Does the government freeze on prices actually make medicines more expensive? Aamir Shafaat investigates.

The public laments that medicines are too costly and out of the reach of the common man, the pharma industry complains of a price freeze for years while the government says that it is not fair for the pharma industry to always expect an increase. Who is right and who is wrong?

Price freeze or not, it is true that prices of medicine have increased over the years and often the consumer ends up paying double the original price to a retailer, due to shortage. Manufacturers and market players put the blame on each other for shortage knowing that there won’t be any action from the government.

While keeping a price freeze for many years, the government has been allowing price surges to the manufacturers under hardship cases. It is common belief that a mafia exists in which the stakeholders and market forces are equally involved.

Retailers, who have the stocks, make windfall profits by releasing the medicines slowly when the manufacturers slow down the production to raise prices or due to some other reasons, linking the shortage to short supply from distributors and wholesalers.

Chairman Pakistan Pharmaceutical Manufacturers Association (PPMA) Jawed Akhai denies the presence of any pharma mafia working to keep the prices of medicines high. He states that it is natural that pharma companies slow down the manufacture of a product on which they are incurring losses or barely breaking even. It is not possible for the manufacturers to discontinue it, due to legal requirements which dictate that they produce whatever they are registered to manufacture.

The intention is never to widen the gap between supply and demand, but to minimise their losses, believes Akhai. Medical stores try to take benefit of the restricted supply and in certain cases hoard the products which aggravates the situation. “If the price is increased on a routine basis with a predetermined transparent policy, such situation can be minimised to a great extent and the chemist would not be able to exploit the situation,” he said.

On the other hand the Director Budget and Accounts Drug Regulatory Authority of Pakistan (DRAP) Mr Amanullah says that it is not fair on the part of the pharmaceutical industry to always expect price increase. It’s true that the pharmaceutical industry, like any other industry, strives to make profits but it is not necessary that the costs of production always increase. Many times global prices of active pharmaceutical ingredients fall and its benefit should be passed on to the consumers especially in case of expensive and new drugs rather than prices being increased all the time, believes Amanullah.

Claiming that there has been no across the board price increase since 2011, Akhai said the defunct Ministry of Health (MOH) started the process of considering hardship cases since the last few years. Price increase was awarded on selective basis, thus badly affecting the sustainable growth of the industry and new investment.

On allowing price jump under hardship cases, Amanullah said across the board price increase in percentage terms benefits higher priced medicines more than cheaper drugs. It makes higher priced drugs more expensive and cheaper drugs remain un-viable for manufacturers which may compromise their availability in the market. Similarly, price increase under hardship category for all medicines is cumbersome and time consuming.

A draft pricing policy formulated by the now-defunct Ministry of Health had addressed the issue by dividing drugs in controlled and decontrolled categories, with reference to their MRP (maximum retail price). Drugs falling under decontrolled category (like vitamins, minerals, cough syrups, pain killers, low priced medicines, etc.) were proposed to be allowed a certain percentage annual increase (less than inflation). Life-saving products fall under the controlled category, the MRP of which is fixed by the government and predetermined annual price revision was allowed on the basis of variations in cost components and prices in the region as per SRO 1038 which remained in practice till 2001 when it was rescinded by the government.

According to Akhai this resulted in severe impact on the pharma companies initially eroding their profitability and bringing them to a very uncomfortable situation during the last few years.

The government has frozen medicine prices for years neither giving adjustment for devaluation and inflation nor providing subsidy to maintain/freeze the price. In Akhai’s view this causes medicine shortage besides encouraging the presence of expensive smuggled and imported products.

Akhai said the pharma companies are entitled to increase the prices of de-controlled products but the government is creating hurdles in the same. “The government is suppressing the genuine/due price increase without realising that medication costs less than 10 per cent of the healthcare while no authority is checking the rate of hospitalisation, diagnostics, consultations, surgeries which account for more than 90 per cent of healthcare of a patient,” Akhai said.

There is up to 10 per cent import duty on pharmaceutical raw materials and up to 20 per cent duty on packaging materials, which is added to the cost and ultimate price is determined keeping that in mind. The government gives an impression that thee is no sales tax on pharma products as it is not mentioned on the finished product, but the industry pays 16 per cent GST on 80 per cent of the inputs of the pharmaceuticals. Doing away with GST and duties will drastically reduce the cost of the product and result in price reduction, he said.

If any medicine is being sold for decades, its base price is so low that when rational price increase is given in absolute terms, it seems exorbitant. For example ‘Thyroxin’, a life saving medicine continuously remained short for years until the per tablet price was increased first from 25 paisas to 50 paisas, up by 100 per cent, followed by another 100 per cent to Re one.

“We just want a transparent predetermined price revision mechanism to cater for devaluation and inflation,” the PPMA chief said adding “normally the average prices of the local companies are 30-50 per cent less than the multinational for the same formula”.

He said the pharma industry does not disagree with the prices being controlled by DRAP but it should be limited to the 70-80 essential/life-saving molecules determined as such by the WHO. The remaining molecules which are not essential/life-saving should not be under the purview of price control. Additionally, even prices of controlled products cannot be frozen for eternity. There should be a mechanism of periodic predetermined review/revision of prices based on the inflation and currency devaluation.

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