1 Medicine price and availability surveys – methodology essentials – policy options Richard Laing Department of Essential Medicines and Pharmaceutical Policies World Health Organization Geneva, October 2013

2 Presentation Outline: 1.Overview of WHO/HAI Project on Medicine Prices and Availability 2.WHO/HAI survey methodology for measuring medicine prices, availability and affordability 3.What have we learned about medicine prices and availability? Selected results from WHO/HAI surveys 4.Evidence to policy: what can be done? 5.Monitoring pricing policies

3 Overview of WHO/HAI Project on Medicine Prices and Availability

4 Wider problem of medicine prices Medicines have variable and often high prices Medicines are the largest health expense for poorer households and are a and a major burden on government budgets Some evidence that prices for some key medicines are unrelated to countries’ income level Burden falls directly on most patients in developing countries – but little was known about the prices people pay and how prices are set The prices of medicines are well above their production costs so there is great scope for reductions For medicines to be affordable, appropriate and well- informed price policies are needed - but many developing countries do not have price policies

5 Outcome of the WHO/public interest NGOs Roundtable on Pharmaceuticals Objectives To develop and apply a reliable methodology for collecting and analysing price and availability data across healthcare sectors and regions in a country To promote price transparency: survey data is made freely accessible on the HAI website, allowing international comparisons To provide guidance on pricing policy options and monitor their impact The WHO/Health Action International Project on Medicine Prices and Availability

6 Facility-based survey that measures: o medicine prices o medicine availability o affordability of treatments o components in the supply chain Launched at the World Health Assembly 2003 Survey data publicly available on HAI web site Second edition includes: o adjustments to methodology o practical advice based on prior surveys o additional tools and resources o new guidance on international comparisons, o policy options, advocacy and regular monitoring WHO/HAI standard methodology for measuring medicine prices and availability

7 7 Questions that can be answered by the survey: What prices do people pay for key medicines? Does the price & availability of the same medicines vary across different sectors or regions of the country? What is the difference in price and availability of originator brands and lowest price generic equivalents? How do government procurement prices compare with patient prices in the public sector? How do national prices compare with international reference prices? How affordable are treatments for low paid people? What does the manufacturer’s price, taxes, mark-ups and other charges contribute to the final patient price?

8 Over 70 medicine price and availability surveys to date using WHO/HAI methodology Survey tools, data, reports & more:

9 WHO/HAI survey methodology for measuring medicine prices, availability and affordability

10 What data are collected? The availability and price of selected medicines in different sectors: Public sector Private sector Other Sector: Other Sector: Price to the patient  Availability to patients  Affordability by patients  Procurement price  The add-on costs of medicines as they move through the supply chain, from manufacturer to patient

11 Where is data collected? Data is collected in 6 regions of the country ("survey areas") –Area 1 = capital city –5 other regions within 1 days’ travel of capital, randomly selected In each survey area, data is collected from a sample of medicine outlets in up to 4 sectors: –public sector (e.g. hospitals, health centres) –private sector (e.g. licensed pharmacies, licensed drug stores) –Up to 2 "other" sectors (e.g. mission hospitals) Plus, government procurement data (collected centrally)

12 Sampling frame

13 Which 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 –e.g. Lisinopril 10mg cap/tab 30-pack For each medicine, two products are surveyed: 1.Originator brand – original pharmaceutical product that was first authorized for marketing, normally as a patented product Always has a brand name Identified centrally before data collection, does not vary from outlet to outlet 2.Lowest-priced generic (LPG) – products other that the originator brand that contain the same active ingredient (substance), whether marketed under another brand name or the generic name generic with the lowest price found at each medicine outlet LPG product will therefore vary from outlet to outlet

14 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)  During medicine outlet visits, data are recorded on hard copy Medicine Prices Data Collection forms  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

15 How are data analyzed?  Availability: % of outlets where medicine was found on the day of data collection  Price: median local prices expressed as ratio to international reference prices Medicine Price Ratio (MPR) = median local unit price International reference unit price –e.g. MPR = 2 means that the local medicine price is 2 x the international reference price –MSH international reference prices used: recent procurement prices offered by not-for-profit suppliers to developing countries for multi-source generic equivalent products.  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?  Based on the median local price of a medicine prescribed at a standard dose

16 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

17 Price Components Identified by tracking 5-7 tracer medicines backwards through the supply chain, from the patient price to the manufacturer’s selling price/CIF price Method also involves interviews with pharmacists, wholesalers, importers, Ministry of Health, Ministry of Trade, Customs office, local manufacturers…. Price components are analysed by cumulative per cent mark-up and per cent contribution to the final price

18 What have we learned about medicine prices and availability? Selected results from WHO/HAI surveys Source A Cameron, M Ewen et al, The Lancet online 1 Dec2008A Cameron, M Ewen et al, The Lancet online 1 Dec2008

19 Median % availability by World Bank income group

20 Ratio of government procurement prices to MSH international reference prices, 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

21 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

22 Ratio of private sector patient prices to MSH international reference prices Originator brandsLowest priced generics Adjusted CPI & PPP

% 55.9% 337.7% 350.2% 265.3% 167.7% 26.0% 0.0% 147.1% 0.0% 157.4% 6.0% 0% 100% 200% 300% 400% India (n= 7) low income (n= 14) lower-middle income (n= 12) upper-middle income (n= 2) all countries (n = 35) max min mean % % Differences between originator brands & lowest priced generics, matched pairs, private sector

24 Affordability: no. of days wages, lowest paid govt. worker, to buy 7 day course ciprofloxacin 500mg tab twice daily, private sector

25 Affordability: 30 days supply metformin 500mg 3x/day (diabetes) & captopril 25mg 2x/day (hypertension), lowest priced generics, private sector

26 Price components Largest contribution to the final patient price varies across countries, sectors, medicines (imported/locally manufactured, originator brand/generic) Applied cumulatively so the higher the manufacturer’s selling price the higher the patient price –private sector: MSP contributes 25% in Pakistan up to >6000% in El Salvador Large mark-up on a low priced medicine can result in a lower patient price than a smaller mark-up on a more expensive medicine Taxes and other government charges are often applied on medicines e.g. Tajikistan - VAT 20%, customs duty 5%, tax 1-5% Sudan - total govt charges 20% including customs duty 10%, Ministry of Defence tax 1%, Pharmacy career fee 1% & other charges Peru – VAT 12%, IGV 19%, municipal promotion tax 2%

27 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%

28 A low ex-factory price does not necessarily mean a low patient price: high retail mark-ups

29 Evidence to policy: what can be done?

30 One survey finding – many causes Low public sector availability: –lack of resources or under-budgeting –inefficient procurement / distribution –low demand/slow-moving products High private sector prices: –high manufacturer’s selling price –high import costs –taxes and tariffs –high mark-ups

31 Policy options There are many possible causes for high prices, low availability, low affordability, etc. There are likely to be many policy options according to differing circumstances Need to select the combination of options appropriate to a particular situation

32 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 –e.g. schemes to make chronic disease medicines available in the private sector at public sector prices Prioritized 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 use of generic medicines –preferential registration procedures, e.g. fast-tracking, lower fees –ensure the quality of generic products –permit generic substitution and provide incentives for the dispensing of generics –educate doctors/consumers on availability and acceptability of generics Policy options

33 I DON’T TAKE CHANCES I ONLY USE ORIGINALS

34 Separate prescribing and dispensing Control import, wholesale and/or retail mark-ups through regressive mark-up schemes Provide tax exemptions for medicines 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

35 Must monitor for unintended negative effects Price controls may lead to excessive prices when the price is not adjusted to consider changes in the market Setting prices too low can discourage production / stocking of a product Regulating mark-ups 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)

36 Outcomes after price surveys Lebanon After MoH survey in 2004, they compared prices of 1,000 products with Jordan and Saudi Arabia Policy of fixed mark-ups irrespective of FOB price (cumulative 71.4%) changed to variable depending on FOB price Estimated retail price reductions 3-15%

37 Kuwait (survey 2004) June 2005 it was reported that the government would review the 'Kuwaiti-only list' medicines (about 70 medicines) provided free in the public sector to make them available to non-Kuwaiti citizens United Arab Emirates (“Price list” survey, 2005) Government decided to reduce prices by an average of 7–8% through modification of its procurement practices following price comparisons with other countries. Indonesia (MoH survey 2004) June 2006 reported that the government would abolish VAT and import duty on essential medicines The pharmaceutical industry association announced that from 1 July 2006 it would reduce the price of 100 branded generic medicines, containing 34 active substances. Malaysia (survey, 2005) June 2006 it was reported that the government would cap the price of more than 1000 essential medicines Outcomes (cont’d)

38 East African Community: 10% cut on import duties on medicines. Mali: Adoption of new regulations for enforcement of a fixed mark-up for approximately 100 essential medicines in the private sector. A pricing monitoring system has been set up by the Ministry of Health for private pharmacies. Nigeria: Director of Pharmaceutical services in Lagos State, has mandated responsible officers for drug procurement to ensure reduction in medicines prices – a medicine prices policy is being developed. Outcomes (cont’d)

39 WHO/HAI Pricing Policy Papers To assist policy-makers and others, WHO and HAI are developing a series of reviews on pharmaceutical pricing policies and interventions, with a focus on low- and middle-income countries. Five reviews have now been published on: External Reference Pricing The Role of Health Insurance in the Cost-Effective Use of Medicines The Regulation of Mark-ups in the Pharmaceutical Supply Chain Competition Policy Sales Taxes on Medicines

40 Monitoring pricing policies

Pricing and availability of medicines may be influenced by a number of factors –E.g. Pricing policies, health policies/decisions, supply issues, financing, exchange rates Pricing policies may have unexpected (negative) effects or no effect Monitoring of medicine prices and availability can help to detect the effect of these factors and adapt policies and interventions to address them 41

42 Kenya: increased financing and differential pricing have increased the availability of Artemether/lumefantrine 20/120 mg

43 CountryPricing interventionOutcome China Regulated distribution mark-ups enforced Created incentive to use higher cost medicines HondurasMark-up regulation introduced Led to higher prices as suppliers over-invoiced to recover margin Jordan Removed price controls including mark-ups on 50 OTC medicines Prices increased and controls were re-imposed South Africa0% mark-up on hospital medicines introduced Drop in price index of 1000 medicines Based on table in ‘Working Paper 3: The regulation of mark-ups in the pharmaceutical supply chain’. Why monitor medicine prices and policies?

44 Conclusion Medicine pricing and availability survey –Establishes evidence –Can develop locally-directed policies Policy options –Various policy options exist –Develop combination appropriate to situation –Not just price Don’t forget availability, quality, use