Pricing to A Human Scale by Stephan Richter

This article was originally published in the Bangkok Post on June 2, 2001.

Media Features > Global Health Pricing to A Human Scale
By Stephan Richter \| Saturday, June 02, 2001

Despite price cuts by some of the world's biggest pharmaceutical companies, a full course of Aids medication in Africa still costs at least $1,000 per person per year. And while the price cuts set a precedent for reducing medication costs, there is no sound principle behind such actions. The real question, therefore, is whether these actions are merely the outcome of a public relations ploy?

Should the cost of Aids medication be adjusted for income levels? Despite the recent price cuts by some of the world's largest pharmaceutical companies, a full course of Aids medication in Africa still costs at least $1,000 per person.

Current Prices

This raises two important questions: Is that a fair price? And is there any logic to these price cuts, or are they merely the outcome of a public relations ploy?

More needs to be done, on the part of pharmaceutical companies as well as Western governments.

In the United States, where income per capita is about $32,000, Aids medication costs at least $10,000 per year. That comes to about a third of the average American's annual income or 31%, to be precise.

Meanwhile, income per capita in sub-Saharan Africa is $500. Thus, the $1,000 price is twice the average African's annual income.

The real costs

In other words, even after the recent price cuts by Merck and Bristol Myers, a course of Aids medication is, on a relative basis, much more expensive in Africa than it is in the United States or Europe.

One way to set a fairer pricing standard for Aids medication would be to link the price for medications for life-threatening pandemics to current levels of per capita income.

Assuming that standard, we can apply the 31% ratio of income to cost of treatment that is prevalent in the United States to Africa.

The price of Aids drugs in Africa would then have to fall to about $156-84% below the most recently announced low price of $1,000.

And the other way around

To see just how much that matters to Africa, let's do the math in the opposite direction and apply the current 200% ratio of income to cost of treatment that still prevails in Africa to the United States.

That would imply a US medication price of $64,000-a staggering six-fold increase.

Western companies stand to gain the most from reaching a quid pro quo with African governments.

Surely, profits are necessary to drive pharmaceutical research. But they should not become a major stumbling block to treatment at least in a few, select cases such as truly life-threatening situations of pandemic proportions.

Africa is not isolated

In those cases, measures need to be taken to make medication a global public good. This, after all, is the globalised world of the 21st century. What happens in Africa matters to the rest of the world and will continue to matter in the future.

This is not just because 12 million children in Africa have already been orphaned due to Aids. And not just because, in at least nine African countries, Aids will put average life expectancy back to the level of the 1960s.

Wiping out the infrastructure

What is worrisome beyond all else, is that Aids is wiping out 30% of the continent's core infrastructure: its teachers and government administrators.

As the educational system and infrastructure breaks down in Africa, restoring standards of life on the continent will become that much harder.

Corporate responsibility

There hardly is another issue of corporate responsibility in global markets by which companies can do more to combat the impression of cynicism that is often without reason, but nevertheless to great public effect held in their collective face.

Income per capita in sub-Saharan Africa is $500. Thus, the $1,000 price is twice the average African's annual income.

Yet, asking Western companies to help fight the Aids crisis in Africa by lowering prices is likely to be unpopular with shareholders.

Medical administration needed

What, then, could be the major benefits to corporations? In particular, doesn't one need to worry about parallel imports and grey markets, thus eroding prices for Aids medication in other markets as well? Of course, one does. But at the same time, it is important to acknowledge that pharmaceutical companies' core interest in intellectual property rights are currently illusory.

Why? Because enforcement of these rights require a medical administration, which is severely underdeveloped in most African countries.

World Bank should help out

Yet, such a medical administrative infrastructure is also necessary for the effective distribution of medication. And while creating such an infrastructure poses an enormous challenge for African governments, this is an area in which international institutions such as the World Bank could play a key role.

In co-operating with drug companies, international institutions should work with African governments to establish the medical infrastructure needed to maximize the benefits of these drugs.

If you scratch my back

Surprisingly, this then is where Western companies stand to gain the most from reaching a quid pro quo with African governments.

A course of Aids medication is, on a relative basis, much more expensive in Africa than it is in the United States or Europe.

In return for deep discounts for Aids medication to a level of $156, as we propose, African governments could use the newly established infrastructure to enforce the intellectual property rights of pharmaceutical companies, thus fulfilling their long-sought goal.

More cuts needed

It is a common perception that drug companies have done African governments a favor by cutting prices for their treatments.

In fact, their price cuts do not go far enough. More needs to be done, on the part of pharmaceutical companies as well as Western governments.

That is not just in the interest of African nations, but the world as a whole.

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