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FTA set to increase medicine prices

Green Left Weekly | Australia | August 11, 2004.

FTA set to increase medicine prices

Green Left Weekly’s Kerryn Williams spoke to David Henry, clinical pharmacology professor at Newcastle University and former Pharmaceutical Benefits Advisory Committee member, about how the proposed US-Australia Free Trade Agreement will undermine the Pharmaceutical Benefits Scheme, and increase the price of medicine.

According to Henry, although in Australia the PBS reference pricing system means that “we have about the lowest purchase price in the world for drugs, the government here has got the highest co-payment levels in the world for individuals, of those countries that have comprehensive socialised health care programs”.

This means that a significant number of people, estimated at 15% of households, “are having trouble affording the current levels of payment for medicines”. Henry believes there is “not much scope for prices to rise before people are really going to suffer very badly. They’re already suffering unnecessarily.”

According to Henry, one thing can be said for sure about the FTA: “It isn’t going to push down the drug prices, we know that.”

Henry explained the background to the intellectual property clauses in the FTA. He is highly critical of the current model of “rigorous intellectual property protection”, which he claims “is not producing the wealth of new innovative compounds that it was expected to”.

He argues that it is actually encouraging the opposite: “The existing drugs don’t cost very much money to make, and if you can extend the patent life of a drug, you continue to get a large amount of income at very little cost to the company, compared to going and making a new drug which is truly innovative.”

According to Henry, the World Trade Organisation “actually produced in Doha a set of principles that have a strong support for public health so that governments were reminded and given substantial power to override patents when they thought it was necessary for their national health”.

The US government and manufacturers were “disappointed that they did not get their own way”. Henry says their aim is to “prop up intellectual property in one country, and then you use that as a blueprint for propping it up in another country and you continue to work around the world to try to make intellectual property protection more and more rigorous to stop generic manufacturers making cheap, high quality copies of your product”.

Henry said that because US manufacturers failed to get what they wanted from the WTO negotiations, “they’re now going through a series of bilateral trade deals which have intellectual property protection which is in excess of what the WTO requires”.

“The Australian agreement is the first one between two developed countries, which contains very high levels of intellectual property protection - they’re desperate to get that, not so much because of Australia itself, because it’s only 1% of the market, but because it sets the standard for all the free trade agreements that can follow from it.”

Henry argues that “by agreeing to the level of intellectual property protection that’s contained within the text of the FTA, we’re letting the rest of the world down badly. It’ll set a precedent and being a country that was strong on regulating and controlling drugs and drug prices, we were looked at as a benchmark country by the World Health Organisation.

“Other countries are now tending to copy [the Australian prices] and use them in their negotiations - they say `well there’s Australia, it’s a rich country, they’re getting this drug for $30 a month, so why are you asking us to pay $60 a month, or $600?’”

According to Henry the FTA is not the first attempt by US drug manufacturers to undermine the Australian pricing system. “They’ve tried multiple times - asking for government reviews, a special parliamentary inquiry, legal challenges to the PBAC’s decisions and recommendations, challenging them in the Federal Court” and even “out and out political lobbying of the prime minister”. Henry argues that these approaches haven’t succeeded in achieving their goals, so “now they see the FTA as a way of undermining the PBS”.

The text of the section of the Free Trade Agreement relating to intellectual property “is written to achieve certain ends for the US pharmaceutical industry, no question”, said Henry. The committee overseeing this part of the text is “populated heavily by people from the pharmaceutical industry, from Microsoft, from Levi Strauss - these are all multinational companies that trade heavily on intellectual property”.

“So what they’re aiming to do is to undermine the pricing system, raise prices, show the pricing system can’t work here, and set a standard for intellectual property protection which will apply in other countries.”

Henry explained that the proportion of the price increases passed onto the public will be determined by government policy. “But would you trust this government not to pass the prices on? They want to turn Medicare into welfare rather than universal access. And they’ve just recently put up co-payments once Labor rolled over, so it’s very clear they will put up co-payments.”

Henry believes co-payments are sure to rise regardless of whether a Coalition or Labor government wins the next election. After all, “Labor introduced co-payments for pensioners”, he pointed out.

Henry totally rejects as “demonstrably incorrect” the “mantra” of US drug manufacturers that they deserve higher prices for their drugs on the basis that they fund research and development. “The surveys that have been done suggest that the amount of drug research and development paid by countries around the world averages about 0.1% of gross national income. That includes Australia - we pay about 0.1% of gross national income and the US pays about 0.1% of their gross national income. So what we pay is proportional to our total wealth.”

According to Henry the companies also exaggerate the costs of drug development. “They say it costs $800 million to make a new drug, but it doesn’t cost $800 million to make a new drug. It costs substantially less than that, so they exaggerate the cost. Even if that figure was true, there are many drugs that they could cover that cost for within a few months of it being on the market.”

Henry also claims that “their marketing and administrative charges are more like 30% of their total revenue, so they’re paying at least twice as much on marketing as they are on research and development”.

Henry also pointed out that many of the major drugs in the US “have had key substantial funding from public bodies such as the National Institutes for Health”. The US people pay for drug development through the public-funded processes and “the private companies then benefit from that because they purchase the molecules that are developed with these start-up funds from universities and small research institutes, sometimes at not terribly high prices, and then sell the drugs for billions. The drug companies are heavily sponsored by the public, who paid for a lot of the initial drug development.”

The ALP has tried to set itself apart from the government by putting forward an amendment to impose fines on corporations who make dubious patent applications. Henry believes that this move has “done one good thing, and that’s that people now understand that patents can be misused... Just getting it into the public gaze and getting the attention of the public is a good thing.”

However, he argues, “it doesn’t provide protection’.‘ Henry explained that we cannot rely on current Australian laws and regulations to act as a safeguard, because “once we’re in a trade agreement, then it’s the text of the trade agreement that determines the resolution of any dispute. Your own laws and regulations are really somewhat immaterial in that. You’ve either delivered on the conditions of the trade agreement or you haven’t.”

Henry said the ALP’s move was “obviously politics - trying to put the government on the back foot, because Latham’s had such a bad time recently, and he’s looked so weak. He needed something to look strong on even though they know themselves that it’s not going to make very much difference.”

While Henry would like to see the federal election fought on the issue of the FTA, so that “the whole process would be delayed, and then the thing wouldn’t be ratified by parliament”, he believes this is unlikely.

 source: FTA set to increase medicine prices