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January 1, 2015

New drug pricing policy: will it really purge the system of discretion?


January 1, 2015

The final draft of the new drug pricing policy only awaits the Prime Minister’s approval now. While official sources are widely praising the policy for offering a comprehensive pricing formula that will purge the system of discretion, and for recommending a freeze on prices of drugs till June 2016 (at levels of 2013), independent analysts are expressing serious reservations about what the policy will eventually entail.
“The role of officials in determining or revising the prices of drugs has been done away with. There shall be no interaction with officials in matters of price revision. The policy not only provides a clear formula under which drug prices would be regulated, but also supports that the prices of drugs be frozen till June 2016 at levels of 2013, whereafter the Consumer Price Index (CPI) shall be applied,” official sources privy to the development confided. What sounds good, at least on the face of it, is not all that rosy when seen from the lens of public health experts and pharmaceutical sector specialists.
Dr. Sania Nishtar, an internationally acclaimed health expert who has independently authored numerous health policy documents and action plans, and who is also the founder president of Heartfile, believes “there is a need to critically review the policy parameters currently outlined in the draft policy, which is in the public domain.”
Dr. Sania pointed out that “Whilst the current iteration of the drug pricing policy intends to purge the system of discretion, it may inadvertently end up doing exactly the opposite, since withdrawal of SRO 1002 and mandatory price reductions will lead most manufacturers to try and come under the ‘hardship’ policy umbrella and apply to the regulator for exceptions. Far from ‘purging the system of discretion’ as claimed in the title of the policy, this strengthens the regulator’s discretionary role.”
Dr. Sania emphasised that price regulation is a very tricky and

complicated area. As described by her in her book, ‘Choked Pipes,’ “The agenda of price regulation is subject to conflicting political interests and lobbying by strong interest groups in the pharmaceutical sector in an environment of weak regulation and endemic collusion.” Dr. Sania further states in the book that, “In order to achieve the objective of affordable prices of essential medicines, a review of available options is critically important.”
On the other hand, public health pharmacist Ayyaz Kiani, who is also editor of the ‘Journal of Pharmaceutical Policy and Practice,’ published by BioMed Central, UK, thinks it is a good policy for three reasons. “Firstly, it intends to remove discretionary powers of the regulators, which is a good step, at least in intention, as much will depend on how this policy will be implemented. Secondly, the policy makes price increase painless for the industry as they may now follow the formula and increase prices annually on their own without having to go through cumbersome procedures with DRAP. And thirdly, because there is ample emphasis on protecting public interest by giving priority to addressing public health issues.”
The draft policy is stated to have been finalised by the Policy Board of the Drug Regulatory Authority of Pakistan (DRAP) after inputs from various stakeholder organisations namely, the Pakistan Pharmaceutical Manufacturers Association, Pharma Bureau, Pakistan Chemists and Druggists Association, and public sector stakeholders including ministries of Commerce, Industries and Finance, and Board of Investment.
Ayyaz regretted that no input on the important policy has been sought from the civil society or consumer advocates. “Moreover, whatever consultation was done with the industry did not help as their point of view has been sidelined; they are up in arms against it, and have gone to court. These industry representatives strongly disagree with the pricing policy. Such confrontation should have been avoided. Regulators cannot expect to regulate a sector intent on failing them. It has to be a win-win situation for stakeholders for a public policy to successfully deliver the envisaged benefits,” he stated when asked for comments.
Commenting on prices of drugs being frozen till June 2016 (at levels of 2013), Ayyaz said, “There is no justification for this drastic step, which has been strongly contested by the pharmaceutical industry as being too harsh and punitive without justification. Personally, I think such retrospective implementation is bad policy,” he was of the view.
Official sources believe the new policy aims to ensure availability of quality drugs at affordable prices to patients on the one hand, and to keep the industry viable, ensuring its growth and promoting investment in the country, on the other.
Ayyaz viewed this claim with skepticism. “The industry does not think such an objective is being served through this policy; they believe it is ‘disabling’ rather than ‘enabling’ growth and further investment in the sector. The pharma industry (especially its foreign investment component) has indeed been lately disinvesting, and prospects of growth already seem remote,” he flagged.
Sharing the key features of the drug pricing policy, sources confided that drugs have been divided into two categories in terms of pricing. The first category, that of scheduled drugs, includes most commonly used top 50 drugs, drugs on essential list, drugs for treatment of Cancer, TB, Hepatitis, HIV, Thalassaemia and Organ Transplant, biological and new chemical entities. In the second category, which is that of non-scheduled drugs, the prices of drugs not coming under the scheduled category shall be ‘partially’ regulated in terms of pricing.
Commenting on this categorization, Ayyaz said, the top 50 used drugs is not a good point to start as many non-essential and indeed irrational drugs exist in this category, and as such, protecting this group of medicines through higher level of control will be counterproductive. “All the others categories in this list have clear public health importance and have been correctly prioritized for protection,” he added.
With reference to price fixation of new chemical entities (NCEs), the policy document states that price fixation of originator brand of NCE shall be based on average price of the same brand in India and Bangladesh. If originator brand of NCE has not been marketed in India or Bangladesh, its maximum retail price shall be fixed equal to the lowest of the following, namely: 1) retail price in developing countries which regulate drug prices; 2) whole sale price of in UK Monthly Index of Medical Supplies or British National Formulary or Australian Pharmaceutical Benefits Scheme or New Zealand Pharmaceutical Management Agency. The document also states that the prices of generic substitutes of the NCE shall be fixed @ 30% less than the originator brand price.
Sharing his views, Ayyaz pointed out that all of the above clauses depend too much on what goes in other countries, and reflect Pakistani regulators’ inability to adjudicate prices in Pakistan.
The policy also contains a clause for price reduction after recovery of research cost, sources claimed. To this effect, the document mentions that “prices of originator brands of new chemical entities will be reduced by 30% after 5 years of its registration or when 3 or more me-toos/biosimilars have been marketed, whichever is earlier. Ayyaz termed this as a good step but emphasized the need for “clarity on what would be the base for calculation of the reduction: whether the starting price or the one at the end of the 5th year?”
As for increase in prices of drugs, the policy stipulates that effective July 1, 2016, annual increase shall be linked with CPI of the immediately preceding financial year. “Manufacturers and importers may increase their existing maximum retail prices of scheduled drugs up to 50% of CPI (with a cap of 4%) and maximum retail prices of non-scheduled drugs up to 70% of CPI (with a cap of 6%) once in any financial year. The calculation of revised maximum retail price shall be intimated to the Authority (Division of Costing and Pricing) at least 15 days prior to affecting the increase. Non-intimation of prices shall be construed as non-revision of maximum retail prices. The failure to intimate the increase in price shall tantamount to nullifying the price increase,” sources shared.
In order to encourage the production of lower-priced drugs, the policy states that drugs whose prices are less than Rs. 2 per tablet/capsule, Rs. 2 per 5ml of syrup, Rs. 2 per 1 gm of cream/ointment/gel, Rs. 2 per patch, Rs. 4 per sachet, and Rs. 10 per injection shall be deemed to be non-scheduled drugs.
Similarly, locally manufactured products approved for export to developed countries like USA, UK, EU countries, Japan, Australia or WHO shall be exempted from price control in the local market to encourage manufacturing and export of quality drugs, subject to the conditions that FOB price for export is not less than the ex-factory price in the country. “This is totally unacceptable as a small amount of export of a product would exempt it totally for domestic price control. This one clause, in fact, nullifies all the public health benefits of regulation through this price,” Ayyaz pointed out.
The policy document also states that a procedure shall be devised by the Policy Board to review maximum retail prices of drugs which have become non-viable to market. Prices will be fixed on the basis of competitive manufacturing cost and will be uniform for all companies. “This will help boost availability of low-priced essential medicines which has been a protracted problem in the market. Kudos for this,” Ayyaz remarked.
The Policy Board has also decided to make amendments in the law so that overcharged amounts by the industry/hospital/ retailer plus penalty @ 20% per annum will be deposited in the government treasury. Ayyaz said, “This too is a commendable step but will need muscle to implement, which the regulators have traditionally lacked.”
So before the PM puts his signature on the final draft of the drug pricing policy, a review of issues being flagged by independent health analysts may help achieve better outcomes in the long run.

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