A “WIN-WIN SOLUTION?”:
A CRITICAL ANALYSIS OF TIERED PRICING TO IMPROVE ACCESS
TO MEDICINES IN DEVELOPING COUNTRIES
3rd International Conference for Improving Use of Medicines (ICIUM)
Antalya, Turkey
14-18 November 2011
Suerie Moon,1 Elodie Jambert,2 Michelle Childs, 2 Tido von Schoen-Angerer2
1Harvard
School of Public Health & Harvard Kennedy School of Government
2Médecins
Sans Frontières (MSF) Campaign for Access to Essential Medicines
Questions and comments welcome: smoon@hsph.harvard.edu
Based on an article by the authors: “A ‘win-win’ solution?: A critical analysis of tiered pricing to
improve access to medicines in developing countries.” Globalization and Health 2011 7:39.
doi:10.1186/1744-8603-7-39. Available: www.globalizationandhealth.com/content/7/1/39/abstract
Abstract
Problem statement: Ensuring the affordability of medicines in developing countries is a critical policy challenge, particularly for newer medicines under
patent. At the same time, establishing an equitable system for global contributions to medicines R&D has remained elusive. Policy proposals to improve
access to medicines, such as tiered pricing, should be critically assessed to gauge how well they achieve these joint goals.
Objectives: Tiered pricing – the selling of health technologies in developing countries at prices systematically lower than those in industrialized countries –
has received support in situations where the seller exerts significant power over pricing (limited or no competition because of patents, small markets, or
other barriers to market entry). We reviewed recent policy discussions on tiered pricing for HIV/AIDS, TB, malaria, kala azar, and vaccines.
Design: We conducted a policy evaluation using 3 questions central to international debates: (1) How can medicines be made affordable in developing
countries? (2) Who should pay for R&D and how much? (3) Who decides and how? We carried out case studies based on a review of international drug
price developments for antiretrovirals, artemisinin combination therapies, drug-resistant TB drugs, liposomal amphotericin B (for kala azar), and
pneumococcal vaccines to examine the impact of tiered pricing and competition.
Setting: Developing countries, including low- and middle-income countries Outcome measures: Price trends in the public sector of developing countries
Results: Tiered pricing may meet short-term needs for access to a product in special cases such as when market volumes are very small or multi-source
production capacity is lacking. However, tiered-pricing suffers from a number of critical shortcomings: it is inferior to competition as a way to achieve the
lowest sustainable prices; it often involves arbitrary divisions between markets and/or countries, which can lead to perverse outcomes such as very high
prices for middle-income markets; and it leaves a disproportionate amount of decision-making power in the hands of sellers vis-à-vis consumers (i.e.,
governments or patients). In many developing country contexts, resources are often stretched such that affordability can only be approached by selling
medicines at or near the cost of production.
Conclusions: In general, competition should be the default option for improving the affordability of important medicines for use in developing countries, as it
has proven superior to tiered pricing to achieve the lowest sustainable prices. In special cases where tiered pricing is justified, steps should be taken to
ensure affordability and availability in the longer term, including auditing production costs, improving production efficiency, and/or transferring technology to
transition as quickly as possible to competitive multi-source supply. Alternate strategies should be explored that harness the power of competition, avoid
arbitrary market segmentation, and recognize government responsibilities for ensuring access to medicines for their populations. In particular, policies that
―de-link‖ the financing of R&D from the price of medicines merit further attention, because they can reward innovation while exploiting robust competition
in production to generate the lowest sustainable prices.

Funding source: Médecins Sans Frontières
Overview
Introduction to tiered pricing
How to make medicines affordable in developing
countries?
Who should pay for R&D & how much?
Who decides and how?
Alternatives to tiered pricing
Conclusions:
1.
2.
3.
4.
5.
6.


When tiered pricing?
When alternatives to tiered pricing?
1. Introduction (1/2)
What is tiered pricing?



Different prices for different markets,
Correlated with ability to pay (lower income = lower price)
It may be applied when:



Markets can be separated
Seller exerts significant control over pricing (e.g. patents)
Seller’s perspective:


Tiered pricing = Differential pricing = Market segmentation = Price
discrimination = Profit maximizing strategy
Consumer’s perspective:


Equity pricing = “intended to be available within the context of functioning
health systems at all times in adequate amounts…at a price the individual
and the community can afford” (WHO Essential Medicines concept)
1. Introduction (2/2)
Context

Increased patenting in developing countries (TRIPS)

Immense unmet health needs in developing countries

Globalization & political demand for access

Emerging markets driving pharmaceutical industry growth
TP widely applied for HIV/AIDS, malaria, TB drugs; vaccines;
contraceptives
Renewed interest in TP as emerging markets strategy





e.g. Sanofi, GlaxoSmithKline, Merck, Novartis, Roche
Methods: reviewed experience in HIV/AIDS, malaria, TB, kala
azar, pneumococcal vaccine
3 Key Questions on Tiered pricing
1. How to make medicines affordable in developing
countries?
2. Who should pay for R&D & how much?
3. Who decides and how?
Competition reduces prices:
Evidence from HIV/AIDS
Waning et al (2009):
• >7000 antiretroviral (ARV) transactions
(2002-2007)
• For 15 of 18 products, tiered-priced drugs
were 23-498% higher than generics
• By 2011, of remaining 3 products, 2 had
lower-priced generics available
MSF Untangling the Web (2011):
• tiered prices > generic prices for:
27 of 30 (90%) of quality-assured products
Sources: Brenda Waning, Warren Kaplan, Alexis C. King, Danielle A. Lawrence, Hubert G.Leufkens, Mathew P. Fox. (2009). Global
strategies to reduce the price of antiretroviral medicines. Evidence from transactional databases. Bull World Health Organ 2009;87:520–
528 | doi:10.2471/BLT.08.058925. MSF Untangling the Web of Antiretroviral Price Reductions, 14th edition (http://utw.msfaccess.org/,
last accessed 8 November 2011).
Competition reduces prices:
Evidence from HIV/AIDS
Tiered prices respond to competition:
Evidence from HIV/AIDS
Source: http://utw.msfaccess.org/drugs/lopinavir-ritonavir
Tiered prices respond to competition:
Evidence from Malaria
Source: Moon, S., Pérez Casas, C., Kindermans, J., de Smet, M., & von Schoen-Angerer, T. (2009). Focusing on Quality Patient Care in the New
Global Subsidy for Malaria Medicines. PLoS Medicine, 6(7), e1000106. doi:10.1371/jounal.pmd.1000106
Tiered pricing for small markets: Evidence
from DR-Tuberculosis
• Small, uncertain, fragmented global market for some drug-resistant TB medicines
• Eli Lilly offered tiered pricing, and simultaneously transferred technology to
produce two DR-TB drugs to generic firms
Cycloserine 250mg
Capreomycin 1g vial
45
40
35
30
25
20
15
10
5
0
40.95
6
5.43
5
4
3
2
8
1.02
4
1
2001 Lilly (tiered) 2010 Lilly (tiered)
2011 Akorn
(generic)
2010 non-tiered
(UK price)
Price (USD)
Price and quality information. Price of the lowest unit (i.e. the price of one tablet,
capsule or vial) in US$. *In future, the lowest available price is expected to
change as the Akorn product replaces Eli Lilly's.
0.14
0.59
0.6
2010 McLeods
(generic)
2010 Lupin
(generic)
0.78
0
2001 Lilly
(tiered)
2010 Aspen 2010 non-tiered
(generic)
(UK price)
Price (USD)
Price and quality information. Price of the lowest unit (i.e. the price
of one tablet, capsule or vial) in US$. Sources: British National
Formulary 2010 ; Global Fund 2010; Management Sciences for
Health 2009; personal communication, M. Price, 2010.
The “middle income country problem”


Tiered pricing classifications: wide variation, no norms

Per capita GNI (low vs middle-income countries)*

HIV prevalence

UN-classified least-developed countries

Human Development Index

Regions
Which countries should pay more? On what grounds? What is a fair
price?

33 ARVs with Category 1 (~LICs) and Category 2 (~MICs) prices

Difference Cat 1 & 2 pricing: 20-1353 USD; 4.5% to 177%

No norms, no transparent basis for pricing

Tiering can seem arbitrary
*World Bank classifications (per capita gross national income): low income $995 or less; lower middle income, $996 $3,945; upper middle income, $3,946 - $12,195; and high income, $11,906 or more
The MICs problem: Pneumococcal vaccines
4. Who decides and how?
Government regulation of medicines
prices (e.g. in high income countries):
Under tiered pricing for developing
countries, sellers decide :

Reference pricing

Setting reimbursement rates

Price

Price controls

Which countries eligible

Pharmacoeconomic assessments

For how long

Compulsory licensing

Other conditions

Criteria for decisions not transparent
“Access to drugs cannot depend on the decisions of private companies but is also a government responsibility.”
–WHO Commission on IPRs, Innovation and Public Health (2006)
“The primary obligation for implementing the right to health falls upon the national authorities in the State in
question,” and “access to medicines forms an indispensable part of the right to the highest attainable standard
of health.”
– Paul Hunt, UN Special Rapporteur for Health & Human Rights (2002-08)
5. Alternatives to tiered pricing


“De-link” R&D market from medicines production market

i.e. do not pay for R&D through high medicines prices

i.e. pay for R&D via push & pull mechanisms

i.e. encourage competition in medicines production
Competitive production via:

Voluntary licensing, eg Medicines Patent Pool

Prizes, such as patent buy-outs

Non-granting of patents through strict patentability criteria

Voluntary non-patenting in developing countries

Compulsory licensing
6. Conclusions
How to make medicines affordable in developing countries?
1.

Who should pay for R&D & how much?
2.

Negotiate fair contributions from all countries for R&D

Calibrated R&D contribution from developing countries via fees or royalties (e.g. based
on income, inequality, disease burden, cost-effectiveness of product, etc.)
Who decides and how?
3.

Governments have responsibility for ensuring access to medicines as a fundamental
component of the right to health
Tiered pricing: when?
4.
5.
Robust competition through de-linking R&D from medicines prices

Special cases: small, uncertain markets; limited production capacity, and/or urgent needs

Closely monitor prices and costs  Transition to competitive production (eg technology
transfer) as possible
Alternatives that are better for access should be considered
Teşekkür Ederim/Thank you
Comments welcome at: smoon@hsph.harvard.edu