In addition to its impact on health, the pharmaceutical market has an enormous economic and financial importance.
In various Latin American countries annual drug costs are equivalent to more than 20% of all health expenditures by the public sector, private sector agents and families. Annual earnings of pharmaceutical producers and sales enterprises in many countries in the Region are estimated at more than 1% of the Gross Domestic Product. They are as large as the health sector deficit and greater than the cuts made in health expenditures and staff salaries to make up these sector deficits.10
10. The world pharmaceutical market was estimated at US$ 287 billion for 1995, of which 31 % related to the United States of America and 7% to Latin America. The Latin American market has shown rapid growth in recent years (26% growth in 1993, 16% in 1994 and 9% in 1995, according to IMS International). The markets of Argentina, Brazil and Mexico are most important, accounting for 75% of the Latin American market (Fefer, 1999: 45-6).
PHARMACEUTICAL MARKETS TEND TO BE IMPERFECT-DEFECTIVE
Pharmaceutical markets tend to be quite imperfect, i.e., do not in themselves guarantee access to medicines for everybody, so that they are neither equitable nor efficient. The principal failures of the medicines markets are:
• The profusion of commercial practices that limit or impede competition. It is quite common in less-developed countries for each to use a manufacturers patented commercial name, which presents the drug as a unique product and obscures the possibilities for substituting other medicines. As their equivalents and substitutes are unknown, medicines do not compete with each other, and the user has no guarantee of being able to buy drugs at a lower price. Other limits to competition come from the protection of patents, brand loyalty and the segmentation of the market into therapeutic subclasses. All these conditions reinforce the market power of multinational pharmaceutical companies under monopolistic conditions.
• The information imbalance, which grows out of the fact that users have little information on the advantages, dangers and equivalences of the medicines they must acquire. Thus they must rely on the knowledge of third parties (the doctor or the pharmacy assistant), who, in turn, have less information than the producer.
• The capacity of supply to determine demand for medicines. Many of the marketing strategies of drug producers and distributors (such as the provision of samples and benefits to doctors and pharmacies) aim to promote the use of medicines and health technologies that are not necessarily the most appropriate, the most efficacious or the most cost-effective. They take advantage of the urgency associated with the disease and the user's lack of information about the possibilities for substitution.
• The imbalance in market power, which is due to the existence of one, or very few, suppliers of a drug (monopoly or oligopoly) compared to a divided field of purchasers, so that prices do not usually reflect the costs of production but the power of the supplier (producers and distribution chain). This power increases profits and induces a generally high level of prices.
Consequently, the markets are not ordinarily the type in which the "sovereignty of the consumer" can be exercised, since the consumer does not know what his best choice is and has to decide under pressure. Consumer rights are an essential element for the market to operate as an adequate instrument of distribution, in order to satisfy the needs of individuals and society as a whole.
Imperfection of Pharmaceutical Markets
Sovereignty of the consumer in not exercised
- Commercial practices that limit competition (commercial name, patent protection, etc.)
- Imbalance of information
- Offer may determine demand and develop practices to promote medicines that are not the most cost-effective.
- Monopolies and monopsonies.
ROLE OF THE STATE IN REGARD TO THE PHARMACEUTICAL MARKET
The majority of the deficiencies and faults in the market mentioned above can be overcome. To do so requires governmental regulatory measures that establish transparent rules, i.e., well-publized automatic, stable and verifiable rules.
State management of pharmaceutical markets may correct faults or it may make them worse. It improves the situation when it manages to achieve conditions of transparency. It makes them worse when it is exercised by means of selective and discretional interventions that increase the privileges of some to the detriment of others.
State intervention in the pharmaceutical market is justified from the economic, ethical and political point of view for the following reasons:
• To counteract the imperfection of markets, providing for competitive practices, more balance in information provision and controls over the market power of producers.
• To confront the impossibility of access to the Pharmaceutical market by a portion of society due to the inequitable distribution of income and unequal consumption capacity. The public sector has an obligation to guarantee the exercise of the right to health of all the inhabitants of a country and it is the only social body constituted to provide for a better distribution of income.
• To guarantee the public interest since, in the field of medicines, individuals are capable of acting against their own interests and in a way prejudicial to the general interest. For example this occurs when people acquire the habit of consuming dangerous medicines, or when health professionals promote the consumption of drugs that are proportionately more costly to achieve a certain level of effectiveness.
This intervention of the public sector may be carried out in different areas: supply (with regulations regarding production, management, sales and dispensing of medicines); demand (prescription, purchase and use) and market prices. The most usual mechanisms (with different degrees of effectiveness) are: regulatory standards and controls enforcing compliance with them, information guarantees, financing supply and demand, and direct intervention in the production and distribution of medicines.
The following section examines in detail the characteristics of the pharmaceutical market and the regulatory policies generally used.
Role of the State in regard to Pharmaceutical Markets
Establishing transparent rules of the game
(automatic, well-publicized, stable and enforceable)
- Counteract imperfections in the markets
- Guarantee universal access to medicines
- Guarantee public interest