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Pricing of Medicine and Nutritional

Pricing of Medicine and Nutritional Supplements
Medicine and nutritional supplements have a significant social importance as well as a vital economic role representing a key area of investment. As a result, the Egyptian government is heavily involved in several aspects related to the pharmaceutical industry, particularly with regards to pricing of medicines. The government does not leave medicines to the fluctuations of supply and demand; as such it maintains a centralised pricing system, determining sale prices according to a Ministry of Health decision issued in 1990.[1] More recently, on 18 December 2014, the Ministry of Health issued a decision to reorganise the Committee for the Pricing of Medicines and Nutritional Supplements,[2] which is responsible for setting prices and determining the profits of pharmaceutical manufacturers and pharmacists. This recent decision allows an insight into the legal structure regulating the pricing of medicine in Egypt. Although centralized, government-backed determination of prices has been a consistent feature of the medicine market, several changes to the strategy and philosophy surrounding the pricing of medicine have occurred in the last few years.
The Pricing of Medicine
The pricing system for locally produced medicine has undergone two main alterations. Until 2009 the pricing of medicines was based on a simple process which calculated the cost of production, taking into consideration the price of raw materials, and industrial, administrative, and research expenses, while adding a profit margin for the pharmaceutical manufacturer and the pharmacy benefiting from the final sale. The role of the Committee for Pricing under that system was to ensure the correct valuation of the real cost of the product and to review the documents provided by the manufacturers in order to prove such real cost. This system faced many criticisms, due to a lack of adequate transparency and the absence of clear criteria to guide the Committee in its determination of pricing. Thus in 2009, the Ministry of Health issued a decision[3] fundamentally altering this system. The sale price of medicine was to be determined on the basis of comparison with the sale price of the same drug in other countries. The decision also differentiated between types of medicines, creating two categories: original medicines (drugs that contain a new active ingredient or new innovation), and generic medicines (which contain the same ingredients as the original drug but are not novel, and are produced following the expiration of the original drug’s patent). With regard to original drugs, the 2009 decision stipulated that the sale price within Egypt would be calculated by deducting 10% from lowest sale price of the drug in any one of the relevant countries as determined by the Ministry of Health. The list of 36 countries covers a wide geographical and economic range, and includes Austria, Germany, Canada, Algeria, Jordan, and Sudan. With regard to generic drugs, the sale price had to be based on the price of the original drug after deducting a significant percentage - ranging from 30%-60% - depending on the type of manufacturing facility and type of license it holds. The Ministry’s decision relied on companies providing the sale prices of the medicines in the countries designated on the list, while operating in an oversight capacity to ensure that statements and data were relayed to the Central Administration for Pharmaceutical Affairs and subsequently the Committee for Pricing. In 2012, the Ministry of Health altered the drug pricing system once more. The 10% discount on the lowest sales price abroad for original drugs was repealed, while the discount for generic drugs was reduced to 30%-40% of the price of the original, as opposed to the earlier regime where discounts of up to 60% could be made. Also repealed was the determination of prices of generic drugs on the basis of manufacturing facilities and licensing. Instead, prices are to be set based on the time passed since the registration of the generic drug by the pharmaceutical company. Finally, it should be noted that the 2012 decision stipulated that the profit margin for manufacturers and pharmacies would vary based on the type of medicine in question, a system known as Mark-up Regulation. A month following the decision of the Ministry of Health to reorganise the Committee for Pricing of Medicines and Nutritional Supplements, several news sources reported that the Ministry had prepared a list of 87 medicines which were to have their prices increased beginning in February 2015. This is yet to be confirmed, but it reflects some of the basic issues affecting the Egyptian market, wherein the Ministry sometimes increases prices where there is a scarcity of the medicine in question due to the law prices, which discourages manufacturers from producing them.
Analysis
The pharmaceutical industry is a complex matter to deal with through regulatory mechanisms, due to the existence of many competing interests. The government must on the one hand sustain an industrial and investment environment that stimulates pharmaceutical companies to produce sufficient quantities of needed drugs, yet it must also maintain prices that would make such products affordable to the general public, especially given the dire conditions of the health insurance system. While many ways to deal with pharmaceutical prices exist, changing the pricing system and the philosophy behind it three times in the space of five years points to a lack of a clear vision or strategy by successive administrations.   [1] Minister of Health's Decision No. 150/1990 determining Sale Prices of Medicine, Official Gazette, Issue No. 4, 5 January 1990. [2] Minister of Health's Decision No. 767/2014 reorganising the Committee for the Pricing of Medicines and Nutritional Supplements, Official Gazette, Issue No. 268, 18 December 2014. [3] Minister of Health's Decision No. 373/2009 on Pricing of Medicine, Official Gazette, Issue No. 220, 24 September 2009.
Medicine and nutritional supplements have a significant social importance as well as a vital economic role representing a key area of investment. As a result, the Egyptian government is heavily involved in several aspects related to the pharmaceutical industry, particularly with regards to pricing of medicines. The government does not leave medicines to the fluctuations of supply and demand; as such it maintains a centralised pricing system, determining sale prices according to a Ministry of Health decision issued in 1990.[1] More recently, on 18 December 2014, the Ministry of Health issued a decision to reorganise the Committee for the Pricing of Medicines and Nutritional Supplements,[2] which is responsible for setting prices and determining the profits of pharmaceutical manufacturers and pharmacists. This recent decision allows an insight into the legal structure regulating the pricing of medicine in Egypt. Although centralized, government-backed determination of prices has been a consistent feature of the medicine market, several changes to the strategy and philosophy surrounding the pricing of medicine have occurred in the last few years.
The Pricing of Medicine
The pricing system for locally produced medicine has undergone two main alterations. Until 2009 the pricing of medicines was based on a simple process which calculated the cost of production, taking into consideration the price of raw materials, and industrial, administrative, and research expenses, while adding a profit margin for the pharmaceutical manufacturer and the pharmacy benefiting from the final sale. The role of the Committee for Pricing under that system was to ensure the correct valuation of the real cost of the product and to review the documents provided by the manufacturers in order to prove such real cost. This system faced many criticisms, due to a lack of adequate transparency and the absence of clear criteria to guide the Committee in its determination of pricing. Thus in 2009, the Ministry of Health issued a decision[3] fundamentally altering this system. The sale price of medicine was to be determined on the basis of comparison with the sale price of the same drug in other countries. The decision also differentiated between types of medicines, creating two categories: original medicines (drugs that contain a new active ingredient or new innovation), and generic medicines (which contain the same ingredients as the original drug but are not novel, and are produced following the expiration of the original drug’s patent). With regard to original drugs, the 2009 decision stipulated that the sale price within Egypt would be calculated by deducting 10% from lowest sale price of the drug in any one of the relevant countries as determined by the Ministry of Health. The list of 36 countries covers a wide geographical and economic range, and includes Austria, Germany, Canada, Algeria, Jordan, and Sudan. With regard to generic drugs, the sale price had to be based on the price of the original drug after deducting a significant percentage - ranging from 30%-60% - depending on the type of manufacturing facility and type of license it holds. The Ministry’s decision relied on companies providing the sale prices of the medicines in the countries designated on the list, while operating in an oversight capacity to ensure that statements and data were relayed to the Central Administration for Pharmaceutical Affairs and subsequently the Committee for Pricing. In 2012, the Ministry of Health altered the drug pricing system once more. The 10% discount on the lowest sales price abroad for original drugs was repealed, while the discount for generic drugs was reduced to 30%-40% of the price of the original, as opposed to the earlier regime where discounts of up to 60% could be made. Also repealed was the determination of prices of generic drugs on the basis of manufacturing facilities and licensing. Instead, prices are to be set based on the time passed since the registration of the generic drug by the pharmaceutical company. Finally, it should be noted that the 2012 decision stipulated that the profit margin for manufacturers and pharmacies would vary based on the type of medicine in question, a system known as Mark-up Regulation. A month following the decision of the Ministry of Health to reorganise the Committee for Pricing of Medicines and Nutritional Supplements, several news sources reported that the Ministry had prepared a list of 87 medicines which were to have their prices increased beginning in February 2015. This is yet to be confirmed, but it reflects some of the basic issues affecting the Egyptian market, wherein the Ministry sometimes increases prices where there is a scarcity of the medicine in question due to the law prices, which discourages manufacturers from producing them.
Analysis
The pharmaceutical industry is a complex matter to deal with through regulatory mechanisms, due to the existence of many competing interests. The government must on the one hand sustain an industrial and investment environment that stimulates pharmaceutical companies to produce sufficient quantities of needed drugs, yet it must also maintain prices that would make such products affordable to the general public, especially given the dire conditions of the health insurance system. While many ways to deal with pharmaceutical prices exist, changing the pricing system and the philosophy behind it three times in the space of five years points to a lack of a clear vision or strategy by successive administrations.   [1] Minister of Health's Decision No. 150/1990 determining Sale Prices of Medicine, Official Gazette, Issue No. 4, 5 January 1990. [2] Minister of Health's Decision No. 767/2014 reorganising the Committee for the Pricing of Medicines and Nutritional Supplements, Official Gazette, Issue No. 268, 18 December 2014. [3] Minister of Health's Decision No. 373/2009 on Pricing of Medicine, Official Gazette, Issue No. 220, 24 September 2009.