It is government duty to ensure that drugs remain affordable for the majority of the people

Special Correspondent, Islamabad
Mar 27 - Apr 02, 2000

Prices of registered drugs will soon increase but not in accordance with the pharmaceutical industry's demand of 26 per cent hike. The Federal Ministry of Health last week proposed to the Federal Cabinet that it approve an immediate raise of 10 per cent in the prices of registered drugs. The Ministry has sent a summary to the Federal Cabinet suggesting that 10 per cent raise seemed most appropriate under the circumstances. However, the Ministry said it was opposed to the idea of any further raise in the prices of 69 registered drugs that saw hike in their prices recently.

Sources said the Cabinet has been informed that the prices of drugs are fixed by the Federal government under section 12 of the Drugs Act 1976. In 1991, the Economic Coordination Committee (ECC) approved the setting up of a committee to examine the existing controls of drugs and recommend the extent to which pharmaceutical industry should be deregulated. The committee recommended in 1992 that life saving and medically critical drugs should remain under control while there should be no price control for the remaining categories of drugs. Based on these recommendations, prices of 821 drug formulations comprising around 4000 brand-products were fixed vide SRO 471(1)/93 dated June 12, 1993 and price controls were lifted from the remaining drugs. It was further recommended by the committee that in order to provide transparency in price revision, government may announce each year an indexation based on the rate of inflation and change in rupee parity during the intervening period to allow controlled drugs to change their prices.

The above report was subsequently modified by Mr A.G.N. Kazi's recommendation in 1993 to allow for a maximum retail price for controlled drugs to cover inflation in the preceding year subject to a capping. The ECC approved recommendation and placed a capping of 5 per cent on inflation while considering drug price revision in that year. In 1994, in pursuance of a Federal Cabinet decision, Ministry of Health issued SRO 1038(1)94 dated October 16, 1994 notifying a formula to calculate annual increase in prices of drugs which took in account both the annual inflation rate as measured by the Consumer Price Index and annual variation in the exchange rate.

In actual practice, however, it has not been possible to allow revision in the prices of drugs either annually or on the basis of notified formula. In fact the policy of de-control was given up in the wake of public protest and outcry following exorbitant escalation introduced by the pharmaceutical companies in 1994. Thereafter, increase in prices both for controlled and de-controlled categories of drugs have been decided by the Federal government.

The Health Ministry in its summary has informed the Federal Cabinet that since November 1996, when the last increase was allowed, a number of variables emerged which include: The dollar appreciated by 28.5 per cent between this period; The Consumer Price Index increased by 24 per cent during this period; Custom duty was levied during June 1996 on finished goods as well as pharmaceutical raw material used for locally manufactured drugs. Additionally general sales tax has been levied with effect from August 20, 1999 on packing material used in drugs. Further, increase in petrol, oil and gas have also taken place since then. Sources said the Health Ministry has pointed out that as a result of above escalations, pharmaceutical companies have started clamouring for upward revision in the prices of drugs.

In their presentation made to the Ministry of Health, pharmaceutical companies have pointed out to the non compliance by the Federal government of SRO 1038(1)94 dated October 16,1994 relating to annual price increase for controlled drugs. Health Ministry said that they have urged that government to reintroduce market driven pricing for decontrolled drugs as originally intended. They have argued that pharmaceutical industry is facing great strain, they are loosing profits and return on equity, further investment plans have either been shelved or abandoned and there is a trend towards retrenchment and reduced scale of operations.

Sources said the Health Ministry in its summary has told the cabinet that in order to reverse the negative trends, the pharmaceutical industry has stressed upon the need of an annual increase in price of drugs according to the formula notified in SRO 1038. Health Ministry said that the arguments against a totally market dependent price determination are also well known. In the case of drugs, access and affordability even in short run are major policy considerations. "It is government duty to ensure that drugs remain affordable for the majority of the people," Health Ministry has told the cabinet. As regards the actual increase to be allowed, Health Ministry told the cabinet that the pharmaceutical industry believed that government should adhere to the pricing formula contained in the SRO 1038. The increase so calculated comes to 26 per cent. However, the pricing section of the Health Ministry has recommended increase ranging between 8 to 10 per cent. As per past practice, Health Ministry said the percentage increase to be permitted would be calculated on brand prices. The increase so arrived at would form the ceiling within which all the manufacturers or importers would be asked to set their own retail prices for their respective drugs.

As regard de-controlled drugs, sources quoted the Health Ministry as saying that the pricing section of the Health Ministry has recommended an increase of 10 to 12 per cent for brand leaders in line with higher increase allowed to this category in the past. This is against 17 per cent increase requested by the representatives of the industry. Sources said the Health Ministry has told the cabinet that it was felt that majority of drugs in the decontrolled category had managed to record substantial escalation during the period of decontrol. Consequently it may not be necessary to keep a big margin between the increase allowed to controlled and decontrolled drugs, Health Ministry said.

Sources said the pricing section of the Ministry has categorically opposed any immediate increase in the prices of 69 drugs which were reduced between 1997 and 1999 ranging from 4 per cent to 28 per cent on the grounds that their prevailing prices are still higher than the neighbouring markets like India. Sources said the pricing section of the Health Ministry has further recommended that for future, price revision may be considered on need basis and on merit but the formula notified through SRO 1038 should be annulled. Sources said on the other hand, the pharmaceutical industry, has expressed a view that such a step will send a very negative signal to the investors and will further distort the investment climate in this sector.