A/HRC/23/42 B. Pricing 20. According to the right-to-health framework, medicines should be economically accessible to all sectors of the population. Medicines should therefore be priced in a fair and equitable manner and be affordable so as to not disproportionately burden poorer households. This is an even greater problem in developing countries, where up to two-thirds of expenditure on medicines is individually financed through out-of-pocket payments.28 Such payments are primarily responsible for catastrophic health expenditures, annually pushing approximately 100 million people, mostly in developing countries, into poverty.29 Ensuring affordable and equitable pricing of essential medicines is therefore a key determinant of access to medicines in most developing countries. 1. Price control 21. States have a legal obligation under the right to health to ensure that production of essential medicines by the private sector does not threaten affordability and accessibility of medicines. Market monopoly or market domination combined with insufficiently competitive forces in the market to ensure efficient prices can result in monopolistic pricing leading to high cost of medicines. Hence, price regulation becomes critical.30 In some countries, however, the term “price control” has acquired a negative connotation,31 including that it affects revenue-induced innovation for pharmaceutical companies.32 In developed countries, where a substantial proportion of the population is covered by health insurance schemes, governments frequently apply price control mechanisms as part of the overall strategy to contain costs. The absence of price controls in developing countries causes grave problems if private-sector monopoly over manufacture and distribution of vital medicines remains unregulated. Such unfettered monopoly can lead to profitmaximizing pricing. In developing countries with high income-inequality it would mean that access to medicines is only affordable to the wealthy. States that inadequately use price controls to ensure affordability of medicines would fail in their obligation to use all available resources, including regulatory powers, to promote the right to health. 22. States which responded to the Special Rapporteur’s survey reported on the use of price control mechanisms to promote affordability of medicines, particularly essential medicines. Accordingly, external reference pricing (ERP), therapeutic reference pricing (TRP), as well as the regulation of manufacturers’ selling price and distributor’s mark-ups, have been applied as the most common methods for setting a ceiling price for medicines. States also reported the use of competition law as the preferred indirect price control mechanism. Tax incentives to manufacturers, wholesalers and retailers and government subsidies to manufactures were indicated as other methods of indirect control used by States to control prices of medicines. 23. According to the respondent States, ERP is the primary method used by regulatory bodies to set a retail price above which medicines cannot be sold to consumers. Under ERP, 28 29 30 31 32 8 WHO, The World Medicines Situation 2011: Medicine Expenditures, 3rd Edition (2011), p. 7. WHO, The World Health Report, Health Systems Financing: The path to universal coverage (2010), p. 8. Jaime Espin et al, “External Reference Pricing”, Working Paper 1, Review Series on Pharmaceutical Pricing Policies and Interventions (2011), p. 1. U.S. Department of Commerce International Trade Administration, Pharmaceutical Price Controls in OECD Countries: Implications for U.S. Consumers, Pricing, Research and Development, and Innovation (2004), p. 3 Neeraj Sood et al, “The Effect of Regulation on Pharmaceutical Revenues: Experience in Nineteen countries”, RAND Corporation, published by Health Affairs (2008), pp. w125-w137, p. w136.