Shape of U.S. TPP Pharmaceuticals Chapter Emerges
Sources knowledgeable about the U.S. negotiating position in the TPP
confirm that the U.S. has now drafted a pharmaceutical chapter for the
TPP negotiations. The chapter is modeled on the Korea-US (KORUS) FTA’s
pharmaceutical chapter, as expected, but goes beyond it in various ways.
objectives of the section include a statement recognizing the ability
of governments to apply appropriate standards to monitor the quality,
safety and efficacy of medicines. But this language does not include
recognition of governments’ need to promote the affordability of
Restrictions on reimbursement programs. The
key provisions restricting the efficacy of pharmaceutical pricing
programs is in a “procedural fairness” section. The section includes
- Disclose all “methods” used to determine the amount of reimbursement;
- Give companies opportunities to comment on drug listing and reimbursement price decisions;
Many Medicaid programs establish their
preferred drug lists in open meetings, but not all of them do and not
all use notice and comment rule making for the making of their lists.
- Set the amount of reimbursements based on “market derived prices” in the party’s territory.
The KORUS agreement includes a similar
requirement on market prices, but the language mandating that the market
price be in the party’s territory is new.
The territorial restriction appears to
make illegal the common practice of reference pricing – the
consideration of prices offered in other territories as benchmarks for
local price comparisons;
- If reimbursements are not based on market derived prices within the
territory, then the reimbursement price must “appropriately recognize
the value of patented or generic products” in the reimbursement amount
(subject to an appeal, as described below);
This formulation appears in the KORUS
agreement as well. What it means in practice is very unclear and will
likely be defined in litigation with pharmaceutical companies in
countries that adopt these standards through legislation.
- Give manufacturers the opportunity, before or after the
reimbursement decision, to apply for an increase based on evidence of
superior efficacy, safety or quality of their product;
- Give manufacturers the opportunity to receive reimbursement for
“additional indications” based on information that the manufacturer
This section could be interpreted to
mandate public reimbursement for off-label prescribing – that is, the
prescribing of products for purposes not approved by the country’s drug
registration body. In the U.S., some Medicaid programs refuse
reimbursement for certain off label uses of approved products.
- Provide information to manufacturers on the basis for all listing and reimbursement decisions;
Assumedly to set up an appeal or other litigation;
- Provide an independent appeal or review of all decisions
e.g. on whether the reimbursement price adequately recognizes the value of a patent.
A new section not included in previous trade agreements would require
countries to permit direct-to-consumer marketing over the internet. The
section requires countries to allow companies to disseminate information
to prescribers and the public through internet websites. This would
appear to make illegal a proposal by Representative Waxman that
companies not be allowed to engage in certain kinds of promotion in the
first three years of a drug’s time on the market.
As has been widely reported, programs for the purchasing and
reimbursement of medicines in the U.S. do not comply with most of these
standards. Medicaid programs, for example, do not provide substantive
appeals for decisions to list a drug on a preferred drug list. The U.S.
proposal attempts to protect most U.S. programs from being effected by
the proposal through a series of technical carve outs.
As in the Australia and Korea FTAs, the scope of the section applies
to all programs where the listing or reimbursement price for medicines
is set by the “central” level of government. The restriction of the
section’s coverage to “reimbursement” decisions, rather than purchasing
decisions, makes the section applicable to most foreign government
programs (which generally operate like insurance through
reimbursements), but exempts most U.S. federal level drug pricing
programs which operate through direct purchasing (e.g. VA hospitals,
GSA, DoD). The restriction of the mandates to “central” level government
programs also exempts many employee reimbursement schemes and other
drug programs operated by states.
The section appears facially applicable to several large and
important reimbursement programs in the U.S., namely the 340b program
(where prices for pharmaceuticals are set through a federal statutory
formula), Medicare part B (covering reimbursements in hospitals), and
Medicaid (where federal law defines coverage criteria and where prices
are set in large part through a federal formula). But a footnote in the
Korea FTA, which is carried forward into TPP, exempts Medicaid as being
regional rather than central, even though important reimbursement
decisions are made by the federal Department of Health and Human
Services. The footnote in TPP has been expanded to propose exempting
Medicaid and “related” programs. The definition of “related” remains to
be defined. It may be an attempt to ensure that the 340b program is
exempted, but it does not clearly do so.
Medicare Part B appears to be regulated by the text with no carve
out. If Medicare Part D were changed to create a single federal
government managed formulary, which has been proposed by some law makers
and would likely result in significant cost savings, then it too would
be covered by the section.
The pharmaceutical chapter in TPP is very different than past chapters
(Korea, Australia) in that it regulates medicine affordability programs
in developing countries. The current draft does not contain special and
differential treatment for developing countries. TPP would be the first
trade agreement since TRIPS and the Doha Agreement on TRIPS and Public
Health to impose substantive restrictions on the ability of developing
countries to regulate the prices of IP-protected medicines or other
The ultimate goal of the TPP chapter, and the Korea and Australia
agreements before it, appears to be to turn the negotiation of drug
reimbursement rates with pharmaceutical companies into formal rule
making, complete with appeals and potential litigation at the back end.
The procedural hurdles would decrease the negotiating power of
governments to exact price reductions through the kind of market means
used by larger insurers. If widely followed in the U.S., one would
predict that government programs would begin to pay higher prices than
private insurers not bound by the same restrictions, rather than the
lower prices that public programs are often able to receive (given their
larger economies of scale).
An overriding question for those concerned about the protection of
U.S. programs is how long U.S. negotiators can continue to succeed in an
agenda to impose substantive restrictions on drug pricing programs by
other countries, but not limit its own programs that have similar
operation and effects. As Governor Shumlin noted in a recent letter to President Obama:
“[T]here is no guarantee that a TPP Pharmaceuticals chapter would
contain the same carve-out (as the KORUS FTA). Even if a chapter was
proposed that did include a Medicaid carve-out, state leaders believe it
is inappropriate for U.S. trade policy to advance restrictions on
pharmaceutical pricing programs that U.S. programs do not meet but for
technical carve outs.”
The TPP chapter may be best seen as a significant step toward the pharmaceutical industry’s ultimate goal, which is a binding international agreement on drug pricing that would restrain the ability of governments to use collective purchasing power to demand prices below “market” levels.