WHO/HAI Pricing Policy Papers
To assist policy-makers and others, WHO and HAI are developing a series
of reviews on pharmaceutical pricing policies and interventions, with
a focus on low- and middle-income countries.
Five reviews have now been published on:
• External Reference Pricing
• The Role of Health Insurance in the Cost-Effective Use of Medicines
• The Regulation of Mark-ups in the Pharmaceutical Supply Chain
• Competition Policy
• Sales Taxes on Medicines
• The following reviews are in development:
– Promoting the use of generic medicines
– Cost-plus pricing
– Pharmacoeconomic analysis
1
External Reference Pricing
• ERP is the practice of using the price(s) of a
pharmaceutical product in one or several countries in
order to derive a benchmark or reference price for
the purposes of setting or negotiating the price of
the product in a given country.
• There are many modalities of ERP with varying
combinations of methods for choosing or calculating
external reference prices and also many ways to
apply ERP in practice. Therefore, assessing the
impact or merit of ERP, in relation to other pricing
approaches, can be difficult.
2
External Reference Pricing
• The use of ERP appears to be more justified for countries which have limited
technical capacity or the resources required for more complex price
regulation mechanisms such as pharmacoeconomic analysis. (Value Based
Pricing or HTA)
• Countries need to consider the appropriateness of ERP along with all other
options for attaining efficient medicine prices, including promoting price
competition through the introduction of competitive policies – especially in
the case of off-patent medicines – as well as other price regulation options.
• The application of ERP should be objective and transparent, in order to
provide opportunities for assessing its effects, make decision-makers
accountable, reduce uncertainty for the pharmaceutical industry, and
diminish the risk of discrimination and corruption.
• But true data is often difficult to obtain due to discounting and rebating
3
The Role of Health Insurance in the CostEffective Use of Medicines
• Health insurance systems have great potential
to improve the cost-effective use of medicines
by leveraging better provider prescribing,
more cost-effective use by consumers, and
lower prices from pharmaceutical companies.
• Despite ample evidence from high-income
countries, little is known about insurance
system strategies targeting medicines in lowand middle-income countries (LMIC).
4
The Regulation of Mark-ups in the
Pharmaceutical Supply Chain
• Evidence of the regulation of mark-ups in the distribution chain in LMICs is
sparse, not systematically collected, and often of poor quality where it
exists.
• WHO pharmaceutical indicator survey data shows that around 60% of lowincome countries report regulating wholesale or retail mark-ups in either
the public or private sector.
• Fixed percentage mark-ups are most common in LMICs, with regressive
mark-ups only applied in some higher income economies e.g. India, Iran.
• Mark-up regulation is generally not used as a means to promote generic
dispensing, and in LMICs it tends to include all medicines within the
defined public or private sector..
5
Mark Ups
• There is limited information about the effect of mark-up regulation on the
viability of distribution operations at importer, wholesale or retail level.
However, in unregulated pharmaceutical settings, retail mark-ups in the
private sector vary depending on distance from major urban centres.
• A fixed percentage mark-up appears the most common form of
remuneration of retailers in LMICs and dispensing fees are uncommon.
Apart from isolated mention of discounts and rebates, there was no
evidence as to whether regulation of such commercial practices would be
effective in reducing medicine prices.
6
Mark Ups
• Regulation of mark-ups without regulation of either the
manufacturer‟s selling price or the retail selling price is
unlikely to lead to reduced medicine prices.
• Regulation of mark-ups will probably have an effect on the
viability of some operators in the pharmaceutical supply chain
and may adversely impact the viability of operations in more
remote areas or other health services that are crosssubsidized through higher mark-ups.
• Regulation of distribution mark-ups can have unintended
impacts or consequences. Incentives and disincentives need
to be mapped and potential unexpected effects considered.
7
Mark Ups
• A reliable mechanism for monitoring the prices and sales of
medicines in the appropriate sector or market is essential to be able
to judge the effects of pricing regulations, both intended and
unintended.
• It is possible to use mark-up regulation as part of a generic
medicine promotion policy, for example by providing higher
remuneration for generic medicines or any other group of products,
but this is not commonly practiced.
• Regulating mark-ups in the private sector is probably more complex
than in the public sector.
• Regulating mark-ups without adequate enforcement is probably not
effective and adequate enforcement in low-income countries
appears challenging.
8
Mark Ups
• Mark-ups that include a regressive component with or
without fixed fees probably lead to better outcomes that fixed
percentage mark-ups through their influence on financial
incentives. However, fixed fee mark-ups can dramatically
increase the price of otherwise low-cost medicines.
• While banning discounts, rebates and bonuses in the supply
chain probably increases transparency in medicine pricing,
there is insufficient evidence to say whether it leads to
reduced prices.
9
Competition Policy
• Competition can reduce prices for medicines and increase
availability if the right conditions are in place. There is good
evidence that:
• Generic medicine entry and generic competition increase the
availability of lower-priced generic products.
• Competition is most effective when price-conscious, expert
institutions are the purchasersa rather than individual
consumers.
• Institutional purchasers of essential medicines may be able to
achieve lower prices for off-patent, multi-source essential
medicines by using competition, rather than by using price
regulation or other forms of price restraint.
10
Competition Policy
• Institutional purchasers can reduce prices for on-patent
products that have close therapeutic substitutes or “me-too”
versions by inducing competition for formulary listing. Some
studies suggest this competitive leverage may have more
impact on prices than buyer power from bulk or pooled
purchasing.
• When individual consumers purchase medicines out-ofpocket, pervasive asymmetry of information limits the
potential for effective medicine price competition for all but
the most familiar over-the-counter medicines.
11
Competition Policy
• A completely unregulated pharmaceuticals market will not
produce effective, efficient competition. Some core forms of
regulation need to be in place and adequately enforced to
foster healthy competition.
• These are necessary to mitigate the effects of limited
information and knowledge of consumers, retailers and
doctors about the price, quality and appropriate use of
medicines.
12
Competition Policy
• Countries with well-developed and enforced competition laws
have been able to use these laws to address anticompetitive
practices that can occur at every stage of the pharmaceutical
supply chain.
• Competition law has been used to apply penalties to
companies found to have engaged in monopolization and
other forms of anticompetitive conduct that led to wrongfully
high prices or restricted availability of essential medicines,
and required them to change their behaviour.
13
Sales Taxes on Medicines
• Domestic taxes can comprise a substantial proportion of the price people
pay for medicines, and high prices are generally considered to be a
principal barrier to access to needed care.
• Fiscal policy is one of the most powerful tools which governments have for
achieving their overall social and economic objectives
• A well-designed and progressive tax system is a vital underpinning for an
equitable and effective national health care system.
• Taxes on medicines in high income countries, with good networks of
health insurance protection, range from zero to 25% and in a selection of
LMICs, with much lower insurance protection against the costs of health
care, were found to range from zero to 34%.
14
Sales Taxes on Medicines
• There is very little documentation on the effects of prices and price
changes on the poorest households.
• The case for “tax differently” is much stronger than the case for “tax less”.
15