Drug prices: Do the math and make 'rational' decisions

Prices not just based on dollar parity rate but on many factors, says SLCPI

The dollar rate has come down and many concerns are being raised as to why the price of medicines in Sri Lanka is not being slashed.

“We are not averse to bringing down drug prices but there is also an urgent necessity to have a proper ‘pricing mechanism’ at the National Medicines Regulatory Authority (NMRA) to take into account all factors linked to drug prices,” said a top official of the Sri Lanka Chamber of the Pharmaceutical Industry (SLCPI).

With regard to a price reduction, SLCPI President Sanjiva Wijesekera reiterated that the Health Ministry and the SLCPI – which has a membership of 60 plus importers – should discuss, do the math and come to a mutual agreement, without resorting to arbitrary decisions.

Pointing out that even though the SLCPI has been requesting an NMRA pricing mechanism since 2016, it has not materialized, he said that such a mechanism could study all aspects and in addition to taking into account the dollar rate, factor in energy costs, inflation and new developments. These developments that the industry has had to face include high interest rates when buying stocks without opening Letters of Credit (LCs) but having to resort to Telegraphic Transfers (TTs) by paying cash up-front.

Mr. Wijesekera stressed that the SLCPI was willing to reduce drug prices if they possibly could, to lessen the burden on patients. Pharmacy retailers who benefit from the wholesale price of a 17% reduction from drug importers, were unfairly questioning why the latter cannot slash prices by 30%.

“No one has done the arithmetic,” pointed out Mr. Wijesekera, detailing the issues faced by them.

Pharmaceutical importers, along with the State Pharmaceuticals Corporation (SPC) and local manufacturers provide the drug requirements of Sri Lanka’s private sector. These importers also tender for procurements for state hospitals through the Department of Health Services.

Giving the background, Mr. Wijesekera says that on March 7, 2022 (last year), the US$ was 203 rupees. It went into free float on March 8, increasing to 230 rupees overnight, then 260 rupees and hitting 372 rupees by September 2022.

There are two types of drug imports – regulated drug imports with a set Maximum Retail Price (MRP) and non-regulated drug imports but with regard to these too the prices have to receive prior approval by the NMRA, it is learnt.

It was back on October 21, 2016 that the authorities brought 48 molecules under the MRP with a price ceiling through Gazette notification and another 13 molecules under the price ceiling, two years later on August 31, 2018.

The SLCPI President explained that on March 15, 2022, they got a 29% price increase for drugs with an MRP and once again a 49% increase on April 29, 2022. This was while drugs without a price ceiling were allowed a 29% increase by the authorities on March 11, 2022; another 20% increase on April 8, 2022; and a 20% increase on April 25, 2022. All this was linked to the dollar value appreciating.

He pointed out that all price increases granted by the NMRA brought parity only for a dollar which amounted to 350 rupees, but there was no consideration when the dollar hit 372 rupees.

Referring to the dire situation faced by drug importers, Mr. Wijesekera said that it is not only parity that has to be considered. “Our industry is heavily energydependent. The freezer-trucks which transport the medicines are diesel-run while we need electricity not only for the freezers but also for our cold rooms at our warehouses to maintain the temperature.”

He also reiterated that no one has taken into account the fact that soon after the COVID-19 pandemic, when Sri Lanka got into the grip of the economic crisis, drug importers could not open LCs with 120 days of credit as before. They had to send TTs. As the Sri Lankan market is small, the importers have to fall in line with a minimum order qualification set by international manufacturers. This is because the drugs for Sri Lanka are country-specific with regard to packaging.

The importers also keep 3-5 months in stock. When they had to pay cash up-front in TTs, they had to borrow it at 32% interest at that time, he said.

Another grouse of the SLCPI is that the NMRA has mandated that the registration fee for each medicine is defined in US dollars and paid according to the parity rate pre-determined by the NMRA in line with the Central Bank exchange rates.

Underscoring that pharmaceutical products are the only group which is price regulated without a proper pricing mechanism, Mr. Wijesekera strongly urged that a transparent pricing mechanism be set up within the NMRA to study all aspects with regard to drug prices and make 'rational' decisions.