1 Generating reliable evidence: measuring medicine prices and availability Dr Richard Laing Department of Essential Medicines and Pharmaceutical Policy World Health Organization

2 improve the availability and affordability essential medicines Outcome of the WHO/public interest NGOs Roundtable on Pharmaceuticals Develop a reliable methodology for collecting and analysing price and availability data across healthcare sectors and regions in a country Price transparency; survey data on a freely accessible website allowing international comparisons Provide guidance on pricing policy options and monitoring their impact WHO/HAI Project on Medicine Prices & Availability

3 Survey tool to measure: medicine prices medicine availability affordability of treatments components in the supply chain Launched at the World Health Assembly 2003 Survey data publicly available on HAI web site Over 50 surveys conducted to date Second edition includes: adjustments to methodology practical advice based on prior surveys and additional tools and resources new guidance on international comparisons, policy options, advocacy and regular monitoring WHO/HAI standard methodology

4 How are data collected?  Data on the price and availability of medicines are obtained by data collectors during visits to "medicine outlets"  Medicine outlets are places where medicines are dispensed to patients (e.g. pharmacies, health centres)  Data on government procurement prices are also collected  During medicine outlet visits, data are recorded on hard copy Medicine Prices Data Collection forms  Medicine price components are also identified by tracking medicines through the supply chain and identifying add-on costs  At the end of fieldwork, all completed forms are entered into the electronic survey Workbook by data entry personnel  Data are entered twice and checked for errors  The Workbook automatically generates analyses of the survey data

5 What medicines are surveyed? 50 medicines –30 pre-determined by WHO/HAI to enable international comparisons (14 global medicines and 16 regional medicines) –20 selected nationally for local importance Predetermined dose forms & strengths, & recommended pack sizes For each medicine, two products are surveyed: 1.Originator brand – (OB) 2.Lowest-priced generic – (LPG)

6 How are data analyzed?  Availability: % of outlets where medicine was found on the day of data collection  Price: median local prices expressed as ratios to international reference prices Medicine Price Ratio (MPR) = median local unit price International reference unit price  Price comparisons: innovator brand and lowest priced generics; public, private and other (e.g. mission) sectors; districts/states/provinces, countries  Affordability: how many days wages would the lowest paid government worker need to spend to pay for treatment?

7 Price Components The add-on costs that are applied to medicines as they move through the supply chain, from manufacturer to patient Examples: insurance & freight costs, port & inspection charges, handling charges, import duties, import, wholesale & retail mark-ups, VAT/GST, dispensing fees The amount of charge is often variable depending on whether the medicine is: -Imported or locally manufactured -Innovator brand or generic -Sold in the public or private sector Crucial to understanding why prices are high and what policy options can be considered An integral part of the Medicine Prices survey

8 Median % availability by World Bank income group

9 Government procurement prices for lowest priced generics India (n=7) low income countries (n=16) lower middle income countries (n=12) upper middle income countries (n=3) max min mean MPR = 1

10 Public sector patient prices In many countries medicines are free but availability is often very poor Where patients pay, even cheapest generics can be expensive e.g. in the Western Pacific Region the median price was about 12x international reference prices Good procurement prices are not always passed on to patients In some countries, public sector prices are similar to private sector prices, e.g. China, Shanghai

11 Patient prices vs. procurement price (LPG) – public sector

12 Patient prices in the private sector: median of Median Price Ratios, by WHO region n=9 n=2 n=1 n=11 n=5 n=9 n=8 n=5 n=6

13 in 9 of the 10 countries, it would take 5 or more days salary to pay for the medicines every month Ethiopia: 9 days Kenya: 7 days Tanzania: 5 days Uganda: 7 days Nigeria: 13 days Ghana: 17 days Zimbabwe: 9 days South Africa: 1 day Affordability of medicines - for lowest priced generic Cameroon: 40 days Senegal: 7 days * an asthmatic child with a respiratory infection, an adult with diabetes and hypertension and another adult with a peptic ulcer

14 Price components Largest contribution to the final patient price varies across countries, sectors and medicines (imported or locally produced, originator brand or generic) Price components - cumulative effect from manufacturer’s selling price Large mark-up on a low priced generic can result in a lower final patient price than a small mark-up on a high priced product

15 Price components – private sector Multiple taxes are applied: Peru: VAT 12% IGV 19% Municipal promotion tax 2% (eliminate taxes - cumulative mark-up is reduced 238% → 149%) Indonesia: VAT 10% - charged twice Philippines: Import tariff 4% national taxes 3-6% VAT 12% Yemen Customs duty 5%, Taxes 5% Wholesaler mark-ups: 2% (Pakistan) - 380% (El Salvador) Pharmacy mark-ups: 10% – 552 % (El Salvador) In some cases the manufacturer's selling price (MSP) is the largest contributor to the final price E.G. Pakistan - MSP for locally-produced generic amoxicillin represented 78% of the final medicine price in the private sector

16 Cumulative percentage mark-ups between manufacturer's selling price and final patient price, private sector CountryTotal cumulative % mark-up China (Shandong)11-33% El Salvador % Ethiopia76-148% India29-694% Malaysia65-149% Mali87-118% Mongolia68-98% Morocco53-93% Uganda % Tanzania56% Pakistan28-35%

17 Policy options to improve access to affordable essential medicines Margaret Ewen Health Action International Global Office, Amsterdam

18 Examples of policy changes following medicine price and availability surveys Tajikistan Abolished 20% VAT on medicines in supply chain add-on costs should decrease from 122% to 85% for imported medicines Lebanon procurement price of 1100 imported medicines reduced by 20-30% regressive margins for importers, wholesalers, retailers: estimated price reductions of 3-15% Currently reviewing all prices: >1000 medicines reduced by ave. 14% Retail prices and pharmacy margins published on a public website; prices published in Lebanon National Drug Index Indonesia Reduced public sector prices of 458 products by 5-70% and required procurement prices to be standardized for all public purchasing in the country

19 Examples of work in progress Kuwait Govt. announced that Kuwaiti-only list of 70 medicines would be free to non- nationals in the public sector Indonesia Ministry of Health advocated for abolishing of VAT Pharmaceutical industry association announced in mid-2006 it would reduce the price of 100 branded generic medicines (34 active substances) to max 3 times the price of true generics – has not happened for all products Jordan Ministry of Health advocated for abolishing 4% sales tax Amending the pricing criteria, permit generic substitution, include an outpatient pharmaceutical benefit in new insurance scheme Tanzania New 10% tax on most imported medicines

20 High prices, low availability and poor affordability can have many causes Low public sector availability: –lack of resources or under-budgeting –inaccurate forecasting –inefficient procurement / distribution –low demand/slow-moving products High public sector prices: -govts applying excessive mark-ups on procurement price eg Chad 300%, Khartoum 600% -inefficient procurement so facilities buying from private wholesalers High private sector prices: –high manufacturer’s selling price –high import costs –Taxes and tariffs eg Peru VAT 12%, IGV 19%, municipal promotion tax 2%; Sudan 1% Ministry of Defence duty, 1% pharmacy career fee & other govt charges totalling 20% –high mark-ups eg importer 10-61%, wholesaler 2-65%, pharmacy 8-300%

21 Multiple policy options exist Improve procurement efficiency e.g. national pooled purchasing, procurement by generic name Ensure adequate, equitable, and sustainable financing, e.g. –Health insurance systems that cover essential medicines –Schemes to make expensive chronic disease medicines available in the private sector at public sector prices Prioritize drug budget i.e. target widespread access to a reduced number of essential generic medicines, rather than attempting to supply a larger number of both originator brand and generic medicines. Promote generic use: –preferential registration procedures, e.g. fast-tracking, lower fees –ensure the quality of generic products –Permit and encourgae generic substitution; provide incentives for the dispensing of low priced generics –educate doctors/consumers on availability and acceptability of generics

22 I DON’T TAKE CHANCES I ONLY USE ORIGINALS

23 Separate prescribing and dispensing Control import, wholesale and/or retail mark-ups through regressive mark-up schemes; for pharmacy consider dispensing fee Tax exemptions for medicines; pass on govt. procurement prices to patients Where there is little competition, consider regulating prices Patented medicines –use the flexibilities of trade agreements to introduce generics while a patent is in force –differential pricing schemes whereby prices are adapted to the purchasing power of governments and households in poorer countries. Policy options (cont'd)

24 Must watch for unintended negative effects Price controls may lead to excessive prices when the price is not adjusted to consider changes in the market Printing maximum retail price on the packet can result in all prices at maximum level Regulating mark-ups with percentages can provide incentive to sell higher-priced products Eliminating taxes can provide an opportunity for retailers to increase their margin (i.e. savings not passed on to patient) Don’t want to discourage production/stocking of a product

25 Our current challenge: what are the most effective policy actions in different contexts? WHO/HAI and international pricing policy experts are developing guidelines on options for policies affecting medicine prices and their impact in various settings: - mapping current policies & interventions - commissioning policy review papers - drafting policy briefs - identifying research needs

26 Interested? HAI website: Contact: Marg Ewen, HAI Global Database of survey results Survey reports Analyses Bulletins and more