Healthy, but not at all costs

​Dialogue on the risks in medicine pricing policy

Since last year, PGGM has intensified its dialogue with pharmaceuticals manufacturers regarding the risks of their pricing policies in Western countries. As a shareholder representing the pension funds for which we invest, we are reflecting the increasing concerns in the political arena and society at large that health care will become too expensive and therefore less accessible. One of the reasons for these concerns are the very high prices at which some new medicines and therapies are being launched in the market.

We are fulfilling our role as an responsible shareholder: pharmaceutical companies must take account of the social and political context in which they operate, also in the Netherlands, where their pricing policy has been under scrutiny for some considerable time. This is clearly an important theme for our client PFZW, which has 2.5 million current and former employees in the health and social sector.

While our first objective is to secure a good financial return for our fund’s beneficiaries, we also try to generate social returns. Our definition of ‘return’ is therefore wider, and this is very relevant with respect to the pricing policy of pharmaceutical companies. In addition to financial return, social return should also be a central priority for the pharmaceutical sector.

Pharmaceutical manufacturers whose sole aim is profit maximisation by selling medicines at the highest possible prices are exposed to the risk of pricing themselves out of the market if the cost of their product is no longer reimbursed. Unaffordable medicines will be detrimental to their business model and therefore their profitability, and patients will be denied the treatment that they need.

Sustainable profitability
As a shareholder, we expect pharmaceutical companies to pursue sustainable profitability, which will generate returns for our pension fund clients in the long term. The social returns are visible in the contribution made to affordability and accessibility of health care. This is good for patients as well as for the pharmaceutical companies.

From this perspective, we urge the pharmaceutical manufacturers to consider the risks of their pricing policies. In this context, we supported a shareholder proposal in 2014 with this appeal to the US pharmaceutical company Gilead. We are convinced that pharmaceutical companies will damage their own reputations if they are ultimately compelled by governments to change their prices. They can prevent this by taking their roles as ‘corporate citizens’ seriously.

The political topicality of this theme is demonstrated by the attention devoted to it by the Dutch Minister of Health. In a recent letter to the Dutch House of Representatives (see: ‘Visie op Geneesmiddelen') she announced that she would be taking steps to address the pricing policies of pharmaceutical companies. Manufacturers of drugs against Hepatitis C and Pompe disease were explicitly cited as ‘undesirable’ instances of this. In the United States the subject of healthcare, and more specifically the affordability of medicines, has become a major theme in the political debate. Candidates for the 2016 US Presidential elections from both the Democratic and Republican side have announced plans to increase access and affordability.

PGGM is a proponent of greater transparency with respect to the pricing of medicines. The right price for a drug should in our view reward the innovative power of the pharmaceutical company, but there are social limits to the extent to which a pharmaceutical company may factor in the benefits to health care (in the form of prevented costs of hospitalisation, for example). Pricing should take account of the affordability (and therefore accessibility) of the drug in question in addition to the costs of research and development, production costs, margins, marketing, etc. This requires greater transparency on the part of the pharmaceutical sector, and we call on the sector to recognise this.