Among the US Trans Pacific Partnership (TPP) proposals leaked today was a proposed chapter on “Transparency and Procedural Fairness for Healthcare Technologies,” more widely known as the Pharmaceutical Pricing Chapter. All countries negotiating the Trans Pacific Partnership agreement should reject this proposal, the primary goal of which is to regulate pharmaceutical reimbursement programs. This is an extreme proposal that has no place in a trade negotiation, particularly one with some of the poorest countries in the world.

Although the provisions are styled as “transparency” provisions, in fact they regulate the substance of drug pricing programs. The heart of the proposal would require that countries establish new administrative and judicial appeal systems to contest whether public drug reimbursement rates “appropriately recognize the value” of pharmaceutical patents. Similar provisions have led to higher drug prices and more challenges by pharmaceutical companies in the one country to implement similar provisions – Australia.[1]

At the core of this proposal is a false distinction between government reimbursement prices and “market” prices. Government reimbursement prices ARE market prices. Suppliers can refuse to supply to governments, just as they can with any private purchaser demanding a better deal. The fact that governments obtain better prices than atomized consumers does not make their roles as purchasers anti-market. Drug price restraint is a natural, inevitable and beneficial result of public health expenditure or any other form of pooled purchasing. Large purchasers in free markets obtain better prices; governments obtain better prices when they pool consumers and negotiate as a volume purchaser.

Raising drug prices is, of course, the goal of pharmaceutical companies pushing for these provisions. This point was explained by President Bush’s Ambassador to Poland in a recently released cable. He explained:

While pharmaceuticals companies often assert that they would be happy with a transparent process, even if it led to decisions not to fund their drugs, in practice they seem to resent all government measures aimed at cost containment, as these also inevitably limit drug companies’ sales.[2]

This proposal is contrary to the demands of democracy, is bad for the development interests of poorer countries, and represents an affront to best practices in evidence-based health policy, including such practices in the US.

    Pharmaceutical price regulation is an inappropriate subject for closed door trade negotiations. The proposed pharmaceutical chapter regulates public health policy, not trade. This is perhaps most notable in the fact that the provisions apply to policies regardless of any trade distorting or discriminatory effect of the given policy. Using secretive trade negotiation processes to set minimum requirements for domestic health policy like this is democratically illegitimate. Enactment of reimbursement policies to advance public health outcomes lies in the core of domestic sovereignty. These policies do not affect a limited range of companies, justifying closed door processes where only those companies are meaningfully consulted. Public health policies affect all citizens and a wide variety of stakeholders that deserve to be included in policy making processes. Indeed, access to decision making processes that impact public health programs is an internationally recognized human right.
    Pharmaceutical price regulation is an inappropriate subject for agreements with developing countries. This would be the first-ever international agreement regulating the efficacy of pharmaceutical price regulations in developing countries. The ability to regulate the prices of patented products directly is one of the most important TRIPS flexibilities. Without some kind of price control, patents on pharmaceuticals demonstratively and predictably lead to excessive pricing of medicines in developing countries with very high income inequality. This is because the most profitable behavior of an unregulated essential service monopolist in high inequality countries will be to price to the richest tier of the population. [3] All of the developing countries negotiating the TPP (Peru, Malaysia, Vietnam, and Chile) have been identified as having high medicine prices given their development level. [4] The case of Vietnam is particularly egregious – with local prices of patented medicines 46 times higher than international referents.[5]
    The U.S. proposal would require bad public policy contrary to best practices in the US itself. Ironically and ominously, US drug pricing programs do not comply with the standards that the US is proposing. In particular, the operation of preferred drug lists by the Federal Medicaid program would violate the terms of the agreement, including because they do not provide appeals for pharmaceutical companies on whether the prices achieved adequately value patents. Previous FTAs with Australia and Korea carefully exempted all U.S. programs from their coverage, including through a footnote defining the federal Medicaid program as a “regional,” rather than “central,” level government program. That footnote has been removed from the draft TPP proposal. This may indicate that the US has not decided whether to propose exempting Medicaid from the TPP requirements or to give in to demands of other countries for full reciprocity in the agreement.

 

SECTION BY SECTION ANALYSIS

X.1: Agreed Principles. The agreed principles are verbatim restatements from the KORUS agreement. As in KORUS, they understate the role and importance of promoting affordability through pharmaceutical reimbursement policies. The provisions mainly discuss the promotion of “access” and “availability” of pharmaceuticals. The concept of affordability is mentioned only once. USTR’s recent white paper on TPP and medicines also defines “access” without reference to affordability concerns. One of the key purposes of drug reimbursement programs must be to promote affordable access to pharmaceuticals, not mere availability of the products themselves. This concern applies throughout the proposal.

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