MELBOURNE, AUSTRALIA. Negotiations of the Transpacific Partnership Agreement (TPP) have turned to discussions of the pharmaceutical reimbursement chapter today. This issue is highly controversial and represents a very recent shift in trade policy. There are only two previous free trade agreements with the US to include chapters restricting the operation of pharmaceutical reimbursement programs — the US-Korea FTA, including its side letter (KORUS) and the US-Australia FTA, including its side letter (AUSFTA).

The leaked text of the US proposal for a pharmaceutical “transparency” chapter shows that it is using the KORUS FTA as a template. And this, in turn, shows that its real intent is to control the efficacy of price restraints in public health programs, not to promote transparency within them. This is a bold and controversial proposal — particularly in an agreement including a large number of developing countries.

The enclosed korus korus ausfta side by side contains a comparison of the AUSFTA and KORUS reimbursement chapters. It shows clearly the shift from a set of norms governing “transparency” in the AUSFTA to enabling pharmaceutical company challenges to ultimate pricing decisions in KORUS.

Notably, the exchange of letters convey an interpretation that the AUSFTA requires only that “Australia shall provide an opportunity for independent review of PBAC determinations, where an application has not resulted in a PBAC recommendation to list.” There is no appeal under AUSFTA for a listed drug at a lower than desired price.

There clearly is an appeal on price in KORUS. The side letter promises to “establish and maintain a body to review, at the request of an applicant that is directly effected, recommendations or determinations regarding the pricing and reimbursement of pharmaceutical products or medical devices.”

I don’t know of any reimbursement (or procurement) program in the US that would give an appeal to a pharma company based on unhappiness with the price offered by a formulary. Companies can refuse to sell at the price offered. But they don’t have an appeal based on the “value” of a patent, as is provided in KORUS and the US proposal for TPP.

Indeed, most or all Medicaid formularies would not comply with AUSFTA either (which is why KORUS had to include a Medicaid carve out) because they do not give any appeals to pharmaceutical companies for listing decisions on their preferred drug lists. Medicaid and other formularies could also be vulnerable to challenge under any agreement applicable to them that required only “objective” criteria to be used in formula decisions. The listing of drugs on a formulary often includes negotiation and deliberation among experts and health officials, not a mathematical application of a defined formula.

Although this chart shows that the chapter in KORUS is a lot worse for public health and affordable pricing concerns than AUSFTA, it does not mean that AUSFTA should be a standard to be pushed for in the TPP or future FTAs. US state officials opposed both AUSFTA and KORUS, even with the Medicaid carve outs. VT Governor Peter Shumlin wrote to Obama explained: “because the FTA was negotiated with minimal public input, and because general principles are likely to prevail over finely crafted exceptions, state officials are concerned that U.S. programs will be threatened by the provisions in the Korea FTA and similar norms exported to other agreements (e.g. the TPP).” The Vermont Governor also noted the inadvisability of exporting rules US programs have no experience complying with: “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.”

This policy also breaks new ground in expanding restrictions on access to affordable medications in developing countries.The US government is already under fire by public health groups and Members of Congress for the leaked IP chapter showing that it is backtracking on the 2007 New Trade Policy on access to medicines. During the ratification process for KORUS, USTR officials repeatedly represented that they had no intent of asking developing countries to sign a reimbursement chapter. The Special 301 program also initially avoided identifying developing countries for reimbursement issues (although recent report have listed eastern european countries). The TPP agreement will be the first FTA where the US is known to be proposing a standard that would restrict the operation of non-discriminatory domestic pharmaceutical price policies in developing countries. And it is doing it an agreement is described as having “global” and “gold standard” ambitions.

You can find other resources on this issue at:

PIJIP documents on pricing chapters

U.S. State letters and documents opposing reimbursement chapters in FTAs

Forum on Democracy and Trade Analysis