For all drugs: reducing taxes, tariffs and margins, pricing policy
Price controls may be considered if the market is not functioning well. The first approach is to reduce or abolish any import duties on essential drugs. Secondly, pricing policies could be considered, based on: actual costs (i.e. on manufacturing or importation costs plus a fixed mark-up for the wholesaler and retailer); control of profit margins; comparison with prices in other countries or with other drugs in the same therapeutic category (benchmark or reference pricing); or direct price negotiation with manufacturers of patented or other single-source medicines without therapeutic substitutes. More information is available elsewhere.26
For multi-source products: promote competition
Multi-source products could be generic drugs or therapeutic equivalents. The important economic characteristic of generic drugs is that their name identifies the product rather than the supplier. Using generic names promotes price competition among equal medicines from different sources or suppliers, identified by international nonproprietary names (INN). Generic drugs are substantially less expensive than branded products. The use of generics is often promoted in the public and private sectors to reduce drug costs, and increase drug availability and consumer access.
Generic policies, including generic substitution
The use of generic drugs can be promoted at various levels, from procurement to the point of purchase. Competitive bulk procurement by generic name is a central feature of most essential drugs programmes. In the private market, price competition can be encouraged through generic prescribing and generic substitution.
There are four main factors that influence the use of generic drugs and the success of generic drug programmes: supportive legislation, quality assurance capacity, acceptance by prescribers and the public, and economic incentives.
Supportive legislation and regulations indicate that registration of generic drugs is promoted, or at least not obstructed, with a focus on product quality as the safety and efficacy of the active ingredient have already been documented.29 Tendering and inventory control should be done under generic name, generic prescribing should be promoted, generic substitution should be allowed or, preferably, encouraged. Market entry of generic products can be encouraged by legal provisions for the formulation and registration of generic products before the patent of the original product expires, enabling generic competition immediately after the patent expires. In the private market, drug packages should give the generic name immediately below the brand name, with a specified minimum size of the characters (30-50% of the brand name size in many countries; in some the characters should be of equal size).
With regard to quality it is important that the prescribers and the public have full confidence in the quality of generic products. A quality assurance programme should therefore be established with registration, licensing and inspection, and testing of bioavailability and bioequivalence when needed. A list of products for substitution should be published. Legal provisions may allow for the formulation and registration of generic products before the patent of the original product expires, enabling generic competition immediately after the patent expires.
Public and professional acceptance can be achieved through information campaigns, through the obligatory use of generic names in the training of health professionals and for prescribing in public and teaching hospitals. Other possibilities are the use of generic names in formularies, clinical guidelines and drug information bulletins, and a cross-reference list of brand and generic names for all prescribers.
Economic incentives include comparative drug price information, reimbursement in insurance schemes of low-cost generic equivalents, favourable retail fees or margins for generic drugs, and tax incentives for the generic industry.
In all cases a phased introduction is probably the most feasible. Most countries would go through four stages: generic substitution not allowed; generic substitution allowed; generic substitution encouraged; generic substitution obligatory. It is not advisable to jump from the first phase into a system of obligatory generic prescribing - countries which have tried that have all failed. In most countries the market share of generic drugs increases by only a few percent per year.
Good procurement practices
Good procurement practice is relevant for all drug supply systems. However, within the scope of a national drug policy it is especially relevant for the public sector. WHO, the United Nations Children’s Fund (UNICEF), the United Nations Population Fund (UNFPA) and the World Bank have defined 12 operational principles for good pharmaceutical procurement. 30 This subject is discussed as part of health systems in Section 7.2, which also covers market intelligence, price information, price negotiations and pooled procurement, all of which help to reduce prices.
For single-source products: equity pricing and competition
The two main approaches to increasing affordability of single-source, mostly patented drugs are equity pricing and increased competition.
Differential or equity pricing
Differential or equity pricing means that the same drug sells at a lower price in poorer countries than in richer country markets. The idea behind the concept is that the poor of the world should not pay for research and development costs, promotional activities and shareholder profits. There are several ways of achieving this, for example lower prices offered by individual manufacturers, incentives to manufacturers through bulk purchasing, and voluntary or compulsory licensing arrangements. Necessary accompaniments to equity pricing are measures to prevent re-export to high-income markets, such as purchase agreements, regulatory measures or separate marketing of the same drug under different brand names in developed and developing countries.
Price information and therapeutic substitution
Competition can be promoted by wide publication of price information,31 and by allowing substitution and price competition within groups of single-source drugs that are considered therapeutically equivalent. This is called therapeutic substitution. If this mechanism is used it is recommended that lists of drugs that are considered to be therapeutically equivalent, and that can be substituted, are published to guide health workers and consumers.
Promote competition, use of TRIPS-compatible safeguards
National legislation should be enacted which can draw advantage from more open trade and a better-regulated international system. Patents for pharmaceuticals should be managed in an impartial way, safeguarding basic public health principles as well as protecting the interests of the patent holder, as exemplified in the TRIPS Agreement. In adapting their patent legislation to the requirements of the TRIPS Agreement, it is recommended that governments incorporate the safeguards that have been built into the TRIPS Agreement to protect the rights of the public. These safeguards include compulsory licensing and the so-called “early workings” of patented drugs for generic manufacturers. The possibility for parallel import should also be included in national legislation. More information on this issue is available. 27, 32, 33