Several years ago, a Nobel Prize-winning economist named Dr. Kenneth Arrow, along with his colleagues at the U.S. Institute of Medicine, proposed to improve the treatment of malaria through a buyer subsidy for Artemisinin-based Combination Therapies (ACTs). Arrow's project has since crystallized into the Global ACT Subsidy. It is run by Dalberg Global Development Advisors in conjunction with the World Bank, the Roll Back Malaria Partnership, and the Global ACT Subsidy Task Force.
The Bill and Melinda Gates Foundation, which is meeting this week in Seattle to discuss anti-malaria projects, also provides funding for the campaign. But perhaps the Gates Foundation shouldtake this opportunity to push for a more critical assessment of the subsidy approach For in their hurry to make a deal, the subsidy promoters are compromising drug quality and potentially doing more harm than good.
Their idea has undeniable merits. Over a million children die from malaria every year, and the World Health Organization (WHO) estimates that 200,000 of those deaths could be avoided if better drugs were supplied and used properly. Newer drugs nearly always cost more than the older drugs they replace: partly because of research and development costs, partly because production requires newer and more expensive technologies. Many people with malaria treat themselves with drugs bought at kiosks or at small pharmacies; the newer drugs are beyond their financial means. Estimates vary, but a fair price in the private sector typically ranges from $4 to $6 per treatment, whereas older drugs are never more than $1 per treatment (and usually much less).
Of course, these older drugs are often totally ineffective, a key reason why so many children die from the disease. So reducing the prices of newer, more effective drugs could, over time, displace the less effective products from the marketplace. And a global subsidy would, indeed, reduce those prices. As WHO economist Richard Laing points out, manufacturers' costs are often distorted by tariffs and taxes, especially in middle- and lower-income countries like Peru and Nigeria, where markups by importers, wholesalers, and retailers can inflate prices by more than 100 percent. Lowering the manufacturers' price could lower the eventual pharmacy price by perhaps double the amount of the subsidy, providing a significant benefit to patients.
Promoters of the subsidy seem as intent on increasing drug supply as they do on serving public health. But the two are not necessarily synonymous.
However, there would be numerous problems with implementing the subsidy. These include: enticing new manufacturers to venture into a drug market characterized by low profitability and complex, time-consuming production; preventing potential wholesalers and retailers from selling subsidized drugs at higher prices; and stopping the infiltration of fake drugs into the supply chain. The latest subsidy draft document estimates that costs would be $1.9 billion over five years. Where is this money supposed to come from?
Promoters of the subsidy seem as intent on increasing drug supply as they do on serving public health. But the two are not synonymous. Drugs are only useful if they work. As currently outlined by the Global ACT Subsidy, an entire category of drugs would be approved without proper testing by a reliable regulatory body. The WHO submission to the subsidy negotiations puts it most clearly: "we are accepting double standards for product eligibility."
The Global ACT Subsidy claims that "flooding the market with ACTs" would enhance malaria treatments. But if the drugs are deficient, the opposite could be true. Poor quality medicines fail to wipe out all malaria parasites. The surviving parasites then flourish and spread, thereby becoming more resistant to the newer, better drugs.
The idea of a subsidy is worth discussing. But it would be terribly expensive—and, as currently envisaged, it could easily become counterproductive. The subsidy funds would probably be better spent on other priorities. Malaria is far cheaper to prevent in the first place than it is to treat. That is something the Global ACT Subsidy, the Gates Foundation, and other anti-malaria activists should keep in mind.
Roger Bate is a resident fellow at the American Enterprise Institute.