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Forum: General Assembly Second Commission
The regulation of medication pricing policies particularly pertaining to Student Officer: Edward
Deputy Assistant President of the General Assembly II Introduction
To define the scope of the research, it is essential to primarily define what “Pharmaceutical companies and agencies” are. The general definition is: The pharmaceutical industry develops, produces, and markets drugs licensed for use as medications (McGuire). Pharmaceutical companies are allowed to deal in generic and/or brand medications and medical devices. They are subject to a both domestic and international laws and regulations regarding the patenting, testing and ensuring safety and efficacy and marketing of drugs. It is this precise process that has to be curtailed. There is a need for a payment methodology that accurately reflects the costs of products The issues that must be tackled in the resolutions can be summarized in to three parts: 1. Finding a way to rekindle proper competition between branded and generic companies. 2. To incentivize Research and Development (R&D), especially in large pharmaceutical companies and agencies to provide the consumers with the most effective and up-to-date forms of medication. 3. To simplify the pharmaceutical market approval procedures. These issues cannot be solved in the short term. However, the pharmaceutical industry is crucial to any and all nations as no place on Earth is safe from diseases. Particularly those in the developing nations have a greater incentive to develop this issue as an illness of a worker will result in an economic loss in productivity that person would have potentially provided to the development of the nation. Therefore, the chair urges the delegates to tackle this issue with passion and interest as it can truly change lives. Note: Many of the examples in the Research Report may revolve examples from the United States of America or
member nations of the European Union. Just through a little bit of research, each delegate will be able to find the current situation relevant to the issue at hand. The Chair has used the given nations as examples as their Pharmaceutical companies are the most researched and best documented. Definition of Key Terms
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Branded Medicine
Branded medicines – medicines with a proprietary name – account for around 80% of the NHS (National Health Service) drugs bill in the United Kingdom. The prices of branded medicines are controlled by the Pharmaceutical Price Regulation Scheme (PPRS). Unbranded Medicine
Generic medicines are medicines marketed without a brand name. Through the Drug Tariff, the Department of Health reimburses pharmacists the cost of dispensing generic medicines, which account for about four fifths of prescriptions by volume, but only around one fifth of the overall cost of medicines Pharmaceutical companies and agencies
The pharmaceutical industry develops, produces, and markets drugs licensed for use as medications. (McGuire) Pharmaceutical companies are allowed to deal in generic and/or brand medications and medical devices. They are subject to a variety of laws and regulations regarding the patenting, testing and ensuring safety and efficacy and marketing of drugs. Pharmaceutical Market Access
Pharmaceutical Market Access usually refers to the processes companies take to get their drugs commercially available within a given community, country or global region (Encyclopædia). Pricing and Reimbursement
This term is typically used in a discussion regarding the access to reimbursement. Because reimbursement is increasingly influenced by pricing, the two terms are regularly found together. Pricing and reimbursement is usually discussed at a country level, although in countries like Canada and Italy healthcare spend is distributed at a provincial or regional level (Encyclopædia). 10/90 Gap
The 10/90 gap refers to the statistical finding of the Global Forum for Health Research that only 10% of worldwide expenditure on health research and development is devoted to the problems that primarily affect the poorest 90% of the world's population (Stevens). The 10/90 gap has been criticized on the grounds that "neglected diseases" actually comprise a relatively small disease burden compared to pneumonia, diarrhea, tobacco and obesity-related diseases, and that many of the diseases most prevalent in poorer countries are either preventable or easily treatable Page 2 of 9 | Research Report
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Sources of Payment for Pharmaceuticals
Self-pay, or cash, prescriptions represent a shrinking part of the outpatient prescription market. In 1992, more than one-half (55.6 percent) of all outpatient prescriptions were self-pay (Schondelmeyer). By 1997, self-pay prescriptions had shrunk to 29.1 percent and in 2002 and 2003 they represent less than 15 percent of outpatient prescriptions (Schondelmeyer ). The dramatic reduction in cash pay prescriptions has also greatly reduced the pharmacy’s pricing flexibility. The pharmacy has some control over setting the price for cash pay prescriptions, but it has little control over the prices paid by public and private third party programs ( Schondelmeyer). Although mail order programs, private PBMs and drug discount cards all claim to compare their prices against usual and customary retail prices, the disappearance of the cash pay retail prescription market renders the concept of “usual and customary retail price” almost meaningless. Private Third Party (Insurance and Managed Care)
The share of outpatient prescriptions covered in part, or in whole, by private third party programs has grown substantially over the past decade from 30.1 percent in 1992 to 73.0 percent in 2002 and 2003. Most of these third party prescriptions are managed through PBMs and networks of pharmacies that have contracted to participate in these networks. Most pharmacists report that PBMs have most of the negotiating power in these networks, especially given their growing market share and the dominance of a Public Third Party (Medicare and Medicaid)
The Medicaid program is the single largest third party program (public or private) for prescription drug coverage (Cook). In 1992, Medicaid paid for 14.3 percent of all outpatient prescriptions and by 1997 the Medicaid share had dropped to 11.7 percent. The Medicaid share of outpatient prescription has grown again over the last five years to 13.0 percent of outpatient prescriptions (Cook). Medicaid recipients in some states may pay modest co-payments. However, under certain circumstances if the patient cannot pay the company the pharmacy may still be required to dispense the prescription and the pharmacy may not be able to recover the lost company from either the patient or the Medicaid program (Berndt). Pharmacy Benefit Managers
Pharmacy benefit managers are a key part of most third party drug benefit plans (Berndt ). In 2001, the top three PBMs processed more than one billion of the three billion outpatient prescriptions filled nationally, and all PBMs together processed 1.5 billion of these prescriptions (Cook). The PBMs serve many functions including: benefit design and contracting, pharmacy network formation and management, prescription claims processing, formulary management and rebate negotiation, drug utilization screening and review, Research Report | Page 3 of 9
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operation of mail order pharmacies, and other functions (Berndt). PBMs are a central part of the third party drug benefit system, but, in general, PBMs do not directly purchase prescription drug products from the drug manufacturer, take possession of the drug product, or provide the drug product to the patient. Channels of Distribution
Manufacturers and Marketers
The manufacturer level is the starting point for prescription drugs as they begin their movement through the various channels of distribution (Cook). Any firm that manufactures or sells a prescription drug in the United States must hold a new drug application (NDA) or an abbreviated new drug application (ANDA) issued by the U.S. Food & Drug Administration (FDA). However, other firms may market a prescription drug without holding either an NDA or an ANDA, if such a firm has entered into a licensing agreement with an NDA or ANDA holder (Cook). Wholesalers and Distributors
Manufacturers or marketers of prescription drugs most often sell their drug products to a middleman, or intermediate level, before the drug product reaches the pharmacy or physician that will provide the drug to the patient (Hoadly). National wholesalers are the primary intermediate level in the channel of distribution process accounting for 45.7 percent of prescription drugs ($98.5 billion) in 2002. Other intermediate channels of distribution include chain warehouses with 32.3 percent ($69.8 billion) of the market, regional and specialty wholesalers with 9.3 percent ($20.2 billion) of the market, and group purchasing organizations that usually contract with a wholesaler to perform the distribution function on their behalf (Hoadly). About 12.6 percent of prescription sales by drug manufacturers are made directly to providers (e.g., physicians or hospitals) or pharmacies (Berndt). Pharmacies and Providers
The final step in the channel of distribution for pharmaceuticals comes when the pharmacist or physician provides the drug to the patient. In most cases, except for mail order pharmacies, this provision of the drug to the patient results from a face-to-face encounter with the patient (Hoadly). In addition to providing the drug product, the pharmacist is also responsible for taking steps to assure safe and effective drug use such as: development of a patient profile to screen for drug interactions, contraindications, and duplicate therapy; counseling the patient on appropriate use; and other similar Diseases in lower-income countries
A large proportion of illnesses in low-income countries are entirely avoidable or treatable with existing medicines or interventions. Most of the disease burden in low-income countries finds its roots in the consequences of poverty, such as poor nutrition, indoor air pollution and lack of access to proper sanitation Page 4 of 9 | Research Report
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and health education (Stevens). The WHO estimates that diseases associated with poverty account for 45 per cent of the disease burden in the poorest countries. (WHO) However, nearly all of these deaths are either treatable with existing medicines or preventable in the first place (Stevens). Malaria
Malaria can be prevented through a combination of spraying dwellings with DDT, using insecticide treated mosquito nets and taking prophylactic medicines such as mefloquine, doxyclycline and malorone. Malaria can also be treated with artemisin in combination therapy. Education can also play an important role in reducing the incidence of insect-borne diseases, for example by encouraging people to remove sources of stagnant water (insect breeding sites) from near their dwellings (Stevens). Diarrhoeal
Diarrhoeal diseases are caused by the poor sanitation inherent to the condition of poverty, yet are easily and cheaply treatable through oral rehydration therapy. However, diarrhoeal diseases still claim 1.8 million Malnutrition
Malnutrition particularly affects people in poor countries. As a result of vitamin A deficiency, for example, 500,000 children become blind each year,17 despite the fact that such outcomes can be avoided by cheap, easy-to-administer food supplements (Vitamin A supplements). Major Parties Involved
National Health Service (NHS)
The NHS spends about £9 billion a year on branded prescription medicines in the UK (Hollis). The Pharmaceutical Price Regulation Scheme (PPRS) is the mechanism which the Department of Health (on behalf of the UK health departments) uses to ensure that the NHS has access to good quality branded medicines at reasonable prices. The scheme seeks to achieve a balance between reasonable prices for the NHS and a fair return for the industry to enable it to research, develop and market new and improved medicines. World Health Organization (WHO)
The World Health Organization (WHO) is a specialized agency of the United Nations (UN) that acts as a coordinating authority on international public health. Established on 7 April 1948, with headquarters in Geneva, Switzerland, the agency inherited the mandate and resources of its predecessor, the Health Organization, which was an agency of the League of Nations. It is a member of the United Nations Development Group. Health Impact Fund (HIF)
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The Health Impact Fund is a proposed new way of paying for pharmaceutical innovation. The HIF would incentivize the development and delivery of new medicines by paying for performance. All pharmaceutical firms worldwide would have the option of registering new medicines with the HIF. By registering, a firm agrees to provide its drug at cost anywhere it is needed, and in exchange for foregoing the normal profits from drug sales, the firm is rewarded based on the HIF’s assessment of the actual global health impact of the drug. Governments and OneWorld Health
OneWorld Health is a nonprofit drug development organization founded in 2000. Its mission is to discover, develop, and deliver safe, effective and affordable new treatments and interventions for people with neglected infectious diseases in the developing countries, with an emphasis on diseases that disproportionately afflict children. The organization aims to serve as a positive agent for change by saving lives, improving health, and fulfilling the promise of medicine for those most in need. It works with partners around the globe to identify potential new medicines for neglected infectious diseases afflicting vulnerable populations in developing countries, assess the safety and effectiveness of investigational medicines, honor international ethical standards for research, collaborate to manufacture and distribute new medicines, and ensure that medicines will be affordable and available for Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent residents, including low-income adults, their children, and people with certain disabilities. Poverty alone does not necessarily qualify someone for Medicaid. Medicaid is the largest source of funding for medical and health-related services for people with limited income in Medicare
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other special criteria like End Stage Reneal Previous Attempts to Resolve the Issue
The example of the Health Impact Fund (HIF) is one of the best known examples of an organized attempt of an NGO to tackle the issue of the regulation of medication pricing policies particularly pertaining to pharmaceutical Page 6 of 9 | Research Report
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The HIF approached to solving problems of innovation and access to pay directly for what is valuable, and not to ration access on the basis of artificially high prices (Hollis). Rather, it was designed to give incentives for innovation, the strength of which is proportional to the social value of the innovation, as measured by health impact. (Hollis) As a result, the patent system rewards innovation which addresses the health needs of the wealthy much more than those of the poor (Hollis). The HIF redresses this imbalance and motivates firms to invest in research The HIF attempted to implement this firstly on a small scale. It will have a certain amount of fund that was openly available for any company to apply for. In order to apply for this fund, the companies had to register the medicine under the HIF, which in return, calculated its Health Impact for the next 10 years. During the 10 years, the company was paid depending on the changes it was able to instill in the usage of medicine; whether it has surpassed a competitor, or gained immense market shares in short periods of times. This directly correlated in to the amount of funds that the company was to receive from the patented medicine. However, after 10 years, the medicine that was licensed was to go generic, and the company could no longer gain any profit from the patent According to Thomas Pogge, this ideal was the panacea to all the issues that were causing the immense inflation in price of the pharmaceutical industry. It was thought to reduce the competition in the industry and was also estimated to be able to motivate companies to increase their investment on R&D. However, despite its extensive research, the HIF was never implemented on a large scale and still waits for a more advanced form of price control. Refer to this video link for a more in-depth research regarding this attempt: Possible Solutions
 Government cooperation is particularly essential when tackling this issue; not only because the NGOs have limits as to their ability to interfere in events occurring in a country, but also because the price controlling has previously been entrusted to the industry and it has resulted with little success. In fact, governments work with delegations to influence negotiations in the WTO and the World Health Assembly. They are allied with think tanks – such as the South Centre, an inter-governmental research center – who worked closely with the governments of Brazil and other like minded countries to push forward the WIPO Development Agenda, a significant reform of an international organization. These governments take the positions they do in WIPO and WTO as a result of pressure from local civil society organizations at home. Therefore, urging member nations to take a more active role will accelerate the pace of solving this issue. Research Report | Page 7 of 9
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 It is essential that the UN provides enough incentive for key parties to provide data. Pricing data will be needed from various levels in the market to determine appropriate payment amounts. If the program establishes fair, but not excessive prices, providers will be more likely to participate in good faith than if the program tries to implement below-market prices that overly squeeze the provider’s margins. In addition, terms must be clearly defined so that firms understand what data they are expected to submit and so that analysts understand what data they have received.  Any payment scheme creates financial incentives for providers. Ideally, these incentives foster quality and cost-effectiveness. Two main dimensions of provider incentives have already been discussed. First, adequate compensation gives providers incentives to participate in the program and supports beneficiary access. Second, payment based on actual acquisition costs creates neutral incentives for providers regarding the choice of drug therapy with the result that providers are more likely to focus on the choice of therapy that is optimal for the patient and economically efficient for the program. Bibliography
John L. McGuire, Horst Hasskarl, Gerd Bode, Ingrid Klingmann, Manuel Zahn "Pharmaceuticals, General Survey" Ullmann's Encyclopedia of Chemical Technology" Wiley-VCH, Weinheim, "Medicaid." New York State Department of Health. Dec. 2011. Web. 06 Jan. 2012. <>. "HHS' Conference on Pharmaceutical Pricing Practices, Utilization, and Costs, August 8th & 9th." Conference on Pharmaceutical Pricing Practices, Utilization, and Costs. U.S. Department of Health and Human Services, 2 Jan. 2001. Web. 06 Jan. 2012. <>. Stevens, Philip. "Diseases of Poverty and the 10/90 Gap." International Policy Network, Nov. 2004. Web. 7 Jan. 2012. <>. Drugs for Neglected Diseases Working Group, Fatal Imbalance: The Crisis in Research and Development for Drugs for Neglected Diseases, MSF, September 2001 WHO, Vitamin A supplements: a guide to their use in the treatment and prevention of vitamin A deficiency and Encyclopædia Britannica. Encyclopædia Britannica, Inc, 2012. Web. 6 Jan. 2012. <>. Schondelmeyer, Stephen W., and Marian V. Wrobel. "Medicaid and Medicare Drug Pricing: Strategy to Determine Market Prices." Medicaid and Medicare Drug Pricing: Strategy to Determine Market Prices. Abt Page 8 of 9 | Research Report
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Associates Inc., 30 Aug. 2004. Web. 6 Jan. 2012. <>. Cook, Anna. "Why Different Purchasers Pay Different Prices for Prescription Drugs."Conference on Pharmaceutical Pricing Practices, Utilization and Costs. Leavey Conference Center, Georgetown University Washington, DC, 8 Aug. 2000. Web. 06 Jan. 2012. < Hoadly, Jock. "Prescription Drug Coverage, Spending, Utilization, and Prices." Office of the Assistant Secretary for Planning and Evaluation, HHS. Prescription Drug Conference, 8 Aug. 2000. Web. 06 Jan. 2012. <>. Berndt, Ernest R. "Factors Driving Pharmaceutical Expenditures: An Overview." Office of the Assistant Secretary for Planning and Evaluation, HHS. Massachusetts Institute of Technology and the National Bureau of Economic Research, 8 Aug. 2000. Web. 06 Jan. 2012. Hollis, Aidan, and Thomas Pogge. "Making New Medicines Accessible for All." The Health Impact Fund. Incentives for Global Health, 2008. Web. 6 Jan. 2012. Appendix or Appendices (Transparency International’s annual CPI) Transparency International is always an amazing organization to insert in to your clauses to ensure transparency in your resolution. One important thing to note is that Transparency International DOES charge. It is not a non- profit- organization, and it is not a panacea to all issues of transparency (it is extremely difficult to ensure the transparency of a government through the use of Transparency International). However, in the case of our topic at hand, TI can easily be used to ensure the process of medicine manufacturing or the price list and other information provided by the pharmaceutical industry is valid and transparent. Research Report | Page 9 of 9


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