The current economic crisis has led to severe shortages of life-saving medicines. Among the demands for food, fuel and electricity is the clear public demand for a restoration of medical supplies in the country. But what if the problem is much deeper than the current crisis? This article explores how a pricing system that lacks clarity and transparency has contributed to drug shortages.

Why do we have price controls?

Price controls are an essential part of Sri Lanka’s affordable healthcare system. Over the past five years, Sri Lanka has begun to set price limits on priority medicines to ensure that consumers can easily access these medicines. For example, in 2016 suppliers of “Plavix,” a drug that helps prevent heart attacks and strokes, were required to price 75mg capsules at a maximum retail price (MRP) of Rs. 5:50 p.m. In the same year, the MRP of ‘Levothyroxine’, a drug taken for conditions related to thyroid hormones, was set at Rs. 6.10 (50 mcg).

The MRPs of certain drugs are periodically revisited – each time with a new gazette. For example, Plavix’s MRP increased to Rs. 18.38 in 2017, Rs. 21 in 2019, and Rs. 22.92 in 2021.

Lack of clarity and transparency in drug pricing

The establishment of an MRP for important drugs is certainly necessary. But what was the actual method by which the price was set?

Every decision on medicine pricing is made by the National Medicines Regulatory Authority (NMRA) – empowered to regulate, register and set prices for medicines, medical equipment and devices. The Authority aims to “ensure the availability of effective, safe and good quality medicines… for the general public at affordable prices”. Based on the advice of a pricing committee, the NMRA establishes the MRP to maintain affordability.

But no industry player – consumer, doctor, pharmacist or importer – has access to a procedure or guidelines explaining the NMRA’s pricing criteria.

While consumers have benefited from various price caps on medicines, an uncertain price structure has discouraged providers and created shortages and limited access to specific medicines. For example, in 2019 some patients dependent on “levothyroxine” had to switch to alternatives because the drug was no longer available. The alternatives involved increased dosage and unavoidable side effects. Similarly, a 27-year-old patient with hypothyroidism switched brands of medication within the past six years. “Your body gets used to a certain pill and you start to see a pattern in your medical readings, and every time I’m forced to change I wonder if any effects are a result of the drug or just high thyroxine levels It’s hard to say,” says the patient. More recently, the combined effects of the economic crisis and COVID-19 restrictions have apparently also forced the heart drug Plavix off the market.

According to doctors, the lack of clarity and transparency has hampered the supply of quality medicines. “There seems to be a problem in our system,” said GP Dr Susil Gajadeera. “Prices weren’t always an issue until the COVID-19 pandemic and the US dollar crisis, but trying to import quality drugs was an issue for a while.”

Sri Lanka imports about 85% of the drugs needed. With price limits set for priority drugs, its supply depends on a sustainable pricing system.

“We need price controls, and this is a consumer-friendly system. But there should be a pricing formula to guide this,” said Chandika Gankanda, president of the All Island Private Pharmacy Owners Association. “If we have a proper mechanism to manage our costs, it can help us plan, forecast and allocate profit margins.”

Indeed, more than 48 medicines have been subject to price controls since 2016. Yet no effective and consistent mechanism has been put in place to determine prices. Newspapers that set price limits have continually changed for no identifiable reason. In an industry where markups and markups guide pharmaceutical importers on which drugs to buy – usually on letters of credit – the lack of an effective formula can hamper supply and lead to drug shortages.

“Think of cancer drugs, for example. These are reduced by a reduced number of importers. If sudden changes affect their margins, it may affect the overall supply of these drugs,” Gankanda added.

Drug supply is further impacted when the pricing system is not equipped to handle global market fluctuations. An unclear pricing formula adds to existing difficulties in importing medicines during Sri Lanka’s current economic crisis.

Most recently, on April 29, 2022, the NMRA increased the MRP of drugs already under price control by 40%. These price changes that will result in a higher cost to consumers are set several months after the effects of the current crisis have set in, again with no formula to guide the process.

The need for reform

The laws and regulations governing the NMRA do not include any protocol to be followed when setting prices. On March 24, 2022, Ranil Angunawela and Malsirini de Silva, in an article entitled ‘Pricing under NMRA Act: Does it hinder access to medicine?’ explained these gaps in the law. They argued that the legal framework leaves wide discretion to the NMRA to set drug prices at the time of registration, and that no pricing formula is in fact required by law. Therefore, even drugs that do not appear in price control logs are subject to arbitrary price controls upon registration with the NMRA. In these cases, the procedure is even more vague and uncertain.

At a press conference on March 2, 2022, the Sri Lanka Chamber of Pharmaceutical Industry (SLCPI) pointed to “unrealistic price regulation” as one of the main reasons for the current drug shortages. The SLCPI asserted that “a sustainable pricing mechanism will help adapt to major changes in input costs such as the exchange rate, fuel costs, interest and inflation,” and added that the NMRA has been called upon by the courts to establish a sustainable price mechanism. both for the industry and for the consumer.

The pharmaceutical industry also faces registration and approval delays. The NMRA can take up to six months to register a new drug and over a year for medical equipment. Last year, the Authority had to deal with a significant loss of valuable data which further affected its process for renewing, registering and pricing medicines and medical equipment. . The data breach forced a shift from working online to a manual system, which further contributed to the ongoing delays. In this context, it is clear that the current system that guides the availability of medicines, from manufacturer to consumer, is in urgent need of reform.

The cost to the consumer

The effects of ad hoc pricing policies and decision-making processes have worsened under the impact of the growing economic and currency crisis. With each additional hurdle, the ability of suppliers to import certain drugs becomes severely limited. Doctors are then forced to come up with the next best alternatives that can be found in the market. The consumer – the patients who need not only affordable but also effective and high-quality medicines – bears the highest cost, because they are deprived of options. The current unclear and opaque practice of price controls in Sri Lanka has deeply affected the consumer, and it is ultimately the consumer who has lost the most.

The author is Program Associate, Communications at CREA.

Note: The drug names mentioned in the article are the brand names. The generic name for ‘Plavix’ is Clopidogrel and ‘Levothyroxine’ is Thyroxine.

The Sri Lankan Chamber of Pharmaceutical Industry (SLCPI) had no comment. Also, the NMRA was unavailable to respond.