Monopolized drug market and state pricing policy

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Question: On July 1, by the decision of the Tariff Council, prices for medicines have been increased. What do you think is the reason for this need?

Answer: This is not the first time. In general, drug prices rise periodically. During the year, the state makes changes to the list of registered drugs several times, adds new drugs, and increases prices for some of them. The last time similar steps were taken in January this year. The need to increase prices for some drugs may be due to a sharp increase in demand for drugs against the backdrop of a pandemic and, as a result, their rise in prices in the world.

Azerbaijan, with rare exceptions, imports medicines and therefore, it is sensitive to price increases in producing countries.

Question: What drugs have generally risen in price? Does the price increase apply to analogues produced by other manufacturers?

Answer:  Based on the resolution of the Tariff Council N10, June 30, 2021 "On regulation of prices for drugs registered by the state”, the number of drugs regulated by the state was increased from 12442 to 12689, that is, 247 new drugs were added to the list. These are mainly drugs made in Turkey, Ukraine, India, China, Portugal, and the USA. The change also applies to the name of the manufacturer. Typically, pharmacy entrepreneurs choose to bring in medicines from unlisted companies in order to sell medicines at free market prices. For example, while the price of dexamethasone produced by the Ukrainian company Pharmac ISK is subject to regulation, a similar drug by Pharmaceutical Company Zdorov'e LLC produced in the same country was not on the list. This gave the entrepreneur the right to sell this drug at a free market price. Now it will no longer be possible. Consequently, entrepreneurs will be looking for other companies whose names are not on the list. As a result, there is a shortage of the drug, the name of which is indicated on the list, since the entrepreneur is not interested in its delivery. Instead, other drugs with a similar composition will appear on the market. The consumer, however, cannot purchase the required medicine.

Question: How many drugs and how much are the prices increased this time?

Answer: By the decision of the Tariff Council, prices for almost 50 drugs have been increased. The rise in price for the assortment was in the range of 10 - 40%. For example, Ukrainian-made calcium gluconate rose in price by 37% (from AZN 1.82 to 2.5), Turkish-made AVIPIM: 1000 mg - by 10% (from AZN 12.6 to 13.8); 500 mg - by 20% (from 8.24 to 9.9 AZN).

Question: Does the increase also apply to locally produced medicines?

Answer: The Tariff Council, as a rule, when the prices for medicines change, does not divide them into domestic and produced abroad. If it becomes necessary to change the price, then this is done with regard to local medicines. It happens that local drugs also increase in price, but sometimes they do not. For information, out of 12689 drugs on the regulated price list, 68 (0.5%) are domestically produced. All other medicines are imported. This means that the price of these drugs is directly dependent on the exchange rate of the national currency - manat. If we do not take into account their insignificant rise in price, then stability is due to the current exchange rate of the manat. In the future, a decrease in the cost of manat may lead to a change in the prices of these drugs and their rise in price, since they are bought for foreign currency. However, local production also depends on imports. Since, the components of the preparation are also imported.

Question: Is it right for the state to intervene in the regulation of drug prices?

Answer: From the first day, I was against government regulation of drug prices. I agree, as soon as the state began to regulate the prices of medicines, there was a significant decrease in their cost. Naturally, low prices increase the availability of medicines, especially for the poor. However, can we achieve a long-term effect, stability? Because the government cannot regulate prices all the time, someday it will have to end this. At least in the recent past, we have seen the bitter fruits of Soviet control over drug price controls. This mechanism leads to a shortage of drugs on the market (sale under the counter), stimulates the import of cheap, but low-quality drugs. Therefore, the government should liberalize drug prices. It is necessary to eliminate the monopoly on the drug market, improve licensing mechanisms, and provide customs and tax incentives for the import of drugs in order to prevent a sharp rise in prices.

Q: What steps should the government take to eliminate monopoly in the drug market?

Answer: The country has monopolized not only the pharmaceutical market, but also other areas. Essential medicines are distributed to retail outlets from a single source. There are difficulties with the import of medicines into the country. The talk is about obtaining permits for the import of medicines. Not every entrepreneur is able to do this, and therefore he is forced to hide under the shadow of large companies. Therefore, the focus should be on the licensing mechanism for the sale of drugs. On the other hand, wholesalers are expanding their retail facilities, and this leads to the ousting of other pharmacies from the market.

At one time, the pharmaceutical market was heavily monopolized. Then the monopoly softened somewhat, and the number of market participants increased. Now the process is reversed again. For example, the adoption of the Competition Code has been dragging on for years. Why? Yes, because monopoly companies are interested in this. If the code is adopted, then the hands of the monopoly companies will become shorter, they will be explained that it is impossible to control the 80-90% segment of the drug market.

At the same time, the profit as a result of government regulation prices are extremely low. This means that it is not economically profitable for small entrepreneurs to sell drugs, the prices of which are regulated by the state.

Question: Is it profitable for the population to sell drugs at a free market price? What can be done to prevent dealers from using free market prices? What generally needs to be done to ensure that medicines are sold to the public at an affordable, normal market price? What can you offer?

Answer: Price liberalization should not be technical. Suppose the government decides that from now on prices will be regulated by the market. What do you think will happen? Prices will rise sharply. We have witnessed this in the recent past. Therefore, this work should be carried out in an integrated manner. It is necessary to ensure that a competitive environment is formed on the drug market. Otherwise, monopoly companies will dictate prices to the market. Therefore, it is necessary to increase the number of channels through which medicines enter the country. For this, it is necessary to simplify the licensing mechanism for imported drugs. Today, only large companies with large financial resources can obtain a license to import drugs. The second major problem is the wholesale market called the depot.

This sector is also under the control of several key players. The only place where there is competition is retail outlets, which also weaken the growing number of pharmacies, set up by wholesalers.

The existing state programs to increase the accessibility of the population to medicines should be continued. For example, to improve access to cancer patients, patients with diabetes mellitus, drug addiction, etc. to expensive medicines, the implementation of programs financed from the state budget should continue.