South Africa promotes discussion at UNCTAD on competition in healthcare markets and pricing of medicines

At the 18th session of the United Nations Conference on Trade and Development (UNCTAD)´s Intergovernmental Group of Experts on Competition Law and Policy, which took place between 10-12 July 2019 at the Palais des Nations, Geneva, the Competition Commission of South Africa contributed to the discussion on “Competition in healthcare markets: access and affordability”.

The growing concern in developed and developing countries on trends in health care systems and their sustainability is driving a new global debate on the appropriate role of competition authorities in regulating health care markets. Ultimately, the debate is also closely tied to the topic of competition law as a means to promote the right to health and to achieve the United Nations (UN) Sustainable Development Goals (SDGs), given the possibility to foster affordable prices and broader access to health products and healthcare.

In its presentation[1], the Commission highlights the concerns surrounding practices that distort or impede competition in the healthcare markets and therefore elevate costs, including arrangements between pharmaceutical firms that prevent market entry of cheaper alternatives or that allow companies to charge excessive or unfair prices. In this regard, the Commission argues that competition authorities around the world are increasingly addressing the topic.

The Commission notes that governments need to ensure that markets enable all citizens access to affordable healthcare. A central message by the Commission is that competition is a key intervening tool in addressing market inefficiencies and rising prices in healthcare markets.

Both government budgets and personal budgets are directly affected by high prices. The Commission presented an analysis of global trends in healthcare, including rising global per capita expenditures after the 2008 financial crisis, and how initiatives to reduce costs of pharmaceuticals as a component of healthcare have been undertaken across the world. In Organisation for Economic Co-operation and Development (OECD) countries, pharmaceutical expenditure declined in many countries, which, it notes, is often attributed to the introduction and use of more generics in these markets. This reflects the importance of competition. At the same time, the group of largest 10 pharmaceutical firms by revenue remains mostly unchanged over the years.

The Commission recognizes the complexity of a competition intervention, particularly with regard to pricing, that deals with the layers added by sectoral and pricing regulations. Crucially, intellectual property rights (IPRs) impact the competition of the pharmaceutical sector, as exclusive rights exclude competitors and/or impede them from entering the market. Therefore, the exercise of IPRs may unduly reduce consumer welfare due to lack of competitive prices or lack of product choices.

From a competition law perspective, a balance between the appropriation of innovations by firms (through IPRs) and the spread of such innovations to other firms and to customers is needed, the Commission argues. To do so, the Commission discards a “laissez-faire” approach and advocates for interventions related to firms´ exercise of IPRs, particularly in cases of abuse of dominant position (such as excessive pricing or refusal to grant access to an essential facility).

The Commission recalls recent competition enforcement across the globe, particularly against pharmaceutical firms. At the European Union, both the European Commission and national competition authorities have undertaken a number of investigations on unfair pricing. There are also cases in India, Denmark, South Africa, United Kingdom and Italy. A recent OECD paper is also referenced, which points to positive and negative elements of competition authorities intervening in the pharmaceutical sector, concluding that, whenever justified, action should be taken. It also calls for the use of other tools, including market studies and joint efforts with sector regulators through advocacy.

A specific situation that can merit competition enforcement, mentioned by the Commission, is the practice known as “pay-for-delay” agreements, through which originator and generic companies agree on restricting or delaying entry on the market of generics in exchange for certain benefits. This has the consequence of maintaining monopoly prices even after the end of IPRs.

The Commission also expresses concern about issues related to “facilities and funding” in healthcare, mentioning prices in the insurance sector – particularly due to the problem of asymmetry of information – and the high levels of concentration due to merges and acquisitions in the hospital market.

Following the broad analysis, the Commission described selected recent policy developments taken at the national level, which are relevant to redressing some of the concerns exposed. South Africa’s Intellectual Property (IP) Policy – Phase I is substantively changing the country´s intellectual property laws to be in line with the UN SDGs. The new IP policy introduces substantive search and examination of patents, to curtail practices such as evergreening and the abuse of the IPR system in the country. In this regard, the Commission further reminds that the vast majority of World Trade Organization (WTO) Member States do not fully implement the flexibilities of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) provided for in the agreement itself, even in face of concerns of access and affordability of healthcare.

Secondly, the Competition and Fair Trade Commission of Malawi (CFTM) is supporting the development of the upcoming regulations on the health insurance industry, considering the large number of anti-competitive and consumer-related complaints.

Finally, in Brazil, the competition authority (CADE) is seeking stronger collaboration with both the Brazilian Health Regulatory Agency (ANVISA) and the National Regulatory Agency for Private Health Insurance and Plans (ANS). The Commission then refers to CADE´s Department of Economic Studies, which also pointed out to the existence of differentiated price ceilings for different competitors selling the same generic drug with the same active principle, recognizing this may lead to distortions in the market.

The Commission’s concluding message is that competition regulators play an essential role in ensuring low prices in the healthcare sector, and that the existing experiences around the globe indicate that they have effectively done so.

These considerations are particularly relevant in light of the fact that competition law is not subject to WTO disciplines or other binding international rules. Therefore, governments can implement the policies of their choice to address excessive pricing of medicines and other anti-competitive practices. Such freedom of choice can be regarded as one of the important flexibilities WTO members enjoy in the context of TRIPS[2].

Author: Vitor Ido is Program Officer of the Health, Intellectual Property and Biodiversity (HIPB) program of the South Centre.