Sri Lanka to fix import prices to enforce retail drug price controls
ECONOMYNEXT – Sri Lanka’s drug price control regime has taken a new twist with the state planning to fix import prices of medicines in a bid counter pharmaceutical firms padding up retail pricing formula as predicted by analysts last year.
Health Minister Rajitha Senaratne said pharmaceutical firms were padding up a retail pricing formula by inflating import prices.
"We will issue fixed CIF (cost-insurance-freight) prices to stop them," Minister Senaratne told reporters.
Sri Lanka’s new administration introduced price controls on drugs by giving each drug an 80 percent gross profit margin through the National Medicinal Drugs Authority.
The minister then found that some expensive drugs do not require that much of a margin and attempts are now being made to assign percentages based on the price, with higher priced drugs being assigned a lower margin.
The latest regulations on fixing import prices comes as pharma companies try to boost the retail pricing formula by inflating import prices as easily predicted by economic analysts.
"Cost plus margin price regulation is a joke," EconomyNext’s policy analyst Bellwether said in a November 2015 column.
"Under cost-plus pricing, nobody will have any incentive to cut costs. Importers will have a field day driving up CIF prices to show higher costs."
Minister Senaratne, however, said he had saved money for the government by introducing competition to government procurement, which analysts say is an effective use free market or ‘capitalist’ technique of boosting competition by relaxing state licensing.
Licensing more suppliers had sharply cut the price of expensive cancer drugs, he said.
It is a sharp reversal from the original position of Minister Senaratne and doctor backers of the drug bill in 2015.
Architects of the NMRA originally wanted to reduce the number of suppliers earlier approved by the pre-cursor to the agency.
In February 2015, senior doctors who accompanied Minister Senaratne to a press conference said they wanted to reduce the number of brands in the market because there were too many, in their opinion (Sri Lanka drug regulation bill given cabinet nod; no price controls planned: Minister).
Doctors also said that though a large number of drugs had been registered by the authorities not all of them were regularly distributed in the market and some firms were registering them to participate in tenders for hospital supplies and they wanted to reduce the number.
Such tight licensing creates an oligopoly.
Reporters trying to teach the doctors some basic economics, pointed out that it was good for a large numbers of suppliers to be registered as it will create competition and lower prices and limiting suppliers will make it easier to rig tenders and push prices up.
Delays in approval of drugs by the new agency caused hardships to patients and Minister Senaratne sacked a top official to speed up drug approvals.
Shortages of drugs are common now and even when some drugs are available, they are not found in the required strengths, forcing patients and their carers to visit several pharmacies spending time and money to get a few simple drugs.
"Company out of stock," was an oft repeated response at pharmacies over after the new administration came to power. (Colombo/Aug29/2016)