Resurrecting the Ghost of Høsbjør Past: Global Fund seeks to establish global framework on tiered pricing enforced by WTO rules

Informed sources have revealed that Mark Dybul, Executive Director of the Global Fund to Fight AIDS, Tuberculosis and Malaria, is the brains behind an initiative to create global framework for the tiered pricing or in the Global Fund’s own words, “Equitable Access to Essential Medicines and Vaccines: Developing a Framework for Success”, enforced by the rules of the World Trade Organization. KEI has obtained this internal concept note prepared by the Global Fund which we understand is a work in progress.

The aim of this global framework on equitable access to essential medicines and vaccines would be to address the challenges faced by middle-income countries in accessing affordable health technologies. According to the concept note, principals from the “Development Partners”, GAVI , GFATM , The World Bank, UNDP , UNICEF and UNITAID would engage a “Task Force of leading experts from the public, private and NGO sectors” to consider a range of strategies including “licensing, royalties, Advanced Market Commitments, creating conditions for both innovator and generic competition, tiered pricing.” One wonders if this Task Force will consider the role of economies of scale and robust generic competition in putting 9.2 million people on treatment in low and middle income countries. Another question this Task Force should consider is addressing the paucity in transparent, accessible data on the costs of drug development.

The initial concept paper mentions a call for new models for pricing coming out of the Pacific Health Summit on vaccines that took place in Seattle in 2011. The event was only by invitation with strong Gates Foundation and corporate participation and sponsorship. List of sponsors: A report of the summit is available online here: .

Dybul’s initiative seeks to have the WTO enforce the rules of this global framework; the concept note states very clearly in its conclusion that,

We anticipate that the framework will have lasting influence and will be considered by the G20, the World Trade Organization (WTO), or other relevant institution within 24 – 36 months of development. The Task Force will conduct formal outreach to these institutions during the project. Establishing processes to enforce a framework, likely through the WTO, will be time consuming. It will be important to implement models in the near term as global agreements are created.

The initiative clearly identifies GAVI , the Global Fund, The World Bank, UNDP , UNICEF and UNITAID as Development Partners; have their respective boards and members states given the mandate for their institutions, to engage in changing international trade rules? How will this global framework on tiered pricing comply with the GATT, the TRIPS Agreement and other relevant international obligations? Given that the WTO is a member-driven organization, one wonders how the sovereign governments of Argentina, Brazil, Chile, China, India, Malaysia, Russia, South Africa, Thailand and other middle-income countries respond to this “grand plan.”


Equitable Access to Essential Medicines and Vaccines: Developing a Framework for Success

A key aspect of increased access to health over the past decade has been the significant price reductions for health commodities achieved for low income countries. However, as some low-income countries move to achieve middle-income status, they no longer have access to the lowest prices. Yet, they cannot afford the high prices paid by high-income countries, which pharmaceutical companies tend to charge them. Given the situation, agreeing a new global framework for access amongst key stakeholders would allow a feasible and refined approach to ensuring more equitable access. Based on economic and development analysis, as well as on a principle of tradeoffs – such a framework would consider a range of pricing and access strategies acceptable to Development Partners, Governments, Civil Society and to Industry. Strategies to be considered would include licensing, royalties, Advanced Market Commitments, creating conditions for both innovator and generic competition, tiered pricing; all buoyed by a firm understanding of the relevant marets, policy processes, and country environments. This would be in addition to enhanced supply chain practice, e.g. pooled procurement. Such action would help to continue to drive prices to the lowest, sustainable levels while providing quality health products to all. Therefore, Development Partners: GAVI , GFATM , The World Bank, UNDP , UNICEF and UNITAID are engaging a Task Force of leading experts from the public, private and NGO sectors, to respond to the described access challenge. On the following pages, this concept note, i) presents and ii) analyses the current access situation; iii) shares the project action plan; and iv) desired outcomes; and vi) draws attention to the milestones of the Task Force.

Conspicuously absent from this group of Development Partners are the WHO and WTO, the original conveners of an April 2001 workshop (held in Høsbjør, Norway) on Differential Pricing and Financing of Essential Drugs. At this meeting, Dr. K Balasubramaniam (representing Consumers International and Health Action International) pointed out,

But the problem of lack of access to the two billion people who have no access to essential drugs cannot be solved by negotiating discounts country by country, company by company and drug by drug. And negotiations take place in total darkness since the real costs of production of drugs are not known to the negotiators. All pricing information is kept in confidence by the manufacturers. These are not therefore fair negotiations.

What consumers want is a long term sustainable solution to improve affordability and accessibility to all essential drugs required to meet the essential needs of the people. The long term solution is promoting competitive generic production of all drugs.

In a joint statement (11 April 2001) of Consumer Project on Technology (CPTech [KEI’s predecessor]), Health Action International (HAI), Médecins Sans Frontières (MSF), Oxfam and Treatment Action Group (TAG) following this workshop in 2001, the groups had the following reactions:

After 2 days of discussion not a single company disclosed plans to actually implement differential pricing for their drugs. Current offers for AIDS drugs are ad hoc, inadequate, and still far below the prices that can be obtained from generic manufacturers. CPT’s Jamie Love said, “It’s ironic that in a meeting organized to help the poor, the main drug company proposals were to increase intellectual property protection and ask for the elimination of national price controls. At one point, Oxfam actually offered to give the industry a grant, since they were pleading poverty.”

The NGOs called for a new global Convention on research & development, designed to strengthen both public- and private-sector research. At every gathering to discuss access to medicines, the big pharma companies raise the specter that any effort to help the poor will harm R&D. Some claim proposals to lower drug prices in developing countries, including the use of compulsory licensing of patents on essential medicines, may lower their profits. The idea of the Convention is to create new mechanism to boost global R&D funding in ways consistent with access to medicines and health needs by encouraging research on neglected diseases. Country support for R&D funding could take a variety of forms, including publicly funded R&D, mandatory R&D requirements for companies, or the big pharma solution, which is high levels of patent protection and high prices.

The current Global Fund concept paper provides a current assessment of access milestones in the developing world for HIV, TB and malaria:

Over the past decade there has been a significant increase in access to important health programs in low- and certain middle- income countries including childhood vaccinations and treatment for key infectious diseases, including HIV, tuberculosis and malaria. A key aspect of increased access has been a significant reduction in the price of health commodities, in particular vaccinations and HIV treatment. Several factors have contributed to the price. reductions that some countries now enjoy. These include: i) significant competition often enhanced by the entry of generic manufacturers; ii) the lack (until recently) of pharmaceutical product patents in many countries that enabled production of generics (e.g. India); iii) the use of TRIPS flexibilities by several countries; iv) voluntary licenses issued from innovators to generics, sometimes with royalty agreements; v) tiered pricing arrangements offered by manufacturers; vi) large scale funding; vii) large-scale pooled procurement; viii) improved national planning; ix) strengthened health systems; and x) regulatory improvements.

Despite success, there is a disturbing new trend in middle-income countries.

Despite increased access due largely to lower prices that low-income countries enjoy, new countries achieving middle-income status, often do not have access to the lowest prices available to low-income countries. Likewise, middle-income countries cannot afford the prices paid by high-income countries, which the pharmaceutical companies tend to charge them. This is especially true when there is limited competition amongst suppliers in a given market. This situation, is leading to a world in which low- and high-income countries have access to health commodities but the poor in middle-income countries are being left behind. In that regard, while in 1990, 94 percent of poor people lived in low-income countries, in 2006, only 26 percent did.

In examining the access challenges faced by middle income countries, the concept paper addresses “issues around demand, the supply side, country classification and measurement of income status, the lack of a global framework on pricing, as well as learnings from past policy processes.” On the demand side, the Global Fund concept paper notes,

Demand: Despite significant gains, much demand remains unmet. Only 50% of HIV-positive persons in need of treatment are receiving it; coverage of long-lasting bednets to prevent malaria is about 60% and artemisinin combination products penetrate less than 10% of the potential market. Key childhood vaccinations, such as pneumococcus, rotavirus, and other important vaccines are estimated in the vicinity of 10%. Coverage of other life-saving vaccines, such as hepatitis A and B and human papilloma virus, are in single digits. And tragically, 2.4 million of the 2.7 million deaths from cervical cancer that could be prevented with a vaccine occur in low- and middle-income countries.

Moreover, on the demand side, the current model of pricing for childhood vaccines, antiretroviral therapy for HIV and other commodities is flawed for several reasons: i) there is no international accepted framework for establishing pricing that provides for fair access to health commodities; it has generally been ad hoc, often relying solely on the discretion of the pharmaceutical manufacturer – this has been particularly the case for products for which there is a single supplier (e.g. patented products) ; ii) providing low-cost vaccines to low-income countries is inflexible because it does not necessarily lead to the lowest sustainable price (or price reductions over time); and iii) it gives limited decision-making power to governments. iv) In the field of HIV, new ARVs are increasingly made available in many developing countries through the licensing of patented ARVs to generic manufacturers, sometimes in exchange for a royalty. The establishment of the Medicines Patent Pool has accelerated this trend and enabled more countries to benefit and for terms to be more public-health oriented and transparent. But some middle-income countries have not been able to benefit extensively from voluntary licensing or only in certain cases. The possibility of tiered royalties has also been discussed as a possible mechanism to enable additional countries to access more affordable ARVs in a sustainable manner, while compensating the patent holder.

On country classification based on income states, the concept paper notes,

Country classification and measurements of income status: Many countries are moving from low- to middle-income country status. Frameworks for classifying countries, also used for setting various types of pricing strategies have emerged. However, country classification using per capita Gross Domestic Product (GDP) and Gross National Income (GNI) do not reveal the significant and growing income inequalities in middle income countries; for example the percent of the population living in poverty; and the percent of people in various income categories with access to health services and commodities. Moreover, evidence shows that, the percent of the world’s poor living in low-income countries has decreased from 94 percent in 1990 to 26 percent in 2006. Further, as countries move to middle-income country status; and as they enter free trade agreements favorable pricing agreements and TRIPS flexibilities become more difficult to navigate. This means that measurements of income status, as well as the rationale that sometimes underlie manufacturer pricing policies, could benefit from reconsideration.

With respect the ad hoc nature of pricing strategies in middle income countries, the paper notes:

Global framework on pricing for MICs: There is no systematic global framework on pricing for middle-income countries, often resulting in high profile, protracted and damaging negotiations that pit pharmaceutical companies against public health institutions and advocates, country-by-country and commodity-by-commodity. For example, GAVI negotiated an initial price of USD $7/dose with GSK for a newly developed 10-valent pneumococcal conjugate vaccine. PAHO could not obtain the same price and opted not to purchase the vaccine; while Brazil moved forward to independently negotiate with GSK for an initial price of USD $16/dose. PAHO subsequently agreed to a price of USD $14.85/dose. As part of that agreement, countries such as Nicaragua (per capita GDP PPP of $3,500) pay the same price as Ecuador (GDP PPP $8,400) or Chile (GDP PPP $15,800). Such inequitable pricing that groups countries by such divergent GDP, let alone the inequity within countries, is highly problematic, especially when there are few suppliers serving a given market.

In relation to applying lessons learned and “the measures taken as a result”, the concept paper recommends that the Task Force examine a “proposed framework for royalties put forward by UNDP/WHO” (Remuneration guidelines for non-voluntary use of a patent on medical technologies) authored in 2005 by James Love (Director, KEI). The concept paper also refers to a June 2013 international consultation convened by Brazil, UNAIDS, UNITAID and WHO, in collaboration with the Medicines Patent Pool, WIPO and the WTO “to review critical challenges that middle income countries experience, in ensuring they have access to affordable and high quality HIV medicines.” In the UNAIDS press release for this event,

Responding to a situation where global debates around access to medicines tend to focus on lower-income countries, delegates from Brazil, China, Ecuador, India, Indonesia, South Africa and more than 20 middle-income nations from all continents, together with representatives from civil society and international organizations discussed their specific needs, perspectives and concerns. It was recognized that this is especially crucial given that by 2020 the vast majority of people with HIV will be living in such countries.

Many middle-income nations are now paying a high price for AIDS medicines, particularly those used for second- and third-line treatment. In fact, even the WHO-recommended first- line treatment, the one pill a day 3-drug fixed dose combination, is out of the reach of some countries, including Brazil, China and the Russian Federation.

This has profound implications for treatment optimization and long-term affordability and sustainability—identified as the central challenges at the meeting. Middle-income countries, often seen as lucrative markets, may not benefit from international initiatives on access to drugs. Most foot the bill themselves either through government funding or out of pocket expenditure and there is uncertainty as to whether the growing numbers of people on treatment will continue to get the life-saving medicines they need for as long as they need them.

The Global Fund concept note proposes the following Action Plan,

Maintain and expand upon current arrangements, while adopting a principle of tradeoffs – and a more nuanced access framework to achieve project goals.
The Task Force would maintain and where possible, expand on current arrangements that enable access to more affordable health commodities in low-income countries. At the same time, a principle of tradeoffs among stakeholders could be adopted to identify ways to ensure fairer access regimes for all, while creating conditions for both innovator and generic competition.

Furthermore, a more nuanced framework may be required in respect of pricing, access conditions, procurement conditions, intellectual property, licensing terms (including, for example, royalties).

Introduce more rigorous socio-economic analysis to understand income status
Review of the current access situation called for more rigorous socio-economic analysis to gain a better understanding of ways to measure income levels. These could include an assessment of, for example, i) percent of the population living in poverty; ii) percent of the population with access to essential medicines and commodities, or with even more refined analysis; iii) percent of the poor with access to essential commodities and services, possibly further disaggregated, by age or gender.

The concept paper provides the ultimate aims and desired outcomes of this Global Fund, GAVI initiative for creating a global framework on tiered pricing:

Desired Outcomes and Project Milestones

The desired project outcome is a systematic global framework on pricing for middle-income countries. In addition, there are four major project milestones.

Milestone 1) Expert Task Force.
The ability to engage leading experts will be essential to the success of the project. Preliminarily, the project will convene and coordinate a task force of about 40 leading experts in health (government officials, NGOs, advocates, representatives of patient groups, academics), economics, international law, ethics and representatives of generic and innovator pharmaceutical companies to develop an equitable access framework. Engagement of both generic and innovator manufacturers will be important to developing a viable framework.

Task force members will be selected based on their experience with pharmaceutical pricing, global markets, IP, and relevant policymaking and advocacy with appropriate balance to ensure maximum representation of key stakeholders. For many of the members of the task force, the subsequent scheme developed will directly impact their country (and affected populations) or organization. It is expected that they will be the people who will influence the adoption of the recommended pricing framework.

Additionally, convening a panel of experts that will include leaders in their fields will provide the template to learn from the past and break through with a creative approach. Moreover, where there may be knowledge gaps within the task force, members will identify potential external consultants who can engage in selected analyses. Additionally, the expert task force will determine which commodities are most amenable to start with within the pilot projects and determine where such pilot projects should best be implemented. In addition to technical analysis, a collaboration infrastructure would be developed to support the large group in considering non-technical issues that often delay results from cross-sector and cross-cultural collaboration.

This large group would meet three times throughout this project, including at kickoff stage. A smaller working group (of 10 to 12 persons) representing key stakeholders will meet regularly and will have responsibility for managing the project, assessing progress towards the achievement of milestones, performance against objectives, and devising strategies for maximizing the dissemination and impact of the project results.

Milestone 2) Framework for Income Classification as basis for more equitable access
As mentioned in M1, the Task Force will be asked to undertake the development of a framework. Essential to this undertaking will be the ability to: (1) define the parameters of the access framework including the number of tiers, (if tiered pricing is adopted as an aspect of the framework); (2) establish criteria for all the key elements of the framework; (3) and develop enforcement mechanisms, to ensure implementation.

There is a wide socio-economic range among middle-income countries and some have large parts of the population living in poverty. As mentioned above, it is important to account for such variations between and within countries. The Task Force will commission leading economics groups to develop sophisticated yet practical analysis of equitable frameworks for access to health commodities. Based on the models, the Task Force will develop a synthesized framework, clearly delineating elements that are global and national. A framework will not establish prices for various commodities, but it will determine processes allowing for optimal pricing between country income bands. It will also promote competition within income bands. Though centered on conditions for equitable access and access to affordable prices, the framework will also consider other elements that contribute to high commodity prices: intellectual property regulations, registration systems, taxes and tariffs that contribute to high prices, quality control failures, procurement procedures, etc.

The Task Force will also be empowered to explore additional or alternative mechanisms to promote equitable access to essential health commodities and to develop comprehensive approaches to foster such access.

High-level tasks and outcomes include: (1) developing an outline for the proposed framework and identifying knowledge gaps; (2) conducting empirical (and other relevant) analyses to close those gaps; (3) actual drafting and preparation of the framework; (4) managing the dissemination of the completed draft framework for comment by external reviewers (to be determined by the full task force) allowing time for consultation; (5) subsequent revision and finalization; and (6) developing and implementing a public engagement plan.

Milestone 3) Publication of Expert Task Group’s Framework for Global Access

Once finalized, the Task Force will publish the framework in a major journal, or other open-access, public vehicle within 12 months of the onset of the work.

Milestone 4) Pilot Project.
As the framework is finalized and prepared for publication, organizers and interested members will work with countries and companies to pilot the framework in a limited number of specific countries by the end of the project (12 – 24 months). The expert task force will include country representatives, who may express interest in pilot projects, but the Task Force will collectively develop a preliminary list of countries or regional groups and manufacturers to agree prices within the framework. Measures of success include the willingness of countries and manufacturers to engage in this undertaking coupled with the actual ability of countries to access the piloted vaccines and therapeutics at more affordable costs according to the established framework.

We anticipate that the framework will have lasting influence and will be considered by the G20, the World Trade Organization (WTO), or other relevant institution within 24 – 36 months of development. The Task Force will conduct formal outreach to these institutions during the project. Establishing processes to enforce a framework, likely through the WTO, will be time consuming. It will be important to implement models in the near term as global agreements are created.

Perhaps it is fitting to conclude by quoting from this recent piece by Dr. Suerie Moon (Harvard School of Public Health) published on 1 December 2013 (World Aids Day):

For nearly a decade, a bright spot on World AIDS Day has been steady growth in the number of people in developing countries accessing lifesaving HIV treatment, which increased 40-fold from 2002-2012. But this year, Board discussions at the Global Fund to Fight AIDS, Tuberculosis and Malaria have set off alarm bells about a potential retreat from the time-tested pro-generic policies that enabled such progress. At issue is a proposed “blue-ribbon Task Force” on tiered-pricing of medicines for middle-income countries (MICs), spearheaded by the Global Fund together with the GAVI Alliance, UNDP, UNICEF, UNITAID, and the World Bank.

“Tiered pricing” refers to pharmaceutical companies setting prices on (usually widely-patented) medicines at levels below those charged in high-income markets. At first glance, it sounds reasonable enough – lower prices for poorer countries. But, as summarized in a 2011 study, evidence from the past ten years shows that tiered pricing is in practice a feeble access strategy. First, it is demonstrably less reliable and effective than generic competition in achieving affordable prices for quality medicines. A 2010 study found that PEPFAR saved $323 million from 2005-2008 by purchasing generics rather than tiered-priced HIV drugs. Analogous cost-savings estimates for the Global Fund are not available, but could easily be an order of magnitude higher. Generic competition, often enabled by governments using flexibilities in intellectual property rules, has been central to improving medicines affordability in developing countries.

Second, tiered-pricing policies are voluntary programs of pharmaceutical companies and frequently arbitrary, especially with respect to MICs. Companies may offer the lowest prices to low-income countries, but prices and policies for MICs are all over the map. Companies may offer discounts on some drugs but not others, to some high-burden countries but not others, for a limited time or with strings attached. The rationale underlying a given price is generally not transparent, and the prices offered are not necessarily affordable.

Illogically, the proposed Task Force would be jumping to conclusions, pre-supposing that tiered-pricing is the answer to the question rather than wrestling with the question itself: how to make medicines affordable in middle-income countries? This question applies not only to vaccines or HIV drugs, but is relevant to all therapeutically-important widely-patented medicines, including those for non-communicable diseases.