Future Strategic Directions: Medicines Pricing and Financing

1. Future Strategic Directions: Medicines Pricing and Financing Dr. Dele Abegunde Medicines Access and Rational Use

2. Background • Access to pharmaceuticals essential to healthcare • 25 -70% of health spending in the developing countries, 10-18% in OECD countries • Relatively low marginal cost of unit of pharmaceutical production not translating to consumer surplus • Marginal cost of consumption at point of need for most consumers in the developing countries is way greater than zero. Less that 3% of population in low-income countries have some forms of insurance cover

3. Background Total pharmaceutical expenditure: 0.2 – 3.8% of GDP TPE share of Total Health expenditure vary up to between 25 – 36% OECD countries. Likely higher in LIMC countries? Share of TPE from external sources increase from 12% in 2000 to 17% in 2006 in LMIC, 22% in the 49 least developed countries. 80% global TPE spent on 18% of population: May suggest regressive global financing scenario Medicines financing remain regressive in LMIC: Medicines are largely financed through OOP – only about 3% have access to some forms of insurance mechanism Market failures justify public intervention Regulation for cost containment and equitable financing is weak in many countries Global recession threatening to dry up traditional funding sources

4. Medicines price activities Since about a decade • WHO has partnered with HAI for about a decade • Medicines pricing surveys: up to 70 so far • Development of policy guidance • Global activities: WHO Regions: EMRO, WPRO, PAHO countries and NGOs such as the OBIG/PPRI, OECD, MeTA etc.

5. Global scenes • Innovative medicines financing schemes and tools Pooled procurement Patent pooling Bilateral AIDS and donations Air ticket tax Sin tax – tobacco and soda etc • Players- financial intermediation GF, UNITAID, PEPFAR, GDF, GAVI, Bilateral, Task force for Innovative financing . . . . . . . . . . . • Estimating real impact? Market impact analysis? Structural impact?

6. Challenges • Distorted view of total essential medicines financing with inputs to specific disease programs by donors • Reduced government contributions to health and medicines • Constrained technical capacity in countries • Political will • Global economic (financial) crisis • Human resources • Healthcare systems

7. Re crafting WHO response • Response so far resonates more with the supply side of pharmaceutical market • Expanding response to the determinants of demand; • opportunity to advance development of response to inaccessibility and low affordability of medicines • synergize with work so-far • Empowers consumers to increase access to essential medicines • Enhance positive consumer behaviour towards use of essential medicines

8. Stepping into the Future: WHO Strategy • Goal: To ensure that medicines are available and affordable for all populations • Purpose: Encourage and support the development, strengthening and implementation of global, regional and national actions aimed at greater availability and improved affordability of medicines

9. OBJ 1 • Stimulate the commitment of governments, international organizations and others to address the issues surrounding medicine financing, pricing and availability Increase global awareness of the main issues surrounding financial management of pharmaceuticals, including prices, availability and affordability. Intensify advocacy for equity in access to essential medicines Promoting medicines financing schemes that targets empowering the poor Advocate for high-level government support for country-level action Promote and facilitate measures to manage and contain medicine prices Collaborate with professional associations, scientific institutions, governmental and NGOs.

10. OBJ 2 • Develop practical guidance on the implementation of policies and other interventions for managing medicine prices and availability, including pharmaceutical financing and reimbursement systems. Convene international experts to review evidence for policy programmatic options Support the regular publication of medicine price data: transparency, information sharing, and tool for price negotiations and decision-making. Develop tools to guide and assist policy and decision makers to navigate the broad mix of policy options and implementing home-grown interventions. Disseminate information on policies and other interventions.

11. OBJ 3 • Build national capacity for evidence-led development, adoption, implementation and monitoring of policies and interventions for improving the access to and the financing of, essential medicines, and the evaluation their impact. support the collection and management of country information provide technical support for the development, implementation and evaluation of national policies and interventions Facilitate dialogue and information exchange among policy- and decision-makers, Advocate and support processes of pharmacoeconomic evidence-led decision making. Facilitate and support the process of developing, establishing and evaluating medicines finance strategies

12. OBJ 4 • Support operational research in a broad spectrum of relevant areas, including the determination of and refinements of financing norms, measurement of price, availability and affordability, and evaluation of interventions Promote the consistent use of standard methodology for medicine price and availability measurement: WHO/HAI survey protocol Encourage and support periodic surveys and routine monitoring of medicines prices, availability and availability Conduct secondary and subset analyses of medicine price, availability and affordability Data: disease group, treatment, country and region. Support operational research into the effectiveness of various policies and interventions in different contexts.

13. Warm up activities • Financing of medicines • Normative exploration of TPE – collaboration with University of Brunel the UK and experts • Preliminary explorations into adaptation of the developments in Micro financing to improving economic access to essential medicines: Micro insurance, Community health funds, Mutual health organizations, Rural health insurance, Revolving drug fund, Community involvement in user-fees Management • Advocating for and promoting the expansion of existing insurance coverage particularly to include out patient prescription • Promoting developments to improve the incorporation of pharmacoeconomic values into medicines policy • Advancement in the medicine pricing domain

14. General funding models - macro • National, country model a.k.a Macro model Maximize Health welfare = Ʃ Cost of Medicinesj X Treatment needs j Subject to: budget constraints (GDP, budget allocation, income from cost recovery) Availability constraints (supply and distribution) constraints Health system constraints Public/private market participation • Budgetary model Total Cost = Ʃ Cost of Medicines (Cj ) X Quantity (Qj)

15. General funding models - micro • Household (consumer) model aka Micro model Out of pocket from household wealth, budget, social capital, etc. • Medicines compete with: other healthcare services and product Food security Other household demand – education, transportation, shelter etc household investment • Demand for medicines is inelastic

16. Imperfections & Public policy intervention • Imperfections: Asymmetrical information Supplier induced demand • Justification for public intervention in the funding of medicines • Most advanced countries Pooled risks: Public insurance and reimbursement systems - tax based, premium based, Labour insurance or Government insurance schemes. Private insurance systems. • Most developing countries: Out of pocket expenditure – over 90% Public provision – weak at best Some forms of insurance coverage especially community health financing schemes

17. Measures to address financial access

18. Strategies to improve medicine financing in countries • increased investment and • public spending on health; • improved aid effectiveness; • better efficiency and use of prepayment • risks pooling arrangements; • improved payment methods • safety nets for the poor and vulnerable;

19. Public (National) financing Mechanisms • Insurance • Pooled procurements • Global initiatives • UNAIDS • Global Funds • UNITAID – HIV/ • HLTFIF – MDG focused

20. Downstream financing Mechanisms • Insurance Challenges: Formal sector, limited cover to the larger informal sector • Community financing (Micro finance) Community health (medicines) insurance Relatively untapped broad area of opportunities

21. Microfinance: CHI • Generic expression that describes a variety of health financing arrangement: • Micro insurance • Community health funds • Mutual health organizations • Rural health insurance • Revolving drug fund • Community involvement in user-fees management

22. CHI Community finance schemes • This market is evolving in the contest of: • Government failure to organize taxes, public finance, provision of social protection to vulnerable populations and to exercise oversight over the health sector. • Market failure to offer effective exchange between demand and supply • Strength • Social capital • Pre existing community institutions • Interconnectivity between local communities • Limitations to overcome to serve the community well • Lack of insurance and reinsurance mechanisms to spread risk over larger population • Isolation from formal financing and provider networks • Have difficulties in mobilizing enough resources to cover costs of priority health services for the poor • Limited ability to encourage prevention or use of therapies effectively • Rely on management staff with limited professional training.

23. CHI five key policies available to governments to improve the effectiveness and sustainability of existing community financing schemes. • subsidized premiums of low-income populations • insurance to protect against expenditure fluctuations and re-insurance to enlarge the effective size of small risk pools • effective prevention and case management techniques to limit expenditure fluctuations • technical support to strengthen the management capacity of local schemes • establishment and strengthening of links with the formal financing and provider networks.

24. Microfinance Institutions (MFIs) – Alternative Finance Institutions (AFIs). • Microfinance Quality of financial services for poor and near-poor clients Most have been not-for-profit non-governmental organizations In addition to a financial objective, they also have a developmental or social Objective AFIs include state-owned agricultural, development, and postal banks; member- owned savings and loan institutions; other savings banks; low-capital local and/or rural banks; and specialized microfinance institutions and programs (MFIs) of varying types There are over 750 million accounts in various classes of financial institutions that are generally aimed at markets below the level of commercial banks, and that some substantial fraction of these institutions' clients are probably poor or near-poor.

25. Regional coverage (MFIs, AFIs) Region % of Accounts Africa (sub-Saharan) 4 East Asia and the Pacific 48 Europe and Central Asia 3 Latin America and the Caribbean 2 Middle East and North Africa 7 South Asia 36

26. Accounts by institutional types (AFIs) Region % of Accounts Postal Banks 48 MFIs 18 Credit unions and coops 5 Community Banks 3 State Agricultural development banks 26

27. Innovative financing methods • hypotheticated taxes, e.g. 'sin taxes' for tobacco and alcohol • national and state lotteries dedicated to health • public-private partnerships between governments and the private sector to co-fund health care. • Other mechanisms are internationally focused, such as: • the (recently proposed) International Finance Facility (IFF). This would front-load development assistance by selling government bonds secured by future aids flows • debt for health swaps, in which external government debt is converted into domestic debt, thereby resulting in less pressure to generate foreign exchange for debt service. A debt-for-health swap also represents an opportunity for a foreign donor to increase the local currency equivalent of a donation. • the use of public-private partnerships to develop new products using capital markets.

28. Thank you for listening