- Says move will distort market place and hinder right for consumer choice
- New pricing system an Indian model suitable for large market with substantial domestic production
- Most ‘originator’ brands faced with unviable ceiling price
- Could have many negative unintended consequences to consumer, market and economy
Sri Lanka’s premier trade chamber, Ceylon Chamber of Commerce (CCC), yesterday in a strongly-worded statement slammed the government’s move towards introducing price controls for certain medicinal drugs saying it limits the customer choice and distorts the market place. To the much surprise of the country’s pharmaceutical sector stakeholders, the Health Ministry through a gazette notification hastily introduced price controls on 48 high-demand drugs, presumably with the good intention of creating public access to medicinal drugs at affordable prices.
Though the intentions may have been good, the CCC noted that such ad-hoc moves, distorting the market, could have a lot of negative unintended consequences to the consumer, market place as well as to the overall country’s economy.
“It severely impacts private sector decision making, harms Sri Lanka’s international standing as an open economy, restricts consumers/patients ability to make free choices based on their individual affordability, and creates overall distortionary effects that hamper a smooth functioning of markets,” CCC said.
And added, “The CCC strongly urges the government to refrain from introducing ad-hoc, poorly designed and unviable regulations, that cause undesirable market distortions and undermines the country’s overall socio-economic goals.”
As the trade chamber points out, Sri Lanka has a strong and accessible public healthcare system, complemented by a quality private healthcare system that is catering to evolving needs of the Sri Lankan people.
While all Sri Lankans, regardless of socio-economic conditions, have access to free public healthcare, patients have the freedom to seek private healthcare as well, particularly medicinal drugs from private providers. In this context, the CCC argues that the new pricing rules are hurting the efficient operation of the private healthcare market and are hurting consumer choice.
While Sri Lanka has a small local pharmaceutical manufacturing industry, it accounts for approximately less than 10 percent of the private sector supply and 90 percent is supplied by private firms who are the designated local agents for pharmaceuticals imported from international principals. It is these private providers who largely import ‘generics’ or ‘branded generics’ and ‘originators’.
According to the CCC the new pricing system that has been announced is one derived from the Indian model, suitable for a large domestic market with a substantial domestic drug-manufacturing base and not for Sri Lanka.
“This pricing mechanism uses the median price of any drug that commands a 2 percent or more market share (by volume). In most instances, the median price is a branded Indian generic due to the large volumes of such drugs sold in the Sri Lankan market. As a result, most ‘originator’ brands are faced with an unviable ceiling price, that is neither reflective of cost nor of quality.”
“This also means that prices of such drugs would be well below regional ceiling prices, which international providers operate on the basis of. The international firms would not want to subject their products to the possibility of unofficial arbitrage trade in the region, originating from Sri Lanka,” the CCC pointed out. The trade chamber said it was aware of incidents over the past week of authorities having to seize drugs being brought illegally, as baggage goods by travellers, and all of these are items coming under the new price controls.
“This is a clear indication of how economic actors will attempt to circumvent unviable controls,” CCC stressed.
Meanwhile, with the majority of Sri Lanka’s pharmaceutical drug requirements depend on imports, where costs vary with every shipment due to exchange rate variability, fixed prices become highly infeasible, CCC pointed out.
Echoing recent statement by the country pharma chamber, Sri Lanka Chamber of Pharmaceutical Industry (SLCPI), the CCC said ‘branded generic’ and ‘originator’ drugs are strongly impacted by the new pricing rules, and can result in shortages as well as restrict patients’ choice.
“Early reports indicate that several originator drug companies have signaled they would discontinue supplying to the Sri Lankan market,” CCC noted.
In this backdrop, the trade chamber urged the pharma regulator to consider an ‘automatic pass through’ for exchange rate volatilities, where a quarterly revision of prices is linked to Central Bank approved exchange rate.
“In the absence of such a mechanism, a devaluation for instance would result in each pharma importer requiring NMRA pricing committee approval for price increases on all products stemming from a change over which the importer has no control.”
Point out another possible dangerous scenario, the CCC warned that the recent gazette could prevent higher quality drugs developed with innovation in the originator countries coming into Sri Lanka
“This affects not only individual choice of consumers, but also affects the country’s ability to continually access the newest medication. Moreover, price controls can lead to the proliferation of lower quality and counterfeit drugs, which is dangerous to public health,” CCC cautioned.
Meanwhile, CCC said industry representatives, affiliated to the chamber, had pointed out that changes were made in an ad hoc manner and without full consultation with key industry stakeholders.
“Moreover, the suggestion made by industry bodies of implementing a verifiable CIF (like in Saudi Arabia, Malaysia and Singapore) where it can be ensured that the CIF offered to Sri Lanka is not higher than the region, had not been given full consideration.
While the industry had clearly indicated support for a rational pricing mechanism, the process under which the new price controls were implemented is far from desirable,” CCC said.