TCS Daily

Easy AIDS Charity

By Martin Krause - August 1, 2005 12:00 AM

Anyone with an "ethical and responsible commitment to people living with HIV/AIDS" knows perfectly well the options available to satisfy that concern: voluntarily contribute time, property or money.

Politicians do something else though, they travel first class, staying in some of the top hotels and agree between them to use their power and someone else's property, the same way they use someone else's money ( in the form of taxes), to pay for their expenses.

The next round of these price negotiations takes place in Buenos Aires, Argentina today through Friday, when the health ministers of Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Venezuela and Uruguay will meet for the Second Joint Negotiation of Prices for Antiretroviral Drugs and Reactants in South American Countries under the auspices of the Pan American Health Organization (PAHO).

These ministers are "deeply concerned about the situation of HIV/AIDS," and so they should be, considering that there are 296,000 patients currently on ARV treatment in Latin American and Caribbean countries. Their grand plan to combat AIDS is to buy drugs and reactants at cheaper prices, which is what any sensible official should do if he or she has any concern for the proper administration of the taxpayer's money.

But the best way to do this, the ministers seem to think, is to organize an endless series of meetings, agreements and papers in order to coordinate all South American countries to arm-twist multinational laboratories -- with threats of breaking their drug patents and granting "compulsory licenses" to local producers -- in order to get the firms to sell their products at much lower prices.

During the first PAHO meeting in Lima, Peru, in June 2003, the ministers announced to great fanfare that the negotiations with generic laboratories and one original producer had resulted in a 30-93% price reduction for first-line triple therapy and between 9% to 72% reductions in the cost of the second-line triple-therapy. In reactants, the reductions in maximum and minimum prices fluctuated from 62% to 81% for quick tests and 13% to 33% for the more complete Enzyme-Linked Immunosorbent Assay (ELISA) test.

The actual results have been something else, as we will see, but the ministers really valued -- and claimed to have obtained -- "a political and social success."

And, at least according to Public Choice Theory, we should believe them. Public Choice Theory questions the assumption that government officials pursue the "public good" in an enlightened way. It suggests that they, as anyone else outside government, instead follow their own interests. Those interests may be a political one (getting votes), or, particularly in some regions, just money.

As far as practical results of the ministers' venture, though, they so far have been nonexistent.

A report on the impact of PAHO's first joint negotiation by Enrique Seoane Vázquez and Rosa Rodriguez-Monguió from Ohio State University found that "there were no purchases of ARV drugs to the laboratories that signed the agreement, neither following the quality technical and bioequivalence criteria agreed on the negotiation, nor at the prices negotiated by the participating parties." The report said actual purchases were, in general, significantly above the negotiated prices -- in the case of Venezuela, prices were 79% and 247% higher; Colombia, between 66% and 1020%; Chile, between 99% and 2000% higher; Peru, between 395% and 1243%, and Ecuador, between 100% and 3500%, all probably reflecting the "real" prices in the market.

This demonstrated failure, though, has not stopped health ministers and government officials from continuing to organize their international meetings, negotiations and reports, while being unwilling to accept their own responsibility for higher prices.

You see, while all the governments in the region want laboratories to reduce their prices, they also conveniently forget that they themselves collect significant revenue from taxes on the importation of these drugs. Import duties are 10% in Bolivia, 6% in Chile, between 5% and 20% in Colombia, and 10% in Venezuela, according to the Seoane Vázquez and Rodriguez-Monguió report. And these figures don't even take into consideration all the other taxes that affect the cost of drugs and reactants, such as value added taxes (VATs) and sales taxes that are applied in many of these countries.

So, one has to ask what is the purpose of this new meeting then? Most probably it is to continue to bask in the glory of the "political and social success" of these initiatives. According to Seoane Vázquez and Rodriguez-Monguió, this evaluation is "practically unanimous" between "the technical consultants, members of governments of the countries involved, observers from cooperation agencies, representatives of patients' associations and of (generic drug) laboratories."

The only ones left out were those who invested their money to develop the drugs that health ministers are now so willing to buy on the cheap. The health ministers have found an easy way to do charity ... with someone else's property.


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