to set exaggeratedly high prices, far above the cost of the research. These prices favor companies, which (a) achieve high levels of profitability from sales (20%), and b) encourage stock market appreciation, increasing their stock market capitalization (drug as a “financial product”). At production cost (manufacturing cost + R&D cost) plus a reasonable profit (5%), which is a fair price, millions of deaths and much suffering could be averted. Why not do this?
When it is proven that research costs do not justify this overcharging (for example, 5,000% of cost), pharmaceutical companies have begun applying pricing by “value” (years of life gained, savings on other treatments, the price of other similar products that were authorized previously, or authorization as orphan drugs). But none of these reasons justifies monopolies or patents.
Using the criterion of price by value, antibiotics, or some surgical procedures such as an appendectomy, or treatment of an injury by a nurse, or diagnosis by a primary-care specialist, which save lives, gain many Years of Quality-Adjusted Life (QALY) and save many expenses, could have prices of $1 million or more for each intervention (at $30,000 per QALY). This would be nonsense.
As a starting point for negotiating price by value (the maximum a customer is willing to pay), companies tend to take the price set in the US (where there are high returns and a prohibition on price negotiations). Then, prices are negotiated in Europe and on other continents, as a function of each country’s return (see Wyden-Grassley Report, 2015).
Once companies succeed in “de-linking” price from what it actually costs (for example, applying a price of $100,000 for something that costs $1,000), and after they get buyers (physicians, patients, regulators) to “accept” that as the “cost,” they offer discounts, volume pricing, deferred payments, shared risk, etc. All these methods merely “palliate” the unjustified abusive pricing.
Patents and monopolies that allow for overcharging are social instruments, the purpose of which is to guarantee that the innovating company recoups its research and development expense. Patents are being abused if a company takes advantage of its dominant market position to raise prices to the highest a country can pay. This is a serious political inconsistency.
b) The patent model has not worked to incentivize research and guarantee the availability of the necessary drugs.
Despite (or because of) the patents system, the innovation rate has fallen, while the number of “me-too drugs” with little or no therapeutic value has increased. This has been demonstrated by various studies (Lobo F. 1989; Prescrire International 2005; Lee C. 2006; ´t Hoen E. 2009; Light D.W., Warburton R. 2011; de Boer 2015, etc.). This global trend has a much more negative impact on the health needs of individuals in low-income countries.
Impartiality is also being questioned, and therefore the quality of the research when financed by industry, in introducing significant biases (Bell C.M. 2006; Sismondo S. 2008; Lundh A. 2012; Flacco M.E. 2015, etc.).
This model also causes multiple laboratories to perform the same research, duplicating efforts, increasing risks to patients participating in trials, and delaying scientific progress in that the various research groups are unable to take advantage of the results of other groups.
Other effects of this model that reduce drug availability include: delayed launches of new drugs in a country; the withdrawal of drugs that are effective and cheap; or supply shortages, due in part to difficulties by countries in paying their pharmaceutical bills, or resistance to accepting higher prices.
c) Inefficiency of the patents model for society (exaggerated efficiency for industry).
It is necessary to point out that this financing model is also inefficient.
Excess spending on inadequate prescriptions, avoidable adverse effects, excess spending on marketing (25% of sales), and a rate of return that is much higher than the average for the manufacturing sector (20%, versus 5% of sales) make this an inefficient model for financing research.
If we apply a new model in which research is not paid for through monopoly overcharging, but rather financed directly, it would result in savings over the current model of some 30% of total pharmaceutical spending, some $300 billion per year worldwide.
d) Exaggerated influence by decision-making agents. Control of discourse.
The current model of financing research through overcharging has generated another perverse phenomenon: excessive influence of the opinions of professionals, as well as decision-makers in regulatory agencies and patient associations.
Many patient associations and healthcare professional associations are financed by the pharmaceutical industry. Many specialists are advisors on various laboratory committees (sometimes paid). These same professionals are the ones who prepare the clinical guides and consent documents. Many clinical trials are financed by industry, which controls the protocols and the publication of results. Finally, the industry is seeking to also influence regulators, members of parliament, members of government, members of agencies, etc. To that end it uses various formulas: training, conferences, financing of drug agencies and quality agencies, financing of electoral campaigns, etc. (Angell M., 2004; House of Commons 2005; Smith R., 2005; Light, Lexchin, Darrow 2013; Council of Europe 2015; Batt, S., 2015; Wyden-Grassley 2015).
e) Inadequate prescriptions. Over-prescribing.
Extremely high spending on marketing (25% of billings) and control of discourse among scientific societies, regulators and patient associations are applying pressure to increase prescriptions, increase demand and impose unjustified prices. Without that pressure, inadequate prescriptions would very likely be lower, which according to the WHO is close to 50% (WHO 2004; Holloway K.A. 2011), and drugs with little or no therapeutic utility would decline (Franklin C. 2011; Even P., Debré B. 2012; Emanuel E.J., Fuchs V.R. 2008). There is another political inconsistency of this model: on the one hand, millions of people cannot access the drugs, and on the other, unnecessary and harmful drugs are consumed.
f) Adverse effects.
Reducing marketing pressure and diverting part of that money to training professionals on independent platforms would also have an impact on reducing the adverse effects of drugs, which in the European Union cause approximately 200,000 deaths per year and have a high cost, over 79 billion euros per year (Archibald K. et al., 2011).
g) Secrecy as to costs and prices.
There is no other sector of public procurement in which secrecy with respect to product costs that are paid for with public moneys can be tolerated (except spy agencies).
Details must be known as to how much it costs to produce a drug. How much does it cost for research, manufacturing, sales, etc. Depending on that knowledge, a patent may be granted, and a reasonable price set, that recoups the research cost over the time that protects the patent. More than that is an abuse or stupidity.
Three complementary strategies are proposed (with short-, medium- and long-term effects), which can be implemented simultaneously (Lamata et al. 2015). These strategies can contribute to development of the 2030 Sustainable Development Agenda, and the human right to health.
1. REDUCING PRICES, BRINGING THEM CLOSE TO ACTUAL PRODUCTION COST, BY STRENGTHENING GOVERNMENT NEGOTIATING POWER. Short-term effect.
It is necessary to apply fair prices. As long as the patent model is maintained, or in the absence of effective competition, prices must basically be set by production cost (manufacturing cost + R&D cost), duly audited, plus a reasonable profit (5%); prices must not be set at the most the patient or healthcare system is willing to pay.
To achieve fair prices it is necessary to regain the discourse, remembering the initial justification for the patent system, and increasing the negotiating power of governments over the industry’s negotiating strength (which, let us not forget, is largely based on the granting of patents by the same governments). It is also very important to guarantee the technical solvency and independence of all professionals involved in decision-making on pricing and reimbursement.
The Office of the General Secretary could recommend the following measures to Member States:
- Carry out joint initiatives (several companies, a region, etc.): fairest price-setting model, joint purchases.
- Authorize marketing only for drugs that add value. Withdraw marketing authorization for drugs that do not add value; be demanding while maintaining conditions of quality and safety.
- Reimburse (publicly finance) drugs that add value and de-finance those that do not add value.
- Negotiate and set prices based on manufacturing and research costs, plus a reasonable sales margin (at the average for the industrial sector, 5%), by which a significant spending reduction would be achieved. Don’t fall for the industry strategy of setting prices by so-called “value” (unless monopolies are eliminated and effective competition with generics is immediately guaranteed).
- Cost-effectiveness studies are useful, but must be used to not include or to exclude (authorization / reimbursement) drugs or healthcare services if they do not add value, if they are not effective. These studies are not a sufficient basis for price setting. It is not admissible to set prices at the maximum a patient or country is willing to pay (and can pay) (value), while at the same time limiting competition through patents. Both mechanisms should not be used at the same time. As noted, patents are used to recoup R&D costs, not to increase prices to the maximum someone is willing to pay (value).
- Guarantee the independence of the auditing agencies. Exclusively public financing of agencies. Prohibit industry financing.
- Guarantee the independence of professionals. Train with public financing. Gradually limit / prohibit industry-financed training, as well as the financing of publications, congresses, etc.
- Guarantee the independence of patient associations, ensuring public financing. Gradually limit / prohibit industry financing.
- Demand and regulate cost and price transparency, as well as the relations of the agents involved in drug and industry decisions.
This strategy may have a short-term impact; it would increase political consistency between industry benefits and public health objectives, it would have an impact on access to drugs and the sustainability of healthcare systems (human right to health and improvement of public health). It is possible to implement it with firm support from international institutions (Office of the General Secretary, WHO, EU, etc.). From a financial standpoint it would yield significant savings. It would require a small initial investment, to create a high-level task force that would promote the strategy among national and international institutions (discourse, information, etc.).
2. PROMOTING THE APPROVAL OF MANDATORY LICENSES WHERE APPLICABLE. Short- / medium-term effect.
If companies do not agree to adjust prices to costs, this might be construed as misuse of a patent, and a patent’s purpose is not to enrich a company, but rather to guarantee its stability to continue the research and development of new drugs. In this case, a mandatory license should be granted for other companies to be able to immediately manufacture the drug at the generic price.
Domestic law and international patent agreements contain sufficient elements as to address the problem that has been raised, through exceptions and restrictions on the rights conferred by patents. The concession of mandatory licenses has been used in some cases, in various countries and with a positive impact on access to drugs.
If there are no private companies that wish to manufacture generics at cost price, or if a company gains monopoly power over an unpatented drug, increasing prices in exaggerated fashion (as in the case of Daraprim), governments should organize production through a public company, to address this risk to public health. Another viable option would be to authorize imports. In this regard, it would be very convenient to coordinate between countries and healthcare system financing sources.
This strategy would correct the disequilibrium between industry benefits and the rights of patients and society, it would have an impact by improving access to drugs and the sustainability of health systems (human right to health and improvement in public health). Implementation and necessary resources similar to Strategy 1.
3- DE-LINKING RESEARCH FINANCING FROM PRICES. Long-term effect.
This strategy can yield fruit in the medium / long term. It has been proposed for some years (WHO), and is advancing very slowly, with some partial experiences.
It must be noted that 50% of research financing is already public, through scholarships, public research institutes, subsidies, awards, etc. Further, 75% of innovative molecules in the US originate from public financing (Mazzucato M. 2011, 2015). The other 50% of financing is contributed by industry, with the “extra” money paid by patients or healthcare systems, through the overcharging that governments allow to monopolies. If overcharging were not permitted, that money (15-17% of the sale price) could be channeled into research and development directly. As noted, this would prevent other inefficiencies (spending on marketing, over-prescription, excess returns, etc., yielding savings of some 30% on current spending).
It would require a global (or regional) open platform (or platforms) for public research, with public financing and control, priorities set in relation to health needs, coordination of teams, open research, and drugs sold at generic prices. Variations of this idea have been proposed by the WHO, MSF and other organizations. Several partial experiences have been developed for the development of drugs by non-profit organizations, demonstrating the viability of this formula (Kiddell-Monroe R et al 2016).
In this regard, the Office of the General Secretary can promote the processing of an International Agreement on Drug Research and Development. R&D would be gradually de-linked from drug prices (avoiding the concession of patents).
This could begin with a public research platform to research and develop antibiotics, as has been suggested in some proposals to the WHO and the OECD [Organization for Economic Cooperation and Development). This public financing platform would assume control and direction from the governments, with subsidiary participation by companies. Any drug developed from that initiative would be considered a public good, with a social patent and a generic drug price from the very start.
This strategy would correct the disequilibrium between the pharmaceutical industry and the rights of patients and society, have an impact on drug accessibility, orient research toward public health priorities, promote research, and increase the efficiency of funding allocated to research. It is politically complex, and so far has not advanced significantly. An attempt has been made by the WHO, but it is advancing slowly, due to strong resistance from industry (and some governments). Backing by the Office of the General Secretary could be key. Financially, it would yield significant savings. It could require an initial investment to develop the platform or platforms.
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