Contributing to an increasingly fraught national debate, the OECD has confirmed that some medicines are now significantly more expensive in Mexico than in advanced markets.
The Paris-based Organisation for Economic Co-operation and Development (OECD) has released a new working paper entitled Pharmaceutical Pricing and Reimbursement Policies in Mexico . The document makes a number of important observations on weaknesses in the country s pharmaceutical pricing system that have led to high local prices, at least in international terms. But the influential organisation is contributing to the debate at a very sensitive moment in the evolution of Mexico s drug pricing policy. This could influence the prospects for a number of radical measures that are currently being contemplated by lawmakers, presenting a clear threat to major manufacturers.
Global Insight Perspective
Significance The OECD has released a report claiming that local prices for patented medicines are the highest in Latin America and remain widely unaffordable.
Implications The prestigious institution has thrown its weight behind an emerging political consensus that something must be done about perceived high drug prices and inequitable financing structures in Mexico.
Outlook The OECD has taken a highly active role in Mexican healthcare policy, and the report may bolster official attempts to intervene at the manufacturer level. This would fail to take the necessary holistic view of the problem and would damage investor confidence.
Medicines in Mexico: Unaffordable and Getting More So?
Although the current direction of pricing policy is a matter of interpretation in Mexico, few doubt that medicines costs are inequitably distributed. The OECD cites 2001 data indicating that out-of-pocket spending accounts for 88% of the drug market by value. This appears to hit low-income households who are typically uninsured especially hard. The Ministry of Health reported in 2005 that 69% of all households that incur catastrophic health costs were among the approximately 40 million Mexicans lacking any kind of health insurance. Pharmaceutical spending was blamed for financially devastating healthcare costs in the case of 20% of uninsured people.
As well as these inequalities in healthcare expenditure, data from the Central Bank indicates that drug prices have increased substantially above overall inflation in recent years. The Bank estimates that average drug prices increased by some 8% per year between 1994 and 2004, i.e. during the first ten years of NAFTA. The data indicate that prices surged towards the end of the century, increasing at double-digit rates between 1997 and 2000 before falling back to an average 5% per year from 2001 onwards. During this time, volume in unit terms remained broadly constant.
Although such strong historical price growth is not exceptional in a global context, the OECD cites several surveys claiming that irrespective of the recent increases, prices in Mexico are relatively more expensive than in many advanced markets. For example, a 2003 survey claims that manufacturer prices were more than five times the level of income-adjusted prices in the United States.
Looking for a Scapegoat
Having diagnosed the problem, the OECD s survey places the existing price regulation system at the centre of the issue. The survey notes that the regime for patented and original medicines, which uses voluntary agreements based upon manufacturer cost estimates, is by design, relatively weak as a price control mechanism . The organisation sees a price self-regulation scheme that has been established by the manufacturers association Canifarma as a symptom of this weakness. The report also notes that Profeco, the judicial office that regulates competition on behalf of consumers, is only empowered to ensure that the maximum retail price is not exceeded, and may not intervene in the pricing of pharmaceuticals by manufacturers.
Mexico: Government-industry agreement on patented medicines pricing in the retail market (October 2004)
Patented medicines International reference pricing is used to calculate a voluntary maximum retail price.
New products with no comparators Prices determined by manufacturers, with re-evaluations conducted three months after launch.
Generics and patent-expired medicines Free pricing.
Sources: OECD, Global Insight
From this analysis, it would be easy to conclude that the Mexican pharmaceutical pricing system, which is generally considered voluntary, is overly generous to drug manufacturers. But the OECD concedes that in many cases, the maximum retail price is routinely exceeded by pharmaceutical distributors. There is also anecdotal supporting evidence for non-compliance at the retail level from spot checks by Profeco and the market regulator Cofepris. In the wider context, the salient fact remains that international manufacturers of patented medicines are a large and visible target for criticism due to their dominant presence in the retail market. This is no accident: the IMSS, the public sector agency that purchases pharmaceuticals for Mexicans in formal employment, has an explicit policy of buying from medium-sized and usually local producers. Apart from a few exceptions, all medicines available in the public sector must be bioequivalent generics. Moreover, international manufacturers also face the further concern of possible parallel exports to the United States if factory-exit prices are kept too low.
Outlook and Implications
The OECD s report comes at a time when it seems that all possible measures are under consideration in order to reduce drug prices. Since the start of 2007, the Institutional Revolutionary Party (PRI) has spearheaded initiatives in both the lower and upper houses of the Congress to cut prices, either by halving patent terms from 20 years or via the imposition of direct manufacturer price controls. So far, there has been little credible supporting argument for these planned reforms. However, there is the risk that the OECD s views will be misrepresented in order to support populist, protectionist and ill-considered measures. In Global Insight s opinion, the research-based industry must make the case for the problem of high medicines prices being evaluated in the public and retail sectors, as well as in the manufacturing sphere, and so avoid the serious consequences of hasty legislation.Global Insight
