Economics, Entitlements

Are Cheap Medicines Bad Medicines?

Spotting poor quality medicines is very difficult. It is fairly easy for people to spot a fake Rolex watch or Gucci handbag, especially if they’ve seen the real thing. But show people two Lipitor pills, one real and one fake, and chances are they won’t be able to tell them apart. To protect us from the fakes, which won’t treat the condition for which they were taken and may kill the patient, we rely on regulatory systems and corporate practices. In the West, the vast majority of the time we’re right to put our trust in these systems. But in emerging markets, often—maybe one time in ten—we will be purchasing a dud.

In a paper published this week in the Journal of Health Economics, my co-researchers and I have investigated whether the price of a product is a reliable indicator of its quality. People buy fake Rolexes because they’re cheap, so if a drug is very cheap, should the consumer assume it’s a poor quality product? Unfortunately, the answer is not straight forward.

There are at least two types of poor quality medicine. The first is fake, a product designed to mislead, made without due care and attention and with great packaging (the cardboard boxes, blister packs, labels, etc., as well as the pills themselves). Here, price is not a good indicator of quality—the buyer has zero desire for a fake, and the seller aims to pass it off as the real thing, so part of that is selling it at the same price as the real version. The retail agent, often a pharmacist, could charge the normal price to the patient, even though he has received the medicine at a discount from the wholesaler (regardless of whether he has any knowledge of quality defects in the product).

The other main category of poor quality medicines are substandards. These are drugs where the manufacturer probably intended to make a good quality medicine, but failed. I say probably, because cutting corners to lower costs can be negligent, and arguably as criminal and as lethal as a fake. With these medicines we might expect prices to be lower, reflecting a poorer product.

We tested 899 medicines, including 8 medicine types from 17 low- and median-income countries, for visual appearance and disintegration, and analyzed their ingredients by chromatography and spectrometry. Fifteen percent of the samples fail at least one test and can be considered substandard (and may be fake). Overall, drugs that fail quality control tests are priced 13-18 percent lower than drugs that pass, and the result is statistically significant. But the signaling effect of price is not very dramatic and drawing strong conclusions from the data is problematic.

These findings suggest that consumers are likely to suspect low quality from market price, but this signal does not identify substandard and counterfeit drugs in any precise manner. Indeed, many cheaper non-innovator products pass all quality tests, and are genuine generic drugs. In a more detailed assessment we also noted that non-innovator brands and poor appearance of the pharmacy also were associated with lower quality products, but again the association was weak. Nevertheless, for patients who can afford it, there is no doubt that more expensive drugs were likely to be better quality.

What this might also mean is that governmental policies in favor of more affordable generic drugs or of subsidies to innovator brands may potentially weaken the signaling effect of price and increase the opportunity for substandard and counterfeit entry into the market. One way to counter this effect is directly providing better information about drug quality, ensuring the public believes that the government will oversee quality in the market place and remove products and suppliers known to sell substandard products. But penetration of such information into rural markets may be difficult.

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