Blinded by the light (Guest Blog)
06.06.19
Price transparency and pricing transparency are often confounded. The former usually refers to disclosure of net prices the latter to making the pricing process more transparent. Calls for more transparency have become louder in recent times – not only for prices or pricing but also for more transparency in research and development costs, patents, clinical trials, or for declaring public funding which went into medicines development etc. (OECD, 2018) (WHO, 2018) (ECL, 2018) (Ministero della Salute, 2019)
Who would dare to oppose transparency? The opposite of secrecy, transparency, is described as openness and demonstrating accountability towards third parties and ultimately warranting good governance. Some argue that price transparency would reduce prices of medicines. However, evidence for price transparency, i.e. disclosing list prices of medicines, is inconclusive. (WHO, 2018) Nevertheless, the very same institutions call for price transparency.
Price transparency is a prerequisite for implementing External Reference Pricing (ERP), i.e. the method of referencing to medicines prices of other countries. ERP ensures that prices in the referencing country do not exceed prices in the referenced countries. Price transparency is a prerequisite because ERP is only effective if it refers to real, i.e. net prices.
Economic theory however says that ERP may lead to a uniform price in the long term which will disadvantage those who benefited from higher discounts and benefit those who had to pay more. (Glynn, 2015) (Danzon & Towse, 2003) Price transparency may even encourage ERP since it is normal economic behaviour not to pay more than the neighbour. And what if the neighbour is not so affluent and his ability to pay is much lower? Should the more affluent benefit from the same price? Price transparency may undermine so-called differential pricing, i.e. where higher income countries pay more while lower income countries pay less, because they reference to lower income countries.
Does price transparency undermine fair prices in the end? It depends. Differential pricing exists in other areas of daily life: students and seniors can buy a cinema ticket for less than the regular cinema visitor. All this is made transparent at the counter. Families may get special discount at restaurants. This is mentioned in the menu card. And so on. This type of differential prices works despite transparency because there is a certain agreement or even “social contract” among citizens that this type of discrimination is fair, and all agents, i.e. non-students, non-seniors and non-families accept these rules. This, however, may not the case when it comes to ERP as there are no international rules nor agreements for differential pricing. In short, there is no need for governments to obey to differential pricing.
Is price confidentiality any better? It depends. Confidential prices are not a complete secret. They are well known to both parties of the negotiation, the payer and the manufacturer. While we would trust the judgement of payers and governments in the negotiation as both have diverging interest, the question is whether the knowledge of the prices would be of any help – except for countries using ERP (see above).
Transparency in research and development is part of good governance. That‘s why industry has agreed to disclose what clinical trials are conducted as well as their results. (IFPMA, JPMA, EFPIA, PhRMA, 2018) At the same time, full transparency of research and development activities may expose an inventor unnecessarily, making his invention accessible to everyone and subject to copy-paste for everyone. This can be painful if the research and development required a lot of time and investment, things a copycat does not care about. Who hasn’t experienced that a good idea has been presented by someone else as his own idea? Would the original inventor invest the time and money in the future again?
Patents help the inventor to harvest the fruits of his work and investment. The flipside of the patent is that the invention must be made publicly available information so that another researcher can build on this invention. (World Intellectual Property Organisation (WIPO), 2019) Transparency in this sense contributes to scientific progress.
Finally, there is the so-called “Transparency Directive”. (Council of the European Union, 1989) Often confused with price transparency the Directive 89/105 EEC actually aims to obtain transparency about pricing, i.e. an “overall view of the national pricing arrangements, including the manner in which the operate in individual cases, and all the criteria on which they are based, and to provide public access to them for all those involved in the market in medical products in the Member States; whereas this information should be public”. In short, transparency on the decision-making about pricing and reimbursement.
Pricing transparency makes decision-making about reimbursement accountable. Price transparency undermines differential pricing and access. Patent transparency contributes to scientific progress. In short, is transparency good or bad? – It depends!
But the heated debate about transparency may have made blind many for the deeper-lying issue which is: trust. The fact that price transparency has been so prominently discussed in the context of WHO’s Fair Pricing Forum seems to confirm this. (World Health Organisation (WHO), 2019) Hence, a first step towards trust could be a transparent conversation about the principles we as stakeholders have in common. The EFPIA Oncology Platform sees itself as an attempt to do so. One such principle is certainly: that there is no valuable innovation without a patient who can access and benefit from it.
