Cross-Examination: Dead on Arrival? – The TPPA and Equal Access to Medicine

Today, in the first of a two-part series on the potential implications of the proposed Trans-Pacific Partnership Agreement on equality in New Zealand, EJP explores the impact of the Agreement on access to medicine. Will proposed intellectual property protections in the Agreement hamper the ability of Pharmac to procure medicines as cheaply as it does at the moment? Will this result in subsidies falling; ultimately reducing equality of access to medications vital to health? EJP Content Contributor Jack Garden explores.

Medicines are a cornerstone of modern lifestyles. Whether they are a simple dose of Paracetamol to work off the nastier effects of a cold, or a course of doxorubicin in a chemotherapy regime, their importance to developed health systems means that potential threats to our access to medicine are capable of stoking strong emotion as the human cost becomes factored into an already complex debate.

It is therefore no surprise that the proposed Trans-Pacific Partnership Agreement (TPPA) has generated forceful reaction from commentators who claim that it is capable of harming the New Zealand healthcare system. The free trade agreement seeks to stimulate trade across the Pacific by reducing tariffs and compliance costs in international markets, as well as requiring a level of regulatory coherence between parties in order to protect investors. If successful, the treaty could see a boom in Asia-Pacific trade and boost New Zealand’s GDP, creating jobs and increasing incomes in participating nations.

Prospective TPPA members (green), states invited to join TPPA negotiations (lime), and countries desiring to join TPPA negotiations (cyan). (Source: Wikimedia Commons)

In New Zealand, the Ministry of Foreign Affairs and Trade claims the economy could enjoy over US$4 billion in increased exports as a result of the agreement (6.8% increase) and US $2 billion in increased GDP (0.9% increase).[1] Furthermore, opting out of the TPP could reduce the relative competitiveness of our exports, and cause economic harm in the future. The Ministry, Business NZ and other industry groups contend it is a deal that New Zealand would be foolish to opt out of in light of its potential economic benefits.

However, persuading other countries to dismantle protectionist trade policies will require some sacrifice on our part. The demands of some countries are relatively moderate. However, since the United States entered negotiations in 2008, they have sought to introduce language that would force parties to adopt more stringent intellectual property (IP) protections, as the huge American pharmaceutical industry will be shored up if other nations adopt relatively generous US patent rights.

Pharmaceutical companies argue that generous IP rights encourage development of new drugs. The research process for medicines is a long and extremely expensive process: specialist technology and expertise, combined with a certification process that can take up to 10 years, means the total cost has been placed as high as US$2.6 billion.[2] A lengthy period where designers may exclusively market the drug offsets these development costs and helps incentivise the development of new drugs. Therefore, it is possible that increasing IP protections may enhance New Zealanders’ health via increased access to drugs, and there is even a possibility that it will encourage increased medical research in New Zealand.[3]

The TPPA’s detractors reject this view and argue such an expansion of IP rights in New Zealand will harm Pharmac (the Pharmaceutical Management Agency), the government organisation responsible for buying medicines for the New Zealand public health system. Pharmac leverages its market power as sole purchaser from the national pharmaceuticals budget — worth $795 million annually — to negotiate aggressively by exploiting its power to deny a market to manufacturers in the state health system.[4] This market dominance is massively enhanced when medicines are no longer under patent, as Pharmac may then force multiple companies to compete to gain the contract for New Zealand medicines, rather than having to negotiate with a monopoly holder. The effect of competition between generic medicine manufacturers is enormous: drugs are 85-90% cheaper when off patent, amounting to over $500m in savings on pharmaceuticals every year.[5]

New Zealand currently has a stricter patent regime than the United States, with harsher criteria for awarding or extending patents, and a shorter 5-year protected period where details of innovative medicines are kept confidential after regulatory approval.[6] US negotiators and the pharmaceutical industry are seeking to introduce more generous patent laws and increase the protected period up to 12 years.[7] If they are successful, Pharmac would be forced to negotiate with monopoly holders more often and pay their extreme mark-up if they wanted to supply the drug to New Zealanders.

The effect of competition between generic medicine manufacturers is enormous: drugs are 85-90% cheaper when off patent, amounting to over $500m in savings on pharmaceuticals every year. … If [those seeking greater intellectual property protections] are successful, Pharmac would be forced to negotiate with monopoly holders more often and pay their extreme mark-up if they wanted to supply the drug to New Zealanders.

University of Auckland Professor of Law Jane Kelsey, a prominent opponent of the TPPA, claims this will cause serious to damage to New Zealand healthcare. She argues that increasing the period where generic medicines cannot be accessed will “severely increase prices … either the Government has to put more of the health dollar into paying for pharmaceuticals, or it will fund fewer medicines.”[8] Both outcomes will achieve worse health outcomes for New Zealanders, and the Government would instead be forced to pay more in order to maintain the current pharmaceuticals schedule.

Pharmac may also be threatened by another component of the TPPA — the Annex on Transparency and Protocol Fairness for Healthcare Technologies. Some critics who have examined its draft form, which has been leaked, claim that it will require Pharmac to release more information about how it makes it decisions, and strengthen the ability of pharmaceutical companies to fight and appeal against Pharmac decisions.[9] Kelsey argues the provisions of the Annex will allow companies to “deluge Pharmac … with review mechanisms and constraints” which will “white-ant” the organisation and severely constrain its ability to negotiate aggressively with pharmaceuticals companies.[10]

These concerns have been shared by a number of clinicians, who wrote in a February 2015 letter to prominent medical journal The Lancet of the risks posed by the agreement.[11] An opinion piece also in The Lancet warned of “very high levels of intellectual property protection that would delay the introduction of generic drugs,” and consequently lead to increasing drug prices for all TPPA member states.[12] Prominent medical unions, including the Association of Salaried Medical Specialists, the NZ Nurses Association and the Public Health Association have also expressed concern about the risks the TPPA may pose to public health.

Price increases are feared because they could have worrying consequences. If an on-patent drug is too expensive, Pharmac may decline to fund it out of its fixed budget, or increase patient co-payments. This may place essential medical treatments out of reach of vulnerable members of society who are on low incomes, and cannot afford to fund it out of their own pocket or via health insurance. Alternatively, the Government may be forced to increase the proportion of healthcare funding that goes towards medicines. All of these outcomes will result in the New Zealand consumer being worse off, with potentially those on lowest incomes most affected. This would be especially concerning, as in New Zealand the poorest sectors of society already have far worse health outcomes than the rest of the population: those on low incomes facing a mortality rate nearly 25% higher than those on the middle incomes.[13] Increasing drug prices might therefore exacerbate health inequalities as well as damaging New Zealanders’ overall health.

If an on-patent drug is too expensive, Pharmac may decline to fund it out of its fixed budget, or increase patient co-payments. This may place essential medical treatments out of reach of vulnerable members of society who are on low incomes, and cannot afford to fund it out of their own pocket or via health insurance.

In response to these fears, the New Zealand Government has made repeated assurances that the model of Pharmac will be preserved. Trade Minister Tim Groser has claimed the agreement will have a “very marginal impact” upon Pharmac, and won’t result in higher prices for pharmaceutical products for New Zealanders.[14] However, it is clear from leaked draft texts of the agreement posted online by WikiLeaks that US negotiators are working hard for the IP provisions to make it into the final text. In order to secure New Zealand’s access to valuable US dairy markets, some form of compromise will need to be made with the American negotiators. The precise form of this middle ground can only be guessed at.

Unfortunately, it is difficult to move beyond speculation and objectively assess whether the risks to Pharmac will materialise in the final deal. Public oversight of the negotiating process is limited, as the text not available to the public until it is completed; most of what is known about the TPPA is a result of WikiLeaks publishing leaked texts of the agreement. Diplomats justify this as standard practice for international treaties, and believe the already difficult negotiations may collapse into chaos if nations are forced to reveal their preferred terms and absolute bottom lines. Keeping the talks confidential may therefore lead to a more balanced and fair agreement.

However, it is clear from leaked draft texts of the agreement posted online by WikiLeaks that US negotiators are working hard for the IP provisions to make it into the final text. In order to secure New Zealand’s access to valuable US dairy markets, some form of compromise will need to be made with the American negotiators.

Whether the TPPA can be completed and signed in the near future remains in doubt. The talks have dragged on for close to a decade, and recent political setbacks suffered by President Obama have thrown the status of the agreement into question.[15] If the deal does proceed, it may have significant implications for New Zealand’s access to medicine and healthcare equity, and may risk Pharmac’s statutory mandate to provide “the best health outcomes that are reasonably achievable from pharmaceuticals.”[16] Provisions of the TPPA that jeopardise public health outcomes warrant scrutiny from the public to ensure New Zealanders are satisfied the economic benefits of the agreement are sufficient to justify an incursion on one of our most successful policy initiatives. Applying the agreement without genuine public debate could be unhealthy, for both democracy and New Zealanders.

[1] East West Center The Trans Pacific Partnership and Asia-Pacific Integration (24 October 2011) <www.eastwestcenter.org>.

[2] Tufts Center for the Study of Drug Development, “Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion” (press release, 18 November 2014).

[3] Ministry of Economic Development “The Pharmaceutical Patent Term in New Zealand: Discussion Paper” (June 2003) <www.med.govt.nz>

[4] Pharmac Performance Report to 30 September 2013 <www.pharmac.health.nz>.

[5] Pharmac Annual Report 2013-14 <www.pharmac.health.nz>; Pharmac Purchasing Medicines Factsheet <www.pharmac.health.nz>.

[6] Medicines Act 1981, s 23B.

[7] Biotechnology Industry Organisation The Trans-Pacific Partnership and Innovation in the Bioeconomy: The Need for 12 Years of Data Protection for Biologics <www.bio.org>.

[8] Interview with Jane Kelsey, University of Auckland Professor of Law (the author, 14 April 2015).

[9] Deborah Gleeson and others “How the Trans Pacific Partnership Agreement could undermine PHARMAC and threaten access to affordable medicines and health equity in New Zealand” (2013) 112 Health Policy 227 at 229.

[10] Above n 9.

[11] Joshua Freeman and others “Call for transparency in new Generation Trade Deals” (2015) 385 The Lancet 604.

[12] Deborah Gleeson and Sharon Fried “Emerging threats to public health from regional trade agreement” (2015) 381 The Lancet 1507.

[13] Ministry of Health “Tracking Disparity: Trends in ethnic and socioeconomic inequalities in mortality” (2007) <www.health.govt.nz> at 152.

[14] Television New Zealand, “Tim Groser adamant Trans-Pacific Partnership good for NZ” (press release, 23 September 2013).

[15] Jonathan Weisman “Senate Democrats Foil Obama on Asia Trade Deal” The New York Times (online ed, New York, 12 May 2015).

[16] New Zealand Public Health and Disability Act 2000, s 47(a).

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