Pfizer CEO and Stanford Professor Propose Pharma Reimbursement Treaty

Mike Palmedo and Sean Flynn
January 22, 2009

Pfizer CEO Jeff Kindler and Stanford University Professor John Barton have written Senator Baucus announcing their intention to bring together stakeholders to begin work on a new international treaty framework to "discipline" pharmaceutical reimbursement practices around the globe.

In their letter to the senator, Kindler and Barton state:
…we believe  that the United States should consider as a trade goal the achievement of a sector-specific trade agreement among developed countries (e.g., under the aegis of the WTO, or perhaps the OECD) to ensure that pricing and reimbursement policies recognize and reward innovation and to set disciplines on government practices that undermine incentives for innovation…   We would be happy to attempt to propose language defining this goal for a new trade-promotion authority bill should you wish. [emphasis added]

On February 20, Pfizer and Stanford are holding a closed, off-the-record meeting for industry, government, and civil society on incentives for R&D and access to medicines.  Part of the agenda will cover obligations for developed nations, and "possible new trade negotiation goals, such as a WTO sectoral." 

This new proposal is likely to draw intense scrutiny from U.S. state health officials who have been active in opposing previous efforts by the US Trade Representative to include restrictions on government pharmaceutical reimbursement policies in trade deals.

Like most other large purchasers of pharmaceuticals, state Medicaid programs negotiate drug prices through evidence-based reference pricing.  The safety, efficacy and cost-effectiveness of new medicines are compared to existing ones in the same therapeutic class to create a preferred drug list (PDL). Federal law ensures that the Medicaid PDLs are open formularies, meaning that patients can access unlisted drugs after obtaining prior approval. Because drug makers desire their products to be able to be prescribed without prior approval, the PDLs have been a key mechanism for restraining drug costs for Medicaid programs. In an era of otherwise skyrocketing prices, Medicaid drug expenditures have remained flat in recent years. 

A multilateral trade agreement that would "set disciplines" on reimbursement policies may seriously undermine states' ability to win discounts from drugmakers in return for placement on a PDL. 

This initiative is the latest of many efforts by the pharmaceutical industry to attack systems of reference pricing.  Domestically, the industry launched lawsuits challenging PDLs in Maine, Michigan, and Florida, but failed all three times. Internationally, PhRMA and individual companies have urged the US Trade Representative (USTR) in numerous submissions to take action against other developed countries that set formularies based on cost effectiveness. The industry's goals include inclusion on the bodies that construct the formularies, appeals processes for companies with unlisted products, and higher prices or reimbursements for newer, more 'innovative' products. 

US trade officials have been responsive to the industry's requests for action. The Free Trade Agreements negotiated with Australia and Korea both contain sections designed regulate systems of reference pricing.  The Australia FTA commits that parties to recognize the value of 'innovation,' and the Korea FTA more specifically  requires parties to "appropriately recognize the value of the patented pharmaceutical product or medical device in the amount of reimbursement it provides."  Both trade agreements include provisions to ensure greater industry input and appeals mechanisms.  Outside of formal (and relatively transparent) FTA negotiations, US government officials from USTR and Departments of Commerce, State, and Health and Human Services have formed a task force that meets with other developed nations to lobby for changes to their pricing and reimbursement systems.  This task force has advocated policy changes in Japan, Germany, and elsewhere that reflect the US pharmaceutical industry's goals. 

For an example of what the language may resemble, see Chapter Five of the Korea-US Free Trade Agreement.1 Additionally, the USTR's 2008 National Trade Estimate Report on Foreign Trade Barriers describes the US government's positions in pharmaceutical negotiations with Germany, Japan, and other developed nations.


1. The pharmaceutical chapter of the Korea-US Free Trade Agreement includes a footnote that exempts Medicaid from the terms of the chapter.  This footnote resulted from advocacy by state leaders to protect Medicaid and other state government programs from the terms of the Agreement.  Despite similar efforts by state leaders, a similar carve-out for Medicaid was not included in the US-Australia FTA.  There is no guarantee that future trade deals will include similar protections for states.    


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