Drug pricing policy

The Federal Finance Minister, Ishaq Dar, chaired a meeting on drugs pricing policy and stated the obvious: a pricing mechanism must be developed that ensures adequate supply of all essential drugs, protects the interest of the consumers and takes cognisance of the requirements of the pharmaceutical industry. All three objectives highlighted by Dar have been cited on numerous occasions by previous governments and yet no government has been able to create the right environment for their attainment.

The meeting was briefed by the Secretary, National Health Services who reportedly apprised the Finance Minister on various pricing formulae ranging from cost-plus pricing to reference pricing to market-based pricing to freezing prices at the current rates. The Minister, again as is the norm, directed that all the stakeholders must be taken on board, though without direct consumer participation, the interests of the consumers are to be safeguarded by the government.

The usual pattern for drug pricing that has been followed by successive governments is, to insist on keeping the price of essential drugs as low as possible. Escalating costs of production that can be largely attributed to government policy with respect to rising utility prices as well as an eroding rupee value that fuels the cost of importing raw materials is usually ignored. To date, Pakistan’s pharmaceutical industry has not been able to develop and, unlike in India, it is unable either to produce basic or intermediary raw materials because of the limited size of the domestic market. In fact, it has not been able to undertake toll manufacturing for international pharmaceutical companies to sell in the region. Failure to meet basic costs has accounted for Pakistani pharma sector creating artificial shortages on the plea that their manufacture is no longer financially viable – a decision that compels the government to allow a rise in prices.

To add to the problems of the pharma sector subsequent to the passage of the 18th Constitutional Amendment, health was devolved to the provinces while pricing remains a federal subject given the need to provide the same price throughout the country.

Be that as it may, Pakistani governments’ rationale for keeping medicine prices artificially low is commendable to the extent that it enables the poor access to life saving drugs. However, this decision has time and again led to periodic shortages and, disturbingly, the exit of many international pharmaceutical companies from operating in Pakistan, which has an implicit economic cost not only for the sector but also for employment.

The question is how can the issues facing the pharma sector be resolved? Consulting stakeholders, as directed by the Federal Finance Minister, is considered the most appropriate mechanism for resolution. There is, however, a conflict of interest and perception, as the phrarma sector is not in the business to provide a service to the public but to earn a profit while the government team is focused on low prices. A more appropriate policy would be for the government to create an enabling environment that encourages the indigenization of manufacture on the one hand and begins to provide a targeted subsidy to the poor on the other till such a time as a comprehensive countrywide health insurance plan can be implemented. The solutions are known, however, their implementation, as with solutions for our other sectors, remains poor.