A Proposal for New Pricing Approaches to Enhance Access to Medicines

Abstract

Access to essential medicines and vaccines remains an uphill battle for approximately eighty percent of the two billion people living in low- and middle-income countries today. Despite significant efforts to shoulder the burden by the international community, the challenges of funding medicines continue to expand in light of growing disease burden and ever-increasing prices for both infectious diseases and non-communicable diseases across countries. ‘Tiered pricing’ or the option of offering drugs and vaccines at lower (and more affordable) prices in low- and middle-income countries when compared to high income countries has been proposed as a potential solution to this problem. Given the recurring and extreme relevance of this topic, this article sets out by providing a theoretical and empirical account on inter-country tiered pricing strategies by tracing the developments in HIV/AIDS, Hepatitis C and Cancer categories as the main points of reference. Section II reviews the welfare effects of inter-country tiered pricing to show how it is based on third-degree price discrimination; a pricing method that remains the most disputed form of differentiation in economic theory. It highlights the reasons – both market-related, and institution- related – that account for the difficulties in aligning incentives between firms and governments to promote access to medicines by way of this approach. The section then presents thorough empirical evidence on tiered pricing in the three chosen therapeutic categories to highlight how inter-country tiered pricing approaches, as currently practiced, can perpetuate socially unequal outcomes, both for competition and access, and narrows down the factors that broadly account for this. Can these incentives potentially be altered by designing legal and institutional frameworks that promote new ways to engage in tiered pricing in a more accountable manner? The rest of the paper addresses this question at length and argues that there are ways to eliminate many of the undesirable outcomes that we witness in inter-country tiered pricing strategies today. One way would be to offer different price categories within a given country, namely, through an intra-country pricing strategy (as opposed to the current practice of tier-pricing between countries) within an accountable regulatory framework that oversees and coordinates pricing practices. The final part of the paper outlines the preliminary contours of such a framework (both national and international) to implement intra-country tiered pricing strategies that aligns greater access and dynamic competition in a systematic manner. A number of findings derived by the paper – such as the relationship between tiered pricing and competition, and the need for a new global policy framework to oversee pricing - are highly relevant for global governance of the pharmaceutical sector to enhance access to medicines to one and all.