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U.S. To Table Refined TPP Drug Pricing Proposal At Leesburg Round

Inside U.S. Trade

September 6, 2012

At the 14th round of Trans-Pacific Partnership (TPP) negotiations, which kicked off on Sept. 6 in Leesburg, Va., the U.S. is expected to table new text refining its previous proposal on the issue of transparency requirements and procedural disciplines for national drug pricing and reimbursement programs, sources said.

An industry source said the U.S. is opting for a new approach under which it eases up on its general demands in this area but continues to press hard for specific commitments from individual TPP members, including New Zealand. This reflects the fact that U.S. efforts are primarily aimed at disciplining the Pharmaceutical Management Agency of New Zealand (PHARMAC), he said.

Among current and future TPP participants, Australia and Canada also have drug reimbursement schemes. But brand-name companies do not view them as negatively as they do PHARMAC, especially after Australia agreed to impose some disciplines on its Pharmaceutical Benefits Scheme (PBS) under a side letter to the U.S.-Australia free trade agreement.

The new text is expected to revise a June 2011 proposal that the U.S. tabled as an annex to a broader proposed chapter on transparency measures. At the same time, the U.S. also appears interested in securing more detailed commitments on PHARMAC through a side letter with New Zealand, the industry source said.

According to this source, the U.S. wants to secure commitments specifically tailored to that country's drug program. At the same time, it does not want to bog down the general TPP negotiations by demanding that all TPP countries agree to detailed provisions that are only really relevant for PHARMAC in the first place.

There are several possible advantages to this approach. As a negotiating strategy, other TPP members may look to extract their own concessions from the U.S. in exchange for agreeing to U.S. proposals that are only really meant to discipline PHARMAC. For that reason, it may make more negotiating sense for the U.S. to pursue the strongest disciplines with New Zealand bilaterally, this source said.

Second, the U.S. may have realized that it would be too difficult to create an annex that would apply general drug pricing disciplines to all the different TPP countries while not taking into account the situation in a specific country.

Even when the U.S. tabled its proposal last year, one industry source said the proposal would only be effective insofar as New Zealand would be willing to sign a side letter explaining how it intends to implement its provisions. The U.S. convinced Australia to sign a similar letter to accompany the Australia FTA (Inside U.S. Trade, Nov. 4).

This week, the industry source said brand-name companies are not opposing this new U.S. strategy because, even if the U.S. backs off in its general demands, they are confident that the U.S. will still seek strong disciplines that are specifically tailored to pricing and reimbursement programs where they exist in key TPP countries like New Zealand.

Technically speaking, New Zealand's PHARMAC sets reimbursement rates for drugs that are included on preferred lists and are therefore cheaper for New Zealand citizens to purchase.

Both the process for inclusion of a particular drug on the list and the reimbursement rate for that drug are key issues for U.S. brand-name companies because both affect their bottom lines. These companies have long argued that PHARMAC strives to drive down drug prices at the expense of respect for intellectual property and transparency.

The original U.S. proposal, which was leaked last October, established certain requirements on reimbursement procedures, such as completing them in a "reasonable, specified period"; requiring agencies to disclose rules, criteria and guidelines for reimbursement procedures; and providing companies opportunities to comment during the decision-making process.

The Australia FTA side letter does not go as far as the original TPP proposal. For example, the side letter established an appeals process for companies but limited that right of appeal to a determination by the PBS that a product should not be included in the list of drugs whose price is subsidized by the Australian government.

The original U.S. TPP proposal goes further by specifically allowing a company to also mount an appeal of the reimbursement price that a drug pricing agency has set.

Australia has also been credited by U.S. industry for reforming its PBS system as a result of the FTA. If the U.S. were to apply tough measures to Australia intended to target PHARMAC, this could drive Australia away from cooperating with the U.S. in other areas of the negotiations, one source speculated.

The new U.S. approach of side letters could also work well with Canada, which is the only other country in the TPP that has a drug reimbursement pricing system that is viewed as problematic by U.S. industry. Canada could sign a side letter that addresses some of the U.S. industry demands specifically tailored to the Canadian system, this source said.

Even if the U.S. were to pursue a side letter with New Zealand, it remains unclear how it will convince New Zealand to agree to strong disciplines for PHARMAC. Last year, New Zealand told the U.S. its proposal was completely unacceptable unless the U.S. were to apply it on a reciprocal basis with no exemptions for any U.S. federal or state-level drug pricing and reimbursement programs, including Medicaid (Inside U.S. Trade, Nov. 4, 2011).

This condition, in turn, is likely a non-starter for U.S. negotiators, who are extremely unlikely to sign up Medicaid to disciplines in a trade deal. The U.S. carved out Medicaid from similar disciplines in the Korea-US (KORUS) FTA, and appeared poised to do the same in its original TPP proposal, although this was left somewhat unclear.

The initial leaked proposal was criticized by access to medicines advocates because they interpreted it as including disciplines that went beyond those in KORUS, such as preventing a country from using "reference pricing" when setting reimbursement rates.

Reference pricing allows a price to be set based on the sales price for that drug in other markets. This practice can usually result in a lower price, which brand-name drug companies object to because they would rather the government set prices based on information supplied by a drug manufacturer outlining how much a product is worth.

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