- Industry evaluating indirect impact of VAT hike on pharmaceuticals
Another potential pharmaceutical price hike looms as the industry awaits an evaluation of prices to reflect the indirect impact of the Value-Added Tax (VAT) and exchange rate fluctuations.
According to reliable sources, the industry is once again seeking a nearly 12% hike. Should prices increase again, local pharmacists claim that consumers will not be able to afford prescribed medicines, as sales have dropped by around 30% since the first price revision.
In June 2023, the Health Ministry issued a gazette revising the Maximum Retail Price (MRP) of 60 types of medicines. The prices of these medicines were reduced by 16% with effect from 26 June 2023, according to the gazette.
The prices of all medicines were revised three times since 2021 due to exchange rate fluctuations, with increases of 9%, 29%, and 40%, respectively. In 2021, medicine prices saw a 9% increase, and in 2022, local pharmaceutical prices were revised twice to address the gap caused by the drastic devaluation of the rupee in 2021. In March 2022, the prices of 60 essential medicines were raised by 29% through an extraordinary gazette notification.
Risk of losing access to high-quality meds
Speaking to The Sunday Morning, All-Island Private Pharmacy Owners’ Association (AIPPOA) President Chandika Gankanda said that the buying power of consumers had seen a drastic reduction due to the high cost of living triggered by the ongoing severe economic crisis.
“Most consumers have cut down their health needs only to the essentials. Unlike before, most people are now relying heavily on cheaper medicines, and that also only when necessary,” he added.
In such a backdrop, the AIPPOA has called on the Government to eliminate price controls on 60 identified medicines and implement a unified pricing formula for all medications based on their Cost, Insurance, and Freight (CIF) values.
Gankanda said that Sri Lanka was at significant risk of losing access to high-quality pharmaceutical products due to the Government’s imposition of price controls on these 60 medicines.
“Sri Lanka is a small pharmaceutical market, which the major pharmaceutical companies are not even considering investing in. Therefore, when the prices are not met, they withdraw, which affects the availability of quality products. These highly-recognised international brands will not be available in the future unless the right prices are given. Even if the prices are rearranged, those who can afford it will buy quality products, while the rest will have no choice but to opt for cheaper medicines. This is the worst part of this crisis,” he explained.
Gankanda explained that there were around 1,200 medicines in Sri Lanka, with only 60 among those being controlled. “This is not practical,” he stressed.
Public health expenditure
Ever since the rupee started to depreciate following Covid-19, pharmaceutical companies have requested a price increase for all essential medicines that is commensurate with the fall of the rupee value. Earlier, the companies requested a nearly 9% hike, following which the prices were revised in June. Since then, as reliably learnt by The Sunday Morning, the companies are said to be expecting a near-12% hike.
Price controls on pharmaceuticals were introduced in 2016 through a gazette notification issued by the Health Ministry, reducing the prices of 48 pharmaceutical medicines – mainly prescribed for Non-Communicable Diseases such as diabetes, high blood pressure, etc. – under the National Medicines Regulation Authority Act No.5 of 2015. The Government presently controls the prices of 73 medicines.
According to the Sri Lanka Medical Association (SLMA), the country’s public health expenditure amounts to 1.5% of GDP. Public health expenditure is similar to the average public health expenditure of Low and Middle Income Countries (LMIC), while it is higher than the regional peers in South Asia.
The total health expenditure was around Rs. 479 billion in 2017 and around Rs. 559 billion in 2018. In 2019, the Government spent 23% of its healthcare budget, i.e. Rs. 54 billion of the total Rs. 235 billion on medicines.
Sri Lanka’s total pharmaceutical expenditure covering both the State and private sectors in 2022 was estimated to be Rs. 163 billion per annum, with about Rs. 58 billion for the State sector and Rs. 105 billion for the private sector. Capital investments made in the health sector for 2018 and 2019 were Rs. 44.3 and 40.2 billion, respectively. Per capita health expenditure in 2017 was Rs. 22,314, while in 2018 it was Rs. 25,778.
The annual budget estimate for importing medicines and surgical consumables is $ 300 million. As of January 2023, Sri Lanka was still facing a funding gap of $ 220 million to import essential medicines and supplies. The Government owed Rs. 25.7 billion in arrears to foreign pharmaceutical suppliers. These figures indicate how the economic crisis affected the pharmaceutical supplies in the country as nonpayment of bills resulted in delayed or non-supply of pharmaceuticals.
In the 2021 Budget, Rs. 60.7 billion was allocated for the supply of pharmaceuticals and consumables. This is a comparative reduction by 29% relative to the 2020 revised budget allocations of Rs. 85.8 billion.
Concerns over exchange rate fluctuations
In such a backdrop, when contacted by The Sunday Morning, Sri Lanka Chamber of the Pharmaceutical Industry (SLCPI) President M. Prathaban said the industry’s biggest concern was the exchange rate fluctuations.
“We are waiting for the National Medicines Regulatory Authority (NMRA) to call us for a meeting. So far, we haven’t made major progress in the pricing mechanism discussions,” he said.
Prathaban noted that in terms of VAT, there had been no direct impact on medicines registered under the NMRA. “As a chamber, we have not taken any decision to increase the prices because of indirect increases. This is one topic we would like to engage the NMRA on, to consider whether to absorb these variables into the pricing mechanism. That makes sense as you have the control; you can’t just go and increase the prices,” he explained.
“Our biggest concern is the exchange rate fluctuations. That is why we want to have a meeting,” he stressed.
Trade union charges
Despite visible reductions in other areas affecting pharmaceutical prices, such as exchange rates, trade unions claim that medicine prices have remained unchanged for several months.
Government Medical Officers’ Association (GMOA) Spokesman Dr. Chamil Wijesinghe emphasised that the cost of prescription pharmaceuticals remained unaffordable for the masses.
Trade unions charge that the price cap imposed by the Government only applies to 73 items, while the prices of other items have been increased by importers by around 600-800%. Complaints also persist about private hospitals exploiting patients with high charges.
OTC meds and borderline products
While pharmaceutical companies await the National Medicines Regulatory Authority’s (NMRA) green light to increase medicine prices, consumers are complaining that prices of daily medicine needs – essentially, Over-the-Counter (OTC) medicines – have seen a massive increase.
Accordingly, the prices of basic OTC items that are essential for managing common symptoms and promoting self-care, such as acetaminophen for headaches, fever, and general pain, as well as ibuprofen or naproxen for inflammation, muscle aches, and menstrual cramps, have increased.
This also applies to antacids, polyethylene glycol, and medicines that can help with constipation and diarrhoea. For cold and flu symptoms, essentials including pseudoephedrine for congestion, dextromethorphan for cough, and guaifenesin for chest congestion have seen a significant rise in prices.
Additionally, medications like diphenhydramine or loratadine for managing allergies, nasal saline for dry sinuses, and fluticasone propionate nasal spray for nasal symptoms have experienced notable increases.
Similarly, prices have surged for wound care items such as adhesive bandages, topical ointments, gauze, and adhesive tape. Even acne management essentials like benzoyl peroxide, adapalene, and skin-care cleansers like Cetaphil have witnessed dramatic price hikes.
However, as explained by pharmacists, most OTC medicines fall under the consumer category. Since they are not considered high-risk category medicines, direct Value-Added Tax (VAT) applies to most products.
The NMRA oversees the regulation and control of borderline products in Sri Lanka. Borderline products are those with combined characteristics of medicines along with foods, medical devices, or cosmetics. The evaluation criteria for registration include the product’s intended use, therapeutic claims, pharmacologically active substances, concentration of active substances, efficacy, and ingredient details.
The NMRA operates under the National Medicines Regulatory Authority Act No.5 of 2015 and the Borderline Products Evaluation Committee (BPEC) conducts technical evaluations.
As per the NMRA, it aims to ensure the availability of quality and safe borderline products in Sri Lanka, and all such products must be registered with the authority. Foreign manufacturers need a local agent for registration.
Meanwhile, when contacted, Sri Lanka Chamber of the Pharmaceutical Industry (SLCPI) President M. Prathaban noted that the prices of items for which the VAT directly applied may have been increased by the respective companies.