2.7 Government support measures for the medical goods sector predated the pandemic

Figure 2.7 Government support measures for the medical goods sector predated the pandemic

Number of interventions 700

600

500

400

300

200

100

0 5 4 1

6 3 36 49 68 45 86 34 98 37 106 42 145 152 13 42

305 3 14 40 10 8

107

193 195 212 5 58

389 16 59

545

8 10

156

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Localization measures (except public procurement localization) Public procurement measures (including public procurement localization) Inward subsidies

Source: Global Trade Alert (GTA) database, https://www.globaltradealert.org/data_extraction. Note: The government support measures represent a total of 156 economies (across all income groups) tracked by GTA data between 2009 and 2021.

provide information on the impact of measures) found to favor local firms in the medical goods sector (figure 2.7). A total of 3,305 instances of such government support measures have been recorded in a total of 156 economies from 2009 through 2021, all of which have been implemented. Of that total, 2,650 are subsidies to commercial medical goods operators. In addition, 569 changes to public procurement regulations or laws favor local suppliers of medical goods. As figure 2.7 also shows, the number of government support measures was rising in the years before the COVID-19 pandemic. Then more than 600 instances of government support measures using these three policy instruments were recorded in 2020.

The number of subsidies awarded to producers of medical goods has been on the rise since the 2008–09 Global Financial Crisis. The three-year moving average rises from 84 for the years 2009–11 to 265 in the three years before the pandemic (2017–19) and rises further to 350 (for the years 2020–21). To put this fourfold increase in perspective, consider the following: over the same period (2009–21), the total number of subsidies in all sectors recorded each year in the GTA database rose by just under 150 percent. The faster growth in recorded subsidies to the medical sector is not a pandemic-era phenomenon; annual subsidy awards rose by 71 percent across all sectors of the economy before the pandemic, whereas they more than tripled in the medical sector.

Government procurement The introduction of competitive and transparent government procurement procedures holds the potential to contribute substantially to improving the accessibility and

affordability of medical goods and services, thus helping to establish more efficient and cost-effective health delivery systems. According to data from different studies, the prices of medical goods procured for public health systems through competitive and transparent tenders are lower than the prices of medical goods sold in the private sector (WHO, WIPO, and WTO 2020a). For example, competitive government procurement of HIV/AIDS, tuberculosis, and malaria drugs showed a reduction of originator and generic prices by 42 percent and 35 percent, respectively, compared with retail pharmacy prices (Danzon, Mulcahy, and Towse 2015).

When Guatemala introduced more competitive and transparent government procurement procedures (for example, by eliminating technical specifications that favor a particular tender), the costs of medical goods fell by 43 percent (Grosso and Moïsé 2003). Bangladesh, Colombia, Nicaragua, and Pakistan reaped similar savings. Conversely, a government procurement approach that limits transparency and competition (such as the use of limited tendering) can increase the prices and reduce the quality of medical goods and services. Nepal’s use of limited tendering to buy medicines in hospital pharmacies proved to be less than optimal as well as costly (Shrestha et al. 2018).

Government procurement tools that aggregate demand can achieve better value for money and optimize resources. For example, many governments have developed mechanisms to procure large quantities of medical goods and services as part of a strategy to leverage greater purchasing and bargaining power to obtain better value for money and achieve economies of scale. Examples include pooled procurement, joint tenders, and centralized procurement schemes.14

Such mechanisms to aggregate demand in the health sector can be employed both within countries, such as in France and Sweden (OECD 2011), and among them— for example, in a joint initiative by Austria, Belgium, Ireland, Luxembourg, and the Netherlands to procure medicines for rare diseases as well as in an agreement by Estonia, Latvia, and Lithuania to jointly procure vaccines (Espín et al. 2016). Successful procurement schemes have reported substantial cost reductions for medical goods and services, confirming the efficiency of such tools to aggregate demand.15 Despite their growing use, recent surveys suggest that they remain underused in the public health sector (WHO 2016).

Governments have liberalized access to their government procurement markets through unilateral action or through international trade negotiations under the 2012 WTO Government Procurement Agreement (further discussed in chapter 3) or other instruments (for example, regional trade agreements).

Competition policy Competition policy can play important roles in ensuring access to medical goods and services and fostering innovation. In addition to addressing and preventing IPR abuses and other anticompetitive practices in the health sector, competition policy plays a broader role in two distinct ways: competition advocacy and law

enforcement (Hawkins 2011). First, competition advocacy helps lawmakers and policy makers by informing legislative and regulatory processes in the health sector and encouraging the monitoring of health-related markets. It also helps private companies in the sector through provision of guidelines and advice on compliance with competition law and policy.16

Second, competition-law enforcement can address and correct anticompetitive behavior that can restrict R&D, limit the availability of resources needed to produce medical goods and services, create barriers to the market entry of medical goods and services, and restrict available distribution channels and consumer choices (WHO, WIPO, and WTO 2020c).

A variety of anticompetitive strategies to limit market entry of medical goods and services as well as potential competitors have attracted attention from competition authorities, such as the following:

• Pay-for-delay (reverse payment) agreements: Under this strategy, an incumbent holder of exclusive IPR pays its competitor to delay the entry of medical goods or services into a specific market.17 • Misuse of patents and regulatory systems for medical goods and services:

Examples include (a) “sham litigation” (bringing baseless patent infringement suits to deter market entry of generic medical goods and services); (b) “patent thickets” (filing multiple patents on the same medical product); and (c) “product hopping” (unnecessarily forcing a switch from one version of a drug [with an expiring patent] to another version [with a new patent]).18 Another anticompetitive patent strategy to delay the entry of generic products into health sector markets is referred to as “evergreening.” This occurs when an incumbent files new patents to cover an already approved drug for which a new medical indication has been identified to extend the period of exclusivity after the original patents expire.19 • Disparagement: Under this strategy, an incumbent disseminates misleading information about its competitor’s new medical products and services to prevent it from entering the market or expanding its presence in the market.20

Competition authorities are increasingly concerned about competition-law infringement that results in excessive pricing and other practices that inflate prices.For example, in 2022, the Competition Commission South Africa filed a referral with the South African Competition Tribunal for the prosecution of a health care provider for allegedly abusing its dominant position by charging excessively high prices (in both the private and public health care sectors) for a medicine used to treat breast and stomach cancer (CCSA 2022). In 2018, the Danish Competition Council ruled that a pharmaceutical distributor had abused its dominant position by charging excessive prices (OECD 2018).

Competition authorities also conduct merger control to ensure that mergers do not impede effective competition and suppress innovation. Competition laws usually