Will Putrajaya Really Make Drug Prices More Transparent?

Competition is an acceptable way to reduce prices.

World Health Organization (WHO) countries recently approved a watered-down version of a resolution that pushed for greater transparency in medicine pricing.

The final draft, however, stopped short of making it compulsory for pharmaceutical companies to reveal their research and development (R&D) and clinical trial costs. It simply says that WHO member states will disseminate the costs of clinical trials “if already publicly available or voluntarily provided”.

The original resolution, of which Malaysia was one of the co-sponsors, urged countries to require the dissemination of clinical trial costs and marketing expenditure for medicines, vaccines, cell and gene-based therapies, and other technologies – broken down separately for each product – as well as annual reports on sales revenue, prices and units sold.

Although WHO member states agreed on a weaker version of the resolution at the 72nd World Health Assembly, this should not stop Malaysia from pursuing measures suggested in the original draft that we supported.

The Malaysian Organisation of Pharmaceutical Industries (MOPI), a group of local generic manufacturers, reportedly said it was fine with disclosing manufacturers’ selling price, but claimed that production costs contained confidential and proprietary commercially sensitive information.

MOPI president Billy Urudra said a business’s internal costing was a trade secret because it would reveal its profit margin.

I believe that more transparency is always better than less.

As a libertarian or classical liberal who believes in economic freedom and limited government, I support the right of businesses to make however much profit they want, with as little State intervention as possible.

When it comes to the business of health, it is admittedly trickier because it seems immoral to make billions of dollars in profit while denying expensive life-saving medicine to people who cannot afford it. Various figures are cited as the cost of developing a new drug – whether it is US$1 billion, US$2 billion plus, or even just US$648 million to develop a new cancer medicine – as pharmaceutical companies justify high prices to cover the cost of eight or nine failed products out of 10.

If pharmaceutical companies are unable to invest in creating new drugs because their profits are controlled by the government, would that be better for humanity then – where everyone, rich or poor, does not get any medicines at all?

Requiring the disclosure of the costs of creating medicines, which will then reveal profit margins, is not necessarily antithetical to business freedom. This will spur competition, a perfectly acceptable way to reduce prices.

Although State intervention in business should be minimised as much as possible, compelling the disclosure of costs, selling prices, and profits for drugs may be acceptable if it promotes a more competitive and transparent market, especially in cases where competition is hardly possible because of repeated patent filings. In any case, pharmaceutical companies already report their total R&D costs every quarter; they just need to break it down by drug.

Companies can still sell drugs at whatever price and make however much profit they want to. If governments seeking to buy medicines tell pharmaceutical companies during price negotiations that their profit margins are excessive, or that expenditure on the failed products should not be counted, then it is up to companies to defend their selling price and justify their costs.

If governments insist on not paying for the cost of failure, then future generations will simply suffer from the lack of new medicines.

Malaysian patients predominantly use generics. According to Malaysia Competition Commission’s Market Review on Pharmaceutical Sector under Competition Act 2010, generic medicines comprised 55 per cent of the Malaysian pharmaceutical market, in terms of sales revenue, in 2016. The report also estimated that generic medicines could make up 70 per cent of market share by volume.

Local pharmaceutical manufacturers produce generic medicines, while patented drugs are imported by multinational corporations (MNC) from their parent companies. Some generics are also imported by locally owned importers.

While there is some sort of figure cited as the cost of developing a new drug by global pharmaceutical companies, it is unknown how much Malaysian manufacturers spend to produce generic medicines.   

The biggest mark-ups in medicine retail prices, in fact, occur in generics, not originator drugs. The median retail mark-up in private hospitals for lowest-priced generics is 166.9 per cent, compared to 51 per cent for originator drugs. The Health Ministry’s Medicine Prices Monitoring 2017 report even found a maximum retail mark-up of 900 per cent for generic medicines sold in private hospitals!

Mark-ups in retail pharmacies are similarly bigger for generic medicines than for originator drugs, with the median mark-up for the former at 94.7 per cent compared to 22.4 per cent for the latter. The maximum mark-up for generics sold in retail pharmacies hit 400 per cent.

If the Health Ministry is serious about improving transparency in drug pricing, it can start by asking local and foreign drug manufacturers to display their selling price for public and private health facilities. (The public sector may get cheaper prices because it buys in bulk).  

The Health Ministry can also request the public disclosure of fees charged by wholesalers or distributors (who do not take ownership of the goods and do not set prices, unlike in other industries) for their logistical services. Bumiputera tender agents – which act as intermediaries between public hospitals on one hand and local non-Bumiputera and foreign pharmaceutical companies on the other – should also be required to disclose the fees they charge just for pushing paper.

And of course, the Health Ministry should ask private hospitals (of which the major ones are owned by government-linked corporations), pharmacies, and general practitioners (GPs) or specialists to reveal the retail prices of medicine sold to patients or insurance companies.

Thailand recently introduced regulations to compel private hospitals to display the prices of some drugs, mainly those used in emergency cases.

As to whether the Health Ministry should force both Malaysian and foreign drug manufacturers to reveal the costs of producing medicines, perhaps that can be looked at later.

For now, it may suffice to publicly disclose manufacturers’ selling price for medicines; fees charged by wholesalers, distributors, and Bumiputera tender agents; and drug retail prices set by private hospitals, pharmacies, and medical practitioners. The information can be put up on a website.

Then patients, including those who are often shielded from the impact of expensive medicine prices that are covered by insurance companies, can see just how much a drug is priced at each stage of the supply chain and where mark-ups are made.

The Health Ministry can easily get the ball rolling with big players that are also government-linked corporations like Pharmaniaga, the largest local pharmaceutical company, and IHH Healthcare that runs Pantai and Gleneagles hospitals.

Boo Su-Lyn is a libertarian writer who believes in minimal state intervention in the economy and socio-political issues. Read her at boosulyn.com. Share your ideas with her at fb.com/boosulyn, tweet her @boosulyn, see bits of her personal life at IG @boosulyn, and watch her at youtube.com/c/boosulyn.

This is the personal opinion of the writer or publication and does not necessarily represent the views of CodeBlue.

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