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For the Pharma Industry, 2019 brought good news in the shape of a long-awaited price increase announcement. It is a decent increase.
Since the announcement of SRO 34(I) regarding 15% increase in general and 9% for hardship cases, there has been a fierce debate among public.
The industry view is that this increase still does not offset the cost difference caused by several factors previously and exchange rate most recently. The industry wanted a higher rate of increase.
Public view is that this is too much increase. Two petitions have been filed in honorable high courts of Punjab and KP to question and possibly reverse this increase. The matter is sub-judice and may not be commented upon presently.
I would rather try to put price increases in Pharma in a different perspective.
Increase in drug prices always evokes strong emotions, unlike price increase in any other segment. Take the example of food. Food items are consumed every day and by everyone. Every time you go to super market, you will find increased prices. People grumble but keep buying and no one goes to court, not even consumer court, against cooking oil companies, or milk companies and so on. Another example is clothing which is used by all and always. Prices of clothing in general and women’s in particular have gone up to unreasonable level. No one takes action. Fuel, electricity, gas prices have seen exorbitant increases which are completely unjustifiable, but no action is ever taken. These are the examples of every-day, every-household things which affect universally and ubiquitously which are not reacted to by public.
Drugs are neither consumed by everyone nor all the time. We have a very young population and most people go without taking any drug for months and years. Why then a drug price increase triggers panic response?
In my view there are three reasons for this.
- Healthcare is people responsibility. Government-provided healthcare probably falls under 10%. Over 90% responsibility is that of people. They have to take full brunt of illness costs, if and when it occurs. Government does build and run large and small hospitals but does not provide total care. The consultation and nursing care are available, and it is excellent in many places, but diagnostics and drugs have to be paid for by the patients. Secondly, due to overcrowding in government hospitals, anyone who can afford would go to private hospitals. Private healthcare facilities are money-minting places where patients pay for necessary and unnecessary tests, procedures and activities. Medical insurance is still rare in Pakistan. It is offered by few corporates with highly variable options. All said and done, when an ordinary folk falls sick in Pakistan, she/he and the family is on their own. The tales of people selling their homes to treat their dear ones are not uncommon. Treatment of ‘dreaded diseases’ in even more dreadful. It is true that the apathy and antipathy of government and medical profession contributes to the plight of the patients. There is a common saying (prayer) that Allah save everyone from hospitals and courts which summarizes the sentiment.
- Regulatory Body does not take timely action. Whether it was Ministry of Health (MoH) previously, or Drug Regulatory Authority Pakistan (DRAP) currently, the regulators have always suffered from delayed action or no action at all. One classic example was the price increase granted in 2013 which came after 12 years (last increase was in 2001). Ironically, the announcement was reverted next day as the government backtracked after backlash from public. The pharmaceutical companies refused to accept it and went to court. Many got relief from court. The point is why does the MoH/DRAP take action so late? Cost factors keep changing frequently and regularly; be it material costs or labor cost, or utilities cost. If the government regulators grant nominal increase every year or two, the public will not be burdened all of a sudden heavily and the industry will also keep running. DRAP has other problems in its pricing mechanism which are not the subject of today’s topic and may be taken up separately. In summary, the backlash created by current price increase is largely regulators’ own doing.
- Pharmaceutical Industry is fragmented. This is not to say that the Pharma Industry should stand united against public. However, the fact remains that it is highly fragmented. First, there is a division between Multinational and National companies who don’t want to sit together. The MNCs are still able to extract quite high prices from DRAP while the NCs suffer. Even among Local Pharma, there is an utter lack of cohesion. It is to do with the way the business is divided in Pakistan market. Top 30 companies have over 80% business. These high-flyers do not wish to associate with lesser-performing companies. The price increase is neither demanded by the industry jointly, nor applied together. Despite proclamations about financial crisis caused by recent exchange rate, you would see that the granted increase will not be applied fully and uniformly by all companies in Local Pharma. Disparities such as this make the industry case weak and liable to be swayed by public pressure.
Increase in drug prices is as much relevant as in other commodities. Drug cost is a sizeable cost for patients, though it is not the only cost. Overall healthcare cost to public will become rational when a holistic approach is taken by the policy makers in consultation with the stakeholders.