PHARMACEUTICAL
Pakistan’s Ministry of National Health Services seems to have ignored its primary task of providing access of quality medicines to patients in the country and has thus denied the people their fundamental rights. There is some confusion at the government level in terms of regulation and control. The policy makers are not aware of the forces of competitive market dynamics which keep prices in check. It seems they believe they are the last word in ‘control’ of prices of various items, right from staple commodities like sugar, wheat, rice and grocery items to medicines.
The issue of the Drug Regulatory Authority of Pakistan (DRAP) ‘managing’ prescription drug prices has now raised its ugly head. While pharmaceutical companies and drug regulators bicker over who is to blame for rising prices and medicines disappearing from the market, the ultimate sufferers are the patients. This should be viewed in the backdrop of the issue having been widely politicised. It has been discussed in the National Assembly and the Senate. It is generally thought that the government has the ‘power’ to control the prices of over 70,000 registered medicines in Pakistan, notwithstanding the fact that it has grossly failed in the past to control the prices of other essential items and has eventually conceded to the forces of market dynamics. Moreover, DRAP has also failed to put forward a transparent mechanism for ‘fixing’ the prices of medicines.
The government needs to understand that some pharmaceutical companies charge high prices for medicines because they also invest in research and development. Multinationals forced to sell these medicines at low prices will not even allow the company to break-even. The pharmaceutical industry has been demanding a free pricing mechanism determined by competitive forces or recourse to such mechanisms operating in other countries with similar socioeconomic indicators such as Bangladesh and Sri Lanka, so that a more transparent method of ‘fixing’ prices of registered medicines can be incorporated in Pakistan as well. There is an ongoing media debate on the issue. Under these increases, it is expected that the pharma industry will continue to sell its products at the prices of 2002.
Since the multinationals, who were producing life saving drugs locally have discontinued manufacturing them, the other pharmaceuticals are now forced to import those medicines, which eventually cost higher than what the multinationals were charging. Interestingly, in Pakistan, prices of over 80 percent of registered medicines have remained frozen since 2001 and the regulators themselves have accepted that the cost of doing business may have risen by over 100 percent during these 14 years. There is a sharp decline of the rupee against the US dollar. This has led many pharmaceutical companies either to leave the Pakistan market or to stop producing lower priced life-saving medicines.
Over half a million people were estimated to be affected by tuberculosis in Pakistan in 2015 and due to the pricing mechanism; the much-needed medicines for TB are now not available in the market. Governments need to get their heads out of the sand and realise that TB is not a disease consigned to the 1800s; it's a deadly threat to everyone. Lack of TB medicines in the market will only raise the number of patients in the country. The absence of these medicines can only be handled if the government can agree on the pricing factor.
There is also a situation where the sale of spurious medicines is on the rise. Fake medicines are entering the market because unscrupulous elements are taking advantage of the gap left by genuine medicines, and are selling drugs that are ineffective and even detrimental to health. In many cases, these elements are also taking recourse to smuggled medicines, which are again hurting the public and reducing government revenues.
The crisis-in-making of Oxytocin and Methylergometrine Maleate is one of the examples of the inefficiency of DRAP. The authority has failed to promote healthy competition in the market. The average cost of [child] delivery in Pakistan is estimated to be around 15,000 to 20,000 rupees but the price set for two lifesaving drugs is [only] five and 10 rupees. It is difficult to believe that anyone will be unwilling or constrained to pay adjusted prices to save the life of the mother and the new-born. No one expects that all socioeconomic reasons related to maternal deaths will be resolved overnight. The least policymakers can and should do is to ensure that medicines designed to prevent such deaths are readily available throughout the country. Medicines for treating epilepsy, thyroid disease and numerous neurological disorders are also not available in the market.
A market failure, such as lack of entry, can diminish with the right price controls, at least in theory. The difficulty lies in the execution. Typically, no entity is well-informed enough to be able to exactly identify the imperfection, choose the correct price to rectify the situation and then provide ongoing adjustment and enforcement.
Competition is a better tool than price controls for protecting consumers; the puritans appear to have realised that and have gradually ceased using them. Most recently China has given up price controls on medicines altogether and has encouraged hospitals to float public tenders to secure lower prices based on committed large quantities.
The private sector has found several successful methods for reducing the price paid by a buyer. In most cases the government can use similar techniques to get a low price for prescription drugs without disrupting the competitive market.
The most common approach is to take advantage of scale. A buyer representing a large volume of market transactions can negotiate for a better price by threatening to backward integrate or to move its business to a competing supplier (if the product is not patent-protected). Moreover, a large buyer provides efficiencies to the seller. Lower transaction costs (one invoice, one negotiation, one shipment), guarantee volume and economies of scale create cost savings for the supplier that the two parties can share. The private sector provides countless examples of this approach; for example, big supermarket chains pay lower prices for packaged goods than corner stores because of large-scale central purchasing.
The imposition of price controls on a well-functioning, competitive market harms society by reducing the amount of trade in the economy and creating incentives to waste resources. Many researchers have found that price controls reduce entry and investment in the long run. The controls can also reduce quality, create black markets and stimulate costly rationing.
In the case of pharmaceuticals, the most damaging area is likely to be the reduction in the free availability of quality medicines giving rise to the mushrooming of spurious products to the detriment of public health, which will harm all future generations of patients.
Although the public officials running DRAP (and Ministry of National Health Services) know that price controls can be very harmful, they continue to have strong incentives to ‘fix’ unrealistically low prices for medicines in Pakistan either for political mileage or personal gratis. These actions are destroying welfare by inserting a new incentive into what would otherwise be a well-functioning market; either the price for non-government customers is higher or the price to poorer customers rises. More generally, the unprecedented rise in the availability of spurious products and the disappearance of quality medicines is having a serious impact on public health in Pakistan. It is because of the draconian price controls in force since 2001 and not because of a change in the underlying forces of demand and supply.
The overwhelming evidence against price controls, naturally leads to consideration of other methods of lowering purchasing costs. The private sector uses a number of methods that are both effective and in line with the market economy. This is less damaging to economic welfare than government-induced price controls and serves the public interest in a more effective manner.
The writer is a communication practitioner
