African AIDS Drug Discount ‘Opens Doors’ to Larger Pharmaceutical Cost-Reduction Debate

The recent price cuts recently announced by major pharmaceutical corporations for AIDS medications in Africa have helped refocus the health advocates' attention on drug-pricing practices around the world, the Los Angeles Times reports. AIDS activists have "shifted" their efforts from "impoverished" sub-Saharan Africa to Asia and South America, other regions where the cost of treatment often "exceeds the ability of many people to pay." In addition, other patient advocacy groups are taking the African discounts as proof that overall drug prices are "often irrational and arbitrary" and are calling for discounts on all medications. According to the Times, this "broader debate" is "exactly what pharmaceutical companies feared last May" when they began offering discounted AIDS drugs to African nations. Buoyed by a New England Journal of Medicine study that said the pharmaceutical industry has a higher rate of return than any other industry and a Congressional Budget Office report that said "skyrocketing" advertising costs are contributing to higher drug prices, which are increasing at an annual rate of 12.6%, patient advocates are taking a second look at how pricing is determined on a global scale. "What we're seeing is that there is a lot of discretion in the way drugs are priced and there is a capacity for gouging that needs to be looked at," Tim Fuller, executive director of the Gray Panthers, a lobbying group for senior citizens, said. The drug companies counter that they must charge higher prices in developing nations to subsidize research and development, which can cost as much as $500 million per drug (Gellene, Los Angeles Times, 3/25). "The next round of treatments for AIDS, or cancer for that matter, will come from the pharmaceutical industry," Pfizer spokesperson Bob Huber said. Officials estimate that the developed world will spend $7.1 billion on AIDS drugs alone in 2009, up from $3.4 billion in 1999.

Solutions to the Dilemma
To solve the dilemma over global drug pricing, drug industry representatives, AIDS activists, health organizations and charities and African nations reached a "rough consensus" on a pricing compromise at a December meeting, according to Richard Feachem, director of the San Francisco-based not-for-profit Institute for Global Health. The compromise, which will also be on the agenda at a World Trade Organization and World Health Organization meeting on AIDS in Norway next month, involves a system of "tiered pricing," which will leave patent laws and drug prices in the developed world untouched, while creating a "cost-plus" pricing scale for medications in the developing world. "We want to avoid a precedent in which nations say the price is too high and we need compulsory licensing," Pharmaceutical Research and Manufacturers of America spokesperson Jeff Trewhitt said. However, drug makers worry that medicines earmarked for the developing world may be "diverted" back to developed countries, where they could be sold for a "huge" profit. Pfizer has "reformulated" its medicine Diflucan from capsule to tablet form to distinguish medication recently donated to South Africa from medicine intended for sale elsewhere. Drug companies also worry that U.S. consumers, HMOs and politicians could use the tiered discounts to "demand" lower prices at home for the same medicines, a request they are already beginning to hear (Abate, San Francisco Chronicle, 3/25).

Long Road to Policy
According to the Times, the African discounts are merely "whetting demands" for price reform, and Congress has already made "small steps" toward allowing wholesalers to import cheaper drugs. But the drug makers say that the higher prices in richer nations are crucial in order to maintain the discounts in the developing world, and the alternative to tiered pricing is a single, worldwide price that would again "put vital medications beyond the reach of poor nations." Joel Hay, a pharmaceutical economist at the University of Southern California, said, "Corporations have a responsibility to make a profit, and if they are forced to charge the same price everywhere they will abandon poor countries completely. No one gets upset when people pay different prices for different classes on an airplane. Why should it be different for medical care?" (Los Angeles Times, 3/25).