Drug Price Controls – Caveat Emptor

Who will be held liable if patients suffer harm because of drug price controls?

There is currently no price regulation for drugs in Malaysia.

The free market approach was intended to foster and encourage innovation and competition, with consequential better value for all stakeholders.

The government and consumer groups have taken the position that there are significant mark-ups or overcharging for drugs in the private sector based on the Medicine Prices Monitoring in Malaysia 2017 report.

The government announced in April 2019 that it will impose price control for drugs using the Price Control and Anti-Profiteering Act 2011 with implementation targeted for late 2019 or early 2020.

The reason given is that price controls will improve access to drugs.

The Health Ministry has pledged to prosecute anyone who sells prescription medicines that exceed the price ceiling under the proposed law.

The Malaysian Productivity Corporation (“MPC”), an agency of the Ministry of International Trade and Industry, is currently undertaking a public consultation for the Pharmacy Division of the Health Ministry on price controls of drugs.

The prices of drugs are a complex and multi factorial issue. However, the consultation document is fundamentally flawed as it lacks clarity and is simplistic. It dwells on the merits of drug price controls but makes no mention of the implications of the proposal on providers that will impact on patients. Furthermore, there are no questions for respondents to answer.

By contrast, the policy brief from a think tank addresses the implications and is comprehensive.

This article addresses three of the fundamental issues of drug price controls, which have not been included in the consultation document which the MPC is undertaking.

Are regulators responsible for high drug prices?

The short answer is yes and no.

When I was in primary school, I remember that all sorts of medicinal remedies were sold by anyone and everyone, even at street corners, sometimes for a few cents. There were then no concerns about safety, quality, and efficacy. Times have changed, of course.

Quite rightly, the current emphasis on safety and quality is the appropriate approach.

The Health Ministry’s pharmacy service began in 1952 with the enactment of the Registration of Pharmacist Act 1951, Poisons Act 1952 and Dangerous Drugs Act 1952. Its functions were rudimentary until the establishment of National Pharmaceutical Control Laboratory (later renamed as the National Pharmaceutical Control Bureau) in 1978 to address quality assurance issues.

Systematic drug regulation only began in 1985 with the establishment of the Drug Control Authority (“DCA”), which currently carries out regulatory functions like product registration, sample analysis, inspection and licensing, post-marketing surveillance and adverse drug reaction monitoring.

The DCA has rigorous standards that ensure approved drugs have favourable risk-benefit profiles. Clinical trial data and study designs are scrutinized with a fine-tooth comb.

This has undoubtedly made registration of a drug, whether innovator or generic, expensive. For example, the requirement for generics to have bioequivalent studies can cost up to RM1 million for each drug.

The situation is compounded by the fact that the Health Ministry is also a healthcare provider with drug procurement spending currently taking up 11.1 per cent of its budget.

It is well known that the private sector has to pay much more for the same drug than the Health Ministry. This may be attributed to economies of scale but it also raises the question of the extent to which the private sector is subsidising the Health Ministry’s drug procurement.

The reported shortages of drugs in the Health Ministry’s facilities are not surprising because of the increasing burden of non-communicable diseases whose exponential increase must be worrying for policymakers and the public.

Furthermore, there are costs to compliance with not only drug regulations, but also the Private Health Care Facilities and Services Act and other healthcare laws that impact on drug prices.

On the other hand, drug companies and private health care facilities charge what the market can bear.

Access to innovator drugs

India is a classical case study of drug price controls, the introduction of which led to the exit of several multinational pharmaceutical companies from the Indian market.

How was access to innovator drugs affected in India?

Berndt and Cockburn in their article stated “The hidden cost of low prices: Limited access to new drugs in India” studied data on the sales of 184 drugs approved by the United States Food and Drug Administration between 2000 and 2009. Only 50 per cent of these drugs went on sale in India after a lag time of more than five years after their first worldwide introduction.

The Malaysian population is 2.26 per cent that of India. Will the multinational pharmaceutical companies stay in the Malaysian market with drug price controls?

Will access to innovator drugs be increased with drug price controls? The affluent can still have access to these drugs by seeking treatment abroad, but what about the vast majority?

An interesting question is who will be held liable if patients suffer harm because of the imposition of drug price controls?

What will happen to medical tourism when the latest innovator drugs are not available? As a corollary, how will Malaysians respond if these drugs are made available to medical tourists only?

Regulatory capture

Regulatory capture is a phenomenon when the regulator(s) gets influenced by the economic interests of special interest groups dominating the industry, and not the general public. It is a form of governmental failure in which the regulator(s) fail to perform its duties.

Metformin has been used in the treatment of diabetes for decades. The 500 mg dose was designated an essential drug by the World Health Organization in 1998 with the other dose formulations left out as non-essential.

Studies by academics and the Indian Business Council have reported that some pharmaceutical companies in India coordinated to increase the price of the regulated formulation in the period before regulation, which led to a higher ceiling price. This coordination was stronger among the larger companies and for time-release formulations.

The limiting of price control to the 500 mg dose of Metformin created incentives for some companies to more aggressively market unregulated formulations of the same drug.

What assurance is there that regulatory capture will not occur when drug price controls are implemented? Does the Health Ministry and Domestic Trade and Consumer Affairs Ministry have the capacity and capability to ensure regulatory capture does not happen?

Going forward

It would be prudent for policymakers to consider the feedback from think-tanks and healthcare providers, all of whom have not supported the proposal for drug controls.

The myriad of regulations affecting the private healthcare sector; and drug approval, innovation, production and marketing has created a regulatory jungle, of which the benefits or otherwise, remain unclear.

The limited analyses of the private healthcare sector and its components provide very limited information to embark on a drastic change like drug price controls.

Whilst transparency of drug prices is necessary, this should be based on clear objectives and robust evaluation of its costs and benefits. The critical question is whether the Health Ministry and Domestic Trade and Consumer Affairs Ministry have such capacity and capability to do so.

There are several approaches for regulators to keep spending on drugs sustainable.

Drugs only constitute a fraction of the private hospital bill. Having drug price controls without regulating the total private hospital bill will not contain costs.

It is apparent the Health Ministry has not learnt from the myopic regulation of doctors’ professional fees which did not contain the marked increase in private hospital bills in the past decade or so.

There is a provision in the Private Health Care and Facilities Act for patients to be informed of the estimated expenditure, which includes the prices of drugs, prior to treatment.

The question as to why it has not been enforced has to be addressed.

The rapid approval of biosimilars and generics once patents have expired by the DCA will facilitate competition which will drive down prices.

The promotion of clinical trials that measure value will provide information for payers to determine how much they would pay for a given drug.

In summary, the proponents of drug price controls need to remember the aphorism Caveat emptor (“Let the buyer beware”).

An ill-considered policy change can lead to consequences for patients that will be difficult to undo.

Dr Milton Lum is a past President of the Federation of Private Medical Practitioners Associations, Malaysia and the Malaysian Medical Association. This article is not intended to replace, dictate or define evaluation by a qualified doctor. The views expressed do not represent that of any organization the writer is associated with.

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