PIJIP/KEI Panel on Barton/Pfizer Proposal for Price Discrimination in Middle and Low-Income Nations

Rebecca Wolf and Daniel Rosenholtz
February 23, 2009

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On February 19, 2009, Washington College of Law Program on Information Justice and Intellectual Property (PIJIP) & Knowledge Ecology International (KEI) hosted a roundtable discussion featuring Stanford Professor of Law Emeritus John Barton and Pfizer Vice President of International Trade and Tax Joseph Damond. This event was a discussion of their proposal, outlined in a letter to Senator Max Baucus, for a framework to “protect our patents abroad but also demonstrate flexibility and compassion with respect to public health crises in the developing world.”

The letter proposes that developed countries implement pricing and reimbursement policies which ensure they “pay an adequate price to encourage research.” It supports allowing least developed countries to wait until 2016 to implement tougher intellectual property rules mandated by the TRIPS Agreement. Most notably, Barton and Damond’s global drug and research access agenda contemplates a pricing scheme for middle-income countries, such as Brazil, China, and India, which would increase the price that the richest in those countries pay for medicines while allowing lower prices for the poor. Barton and Damond describe this as ensuring that the richest in developing countries would contribute to the support of pharmaceutical R&D.

Many advocates for international access to medicine are concerned with the policies proposed in the Barton/Damond letter, and were eager to share their perceptions of the proposal. In addition to Professor John Barton of Stanford University and Joseph Damond of Pfizer, participants in the roundtable discussion included: Professor Brook Baker of Northeastern University, Professor Sean Flynn of American University Washington College of Law, James Love of Knowledge Ecology International, Rohit Malpani of Oxfam, Peter Riggs of Forum on Democracy and Trade, and Maine State Representative Sharon Treat.

Professor Barton discussed four main points during the KEI/PIJIP meeting. The first was the importance of government reimbursements to incentivize further drug development and to reduce the costs of new health care technology. Second, intellectual property has been a barrier to access in the past but prices in poor countries are now low, so it is important to charge prices that can support R&D where they are affordable, and to prevent piracy. Third, Barton proposed that the wealthiest in middle-income countries like Brazil, China, and India, should pay more to support medical R&D. Lastly, these three points could be the framework for a future WTO treaty.

Joseph Damond briefly added some details about the way in which Pfizer is working to develop neglected diseases that disproportionately affect the poor. He also noted that people and governments in wealthier countries support most medical R&D in the world through their drug purchases.

Professor Sean Flynn addressed the problems of attempting price discrimination in nations with highly unequal income distributions. Using income statistics from South Africa as an example, he showed that the profit maximizing price in a country where the elite has a disproportionate share of resources will price out over 80% of the population. Even within the wealthiest 20% of the population, those in the middle and lower end of the distribution would have trouble affording monopoly prices. If the South African market was to be segmented so the ‘rich’ obtained medicine through private sector insurance companies, and the ‘poor’ obtained them through the government, many working people would earn too much to qualify for the public sector, but would still be unable to afford insurance with adequate drug coverage. [Later, Joe Damon responded by asserting there is ‘no market’ in most countries – at least developed countries – because drug firms negotiate prices with the government.]

Professor Brook Baker pointed out that price discrepancies give additional incentives for piracy. State Representative Treat expressed her uneasiness with any program that would interfere with a state’s ability to operate its own Medicaid and health care safety net programs. She pointed out that in a recession, states’ obligations to provide healthcare through Medicaid increase as people with employer-provided insurance lose their jobs.

Peter Riggs of the Forum of Democracy and Trade and Sharon Treat both expressed concern with the way in which international trade agreements have regulated Medicare and Medicaid Programs. They highlighted the importance of Medicaid remaining state programs, governed by state leadership. In response, Mr. Damond noted that in establishing free trade agreements, drafters never intended that state health programs would be addressed in international trade agreements.

Rohit Malpani of Oxfam highlighted three main points. First, the glaring absence of civil society participation in the Barton/Damond proposal weakens it, because it is impossible for policymakers to know what would be best for developing countries if they do not talk to local leaders and healthcare providers. Second, excessive privatization of healthcare in developing countries has made it nearly impossible for many in middle income countries to receive healthcare at all. Finally, intellectual property issues have not been resolved. At the end of the day, it is generic competition that ensures medicines will reach the poorest.

James Love urged Barton and Damond to seek more input from representatives of middle and low income countries and global health advocates, who could offer them a new perspective. Love argued that the real economic problem is not pricing of drugs, but decoupling medicine research and development costs from the costs that the end user pays. He cited WHO’s Inter-Governmental Working Group’s proposal for developing TB and Chagas treatments in Barbados and Bolivia as an example of a method for decoupling these costs. The Barbados and Bolivia plan would set aside a portion of each country’s GDP to go to medicine research and development and would require that medicines developed with those funds enter a patent pool that all participating drug manufacturers could access.

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