NCPA - National Center for Policy Analysis

Are Cheap Medicines Bad Medicines?

September 7, 2011

Spotting poor quality medicines is very difficult.  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 10 -- we will be purchasing a dud, says Roger Bate, the Legatum Fellow in Global Prosperity at the American Enterprise Institute.

In a paper published this week in the Journal of Health Economics, Bate and his co-researchers 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.

Bate and his coauthors 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.  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.

Source: Roger Bate, "Are Cheap Medicines Bad Medicines?" American Enterprise Institute, September 6, 2011.

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