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HEALTH-PERU: Cost of Medicines Out of Control

Milagros Salazar

LIMA, Feb 1 2011 (IPS) - When the price of medicines for treating cancer soared by up to 64 percent in 2010, the Peruvian government set up a watchdog commission that will also monitor prices of drugs for diabetes and HIV/AIDS.

The Directorate General of Medicines, Supplies and Drugs (DIGEMID) told IPS that the commission’s functions would be extended to other products that also enjoy tariff- and tax-free status, but are still priced beyond the reach of the general population.

“The medicines market is imperfect by nature, since pharmaceutical companies with products protected by patents have a virtual monopoly, thanks to the protection of intellectual property, and can set whatever price they want,” Alejandra Alayza, coordinator of the Peruvian Network for Globalisation with Equity (RedGe) complained to IPS.

“The government commission should keep a constant watch on the costs of all tax-exempt medicines,” she said.

According to a recent study by the Health Ministry, in 2009 and 2010 the Peruvian state lost potential revenues of 16.5 million dollars because of the tax breaks awarded to cancer medicines, in effect since 2001.

Results from another study to be presented shortly by Health Action International (HAI) and RedGe indicate that revenue losses amount to 40.8 million dollars if imports of these medicines between 2005 and September 2010 are taken into account.

The same applies to medicines for treating diabetes. Between 2006, the year tax exemptions were approved, and September 2010, the state missed out on 6.2 million dollars in forgone taxes on imports of these products totalling 25.3 million dollars, said Edson Meza, head of research for HAI Peru.

The commission will be made up of three key institutions: the Health Ministry, the Economy and Finance Ministry and the national competition and patents agency, INDECOPI.

Some pharmaceutical laboratories have a “greedy” attitude, said Peruvian President Alan García on Jan. 23. He asked the companies to show “more humanity” and said the Attorney General’s Office should intervene to regulate prices.

The Health Ministry study looked at 86 cancer medicines and their sales tax and customs tariff exemptions. Complete information before and after the introduction of the tax exemptions was found for five products sold through private sector pharmacies and eight medicines sold to the state.

Pedro Yarasca, executive director for drug access and use at DIGEMID, told IPS that retail prices were expected to fall by 23 percent when the tax breaks were introduced, but what actually occurred was that the profits of the large corporations engaging in monopolistic practices had risen.

Last year, in the case of the eight medicines for cancer treatment bought by the state for which complete information was available, prices rose by between 30 and 64 percent.

For example, rituximab, bevacizumab and trastuzumab, three medicines for treating breast cancer, were sold to the state at unit prices of between 1.46 and 2.35 dollars per tablet or dose, yielding a gross profit margin of between 31 and 53 percent for Roche, the Swiss pharmaceutical company that markets them.

The cost of these three drugs alone accounted for 56 percent of the 27.6 million dollars spent by all state agencies in 2009 on medicines to treat cancer.

Significantly, the public sector bought 93 percent of all cancer medicines in 2009, while only 6.94 percent of these drugs were purchased by individual patients from retail pharmacies.

“Patients can hardly ever afford these expensive medicines, so the state must provide them,” Yarasca told IPS.

The unit cost of cetuximab, an intravenous drug for treating head and neck cancer, is 357 dollars in Peru, and the monthly outlay per patient is 5,760 dollars.

The cost of a month’s treatment of cetuximab, sold by Merck Peruana, is equivalent to 880 times the daily minimum living wage, an amount that could take a worker over two years, without a single day off, to earn.

Tax and tariff exemptions for cetuximab were expected to result in a price reduction in pharmacies of nearly 25 percent, but the cost declined by only 21.6 percent.

According to Yarasca, competition is a more effective way of lowering prices, as he described for triptorelin, used for advanced cases of prostate cancer and included on the National List of Essential Medicines.

In 2005, when this medicine was made tax exempt and sold exclusively by one company, Tecnofarma, the unit cost was 131 dollars, but when two other pharmaceutical laboratories entered the field, the price dropped to 76 dollars. Yarasca said that in a free market system like Peru’s, the executive branch cannot regulate prices, but only highlight the problem and let INDECOPI investigate.

However, Meza told IPS that the health sector can drive prices down by means of parallel imports of medicines — importing a patented medicine from a country where it is legally available at a lower price — and can also demand that reference prices for state purchases must include the discount corresponding to the value of tax exemption.

“The Health Ministry has done well in showing up the scandalous behaviour of pharmaceutical companies, but the newly-created commission can establish mechanisms to ensure that tax breaks benefit consumers,” Meza said.

Generic drugs, the unbranded equivalents of patented medicines, can save patients and state health services considerable sums, experts say, but their availability is restricted by the 20-year patent protection and five-year test data confidentiality for medicines under the free trade agreement with the United States.

Alayza pointed out that HAI and RedGe have drawn attention to this problem in recent months, and are calling for decisions in the foreign trade sector and the economy to take health repercussions into account.

She also said that a 2006 law for the protection of persons with diabetes stipulates that the Health Ministry should carry out annual assessments of the benefits of tax exemptions for diabetic patients.

Yarasca told IPS that two measures will be taken: new studies will be carried out on the prices of medicines for diabetes and HIV/AIDS, and drug purchases by state agencies will be consolidated in order to secure the best price.

In 2009, the public sector made 860 separate procurements of medicines to treat cancer, indicating the high level of fragmentation of purchase and negotiation procedures.

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