Abstract
BackgroundTiered pricing - the concept of selling drugs and vaccines in developing countries at prices systematically lower than in industrialized countries - has received widespread support from industry, policymakers, civil society, and academics as a way to improve access to medicines for the poor. We carried out case studies based on a review of international drug price developments for antiretrovirals, artemisinin combination therapies, drug-resistant tuberculosis medicines, liposomal amphotericin B (for visceral leishmaniasis), and pneumococcal vaccines.DiscussionWe found several critical shortcomings to tiered pricing: it is inferior to competition for achieving the lowest sustainable prices; it often involves arbitrary divisions between markets and/or countries, which can lead to very high prices for middle-income markets; and it leaves a disproportionate amount of decision-making power in the hands of sellers vis-à-vis consumers. In many developing countries, resources are often stretched so tight that affordability can only be approached by selling medicines at or near the cost of production. Policies that "de-link" the financing of R&D from the price of medicines merit further attention, since they can reward innovation while exploiting robust competition in production to generate the lowest sustainable prices. However, in special cases - such as when market volumes are very small or multi-source production capacity is lacking - tiered pricing may offer the only practical option to meet short-term needs for access to a product. In such cases, steps should be taken to ensure affordability and availability in the longer-term.SummaryTo ensure access to medicines for populations in need, alternate strategies should be explored that harness the power of competition, avoid arbitrary market segmentation, and/or recognize government responsibilities. Competition should generally be the default option for achieving affordability, as it has proven superior to tiered pricing for reliably achieving the lowest sustainable prices.
Highlights
Summary: To ensure access to medicines for populations in need, alternate strategies should be explored that harness the power of competition, avoid arbitrary market segmentation, and/or recognize government responsibilities
Examining specific drug-pricing case studies, we offer here a critique of tiered pricing, organized around three key questions: (1) How can medicines be made affordable in Lowand Middle-income countries (LMIC)? (2) Who should pay for research and development (R&D) and how much? (3) Who decides pricing and how?
Evidence from Drug Pricing Case Studies We reviewed experiences with tiered pricing over the past decade across a diverse set of products, including antiretrovirals for HIV/AIDS, artemisinin-combination therapy for malaria, treatments for drug-resistant tuberculosis, drugs for visceral leishmaniasis, and the pneumococcal vaccine; we found that each case offered distinct insights regarding the relative utility of tiered pricing, as detailed
Summary
Key Concepts Tiered pricing versus equity pricing Various terms are often used synonymously with, or are related to, tiered pricing [8], including “differential pricing, “ “market segmentation, “ “price discrimination, “ and less frequently “Ramsey pricing [2,10].” We use the term “tiered pricing” to refer to the practice of systematically setting higher prices in higher-income markets and lower prices in lower-income markets, such that there is some positive correlation between price and income. A tiered pricing model that only offers affordable prices to the public sector could exclude a substantial proportion of the poor population in some countries Another proposed method to achieve internal market segmentation is to charge higher prices in the insured market, while offering lower prices for all other sectors, including public, private, and non-profit In special cases such as when market volumes are very small or highly uncertain (eg, drugresistant TB) and/or multisource production capacity is lacking (eg, newer products like the pneumococcal vaccine), tiered pricing may offer the only practical shortterm option to increase access to a product In such cases, tiered pricing should be implemented in the short term, while simultaneous steps are taken to improve affordability and availability over the longer term.
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