DRUG NOMENCLATURE AND EQUIVALENCY OF MEDICINES

Each drug is composed of one or more principal active ingredients, which determines its specific therapeutic action, and some complementary components, which facilitate stability and absorption. Moreover, medicines may, as they are prepared by different methods or with ingredients of different quality, have differing degrees of effectiveness, safety and quality. It is therefore essential to guarantee quality, safety and effectiveness, for all medicines.

Medicines may be identified and sold by means of a commercial name (trademark, trade or brand name) or by the scientific name:

 

• The commercial name is a randomly chosen, unique name that the manufacturer of a drug registers to ensure its exclusive use. By obscuring the equivalency of the drug with others, the manufacturer is attempting to ensure that the physicians prescribe that drug faithfully and that users acquire and use it instead of equivalent medicines. The result of the use of brand names is the existence of many medicines that contain the same principal active ingredient, that may have the same bioavailability¹¹ but appear to be different, in order to avoid competition.

• The scientific name (generic name or International Nonproprietary Name-INN) is used to identify medicines that have the same active ingredient (or the same active ingredients, in the case of combinations). Its generalized use allows doctors to prescribe without a commitment to a commercial firm, and for the user to choose the drug he finds most appropriate from among therapeutically equivalent pharmaceutical products.¹²

 

^11.Bioavailability is the measure of the amount of the principal active ingredient contained in a pharmaceutical form and of the velocity with which it is absorbed by the organism.

 

 

^12.Pharmaceutical equivalence exists between two medicines when they contain the same amounts of the same principal active ingredients, but not necessarily the same excipients, so that they could show different bioavailability, which means that in order to have the same effect they would need different dosages. Therapeutic equivalence exists when the products supply the same clinical effects at the same dosages.

The difference between a health system that allows the prescribing and sale of medicines by their commercial name and one that does so by their scientific name is important. When a society uses the commercial name each drug appears to be a unique product that must be acquired by the user at any price in order to have access to its curative powers. When medicines are prescribed and sold by their scientific name, competition becomes transparent and the user may choose between products that are equivalent. When there is a guarantee of basic quality standards in terms of safety and efficacy (an aspect analyzed below) and of bioequivalency (when that is necessary), a rational consumer will then choose the lower-priced product.

In addition to avoiding competition, the proliferation of different brand names for the same drug and the similarity of brand names for different medicines imply health risks due to confusion that originates between doctors and users.

In the case of drug nomenclature, the interests of the brand name producers (who propose) and those of users and society in general (all of whom benefit from scientific name) are in conflict. In the majority of developed countries, the generic name has been imposed to designate medicines that are not freely sold and even for those that are. In several Latin American countries, on the other hand, commercial identification predominates, which means a greater obstacle to defending citizens' rights.¹³

 

^13. Some countries utilize both denominations, but in such a manner that the commercial denomination has a higher visual hierarchy.

National policies to use scientific name are vital step towards achieving a more transparent and efficient pharmaceutical market. Experience shows that the policies must include three priority measures:

 

• Guarantee that the scientific (generic) name is present on the package of each drug, with a prominence equal to or greater than that of the commercial (brand) name.

• Create conditions for doctors to prescribe exclusively by the scientific name.

• Guarantee the quality (safety and efficacy) of all medicines and the bioequivalency for all the products that require it, so that medicines with the same scientific name are genuinely interchangeable with each other.

TYPES OF DRUGS IN RELATION TO FREEDOM OF ACCESS

Drugs are divided into two main groups of legally and economically different products:

 

• Over-the-counter (OTC) Drugs, which can be acquired as a result of the autonomous decision of the purchaser, without requiring any authorization.

• Prescription-only drugs, which may only be acquired and sold on the basis of a written prescription by a doctor authorized for the purpose.

However, in reality in many Latin American countries, there is full freedom of access to many or all obligatory prescription-only medicines.

In Latin American countries, prescription-only medicines make up 70% of the total supply, while OTC drugs comprise only 30%. In other regions of the world OTC medicines have a relatively smaller market share (18% of the world market, 12% in the U.S.A. and Canada, 19% in Europe - IMS Health Report).

DEMAND

The demand for medicines is essentially decided by doctors (prescriptions in consultation services and ambulatory care, hospitalization and rehabilitation) or by the users when they decide to acquire their own drug (self-medication).

Although it is up to the doctor or the user, demand also depends on: people's income; the prices of the medicines; the financing mechanisms; the supply structure; the regulations for access; the management and use of the medicines; and the epidemiological profile of the population.

a) Demand Generated by the Users

In various Latin American countries, the principal generators of demand for medicines are the users. This situation shows the lack of a comprehensive health insurance system that guarantees access to medicines and tolerance for over-the-counter sales of prescription-only drugs.

As regards the type of medicines (over-the-counter or prescription-only), the demand generated by users comes from self-medication or self-prescription.

Self-medication¹⁴ is the individual decision to consume an over-the-counter drug, the use of which does not require a doctor's intervention, for the treatment of an easily identifiable disease.

 

^14.Medication is the act of administering a medicine and self-medication is the act of applying it to oneself by autonomous decision.

Self-prescription¹⁵ is the individual decision to formulate a drug that ought to be prescribed by an authorized professional, generally a medical doctor or to accept the recommendation for a drug made by a person not qualified to prescribe. The demand for self-prescribed medicines shows a weakness in people's medicine-use culture, the poor quality of health services and weaknesses in the public control of the sales of written medical prescriptions. In self-prescription, the user decides on a technology to recover his health based on medicines that may not be necessary, or may be less cost-effective, which may adversely affect not only his health but also his income.

 

^15.Prescription is the act of identifying the medicine that ought to be received by a patient, including the dosages and the duration of treatment. Prescriptions are issued by authorized personnel (doctors, dentists,...) by means of a medical formula or written instruction from physicians in the case of ambulatory patients or by the hospital registration of medical orders in the case of hospitalized patients. Self-prescription replaces the doctor's formulation with whatever the patient or someone not authorized to prescribe decides.

Self-medication is promoted by companies that produce medicines with large advertising investments. Self-prescription, too, is encouraged by advertising and, above all, by inducements and prizes to the owners and employees of pharmacies, who are the most frequent advisors of the users.

A study carried out in six Latin American countries shows that two-thirds of the medicines acquired without a written medical prescription belong to the prescription-only category, i.e., that self-prescription doubles self-medication (Research Group in Medicine Management, 1992-93). Specific research carried out in Colombia confirms such tendencies. Of 100 pharmaceutical products requested in pharmacies, 28% complied with a medical prescription and 72% were chosen by the user, with self-prescription accounting for almost two-thirds of the latter category (Consucomer Marketrend Ltd., 2000).

Consumer research reveals that the purchase of medicines (self-medication as well as self-prescription) is a heavy burden on family expenses, and is proportionately greater on the poorest.

The data show that eliminating self-prescribing and promoting responsible, safe self-medication is a public health imperative. It is therefore necessary to increase efforts to create a mass culture of rational use of medicines, generalize the requirement for medical prescriptions in all prescription-only medicines, establish controls on incentives to self-prescribe designed by pharmaceutical companies and, above all, guarantee all sectors of the population access to health services, including the possibility of obtaining a prescription in a timely manner and adequate dispensing of the medicines required.

b) Demand Generated by Doctors

Doctors are important generators of demand for medicines particularly in countries with advanced health insurance systems which have broad coverage. As stated above, they decide on the appropriate technological combination for treatment, what medicines are to be used and the dosage (amount to be used and period of treatment). For this reason, a substantial part of manufacturers' advertising campaigns is oriented to influencing doctors' decisions through information, encouragement and incentives to prescribe a specific drug.

Marketing aims to instill a specific brand name in the doctor's mind through explanatory visits, free samples, supporting pamphlets and posters, promotional gifts and advertising in specialized publications and at professional events. Financing of scientific and recreational activities, buildings and equipment is customary. The practice of giving commissions for prescription volume by paying the doctor a certain percentage of the sales of a specific drug that he prescribes is also used, especially when the sale price is quite high. It is argued that the fall in doctors' salaries in some countries has been partially compensated for by an increase in their commissions on medical prescriptions.

The following public policies are essential to work towards optimal prescribing and to the control of the commercial practices discussed above to the benefit of users and the general public:

 

• The use of the scientific name (INN to decrease the relevance of commercial promotion).

• Promotion of the use of treatment and prescribing guidelines, prepared with criteria of a high scientific level, which define: i) the optimal combination, in terms of cost-effectiveness, of resources and consumables, including medicines, to treat a specific disease; and ii) the most adequate dosage and duration of treatment.¹⁶ Protocols mean that the management of the pathology and of the patient are no longer the unilateral decision of the doctor but have a social dimension as well, one of proven effectiveness and a dimension of cost-effectiveness.

• With the implementation of protocols, eliminate measures that limit the maximum number or cost of medicines that a doctor may prescribe. These measures, which have become general in some health insurance systems, arbitrarily override scientific evidence and patient needs with administrative or accounting limitations.

• The implementation of new models for the professional education of doctors, to correct the present tendency to misuse medicines and to overcome bias in prescribing by promoting a focus on health promotion and disease prevention.

• The encouragement of information mechanisms for practising doctors which are independent of the pharmaceutical industry, on a permanent basis related to new drugs, alternative uses of drugs and treatment guidelines.

• The establishment of standards that allow the substitution of lower-priced, interchangeable products for medicines in pharmacies. Not allowing such substitution has become a highly corrupting factor. Substitution must be allowed under clearly defined rules, in order to avoid arbitrariness and abuses by those responsible in pharmacies.

• Some developed countries attach great importance to medical views tending to "demystify medicines," i.e. to eliminate the idea of drugs as a curative magic unrelated to the day-to-day behaviors of the patient, who remains passive, while the drug is active. They include a focus on promoting health and disease prevention, which is based on promoting healthy practices rather than replacing these with drug treatments.¹⁷

• The incorporation of alternative treatments of medicines in the Western pharmacopoeia on a scientific basis.¹⁸ In this case carrying out rigorous clinical studies and establishing protocols that guarantee the safety and efficacy of the treatment are both extremely important. The safe incorporation of alternative treatments into public health and insurance systems is then possible, avoiding the self-interested salesmanship by charlatans, particularly those involved in acupuncture, homeopathy and bioenergy.

 

^16. It is well-known that different doctors, in treating the same diagnosed illness with the identical medication prescribe with great variations in dosage, frequency and duration of treatment. In many countries there are no protocols that show which option is best.

^17. For example, the best treatment for hypertension or obesity is frequently exercise and a more healthy diet, which ought not be replaced by "magic" drugs that cut out the patient's own efforts.

^18. Specifically treatments related to traditional medicine.

c) Institutional Demand: Drug Lists and Management

For many years, the institutional demand for medicines was the responsibility of health units without the benefit of basic modern training and technology. Recently very significant advances have been made to improve this situation, basically with regard to two aspects: the use of lists and improvement in drug management.

Lists of drugs. The most generally used mechanism (especially in developed countries) that standardizes the demand for pharmaceuticals in health insurance systems is the preparation of restrictive lists. Medicines that the system considers the most cost-effective are included in positive lists, while negative lists are those of medicines considered unacceptable because they are the least cost-effective. Lists vary from country to country, depending on the epidemiological profile of drug supply in each, and usually include a methodology to facilitate their periodic revision. Experience shows that such lists have a very favorable impact when based on the use of generic names but are unmanageable when based on brand names. Positive lists do not usually exceed 400 items.

The World Health Organization (WHO) promotes the creation of essential drug lists in all countries, which are prepared on the basis of pharmacological criteria (safety and efficacy), epidemiological criteria (prevalent pathologies) and financial criteria (price).

Health institutions can prepare lists appropriate for their own needs, within the framework of the national lists, and so facilitate their own policies of cost-effectiveness and equity.

Drug management. The management or handling of medicines is extremely important. In the majority of Latin American countries there are usually high levels of loss through expiration, deterioration, theft and other storage problems, errors in distribution and dispensing and, in general, inadequate management. Experience shows that in order to eliminate or reduce loss levels it is necessary to adopt efficient practices in two areas: minimizing stocks and drug management within health units.

 

• Storage losses and deterioration may be avoided by minimizing stocks. The best ways of doing this are: i) changing the traditional high-volume hospital drug purchase models to mechanisms that guarantee supply to meet orders over a long period. Hospitals and health centers can then manage very short range inventories without the danger of shortages; and ii) changing practices in drug dispensing to outpatients by supply contracts with pharmacy networks, thereby making pharmacies more professional and achieving more effective mechanisms in terms of vigilance, control and official oversight.

• Another aspect of great importance is modern management of medicines in health units. Savings of up to 50% are possible. There are various facets to such management, but the main ones are: i) specific lists in accordance with the actual needs of the hospital or health center; ii) a policy to identify better suppliers by public bidding; iii) a guarantee of budget and payment flows consistent with the needs of the health unit; iv) management of a reduced inventory, based on the needs for one month; v) modern dispensing and distribution systems, such as fractioning at the ambulatory care level to permit dispensing of the exact amounts required and the implementation of single dose per patient per day distribution systems at hospital level; vi) development of an information module for drug management; and vii) sound follow-up and evaluation procedures to drug management and use.

d) Other factors affecting demand: prices, income and financing

Among the factors that condition demand, those of a financial nature are particularly important: the price of drugs, the cost of treatment (days necessary to use medicines to achieve the desired outcome), people's income and the financing mechanisms. Studies show that in Latin America a large number of people have no access to the medicines that have been prescribed for them due to their lack of purchasing power.

A recent study about exclusion in Latin America and the Caribbean estimated that 121 million people in the Region have no access to health goods and services because they do not have the minimum financial resources to travel to health units, to pay for services or to acquire medicines (Tobar, Hamilton and Vásquez, 2000).

The right to health implies unlimited access to medicines people need, regardless of their income. It is the obligation of health systems to adopt an appropriate provision mechanism that guarantees that access to medicines is not determined by family income but by the needs of individuals. This is one of the challenges for health insurance systems.

SUPPLY

The supply of medicines comes from a diminishing number of transnational producers. In recent years, there have been an increasing number of mergers of large multinational firms, and smaller ones and national companies have disappeared. Increasingly, therefore, the drug supply is oligopolistic.¹⁹

 

^19. Experts from the large pharmaceutical companies estimate that in the year 2005 a multinational pharmaceutical enterprise will have to control at least 10% of the world market to survive, or if not, have monopoly control of medicine patents in very high demand.

a) Pharmaceutical supply structure

Pharmaceutical manufacturers manage, directly or through third parties, drug distribution channels and the mechanisms to shape demand (as discussed above).

Why do transnational companies now control the medicines market in developing countries without the significant participation of national enterprises? Until the 80s, a national industry producing some medicines in existed in some developing countries. In some Latin America countries, such national pharmaceutical companies had become important, such as Argentina, Brazil and Mexico. In general, these companies had limited research capacities and were not in a position to discover new active ingredients. Instead, they copied existing medicines and were protected from competition with the original discoverers through restrictive import policies established by their governments. National companies could, moreover, operate small plants with low levels of efficiency and productivity precisely because they were protected from foreign competition. A balance between imports and national pharmaceutical production was required at that time.

In recent years the national pharmaceutical industry has weakened in developing countries, for five main reasons: i) advancing technologies in chemical synthesis and biotechnology are less and less accessible to laboratories with low investment in research; ii) the general easing of import controls, which, in contrast with the past, no longer protects the production of medicines in small, inefficient plants with limited production capability; iii) the progress of international policies on intellectual property since 1994, as embodied in the World Trade Organization (WTO) Agreement, Trade Related Aspects of Intellectual Property Rights (TRIPS). As a result it is increasingly risky to copy molecular structures protected by the multinational pharmaceutical industry that invested in their discovery; iv) increases in scale due to the effects of globalization and consequent facilitation of transportation and international trade, making it more profitable to produce in a base country and distribute throughout the world; and v) the strengthening of controls relating to Good Manufacturing Practices in some countries.²⁰

 

^20. From 1993 to the present time, the number of national manufacturers has fallen in more than two-thirds of the countries in Latin America. In Colombia, for example, the number fell from 483 to 163, a decrease of 66%.

A few national Pharmaceutical companies still survive in some countries, usually as a result of their association with the multinationals with which they formerly competed. In such an association, the advantages of local businesses are usually: i) their facility to introduce new medicines to the local market, with a national name and trademark, while multinationals have to obtain approvals from government control agencies which, in certain countries, discriminate in favor of the supposedly national industry; ii) their capacity to make their mechanisms of access to doctors and pharmacies available to the multinationals, through teams of traveling representatives who have earned their confidence.

National companies employ other strategies, not always successfully: small-capacity industries form associations; diversification of production increased; some concentrate on selected products, generally with a single line of production (liquid, solid...). Other companies specialize in modifying their products in relation to the market. Some concentrate production on medicines sold without prescription, with consequent changes in marketing policies that reduce costs.

b) Guaranteed quality as a basic policy to regulate supply

The quality of a drug is based on its safety and efficacy, as seen below:

 

• Safety: condition of being able to use a drug with a very small probability of causing unjustified or unforeseen toxic effects. When a drug is not safe, it may cause undesirable and harmful side effects and reactions.

• Efficacy: capacity of a drug to produce the expected results. When a drug is not efficacious, it does not produce the expected response, therefore, not fulfilling its function of disease prevention, or maintaining or recovery of health. It may make the patient's condition worse and it implies a probable increase in treatment costs.

Government regulations are necessary to control the supply of medicines, concentrating on four action categories:

 

• The delivery of health registers to produce or sell a specific drug, on the basis of studies of its quality and the need for it according to epidemiological factors and cost-effectiveness.

• Oversight of the implementation of good manufacturing practices, which include verifying compliance with procedures that guarantee the uniform production of medicines that satisfy the conditions of bioavailability, safety and efficacy.

• Implementation of pharmaceutical oversight programs to identify and evaluate the effects of the use of medicines on the population.

• Guaranteeing bioequivalency so that substitutions can be made between pharmaceutical products with identical bioavailability in order to achieve maximum efficacy at the lowest possible cost.

Because of their impact on protecting life and health, these public management measures are vital. Their impact on prices also makes them essential as they guarantee the uniform quality necessary for competition between equivalent medicines (identified by their scientific name), so that purchasers can choose safely among lower priced medicines so benefiting from competition.

In several developing countries, public agencies responsible for ensuring the quality of medicines have been quite vulnerable to corruption. The Region, however, does have good models that merit imitation. Experience shows that the most successful and transparent agencies overseeing quality undertake the following activities:

 

• Approval of production and marketing registrations, utilizing the support of the requirement that registration requests include a demonstration of bioequivalency, for products that require it, and cost-effectiveness studies that can demonstrate that the proposed drug is more efficacious than equivalent treatments at a given cost level, or equally effective at lower cost.²¹

• Control of Good Manufacturing Practices (GMP) in four areas: i) oversight of imported and domestically produced consumables by means of periodic quality checks directly by the regulatory authorities or with the support of universities or specialized centers; ii) oversight of production processes abroad for imported medicines by means of conventions with the authorities of the countries of origin (mutual recognition of inspections of production facilities); iii) oversight and development of the processes of production (GMP) in the country, with a focus more on promotion of good practice than on sanctions. This is achieved through progressive requirements for investment in infrastructure, equipment, training, quality control centers and procedures, with regular or surprise visits to prove the adoption of recommendations issued; iv) oversight of the quality of medicines at points of sale to the public, controlling by random sampling, optimization plans and a very effective system of sanctions.

• Establishment of pharmaceutical oversight programs and the continuing promotion of specialized studies, publication of their results and the timely adoption of recommended measures.

• Establishment of open information systems on regulatory processes and standards to guarantee the transparency of staff decisions and substantially reduce the possibilities for corruption.

 

^21. This integration between pharmaceutical chemistry and pharmaceutical economics, initially implemented in Australia, Canada and the United Kingdom, has demonstrated that various new combinations of high price on sale to the public have no cost-effectiveness advantages over the older medicines that they are attempting to replace.

A gradual process that demands continuity, coherence and coordination is required over a period of time to establish adequate quality control. Experience has shown that producers and distributors support these activities when they find that the rules are applied without discrimination, and that the transparent and flexible procedures save them a large part of the costs that they incur.

PRICES

a) Structure of drug prices

Drug prices do not depend exclusively on direct production costs, which are usually the smallest component in the make-up of the final price. Neither are they directly related to the manufacturers research costs which are generally recovered during the first years on the market. Research costs may indeed be very high for certain new medicines but for the majority of them such costs are low.

Final drug prices are composed of the factory price plus the sales margin, as shown below:

 

• The factory price includes:

 

• Research, production and packaging costs, which for many medicines is less than 5% of the sale price.

• Manufacturers' profits, which depend on their marketing power.

• The cost of sales promotion, advertising, incentives and commissions, programme of doctor visits, financing of professional and recreational events, etc.

 

• Sales expenses include:

 

• The operational costs of intermediaries (wholesalers and retailers).

• The profits of intermediaries.

b) Regulatory policies for prices and the pharmaceutical market

Policies designed to regulate the prices of medicines to benefit society and consumers essentially have two focuses:

 

• Intervention Policies seek to establish administrative controls on the characteristics of supply and on prices.

• Marketing Policies are intended to make the interaction between supply, demand and the competition between producers more transparent and equitable. In turn, such policies are divided into two types:

 

• Policies that seek to strengthen competition through supply (such as liberalizing imports and the production of generic medicines)

• Policies that strengthen the ability of demand to negotiate (group purchases).

Their characteristics and results are examined below.

1. Intervention Policies. In the past special emphasis was placed on administrative price controls (fixing limits, granting privileges, sanctions).

Price Controls establish maximum retail price levels for sales to the public by imposition or negotiation. Price controls usually have the short-term effect of containing prices but long-term successes are insignificant and controls contribute to the creation of new distortions in the market. These are the result of mechanisms manufacturers implement to evade controls, such as the withdrawal of price-controlled medicines from the market and the introduction of new combinations to replace them at considerably higher prices.

When there are price controls affecting the sale of products to the public, the factory price and the sales margin lose their transparency. Producers, and most distributors, promote the achievement of elevated prices of reference and, on that basis, marketing prices are based on the deceitful mechanism of discounts. Discounts appear to be beneficial only to purchasers who do not know the real costs of the drug and base their analysis on the reference price, which they erroneously expect to be reasonable.

The weakness of price controls has given place, since the end of the 80s, to a movement to liberate prices.

Theory and experience show that uncontrolled prices do not, in themselves, induce greater market efficiency and lower prices to the consumer. To achieve those results, it is necessary to use generic names (not only in the packaging of medicines, but in writing medical prescriptions as well). The pharmacy must be allowed to substitute therapeutic equivalents, and factory prices must be known. Under these conditions, competition is achieved. Competition results in the reduction of the of producers' and distributors' profit margins and achieves the greatest efficiency in distribution.²²

 

^22. This explains why the distributors are opposed to uncontrolled prices in some countries that have high reference prices: Price liberation would require more efficiency of them and narrower profit margins.

If prices are free of controls but the rules related to the medicines market change frequently, the use of brand names is maintained or unfavorable expectations exist with regard to the general evolution of the economy, both producers and distributors aim to achieve short-term gains by exerting pressure for higher prices. Under these conditions there is no positive effect on market efficiency.

Many countries of the Americas have opted for uncontrolled drug prices, most of them within the past ten years. The characteristics and results of their choices are shown in Table 1.

An agreement with manufacturers on profit margins, as a condition for not introducing price controls, is a mechanism that has shown itself to be effective in developed countries. It is difficult to implement, however, in developing countries due to difficulties in guaranteeing the accuracy of information and the lack of regulatory agencies that are sufficiently powerful and legitimate.

2. Market Policies Oriented to Strengthen Competition in Supply. Essentially, there are two policies: liberalizing imports and the production of generic medicines.

In the 80s and 90s it was thought that the liberalization of pharmaceutical imports would make further intervention in the medicines market unnecessary, since prices would tend to decrease as result of competition between the different producers. In reality liberalizing imports has not contributed to controlling price increases for several reasons:

 

• So long as brand names are used for prescriptions and sales, competition is very limited.

• Even in cases where generic names are used, there are some difficulties that cannot be overcome by liberalizing imports. The most important are: i) in many countries, the greater part of prices to the consumer relate to distribution costs and profits, so that import price reductions do not necessarily lead to reduced final prices. ii) in each country there are medicines already well known by doctors and users. Usually such medicines are exclusive to that country. They therefore have no international competition. iii) international prices are frequently still higher than those in developing countries. iv) transnational manufacturers impede parallel imports at all costs, i.e., importing medicines of the same brand offered at lower prices in third countries. v) in some countries, certain manufacturing companies are well known by doctors and users, so that there is little possibility for other brands to compete in the short-term.

Table 1:

 

Source: Country surveys and complementary information supplied by PAHO/WHO consultants

The production or sale of generic medicines has been implemented in several countries as a policy to increase competition on the supply side and stimulate price reduction. The principal characteristics of generic medicines are their scientific name and their complete interchangeability with brand name drugs, given the therapeutic equivalency between the generic and the drug of reference.²³

 

^23. Thirty-fourth Meeting of the WHO Committee of Experts on Pharmaceutical Specifications (1996), TRS 863 (Appendix 9).

There are various definitions and modalities of generic drugs:

 

• Drug that is dispensed labeled with its scientific name corresponding to the principal active ingredient, without a brand name and without the name of the manufacturer, but obviously supported by manufacturing registration (This is the meaning of generic drugs accepted in the United States of America).

• Drug that is dispensed labeled with the scientific name and the name of the manufacturing company (usually called a generic trademark or "branded generic").

• Drug that is marketed using the scientific name once patent protection has expired.

Also considered generic is a drug labeled with its scientific name (INN) when the innovative product patent has expired and its therapeutic bioequivalence with the comparator product has been demonstrated. Bioequivalency is the process that allows the identification of the interchangeability with the same INN. The comparator product is generally the innovator product but it could be the drug with the highest sales on the market. WHO is developing a list of globally recognized comparator products which can be used by countries' regulatory authorities when registering generic medicines.

Note that a drug is generic because it uses the scientific name and is bioequivalent to brand name medications, not because it has had a special production process or because it does not identify the manufacturer.

In Latin American countries the massive production and distribution of generic medicines has had impacts of very limited intensity and duration, with the exception of Chile.²⁴ The fundamental reason for this failure is rooted in the attempts to allow generic and brand name products to coexist, with the following results:

PRODUCTION:

 

• The establishment of a national generic drug production industry (which has been attempted in several countries with the support of public subsidies) intended to supply medicines to poor people and induce price cuts in all medicines. It runs up against the capacity of the "traditional" pharmaceutical industry to discredit generics. Generic medicines are usually stigmatized and shown up as alternatives "for poor people" and of poor quality. In some cases, the lack of effective quality controls to ensure the safety and efficacy of generics has contributed to such criticism.²⁵

• Transnational manufacturers make it difficult for national producers of generic medicines to obtain access to active ingredients of foreign origin.

• Instead of promoting the national production of generic medicines some countries opt to make it compulsory for transnational manufacturers to distribute a specific amount of generics as a condition of being allowed to sell their brand name drugs. This policy option cannot be sustained over the long run in the face of producers' regular market control practices.

MARKETING:

 

• The sale of generic drugs to compete with medicines with brand names can only be partially successful, because the country is maintaining the economic and social disadvantages of branded products, which continue to dominate a significant part of supply through traditional marketing mechanisms. On the other hand, when brand names predominate, it is not necessary to encourage the production of generic drugs to create price pressures.

• The higher sales margins of brand name drugs and the commercial practices that usually accompany them are incentives for pharmacy owners and staff to discourage the purchase and consumption of generic medicines by their clients.

 

^24. Generic medicines have been produced in Chile for several decades. They do not manage to maintain a significant market share of the total volume of medicine sales (measured by price), but they have had a significant impact on the provision of essential drugs. Their principal effect has been to accustom consumers to using the scientific denomination of many medicines to look for lower prices, thus bringing the price of medicines in Chile down to lower levels than in other countries of a similar level of development and buying power. In spite of the positive experience, commercial policies in recent years have considerably reduced the production of generic medicines in Chile.

^25. In Ecuador, for example, the law orders the public sector to buy generic medicines but maintains the use of brand names on the national market. The result has been a chronic lack of an adequate supply of generics on the national market and the collective feeling that the generics supplied in public health units are medicines of lower quality.

3. Market Policies to Increase the Negotiation Strength of Demand. Organizing drug consumers and purchasers into mass-purchase mechanisms is essentially an attempt to counteract the oligopoly power of suppliers, to balance the forces involved in market negotiations.

The impact of mechanisms to strengthen the negotiating power of demand forces on prices arises because they represent a substantial proportion of the national market, so they allow the elimination of advertising expenses, marketing expenses and part or all of the costs of intermediation from the final price of the drug. Experience shows that more benefits can be achieved in direct negotiations with the producers than in agreements with intermediaries.

Experiences in this aspect may be grouped into four categories:

 

• Government Bulk Purchasing and Institutional Bulk Purchasing. Governments in countries where medical insurance is not generalized may make bulk purchases, as may public health insurance systems. Both act by means of public competitions and achieve lower prices to those obtained by health service providers that carry out their purchases in a direct, individual manner. Acquisitions are made from producing laboratories or wholesale dealers. Recent Latin American experiences, as in Guatemala (Open Contract System), Brazil (Consorcios) and Chile (Cenabast) show average discounts of 30 to 40% in comparison with reference prices (when prices are controlled). Bulk purchasing systems are very prone to corruption and pressure groups, so good results require modern public competition mechanisms that are very transparent.

• Contracts for the Provision of Medicines by Public or Private Health Insurers. These are concession contracts granted to certain suppliers to dispense the drugs that the insurer allows its members (generally signed through intermediaries). Available data indicate discounts of 20 to 40% below the reference price. Frequently these discounts do not reach the user, however.²⁶

• Hospital Cooperatives or Associations Specialized in Consolidated Purchases. These are private law organizations that public and private hospitals may join for purchasing drugs and supplies. Purchases are made through initial competitions and later direct negotiations with the best proponents. Experience in Colombia, the pioneer in this field, indicates average discounts of 50 to 80% from the reference price. Corrupting pressure from two sides must be addressed: suppliers may attempt to destroy the association and negotiators to keep a part of the discount in the association instead of passing the savings on to hospitals.

• Price Information. The publication of drug price lists organized by therapeutic groups, and emphasizing the cheapest products as a means of helping the public, have had a great impact in several countries. Producers usually vehemently oppose the publication of comparative prices.

 

^26. In Argentina a member of the Obras Sociales Nacionales [National Benefit Societies] (health insurance entities) must co-pay 50% of the cost of medicine. In the supply contracts, the Obras Sociales agree to discounts close to 30%, but the user continues to pay 50% of the price, the equivalent of 71% of the final price of the medicine.

Mechanisms for the strengthening of negotiating power of the demand side are more successful than those that act on supply, but they are also more vulnerable to corruption. The principal condition for their success is transparency and the scope for extensive vigilance.

ACCESS OF HEALTH SYSTEM USERS TO MEDICINES

In general, health systems (public beneficiary or assistance systems, as well as those based on insurance plans) differentiate the conditions of consumer access to medicines depending on the hospital or ambulatory nature of the service in which the medicines are prescribed and used.

In Intra-Hospital Services it is reasonable for medicines to be supplied as part of total hospital care, as medicines are an essential and inseparable part of hospital treatment. There are no arguments that justify differentiating the provision of medicines from that of medical supplies or other consumables and resources appropriate to the technological combination chosen. Neither is it justifiable to oblige the user to acquire the necessary medicines himself. In consequence, if the health system is subsidized, the subsidies must include medicines in equal proportions to the other consumables; if the health treatment is insured, medicines to be used in the hospital must be included under conditions analogous to those of other consumables and if a co-payment is required, it must not be different for medicines.

In ambulatory services or out-patient consultations, there are three main options, user-payment, co-payment, or supplied free. Each has economic implications and policies that should be examined:

 

• Purchase by the user, without subsidies by the system leaves the public at the mercy of the drug market. This is a highly inequitable, harmful alternative. It is inequitable because it discriminates against the most vulnerable sectors of society: poor people and the sick who need high-priced drug. It is harmful in that it postpones treatments and encourages the use of inadequate substitutes. Consequently, there may be increased costs to the health system as well as diminished personal well-being. Unmet needs of the poor for drugs give rise to the establishment of non-institutional support mechanisms that frequently require personal and political loyalties that can be prejudicial to democracy.

• Shared payment for medicines is the mechanism by which the system pays part of the price and the user pays the rest. The basis is the recognition of the appropriateness of the health system financing the supply of medicines but provides for the user to participate in the payment for two reasons: i) so that the user contributes to the financing of the system (co-payment); or ii) for such payment to serve to moderate consumption, i.e., to discourage unnecessary consumption (moderating quota).

Shared payment for medicines for complementary financing of the health system - co-payment - is perverse because it requires contributions that are not connected to the level of income of the persons but to the fact that they are sick and to the costs of recovering their health. In consequence, it discriminates against the poorest and the sickest. In fact, co-payment for medicines is one of the principal barriers to access and use of health services. Socially and economically, it is more appropriate for complementary financing to be carried out by progressive taxes or by means of insurance quotas proportional to income.²⁷

 

^27. This judgment refers exclusively to co-payment for pharmaceuticals and it is not necessarily applicable to the co-payment of all health services.

Shared payment as a means of reducing drug consumption - a moderating quota - is reasonable only when the user has some capacity to choose with regard to medicines. That may be because the user is able to choose between acquiring the drug or not, or because he can choose between brands with different prices. If there is no such choice - as happens in the majority of cases-there is no reason to establish a moderating quota, which then becomes a simple co-payment.

It should be stated that the discounting mechanism traditional to the marketing of medicines is deceitful in the case of co-payment, because it establishes user charges which appear less than it actually imposes. For example; when a health insurer negotiates a 40% discount with suppliers on medicines supplied to users and then charges the users half the public sale price of the drug, the truth is that it is requiring the payment of 83% of the price of the drug.

 

• Free Supply of medicines by the health systems (principally to the poorest segment of the population) represents a guarantee of well-being and equity. Implementation requires the design of very clear policies and mechanisms of negotiation between the health system and drug suppliers. It also requires three sets of regulatory measures: i) the use of positive and negative lists, or lists of essential drugs, to guarantee cost-effectiveness; ii) prescribing and treatment guidelines to avoid abuses in formulation and use; and iii) the establishment of controls and incentives to avoid system losses in inventory management and distribution to the public.

The fact that the purpose of a health system is to guarantee the right to health through universal coverage and maximum possible effectiveness with the available resources must not be forgotten. The following chapter examines the different health insurance plans that exist within health systems, as well as the possible management, financial and care models to meet such a goal.