Differential pricing of pharmaceuticals:

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Differential pricing of pharmaceuticals What
about the rest of the world? Danielle Lang,
Suzanne Hill
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Access to medicines

• Recent literature focuses on
• Least developed countries
• Countries with HIV/AIDS and
• Impact of TRIPS on developing countries.
• Methods proposed to improve access
• Drug donations and
• Differential pricing.

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Aims and objectives

• Systematic review of the literature on the
  differential pricing of medicines
• What is meant by differential pricing
• Extent of use of differential pricing
• Limitations to its implementation
• Different mechanisms to achieve differential
  pricing and
• How wider adoption might be achieved.

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Methods

• Search of the published literature
• Medline, Embase, Cochrane, EconLit
• Differential/tiered/equity/preferential/
  discriminatory pricing or prices of
  pharmaceuticals/medicines/drugs.
• Manual searching of references in retrieved
  papers.
• Search of key organisations websites (eg WHO,
  MSF, Oxfam).

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Results

• Published literature search (N169)
• 152 excluded
• 17 included
• Manual searching of references
• 21 additional papers included
• Grey literature search
• 43 additional papers included
• Total number of papers included 81
• Empirical studies 2

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Key lessons

• General support for differential pricing
• WHO, WTO, MSF, Oxfam, UK, EU
• Differential pricing can be good for everyone
• Cheaper drugs and improved access for low-income
  countries
• Increased market share for companies
• No price increases for high-income countries and
• Consistent with international trade agreements.

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Key lessons

• Differential pricing is consistent with economic
  theory.
• Drugs have low marginal costs and high fixed
  costs
• Market segmentation and price discrimination open
  up large (previously ignored) markets and
• Low profit margins in developing countries
  outweighed by high sales.

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Example

• Vaccines and contraceptives
• Prices 1-5 of developed country prices have been
  negotiated
• Millions have gained access
• Pharmaceutical companies have increased their
  sales and
• Re-importation to wealthier markets has been
  prevented.

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Implications

• To improve access to medicines, differential
  pricing needs to be the operational norm
• Inclusive of all countries and
• Inclusive of all medicines.
• We would expect that middle-income countries
  would generally pay more than the low-income
  countries, but less than the rich countries.
  CMH, 2001

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Future research

• How to achieve differential pricing as the
  operational norm.
• Possible alternatives
• Voluntary discounts by companies
• Negotiation between governments and companies
• Increasing generic competition (voluntary or
  compulsory licensing)
• Global/regional bulk purchasing or
• Global differential pricing system.

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Future research

• How to set fair, affordable differential prices.
• Agreement on the principles of differential
  pricing is easy agreement on pricing mechanism
  is much harder.
• Possible alternatives
• Marginal cost of production (plus profit?)
• Target price as of high-income prices
• Ramsey pricing (pricing proportional to the
  inverse of the elasticity of demand) and
• Cost-effectiveness analysis.

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Value-for-money ACE-I prices

• Lopert R, et al. Lancet 2002 3592105-2107.

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Future research

• Impact of differential pricing
• Drug prices
• Access to medicines and
• Financial implications for
• Manufacturers
• Low-income countries
• Middle-income countries and
• High-income countries.