Rotten to the Core?
How America’s Political Decay Accelerated During the Trump Era
Pharmaceuticals are at the center of the debate over the Trans-Pacific Partnership (TPP), as they have been for every recent U.S. trade deal. Democrat Hillary Clinton, former secretary of state and current presidential candidate, has highlighted overly generous terms for drug companies as one of the main reasons she opposes the TPP. Republican Orrin Hatch, chairman of the Senate Finance Committee, has said that the TPP does not match the incentives for drug research that exist in U.S. law, which may justify waiting for a new president to negotiate a better deal. Meanwhile, both health activists and drug companies oppose the TPP, as they have three of the last four U.S. trade deals.
Underlying the fight over trade and medicines is an assumption held by both sides of the debate: that the drug patents and other guarantees of exclusivity in recent U.S. trade deals will operate in practice as those rules do in the United States. If so, one would expect to see higher prices on patented and branded medicines, resulting from the delayed competition with low-cost generics. In short, the pharmaceutical markets in countries with recent U.S. trade deals should become more like that in the United States.
As indicated by new evidence from 15 of the 17 countries with recent U.S. trade deals with pharmaceutical terms that go beyond World Trade Organization (WTO) requirements, however, these markets have not become more like that in the United States. Some of these deals are more than a decade old, but there has not been a discernible shift in pharmaceutical spending in these countries away from cheap generic drugs.
More substantial effects might arise over time, but the current evidence suggests that it may be time to move beyond the large pricing and spending claims made for and against the pharmaceutical provisions in U.S. trade deals and to focus the trade and medicines debate elsewhere.
One factor that has perpetuated the long fight over trade and medicines has been limited data. The United States has trade deals with pharmaceutical protections that go beyond those in the WTO with 17 countries. But just two small studies (on Jordan and Guatemala) have assessed how those deals affected drug prices in practice. Most claims made for and against drug patents and other guarantees of exclusivity are based on projections grounded in how those rules operate in the United States.
With the help of the IMS Institute for Healthcare Informatics, the leading source for pharmaceutical sales data worldwide, it is possible to begin to assess how these projections have played out in practice. The data, which cover a decade, show that national drug spending has remained flat as a share of overall health expenditure in reviewed countries since the U.S. trade agreements entered into force.
The growth in per capita pharmaceutical spending is in line with that for nations of similar income with no U.S. trade deals and no exclusivity requirements, such as Brazil, Thailand, and South Africa.
Meanwhile, the volume of pharmaceuticals consumed has grown, and there has been no discernible trend toward on-patent or branded medicines and away from cheap generic drugs.
There are, of course, important caveats. First, aggregate pharmaceutical sales might not capture the disproportionate impact that U.S. trade deals have on certain drugs and classes of medicines. This is especially true for the six Central American countries for which IMS Health has only combined sales data. Second, the full effects of expanded pharmaceutical patents or market exclusivity may take longer than a decade to manifest. Third, the IMS Health data do not necessarily comprehensively cover all drug distribution channels, particularly in low- and middle-income countries, although it is the same data set Oxfam used to study drug prices after Jordan’s trade deal with the United States.
Still, even with these caveats in mind, if U.S. trade deals spurred the large drug price increases and shifts away from lower-cost generics that many predicted, some sign of those changes should be evident even in the aggregate pharmaceutical sales data. The limited results are also consistent with the recent testimony of Peru’s ambassador to the United States that Peru’s prescription drug prices rose less than three percent since its U.S. trade deal.
There are four reasons why trade deals might not have set off increased spending on medicines or shifts away from lower-cost generics.
First, pharmaceutical patents and market exclusivity rules have a significant impact on drug prices in the United States but less dramatic effects in countries with price controls and health providers that are willing to exclude expensive medicines from formularies. For these reasons, European Union countries, which also have strong pharmaceutical patent and market exclusivity guarantees, still pay much lower average drug prices than the United States. The adoption of stringent price controls since the launch of the WTO is likely also why there has been an apparent decline in patented drug prices in poorer nations.
Second, the manner in which countries implement trade agreements matters and may differ from outside analysts’ readings of the text. A decade ago, India adopted drug patents in accordance with WTO rules, and many health activists forecast disaster. Yet a recent World Bank study found that the price of drugs that got patents in India increased just three to six percent. There was also little change in the quantities of medicines sold or number of drug firms operating in India. The reason? India adopted price controls and strict standards on the patentability of drugs. The pharmaceutical terms of recent U.S. trade deals are far more prescriptive than in the WTO, but countries still interpret and implement those terms in accordance with their domestic interests, which generally blunts their effects.
Third, the pricing practices that led to past crises in treatment access may be becoming less common. Two decades ago, drug companies, concerned about undercutting sales in rich-country markets, adopted internationally consistent prices for their antiretroviral medicines amid an exploding HIV/AIDS epidemic. The high price of these lifesaving drugs in South Africa incited protests, court battles, and a public relations disaster for the pharmaceutical industry. In recent years, drug companies have more widely employed the strategies that helped defuse that HIV/AIDS treatment access crisis—deep price cuts for poorer nations and licensing some production to local generic companies. Health advocates are understandably wary that these measures depend on drug industry largesse, but their broader use might help explain why U.S. trade deals have not led to more drug spending or shifts to patented medicines.
Fourth, U.S. trade agreements do not apply retroactively to medicines that are already on the market. The share of medicines launched after a U.S. trade deal that are eligible for patents or exclusivity increases over time—originator medicines launched in the decade since Australia’s trade deal with the United States represent 13 percent of that market—but slowly. Only a subset of those drugs will gain patents or exclusivity, owing to the expanded terms in U.S. trade deals.
Looking only at the medicines most likely to be affected by U.S. trade deals does not produce a different result. U.S. trade deals require countries to grant exclusivity to newly approved medicines and their uses, delaying otherwise off-patent “originator” drugs from having to compete with low-cost generics. For four of the countries with recent U.S. trade deals, IMS Health has data on the off-patent originator medicines launched before and after those agreements. These data show no upward trend in the prices of drugs launched in the three years after these agreements entered into force. Different results might emerge with larger sample sizes and data from more countries with recent U.S. trade deals.
TPP AND BEYOND
There are reasons to believe that these general trends may also hold with the TPP. Most of the TPP countries have previously entered into U.S. trade deals and already have variants of the pharmaceutical patent and exclusivity terms required by the TPP. In the areas where the agreement mandates a significant change, the less wealthy countries in the TPP get more time to adopt it. The TPP provides Vietnam, for example, up to 18 years to adopt data exclusivity for new biologics. Most TPP countries, including less wealthy ones such as Mexico and Vietnam, already regulate drug prices; Peru is pursuing a bill to do so.
So is the treatment access debate overblown? If the concern is drug prices and spending, evidence suggests that the pharmaceutical provisions in U.S. trade deals may not justify the large claims made for or against their inclusion. More substantial price effects might arise over time, but it is hard to find empirical data suggesting this is starting to occur.
If the fundamental concern is less about prices and more about drug development, there may be more to the trade and medicines debate. The goal of U.S. trade negotiations on intellectual property is congressionally mandated: ensuring “a standard of protection similar to that found in U.S. law.” For health activists who believe the patent-based model of drug development is unsustainable and inequitable, the use of trade agreements to spread and entrench that system internationally is deeply concerning. In a country where television viewers are routinely bombarded with expensive pharmaceutical ads for constipation, irritable bowel syndrome, and toenail fungus, these concerns may resonate.
But having the fight over U.S. trade deals focus on their effect on international drug prices (where the evidence is thin) ensures that those concerns go unaddressed. And so, the pharmaceutical terms of each U.S. trade agreement are usually more expansive and prescriptive than the last but include phase-ins and other concessions to mitigate price effects in other countries that may never arise.