Pharmaceutical companies have came under increasing pressure as a result of the ministry's directives

From SHAMIM. A. RIZVI, Islamabad
Aug 10 - 16, 1996

With timely intervention and prompt action taken by the federal ministry of health, the pharmaceutical companies, both national and multinationals, represented by PPMA and the Pharma Bureau respectively have reversed the 20% increase in the prices of medicines, which had been notified after the 96-97 budget. Companies have now been allowed to charge 5 percent of the sale price as GST from the consumers.

According to a spokesman of the ministry of health the price increase by the drug companies was arbitrary, unilateral and against the understanding which had been reached between the ministry and the representatives of the two bodies last month. A number of meetings were held in the last week of June between the ministry of health and the leaders of PPMA and the Pharma Bureau in which it was agreed that, as a gesture of goodwill, pharmaceutical companies will not increase their prices and will instead absorb the five percent GST.

However, on July 10, 1996, the two associations held a meeting in Karachi, and decided to increase prices by between 18 to 20 percent. As a result of this decision, some of the companies notified the increases while the majority of them waited for reactions from the public and the ministry.

The federal ministry of health took immediate notice of this development and issued notices to all concerned — the office bearers of the two associations as well as the individual manufacturers — to refrain from prices increase and withdraw immediately any increase or else action could be initiated under section 12 of the Drug Act 1976 which empowers the federal government to fix maximum prices of certain drugs.

It was on the intervention of Mr. V.A. Jaffarey that the pharmaceutical companies were allowed to charge the 5 percent GST which the health ministry had earlier been pressing the drug industry to "absorb". The pharmaceutical companies complaints in this regard were recently forwarded to the Advisor on Economic and Financial Affairs for advice, who, according to sources, commented in writing that "obviously the sales tax is going to be passed on to the consumers, on the ex-factory (net) prices."

The companies are, however, not satisfied with this decision as according to them it takes care on only 5% GST while there are many other factors which have increased the costs. Their decisions to increase price by 20 percent was more than justified as it just barely covered the increased costs without resulting in an increase in their profits. The industry asserts that their costs have increased 25 percent since the last allowed price hikes, due to a custom duty on raw material imports, a 10 percent devaluation of the rupee, as well as higher utility rates. They appealed to federal health ministry to reconsider their decision.

There are also complaints of non-availability of some life saving drugs the prices of which are still controlled by the ministry of health. The obvious reaction among citizens is to condemn drug companies for their profit motives but, while it may be true that some drug companies, benefit from unreasonably high profit margins on some drugs, recent cost increases have whittled that away to unsustainable levels, since the health ministry still has control over prices of "essential drugs" which make up the major share of turnover in the industry. Besides, a silent agreement also 'regulates' prices of decontrolled medicines. One can appreciate that, at present, the government is being pressed on all fronts of the economy, but this is a sector that cannot be ignored for long. Serious deliberations must be undertaken with representatives of the pharmaceutical industry with a view to minimising the price hike, in a manner that is fair to the industry and affordable for the people. Some degree of subsidy may be necessary, and is allowed even under the WTO agreements. In addition, urgent efforts need to be made to encourage local production of raw materials, which would greatly lower prices and protect them against devaluation, as is the case in India.