Ceiling price for medicines a pipe dream

I REFER to the Health Minister’s recent press statement on setting a “ceiling price” for medicines.

Whether the price ceiling mechanism for pharmaceuticals will really lead to cheaper medicines remains a good question. In fact, it could push healthcare providers to use the ceiling price for a product they could have sold for cheaper.

Furthermore, simplistic price controls like this will also have unintended consequences on other stages of the supply chain, especially on small clinics and pharmacies which are the lifeline of accessible and affordable primary medical care. It will ultimately benefit the big boys and result in monopolistic or oligopolistic supply chains in the private sector and will, in the long run, be detrimental to patient’s choice and access.

It must be remembered that the government gets its medicines at a much lower price than the private sector. In essence, it means that the private sector is subsidising the cost of medicines supplied to the public sector. Thus, for any medicine, merely using the government base price (reference price, be it national or international) and adding a maximum of 30% margin for retail is too simplistic and unrealistic.

The government base price for any single unit of medicine given to the patient does not take into account other costs like wages of staff, maintaining the facilities, storage, dispensing and etc. In the private sector, all these cost items do add up to the final retail price of the medicines. This is the logical explanation for why cost of medicines in the private sector is generally higher than in the public sector.

For ceiling pricing to be meaningful for both sectors, the price for the supply of any particular medicine and the cost of its final dispensing to the patient must be the same. This means there should be no more subsidy for the cost in the public sector. All relevant activities must be added in the final cost of the medicine when given to the patient. The actual cost of the medicine provided by the government would then be significantly higher.

The question, is the government willing to pay for the same medicine at the same price as the private sector? We are clearly not comparing apple with apple. Lots more research on long-term impact assessment and consultation with all stakeholders will be needed. Hence, we are wondering how the Health Minister made an important policy statement on this matter without consulting all the stakeholders. What was the advice of the National Health Council?

This issue was already discussed and unanimously agreed at the “Reference pricing and reimbursement” workshop of the National Medicines Policy (Dasar Ubat Nasional) in November 2013. The agreed position was that reference pricing should be for the public sector only and that private sector pricing should be left to market forces. The government may choose to set guidelines but the market must be allowed to function as a free market.

If the government’s aim is to make healthcare more affordable, accessible and to foster competitive prices and innovation, it can start by getting private hospitals to display a price list of their standard procedures and medicines so that patients can compare and make informed choices. This should be easy enough since major private hospitals are already owned by government-linked corporations (GLCs).

Baseline cost in private medical care is not just due to medicine prices but also a whole list of other items that need to be paid for.