• Gazette issued recently to set up fair, transparent pricing mechanism
• SLCPI in discussions over gazetted items with fixed MRP by NMRA 

Despite having a price formula in place, the National Medicines Regulatory Authority (NMRA) is currently restricted in its ability to enforce broader price reductions due to ongoing legal battles, according to its Chairman Dr. Ananda Wijewickrama.

“We can’t do anything about the prices except for new drugs. The only thing is that there are 60 medicines for which the Maximum Retail Price (MRP) is gazetted. They can’t go beyond that,” Dr. Wijewickrama told The Sunday Morning. “What is more necessary than reducing prices is to include more medicines in this list and that’s what we are asking for.”

The NMRA has faced significant legal challenges that have stalled further regulatory action. “We have gazetted the price formula and a court case has been filed against it. The act says we have to provide a mechanism. There is a mechanism which we use, but we haven’t gazetted it. That was the issue,” Dr. Wijewickrema explained. 

“In fact, when they filed a court case five years ago, we submitted the mechanism to courts. That case is still pending. They know the mechanism and they have filed another case.”

The new regulations, detailed in a recent gazette notification issued last month, aim to establish a transparent and fair pricing mechanism for medicines. However, the legal obstacles have prevented the NMRA from expanding the list of regulated medicines, leaving many essential drugs outside the purview of price control.

The regulations, cited as the Medicines (Pricing Mechanism for determination of maximum retail price for a dosage form and a strength of a particular medicine) Regulations, No.1 of 2024, intend to use an internationally-recognised portal to determine market share by value and verify retail prices from various pharmacies and the State Pharmaceuticals Corporation (SPC). 

The MRP is calculated as the median price of all brands and generics that together hold 80% or more of the market share, arranged in ascending order. The calculated MRP will be published in the gazette, and any contravention of these regulations is an offence under Section 131 of the NMRA Act, No.5 of 2015. A brand is defined as any feature that identifies a seller’s drug as distinct from others.

Impact of exchange rate shifts

In June last year, the Health Ministry issued a gazette revising the maximum retail price of sixty (60) types of medicines. The prices of these medicines were reduced by 16% with effect from 26 June 2023, according to the recently-issued 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, drug 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.

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 and the prices were revised in June 2022. Since then, as reliably learnt by The Sunday Morning, the companies are said to be expecting nearly a 12% hike once again.

When contacted by The Sunday Morning, Sri Lanka Chamber of the Pharmaceutical Industry (SLCPI) President M. Prathaban said: “Our stance from day one has been that pharmaceutical prices should be regulated as per the act, and the industry is not against a pricing mechanism. However, such a mechanism should be fair, transparent, equitable, and workable to ensure a continuous supply of quality medicines to patients.”

The SLCPI is in discussions regarding gazetted pharmaceutical items for which the MRP is fixed by the NMRA.

“The NMRA imposed a reduction of pharmaceutical prices by 16% in June 2023. This meant that we had to consider the exchange rate as Rs. 295 to the dollar when the actual rate was around Rs. 310. However, when they gave a price increment, they considered the exchange rate as Rs. 350. 

“Even today, the dollar is selling at Rs. 310. Ideally, there should be an upward adjustment to make it Rs. 310 instead of Rs. 295. That is why the prices of the controlled items have not come down,” he said.

When asked whether the foreign exchange was the only factor considered for price revisions, the SLCPI President stressed: “Despite other factors also influencing the prices of pharmaceuticals, the NMRA only considered foreign exchange when giving price adjustments in the past. The justification was that when the foreign exchange fluctuation is adjusted, inflation and other factors causing cost escalation will be covered. That is how it was adjusted previously when there were increases or decreases. The exchange differences will be considered.”

Need for a pricing mechanism

Prathaban further explained that two court cases had been filed seeking a price mechanism regarding non-gazetted products. “The discussions are ongoing. We still haven’t found an equitable, transparent mechanism, but we have come a long way. 

“Our hope is that once the mechanism is in place, the benefit of any exchange increase or decrease will be passed on to consumers,” he said.

Addressing the key factors to be considered in pharmaceutical pricing, he said: “There are three pillars in pharmaceutical pricing: ensuring high quality, affordable prices, and accessibility or continuous supply of medicine.” It was imperative to provide equal importance to all these factors, he noted. 

When asked how often the industry intended to adjust the prices, he said: “We expect a price adjustment if the base exchange rate fluctuates by 3%. Due to the volatile nature of the exchange rate, the prices should be reviewed once a quarter if there are no major fluctuations.”

Procurement and staffing issues

Sri Lanka’s public health expenditure is 1.5% of the Gross Domestic Product (GDP), aligning with the average for low- and middle-income countries but higher than regional peers in South Asia. 

In 2019, the Government allocated 23% of its healthcare budget (Rs. 54 billion out of Rs. 235 billion) to medicines. The total pharmaceutical expenditure in 2022 was estimated at Rs. 163 billion, with Rs. 58 billion for the State sector and Rs. 105 billion for the private sector. 

Per capita health expenditure rose from Rs. 22,314 in 2017 to Rs. 25,778 in 2018. 

Despite an annual budget of $ 300 million for importing medicines and surgical supplies, Sri Lanka faced a $ 220 million funding gap as of January 2023 and owed Rs. 25.7 billion to foreign pharmaceutical suppliers, leading to delays and shortages. The 2021 budget for pharmaceuticals and consumables was reduced to Rs. 60.7 billion, a 29% decrease from the 2020 revised budget of Rs. 85.8 billion.

In such a backdrop, when contacted by The Sunday Morning, Academy of Health Professionals (AHP) President Ravi Kumudesh criticised the lack of a proper mechanism in Sri Lanka for placing pre-orders for essential medicines, leading to high costs due to ad hoc procurement.

He stated: “Medicines can be brought down at around 50% lower costs than now if timely orders are placed.” 

Kumudesh also highlighted staffing issues within the Medical Supplies Division (MSD), noting: “Several key positions at the MSD are not filled properly. Most of the positions are currently filled with acting posts. These individuals are working at the division while fulfilling other responsibilities as well. The MSD cannot be managed in such a way. It should be properly managed.”

Price control on pharmaceuticals was introduced in 2016 through a gazette notification issued by the Health Ministry, reducing the prices of 48 pharmaceutical drugs, mainly prescribed for noncommunicable diseases such as diabetes, high blood pressure, etc. under the NMRA Act, No. 5 of 2015. As of now, the Government controls the prices of 60 drugs.