WHO Advisory Group Report On Fair Pricing Forum Released

The report from a meeting of a World Health Organization informal advisory group on challenges of medicines pricing and organising a Fair Pricing Forum this spring has been made public. The report shows the analysis and assertions of the diverse group, as well as questions and plans to take forward.

The informal advisory group met in a closed-door session at WHO from 22-24 November. A Fair Pricing Forum, co-organised by the WHO and the Netherlands government has been planned for 10-11 May (second day is the main day) in Amsterdam (IPW, Public Health, 1 March 2017). The WHO has published a Q&A page on the May forum. It notes among other things that the forum initiative :does not replace WHO’s ongoing work on intellectual property and TRIPS flexibilities.”

The advisory group report [pdf] focuses on the problems with medicines pricing, including high prices and shortages. [Update: the report is now available on the WHO website here.]

“[N]ational health budgets are buckling under the strain of paying for new treatments,” the report states, referencing US$ 50,000 for a course of hepatitis C treatment sofosbuvir. Breakthrough therapies are so expensive “they have created serious budget problems, even in the wealthiest countries in the world, leading to situations where access is restricted on account of cost.”

“The time is ripe,” it says, “to rethink how medicines are priced and what tools governments have to make sure that essential medicines are affordable to patients and the health system.” At the same time, it adds, shortages of “in-principle” cheap generic essential medicines are increasing, but it raises concern about “unsustainably low prices [which] can drive high-quality manufacturers out of the market in the long run, jeopardizing the continuity of supply.”

The report includes the list of participants in the advisory group meeting, about 20 people from governments, international organisations, research institutes, and academia. The group discussed studies and data and came up with suggestions.

With an eye on a “fair pricing model,” the report stated the objectives of the 2017 Fair Pricing Forum as:

• To start a process with all relevant stakeholders (including patients and third party payers) to exchange experience with the current price setting and pricing systems and discuss options that could lead to a fairer price setting and pricing system that is sustainable for health systems and for innovation;

• To have a preliminary discussion about the wanted but also unwanted consequences of the current business model including ideas about possible alternative business models;

• To identify the price related factors that contribute to shortages of essential medicines

• To identify suitable measures and approaches for countries to remedy shortages of essential medicines that may be due to low profit margins;

• To provide a platform for these discussions and provide relevant background research;

• To expand current networks of payers to include other relevant players and countries to facilitate better exchange of experience;

• To identify for action with the current innovation and pricing system, including the need for transparency of prices paid, research and development (R&D) costs, production costs, and profit margins.

The report discusses what is a fair price and how can it be achieved. “The ultimate aim,” it said, “should be a price that assures new medicines are affordable to all patients and health systems, allows for a reasonable profit margin (also allowing for investment in innovation), and assures a stable supply of generic medicines.”

It uses economic surplus as a way to approach the issue, splitting it between consumer surplus (e.g., when product is priced lower than they would be willing to pay), and producer surplus (price is higher than producer would be willing to make and sell a medicine for). The group took the view that more work is needed to understand fair price, it says.

Generics, Shortages, Low Prices

The report noted that shortages can occur for some essential medicines, and that prices vary “enormously” between countries for some products. “Price disparities and medicine shortages raise questions about the health of the generic market,” the report states.

It discussed costs of producing generic medicines, where the major cost is manufacturing, primarily synthesizing the active pharmaceutical ingredient (the API), as well as registration and distribution. The group discussed preliminary results of a study on generic manufacturing costs on the WHO Essential Medicines List, most of which are not under patent. The study focused on Indian exports of the API, and factored in the need for safety and quality standards.

These results were compared with publicly available databases of medicine prices from India, South Africa and the United Kingdom. This showed that governments often pay many times more than the cost of production for generics, and one suggestion was that price transparency might reduce high generic prices. This might also drive down prices for some patented medications, it said.

The group analysed data on shortages, low price and low profit margin. When there are few competitors, small disruptions can lead to shortages. The advisory group offered suggestions on further research on the effects of low price on availability.

R&D Costs

The report acknowledges that a major cost for new medicines is the research and development, and that “for patented medicines, … medicine prices must be sufficient to cover R&D investment, including costs of R&D into medicines that fail to secure final approval.”

Yet, it says, “there is a notable lack of robust data and transparency on R&D costs.”

The report says that in the absence of better information from the pharmaceutical industry, which keeps R&D costs mostly secret, WHO’s most recent figures based on an in-house study, “may offer a starting point.”

The group looked sceptically upon the argument that rising prices reflect greater investments in R&D, instead leaning toward the practice of charging whatever the market will bear and maximizing revenue.

It points out that R&D investments are not only made by industry, but also governments, academic institutions and non-profit organisations.

Other Issues

There are many other issues addressed in further depth in the 21-page report, including price transparency, country experiences, value-based pricing (price set to therapeutic value not market), and orphan drugs, for rare diseases, for which manufacturers “can command exceptionally high prices.”

It also addresses voluntary and compulsory licensing, viewing voluntary having many benefits but with no guarantee that the medicine the licence covers will go to market.

It talks about how countries are allowed to issue compulsory licences, and may do it because of unaffordable medicines. It states that to date, compulsory licences (for medicines) have been used only by a small number of countries, a point which is sometimes disputed. The group discussed reasons why such licences have not been used more often, including pressure from other governments.

In conclusion, the report said, “The Advisory Group’s discussions confirmed that the prices of essential medicines have appropriately become a matter of global concern.” But “fairness” is still a subjective term and needs further defining.

And on the May forum, it recommended all relevant stakeholders be included, but by invitation only.

 

Image Credits: WHO