Essential and Orphan Drugs in Panama: Perception of Competition and Implications of Pricing Policy/Medicamentos esenciales y huerfanos en Panama: percepcion de la competencia e implicaciones de la politica de precios/Medicamentos essenciais e orfaos no Panama: percepcao da concorrencia e implicacoes da politica de precos.

• Author: Ballesteros, Victor H. Herrera
• Position: Texto en ingles
• Pages: 115(20)

Introduction

The upward price increase in both generic and original products after the release of cap prices in 2004, whereby the market was left to free supply and demand, has left reasonable doubts as to the effectiveness of this measure. So the importance of addressing this problem goes beyond the structural characteristics of the Panamanian market, making it necessary to investigate aspects related to the conduct of economic operators along the marketing channel, as well as how the perceived competition environment, in addition to the degree of independent pricing in the retail segment.

Concerning orphan drugs sold in hospitals in general, there is no clear idea of whether there are policies regarding the management of lists in pharmacies, distributor companies, and manufacturers. These drugs are essential for the treatment of rare diseases. This aspect has been a great conflict between patients and the public health system in Panama, and even in other countries of the Americas, regarding their supply.

Given these facts, it is necessary to carry out a comprehensive analysis of public policies, regarding the functioning of the drug market, in the context of social inefficiency. Panama is one of the countries of the Americas with one of the worst distributions, drug supply problems, and access to out-of-pocket spending in the private sector, which is a complex problem to consider in the forthcoming reform of the public health and social security system, under a model common to that of many countries in the Americas, such as Chile, which makes it necessary to open up the debate on national drug policy in the current circumstances.

While there are publications on the drug market in different parts of the world, they do not generally address certain particular aspects of countries that, as in the case of Panama, are importers of medicines, and small economies such as those of Central America, which share common realities in the face of this problem. In general, many countries in the Americas continue to face health services' inequality in the health sector; alternatives to this problem have been sought, focused on comprehensive reforms supported by international organisations such as the World Bank, the World Health Organization (WHO) or Pan American Health Organization (PAHO) (Vargas et al., 2008).

Drug marketing is complicated due to its implications for social equity in health and its strong influence on the budgets of public health systems (Abdel Rida & Ibrahim, 2018; Martin-Conde, Tevar Alfonso, & Garcia Garcia, 2011; Gorgas, 2014). Since 2004, Panama has had a policy of prices established for free supply and demand in the medicines market, in which it is expected that generic medicines will generate greater price competition than innovative medicines (Gorgas, 2014).

The use of this competitive scheme continues to generate debate, regarding its efficacy for prices and medications' access, particularly for those living in low-income regions, in which the approaches of market regulation and competition policy are contrasted under imperfect market structures (Lobo, 2014; Oliva, 2015). Furthermore, the current situation with orphan drugs is challeging; the low incidence of rare diseases results in very high prices in the private market, increasing the budget pressures on the public health systems. In general, orphan drugs are for hospital use, they acquire them directly from the distributors for their internal use, and few of these medications are sold directly to the public.

Panama has not escaped from this reality, and in the last three decades, the country has followed a scheme that has shifted from regulated prices to, in 2004, prices set for free supply and demand. In 1969, a system of price regulation, by means of the Decree No. 60, was launched, and it ended with the Law 29 of 1996 (repealed by Law 45 of 2007), moving to a system of regulation by exception when merited by the specific case (Asamblea Nacional de Panama, 1969, 1996, 2007). Law 1 of 2001 established the previous and subsequent control of medicines as well as the bioequivalence, surveillance, and safety of medicines (Ley 1 de Medicamentos, 2001). Its article 102 established a price ceiling system for two years, leaving only the obligation of communicating increases by distributors as well as manufacturers, this mechanism ended in 2004, when Panama moved to a system of prices with free supply and demand. However, the main problem in the marketing of medicines to both the public and private sectors is exclusive distribution agreements between manufacturing laboratories and authorized distributors that do not allow the use of the parallel import mechanism established in Law 1, which would provide an alternative for import at lower prices. Meanwhile, the free trade agreements of medicines, especially those with developed countries, have been limited to the protection of intellectual property without technology transfer, which is an important issue to raise in most developing countries (Gamba, 2017).

This debate is highlighted by the escalating prices in recent years, which has had economic and social impacts on public and out-of-pocket expenditures on health (Herrera-Ballesteros, Castro & Gomez, 2018). In Panama, little is known about the functioning and organization of the medicine market and the competitive environment. Panama is characterized as an importer of most medications and currently has two complex public systems for purchase, the Ministry of Health and the Panamanian Social Security Institution, that act separately. Nevertheless, the private sector establishes the prices. At the time of the study, there were nine manufacturing plants in Panama producing generic medicines at a low scale. Overall, Panama imports most of its medicines and is dominated by the distribution segment.

As shown in a study of 2011 conducted by Diego Petrecolla, Panama had a moderate degree of concentration, based on a Herfindahl-Hirschmann index of 932 for the five largest distributors and a C4 index of 56 % for the market share of the four main distributors. In accordance with the Panamanian guidelines for the analysis of vertical behaviours, a C4 index equal to or above 60 is considered a relevant collective market power, and, in this case, we can conceive it likely to capture an oligopoly structure in addition to allowing control of prices. Examining other countries of Central America, the C4 index is 85 % in Costa Rica and 67 % in Nicaragua (Resolucion A-30, 2009; Petrecolla, 2011; Shy, 1995). The retail segment for drugs consists of a large chain of pharmacies (N = 152), a small chain of pharmacies (N = 107), and community pharmacies or independent pharmacies (N = 439) (Ministerio de Salud, 2016). There are drugs for hospital use and those sold in the community. Overall, the private market sales the drugs, and patients can purchase medicines in community pharmacies and hospital pharmacies. Distributors do not have pharmacies because vertical integration is prohibited in Panama. Nevertheless, there are pharmacy chains, some of which belong to the main supermarket chains in the country and have greater market control over independent pharmacies.

We aim to measure the perception of competition and the population's access in the market to essential and orphan drugs in Panama under the current context of a pricing policy based on free competition. The data were obtained from three surveys: the market for essential medicines and orphans to collect perceptions, of 8.5 % (N = 59) from private pharmacies, 12 % (N = 17) of distributors, and nine existing laboratories; the 2014 and 2017 Out-of-Pocket Essential Drug Surveys (N = 2721), and, finally, the Basic Drug Basket Database (CABAMED N = 50 Private Pharmacies). The monthly price increase was calculated by linear regression. The competitive perception index was calculated using factor analysis, and the Gini coefficients were estimated for 2014 and 2017.

The main findings of this research include that the average annual price increase for original products was 2.4 %, and for generics, 6 %. In general, economic operators (laboratories, distributors, and retailers) agree that the overall price increase was 5 %, and the principal cause was the increment in the price of the raw material. For distributors and laboratories, they generally do not have lists of orphan drugs as well as in pharmacies, so they still have no clear idea of the market situation for these medicines; 85 % of retailers, 64.7 % of distributors, and 55.5 % of laboratories consider the market competitive.

However, in the province of Panama, despite having 46.5 % of private pharmacies, the lowest perception rate of competition was obtained with 1.7971, with the overall index being 22 751. Concerning out-of-pocket expenditure on medicines, by 2017, 55 % of respondents reported not having sufficient resources to buy their medicines, while the Gini ratio rose...