How to achieve price stability at pharmaceutical market

FROM THE REDACTION

Recently media and society are paying special attention to the tendency of rising prices on medicines.

Household researches reveal that 50% of the money paid by the consumers for medical service is spent on pharmaceutical product. According to the national report of health care this showing amounts 40%, while the same average indicator in OECD countries is only 17%. The high showing in Georgia points to high prices on medicines. What are the reasons of this? Is there monopolistic situation on Georgian medicine market? How should we direct processes, to regulation or deregulation of the market? Should we simplify import in order to increase competition in the market? Or it would be more beneficial to be oriented on the development of local production and export in order to stabilize prices? Public discussion has been held concerning these issues by the organization “Partnership for Social Initiatives”.
Discussion was started by the organizer of the event, Devi Khechinashvili. “We start the cycle of public discussions concerning one of the most important issues today in Georgia – changes in health care. Allow me to start with a specific direction – the problems of pharmaceutical market supply and deregulation aspects. The themes of our discussion will be the deregulation processes and draft bill that is presented in the parliament. What are the dangers and how the situation will change after the bill is passed? These are the main subjects of our discussion today.”
Nowadays, against the background of economic crisis, affordability of medical services for the population has become a political task. If we take into consideration that population’s expenses on the medical services are sharply reduced than that of the state, two main conditions are appearing on the foreground: approximate correlation of the expenses made by population and by the state is 80%/20%. In this correlation of government/population expenses, the percentage of money spent on pharmaceutical product is greater for the population than that of the government’s.
Under such conditions, in order to maintain the quality of medical services it would be wise to follow recommendations of Health Care World Organization and increase medical service effectiveness. The main task of the state is to ensure variety of prices and encourage entering of various medical products on the market.
Government’s initiation of bill on “Medicine and pharmaceutical activity” was presented to parliament in March 2009. The main goals of the draft are the safety of medicines, competitive market development and variety of products that naturally increase affordability of medicines. Draft bill is considering different regulation of several important issues. Including activities connected with import. Growth of assortment of medical product should ensure diversification of the prices. About six thousand products are admitted at Georgia market. In case of significant increase of assortment, many products of the same prescriptions will appear that encourages diversification of the prices. This circumstance will increase the selection of goods.
The research of the countries with developed markets shows that the prices of frequently consumed medicines significantly vary in different countries due to state policy. Thus import of the medicines from the countries where the prices of the product are minimal is of big importance for Georgian consumers. This can be encouraged by the methods of state regulation that do not increase the share of low quality products in the market and at the same time allow companies to actively search new markets without additional expenses.
There is one sharp problem in every field in Georgia and health care is not an exception here. The matter is the lack of statistical data and numbers that make it difficult to perceive realistic picture of the pharmaceutical market. The proof of this is that the data derived from official sources and presented by the reporter on the public meeting caused heated arguments among the attended audience. Mr. Vakhtang Megrelishvili presented research concerning current situation and tendencies of pharmaceutical market of Georgia.
Research is based on 2007 national report on health care. According to the data of research, GEL 468 million was spent on pharmaceutical product in 2006. The sum includes expenses on both medicines and various devices of medical purposes. However, the major portion of expenses are made on drugs (GEL 462 million).
Aggregate medical service expenses per capita in Georgia amount GEL 338. GEL 114 of which are spent on drugs. This is a very high showing. GDP of Georgia derives most funds from pharmaceutical products of all the medical services. This showing of GDP of Georgia is much higher than in OECD countries.
However, Mr. Paata Kurtanidze, founder of pharmaceutical company Aversi doesn’t agree with the data presented by the reporter. He emphasized that according to his data the volume of retail network of pharmaceutical market in Georgia is 300 million GEL instead of 462 millions. Thus other numbers are wrong either. Beside this, heated arguments were caused by the aggregate volume of financing medical services. According to the data of research authors the sum is about GEL1.5 billion (GEL 1 billion is paid by the population, private insurance companies pay GEL 129 million, while state expenses amount GEL 116 million). However, Paata Kurtanidze argued that only GEL 700 million is spent on medical services in Georgia.
As regards the product prices – various markets have various factors defining the price of pharmaceutical production. These are – difference of production price that is connected with the market volume, number of consumers and their purchasing ability; the prices added at the distribution stage of the product, price added at the retail network and taxation burden. These indices differ in every country and each of the factors are playing more or less important role in the final price of medicine.
As one might see from the table No 3 wholesale trader (distribution sum) is defining 25% of the drugs’ final price. This is a very high showing compared with EU member countries’.
Coming out of this, many doubts appear concerning monopolistic situation at Georgia pharmaceutical market today. One might blame distributor companies in constant growth of prices as they are defining 25% of the final price of a medicine. What is going on actually? Is Georgian pharmaceutical market monopolistic? The author of the research notes that “there is no monopoly at Georgian market today. Major pharmaceutical companies, PSP and Avers are holding 25% and 33% of market. However, in order to consider some company as a monopolist it should hold at least 50% of market. Major portion of this market in Georgia is occupied by small companies”.
Economic expert Mr. Emzar Jgerenaia doesn’t agree with the definition of monopolist status. However, this does not mean that market is monopolized: “In none of the countries, except some CIS countries there is a definition of how many percentage of a market should company hold in order to consider it as a monopolist. One might hold 90% or even 100% of market, but the case is that whether one abuses the dominant situation or not. This is what matters. Someone should prove whether is one abusing own state or not. Some in-depth research should be carried out in order to prove presence of cartel deals and monopolistic prices on the market. I have not seen such research conducted at pharmaceutical market in Georgia. Consequently it is impossible to prove that there is a monopolistic situation at pharmaceutical market of Georgia.”
Mr. Paata Kurtanidze agreed with the evaluation made by experts:
I heard it first time that nobody is holding monopolistic position at Georgian market of medicines and I am very glad for it. Well, if we are holding major share of market, this is because we are operating already 15 years and we are working 24 hours a day. Therefore, it is not surprising that we are holding greatest share of the market. However, our share of market in 2006 was 33%, while this number decreased to 22% in 2008. Market is maximally open. If there were 32 importers in 2006, their number increased to 156 in 2008. There are many importer companies at pharmaceutical business today. As Avers and PSP have many chemists’ shops everybody thinks that we are the only importers of the medicines in Georgia. We do not have exclusive contracts with drug producers, and thus we cannot import some medicine exclusively. Pharmaceutical market is fully open and anybody might import drugs today.”
Goal of the draft bill on “medicine and pharmaceutical activities” is to improve situation at pharmaceutical market by deregulating supply processes. However, maximal deregulation is not supported by some part of the society. Representative of Medical service Regulation State Agency appeared to be against deregulation processes and noted that regulation is necessary in any field, especially when it regards pharmaceutical market, as it has direct influence on the health of the population. Another circumstance should be emphasized – in comparison with the regulation practice approved in western countries; Georgian pharmaceutical market is freer with the current conditions. For instance, state is not regulating product prices and prescription nomenclature issuing processes; Obligatory standards of production and realization are much more simplified compared with western analogues. Moreover, pharmaceutical production is exempted from profit tax. Under such conditions, a question might arise – how will we manage to control risks that accompany such processes.
Another important matter that was discussed at public meeting is local production of medicines and their export potential.
Parliament member Kakha Okriashvili: “To my mind, first we should take care of how to develop local production. For instance Slovenia, with population of 2 million people; a country which is much smaller than Georgia and meanwhile makes $2 billion export at pharmaceutical market. Slovenia has two drug producing factories and these companies are of same importance for the country as energy companies for Russia. Export of medicine produced locally made up $6 million. I hope that this number increases in the future. Nowadays, when export-import basket is in deplorable situation, first we should take care of these issues. Moreover, when we talk of maintaining drug prices and search ways to keep prices affordable, we should impart decisive importance to locally produced medicines. In case of simplifying import regulations, the share of expensive medicines imported from OECD countries would be increased, while the volume of cheap medicines would be reduced. To my mind, as a result, there will be deplorable situation in the country.
The representative of governmental institution, chief advisor of prime minister, Vakhtang Lejava was answering the questions of pharmaceutical companies and experts.
“First, our task and goals should be defined. To my mind, the goal set by the government has no imperfections. Our aim is to give wide choice of goods to consumers at minimal risks. I repeat, not at the expense of reducing risk, but maximum of selection with minimal risks. It might be easier to talk about this rather than to accomplish it, but this is our task. We do not intend to unambiguously encourage or impede either export or import. Our main target is a consumer and its interests. Consumer should have wide selection of goods with minimal risks”.
There is a difference of opinion concerning simplifying import processes. There is an article in the new draft bill that implies tax should be imposed on any medicine imported from OECD countries 24 hours a day, without presenting any additional documentation. Representatives of pharmaceutical companies welcome this article, if the OECD countries will admit the medicines produced in Georgia at their markets with the same conditions.
Everyone has different solutions to the problem. However, the main target is not achieved – reduction of prices on medicines and their affordability. Maybe the solution is simplifying the import procedures, as market becomes more open in this case, assortment of the drugs will be increased and the prices become more versatile. If this regards only medicines produced in highly developed countries, this on the contrary might cause increase of prices. Pharmaceutical products of OECD and EU have high prices together with high quality. If we establish simplified market system for any country, then the possibility of importing low quality product increases. Under such conditions, maybe the solution is the development of local production of pharmaceuticals. Maybe it would be wiser to improve local production of medicine and enter local market with these products and afterwards think about export potential. This should be of first-priority for everybody, state as well as participants of pharmaceutical business.