Drug price hike: a bitter pill to swallow

Common people of the country appear to be quite worried about the recent hike in the prices of medicines announced last week. The Drug Regulatory Authority of Pakistan (Drap) had taken this step with the approval of Federal Government, increasing drug prices in the range of 9 to 15 percent. According to the notification issued by Drap on 11th January, a nine percent increase has been approved in the prices of life-saving drugs while a 15 percent hike is approved in the prices of other medicines. "The revised maximum retail prices shall be printed on the labels in the manner prescribed by the Drugs (labelling and packaging) Rules, 1986 and the manufacturers and importers of drugs shall furnish calculations of revised maximum retail prices of drugs to the division of costing and pricing of Drap before affecting the increase," according to the notification. Giving the justification of increase in the prices of medicines, a spokesperson for Drap said the increase is attributed to appreciation of dollar against rupee by 30 percent last year. Accordingly, the prices of raw materials used in the packaging of medicines have also gone up. The increase in prices of utility bills such as gas and electricity has also pushed up the cost of manufacturing. These factors have led to raising the charges of additional duties, interest rates and salaries of employees. Besides, raw materials imported from Chinese companies which were relatively cheaper were also stopped over environmental concerns and this was another reason for the doubling of prices of raw materials from other sources.
The pharmaceutical industry of the country has welcomed the government decision but argued that increase in the maximum retail price (MRP) of medicines is less than their expectations as they were expecting an increase of around 30 percent in drug prices to support the local industry. However, the opposition parties and the masses, in general, have voiced grave concerns over the price hike, arguing that this step of the government would be very painful for ordinary people, especially the poor. Even the Pakistan Medical Association (PMA) has stated that it is extremely concerned over the disappointing and "unacceptable" increase in the prices of medicines. In a situation where there is scarcity of health facilities at public hospitals, the increase in medicines' prices will add to the miseries of the common man.
We feel that although the decision of the government to increase the prices of medicines has been quite irksome for most of the ordinary people, such a decision was almost unavoidable under the circumstances. Apparently, it has become almost impossible to manufacture the medicines based on raw materials imported from abroad mainly due to depreciation of the rupee by about 30 percent. Some of the medicines had even disappeared from the open market and could only be bought in the black market at several times above the original prices. This has caused a great deal of anxiety and distress among patients and their families. As the production of medicines is not viable for certain pharmaceutical companies, they have slowed down or stopped their production and are even mulling leaving the country. In a situation like this, there was no option for Drap but to increase the prices of medicines in order to retain/sustain the industry. The government has, however, taken care to limit the increase in prices of essential medicines to only 9.0 percent, which is a good move. Moreover, contrary to the common perception, the income spent on medicines by most of the ordinary households is lower than generally believed. For instance, based on the expenditure pattern of household surveys, the weight of health is only 2.19 percent in the composition of CPI inflation while that of medicines is only 1.14 percent in the non-food major items of Wholesale Price Index (WPI). However, the negative impact of increase in the prices of medicines on the ordinary people could be partly neutralised by providing better healthcare facilities at public hospitals and expanding the health insurance scheme (Sehat Cards) sponsored by the present government to all parts of the country. The government could also support the pharmaceutical industry by reducing taxes and cutting import duties on raw materials imported for drug manufacturing. In the final analysis, however, it is the macroeconomic stability in the country, including the stability in prices and the exchange rate of the rupee, which will determine the price behaviour of medicines in future.