Pharmaceutical Accountability Foundation

Issue #3: Poor Enabling Environment

The legal and policy environments in which companies operate can have a profound influence on their behaviour, but are all too often designed in ways that serve industry rather than the public interest. Based on the belief that the market organises demand meeting needs in the best possible way, poorly applied competition law, lack of political will to stand up to industry demands, and other issues can create an environment that does not optimally enable innovation and access to medicines. 

There can also be cases where legislation needs to be improved. For example: countries with inadequate or poorly designed reimbursement systems (such as insurance) can cause patients to avoid needed treatment due to the cost of receiving care. The way that insurance schemes are organised can also drive up prices on medicinal products by adding layers of non-transparency where profit-maximising behaviour can occur.  In many countries, laws are poorly applied and sub-optimal legislation continues to exist because there is a lack of political will to stand up to the pharmaceutical industry and an overinfluence of lobby groups for pharmaceutical companies in public spaces. Corruption can come in many forms, and create public health challenges. Corruption can include influencing medical professionals to prescribe a drug more often, for example through direct payments, speaking engagements and other incentives; it can also include direct-to-patient advertising. It can include undue industry influence on technical guidelines, and pushing for off-label use of existing medicines without good technical guidelines. Corruption is facilitated by wider issues of poor enabling environments.

Poor Enabling Environment: Issue contents

 

The legal and policy environments in which companies operate too often serve industry rather than the public interest. Poorly applied competition law, lack of political will, and other issues can create situations that do not enable innovation and access to medicines. Click below or scroll down to learn more.

  1. Competition law poorly applied
  2. The rising cost of healthcare
  3. Displacement of care
  4. Lack of political will
  5. Corruption or corporate crimes
  6. Legislation not supporting access

Related Solution: Strong Enabling Environment

Governments and intergovernmental bodies have the power to set better legislation or to better enforce existing legislation in order to optimise innovation and access to meet pressing public health needs. Public awareness can also play a key role.

Competition law poorly applied

Most countries and regional areas have laws intended to maintain the ability of companies to compete on the market. These laws can be leveraged in the pharmaceutical sector when a monopoly is being unfairly maintained or unfairly leveraged to charge high prices. In Europe, for example, between 2009 and 2017 there were 29 antitrust decisions made against pharmaceutical companies, with fines totalling over €1 billion; over 100 other cases were investigated. 

Examples of anti-competitive practices that can result in sanction include: trying to prevent launch of generic medicines through abuse of regulatory procedures; mergers between originator companies and generic producers  leading  to high prices or reduced competition, or reduced pressure to innovate; coordination/collusion between companies over price fixing; limiting others’ access to either needed pharmaceutical inputs or to a customer base (for example by providing discounts in order to ensure continued stock of originator medicines). 

Competition law can be a powerful tool to rein in poor company behaviour. But when it is unevenly applied or poorly enforced, companies get away with abuse.

One of the Pharmaceutical Accountability Foundation’s activities is to ensure that competition laws are adequately followed, undertaking both a monitoring role and – where necessary – taking legal action. For more information on this see our Cases page.

Further Reading

The rising cost of healthcare

The Organisation for Economic Co-operation and Development (OECD), an intergovernmental organisation devoted to economic growth and trade, released a report in 2015 predicting that healthcare spending in its member countries would increase from 6% of Gross Domestic Product to 9% of GDP by 2030, and 14% by 2060. The report noted that this growth exceeds overall economic growth and would quickly become unsustainable without reform. 

The Covid pandemic has only exacerbated this trend, as a newer OECD report found that in 16 OECD countries health spending had grown to 9.9% of GDP already in 2020.

There are several reasons for the rising cost of health care, some of which can be tackled by legal and policy reforms and some of which cannot, and will continue to put pressure on health systems. These include:

  • Ageing populations: According to the WHO, the number of people aged 65 or older is set to increase to 1.5 billion by 2050 from only 524 million in 2010. Increased life expectancy is a good thing, but it is causing a demographic shift that many health experts expect to contribute to rising costs of care.  Older people are more likely to suffer from chronic conditions that require ongoing care, as well as from costly-to-treat illnesses such as cancer and dementia
  • The rise of chronic diseases: While older populations are susceptible to certain chronic illnesses, a 2019 Global Burden of Disease study found an overall rise in chronic illnesses, including “obesity, high blood sugar, outdoor air pollution” was set to create a “perfect storm” in conjunction with the Covid-19 pandemic. In general, the GBD study predicted a rise in the disease burden of Non-Communicable Diseases, 
  • Expanding populations on care: In general, a larger number of people translates to a larger burden on health financing. And when existing drugs are approved for new indications, the number of patients accessing care increases, often without any attendant savings for health systems. 
  • Expensive medicines and treatments: A recent report of the American Association of Retired People (AARP) found that between 2019 and 2020, the retail prices of 260 widely used medicines increased more than twice as fast as inflation. In general, the last several decades have seen medicines that are clinical breakthroughs but that carry backbreaking prices per patient

While an older population with an increased disease burden will be difficult to tackle, and while some hard-to-produce treatments may remain expensive, the rising cost of medicines is one area where governments can take action to rein in spending.

Displacement of care

National health plans and hospitals have limited financing. Health authorities therefore set priorities about which medicines the health system can afford. This section relies heavily on illustrative examples from the Netherlands, but the issues have global applicability.

In the Netherlands health insurers cannot automatically add new medicines to the roster of what they cover; a medicine can be put on hold by the Healthcare Institute of the Netherlands if it would cost more than €40 million per year across the country or more than €50,000 per patient per year and more than €10 million across the Netherlands.

When medicines prices are high, there are four paths health authorities might take: Negotiate for lower prices, increase health spending, ration care, or set priorities on which care to give. They are detailed below.

When medicines costs are unjustifiably high, this can act to ‘displace’ care: that is, replace other useful services or limit access to needed services.

    1. Negotiate lower prices:
      • In the Netherlands, the health ministry began negotiations with pharmaceutical companies on behalf of the whole country in 2012. This saved the country’s health systems overall €272 million Euro between 2012 and 2018.
      • But negotiations are not always cost-effective, the Netherlands Court of Audit found, especially in cases of medicines that have no viable alternatives (such as Spinraza, which treats a genetic illness called spinal muscular atrophy, or Orkambi, which treats cystic fibrosis) that the Health Ministry was unable to successfully negotiate to prices as low as those recommended by the Dutch National Health Care Institute.
    2. Ask for an increased budget:
      • One way to accommodate rising medicines costs is to ask for an increased budget.
      • However, without government action, this has led  to an increase in the cost of expensive hospital pharmaceuticals by 10% every year, which is not sustainable.
      • It is even more unsustainable as the Netherlands has decided to cap growth on the cost of specialised care nationally until 2022
      • At the hospital level, case studies on the introduction of six expensive treatments found that the introduction of high-priced treatments resulted primarily in increased spending as well as rationing (see next point), and predicted that with more budget pressure more drastic decisions might be made.
  1. Ration care:
    • Given limited budgets, health authorities might decide to limit who has access to high-priced care, for example by delaying treatment until a patient has reached an acute phase of disease. This happened across Europe in response to high prices for sofosbuvir, a treatment for hepatitis C that was priced at €55,000 for a 12-week course of treatment.
    • Rationing can take many forms in addition to delayed care: patients may be selected to receive treatment on basis of their prognosis; patients may be directed to other services; services may be offered in a limited form or ended earlier than previously; or by making a treatment harder to access.
    • In the Netherlands, a study found that hidden ‘bedside’ rationing is happening in hospitals. In a survey, 64% of physicians reported prescribing a lower-cost course of treatment when a more effective, but more expensive treatment was available. These decisions were not always disclosed to patients.
    • Rationing of care can lead to suboptimal health outcomes.
  2. Make trade-offs:
    • In addition to rationing of high-priced care, health authorities may trade-out other health services.
    • This is known as ‘priority setting’, and decisions might be made on the basis of clinical need as well as cost-efficiency.
    • A case study in public hospitals in Australia found that priority-setting at the hospital level required difficult moral decisions, between the needs of individual patients with the need to maximise benefit over all patients.

Rationing and priority setting constitute ‘displacement’ of care: health authorities at all levels –nationally, at hospitals, and in physician/patient settings – must make tough choices when the cost of treatments puts pressure on budgets. Some medicines are costly to produce and/or costly to administer, and difficult choices will always be part of health financing. But some other medicines are inexpensive to produce but have excessive prices due to abuse of a monopoly position in the market. In these cases, displacement of care is an unjustified harm to health outcomes made to feed pharmaceutical company profits.   

 

Lack of political will

In many countries, laws are poorly applied and sub-optimal legislation continues to exist because there is a lack of political will to stand up to the pharmaceutical industry and an overinfluence of lobby groups for pharmaceutical companies in public spaces.

Corruption or corporate crimes

Corruption can come in many forms, and create public health challenges. Corruption can include influencing medical professionals to prescribe a drug more often, for example through direct payments, speaking engagements and other incentives; it can also include direct-to-patient advertising. It can include undue industry influence on technical guidelines, and pushing for off-label use of existing medicines without good technical guidelines. Corruption is facilitated by wider issues of poor enabling environments.

Legislation not supporting access

There can also be cases where legislation needs to be improved. For example: countries with inadequate or poorly designed reimbursement systems (such as insurance) can cause patients to avoid needed treatment due to the cost of receiving care. The way that insurance schemes are organised can also drive up prices on medicinal products by adding layers of non-transparency where rent-seeking behaviour can occur.

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