Drug Supply Chain on the Brink of Rupture; Crisis Behind Pharmacy Shelves

A multi-fold increase in the price of some medicines, along with delays in implementing insurance coverage and the uncertainty surrounding government compensation funds, has placed new pressure on patients.

The drug supply chain is facing increasing costs and lack of liquidity. The multifold increase in drug prices, insurance delays in applying new coverages, and the uncertainty of the government's compensation resources have increased the cost of treatment for patients. At the same time, the disruption in sea transportation and the difficulty of supplying raw materials threaten the continuity of domestic production.

Activists of the pharmaceutical industry warn that the accumulation of claims and the growth of costs, even in spite of the improvement in the supply of foreign currency, could lead to a shortage. Experts emphasize the necessity of settling the insurance debt, compensating the currency difference and speeding up the application of insurance coverage to curb this crisis.

The multifold increase in the price of some drugs, along with the delay in the application of insurance coverage and the uncertainty of the government's compensation resources, has put new pressure on patients. At the same time, the disruption in sea transportation and the difficulty of supplying raw materials have also challenged domestic producers; A set of factors that threaten the stability of the drug supply chain.

In the meantime, drug industry activists warn about the continuation of these problems in the coming months, especially in the drug transportation sector, a challenge that can lead to the aggravation of the shortage of some drugs in the coming months and make it more difficult to provide the public health of the society.

Referring to the problems of drug supply in the country, Mohammad Abdezadeh, a member of the board of directors of the Syndicate of Human Medicines, said: "In the import of manufactured drugs, the main problem is not necessarily related to the import of the final product, and if the foreign exchange obligations, currency allocation and import policies are determined by the Ministry of Health, it is possible to supply these products." However, more serious problems have arisen in the raw materials sector required by domestic producers.

He added: An important part of pharmaceutical raw materials is supplied from India and China, but the disruption in sea transportation routes has made it difficult to transport these materials. In the current situation, companies are forced to use alternative routes such as air transport or transporting cargo through Türkiye; Methods that are both more expensive and can increase the time of supplying raw materials.

This drug industry activist added: Although some raw materials with lower weight or volume can be imported by air, this method is not suitable for all shipments. Raw materials that are imported in high volumes are not easily replaced by air transportation, and their transportation by other routes is also time-consuming and expensive. Therefore, the continuation of disruption in sea routes can make the supply of raw materials and, as a result, the production of some medicines, more difficult.

Stating that disruption in transportation is one of the main causes of production problems in recent months, Abdezadeh added: Supplying raw materials from India has become more difficult, because the possibility of regular and direct air transportation from this country to Iran is limited. The mentioned disorders have fueled the shortage of some drugs, including neuropsychiatric drugs. In addition to the difficulty of supplying raw materials, the increase in foreign currency and Rial costs has also put considerable pressure on drug manufacturers.

Referring to the growth of the exchange rate used to supply raw materials, Abdozadeh said: Part of the increase in the price of medicine is related to the increase in the exchange rate; So that the exchange rate for the supply of some raw materials has multiplied compared to last year. This increase is not only limited to active pharmaceutical ingredients and also includes auxiliary materials and other items used in the production process.

A member of the board of directors of the drug production syndicate said: In addition to raw materials, the cost of drug production is also affected by the price of packaging, printing, transportation, services, water, electricity and other current costs of factories. The increase in the general costs of the economy has raised the cost of drug production. While in the past, the price changes were usually done at certain times of the year, now producers are faced with a continuous increase in costs throughout the year.

He added: Since the price of medicine is subject to specific criteria and processes, the growth of costs is not necessarily immediately and proportionately reflected in the sales price. If the interval between cost increase and price correction is prolonged, the profit margin of the companies will decrease and less resources will be available to them to buy raw materials. This problem can make it difficult to supply inputs and continue the activity of factories even in the situation where there is production capacity.

Accumulation of claims and liquidity crisis

The member of the board of directors of the drug production syndicate considered the accumulation of claims of pharmaceutical companies from insurance organizations and medical centers as another factor of aggravating the problems of this industry and said: the anticipated resources for medicine and medical equipment do not match the commitments of the insurance organizations and the lack of resources has delayed the payment of the companies' claims. When the demands of pharmaceutical companies are not paid for many months, the resources of rials necessary to buy raw materials and supply the currency needed for production will also be limited. In contrast, companies must pay their current costs continuously. As a result, the delay in collecting claims reduces the ability of producers to supply raw materials and continue production.

Abdezadeh described this situation as a vicious cycle in which the increase in production costs is accompanied by liquidity constraints and makes it more difficult to supply raw materials. In this way, financial problems at the end of the treatment chain can be transferred to the production sector and lead to a decrease in production and aggravation of drug shortages.

He emphasized: In such a situation, increasing the selling price alone does not solve the liquidity problem; Because if the drug price is not paid by buyers and insurance organizations on time, the resources from the sale will not return to the manufacturing company. Therefore, at the same time as the cost of raw materials and other inputs increases, producers are also facing a delay in receiving their income.

The risk of aggravating drug shortages lurks among patients

Abdozadeh, referring to the situation of supply of foreign currency for medicine, said: the central bank's performance in this field has become more regular compared to last year; However, the increase in the exchange rate and the companies' need for riyals still put a lot of pressure on them. A relative improvement in the currency supply process alone cannot solve the problems caused by transportation disruptions or lack of liquidity.

In the end, this activist of the pharmaceutical industry warned: If the disruption in sea routes continues, the problems of supplying raw materials may intensify in the coming months. Some of the raw materials needed by the industry cannot be transported by air due to their high volume or transportation conditions, and it is not easy to replace them by sea routes. As a result, the shortage of these items can limit the production of drugs related to them.

A multiple increase in the price of some drugs

Bahman Sabour, Deputy Chairman of the Board of Directors of the Greater Tehran Medical System, referring to the change in the exchange rate assigned to medicine, stated: The currency used for importing and supplying medicine last year was the preferred currency of 28,500 Tomans, but with the amendment of the government's foreign exchange policies, the exchange rate assigned to medicine was transferred to the second market of the exchange center. A market whose price is floating and is affected by market conditions. The rate of this currency has reached more than 170 thousand Tomans in the third week of Mehr.

Saying that the change in the exchange rate has led to a significant increase in the price of some medicines, Sabour said: The amount of price increase depends on the type of medicine and its supply conditions. The price increase has varied from 50% to 400% depending on the type of medicinal items. Of course, the price increases of several hundred percent are related to very cheap drugs that were sold at a rate of several tens of thousands of tomans before the change in the government's currency policies.

The need to deal with insurance delays

The increase in drug prices alone does not explain all aspects of the problem. From the point of view of this member of the board of directors of the Association of Pharmacists, the way of implementing the insurance coverage and the time interval between the announcement of the new price and its application in the insurance systems are among the most important problems that have increased the pressure on the final consumer after the exchange rate change.

In this regard, Sabour said: drug pricing is done within the framework of related mechanisms and with the participation of related institutions, and the representatives of the Supreme Council of Insurance are also present in this process. Accordingly, after the approval and announcement of the new price, insurance companies are expected to apply the new rates in their systems as soon as possible so that the amount of drug insurance coverage is calculated according to the new price.

He explained: Medicines covered by insurance, including the medicines needed by special patients that are in the drug list and their treatment plan, must be covered according to the insurance rules. However, in some cases, the time interval between the announcement of the new price and its registration in the insurance system reaches one to two months. If the drug price increases from 100 million tomans to 200 million tomans, the insurance coverage must be applied according to the new price. Despite this, the announced price may be registered in the relevant systems, but its application in the insurance system is delayed. In such a situation, the patient may face an expense for some time that does not match the expected insurance coverage.

Foreign exchange compensation and remaining government obligations

Another axis mentioned by this pharmaceutical industry activist is the government's commitment to compensate the riyals for the increase in the cost caused by the change in the exchange rate. He said: After the reform of the foreign exchange policy, the government and the budget organization had promised to cover the difference caused by the increase in the exchange rate so that this change does not lead to an increase in patients' out-of-pocket payments.

He explained: This mechanism was supposed to cover the additional cost of importers of pharmaceutical raw materials and importers of finished drugs, and the necessary resources to compensate for the increase in costs will be provided through insurance. In this way, the increase in the cost of drug supply should not be transferred directly and completely to the final consumer.

Criticizing the non-implementation of this commitment, Sabour said: the promised resources have not returned to the relevant department so far. In a situation where the change in the exchange rate has increased the cost of drug supply, the return of the currency difference can put more financial pressure on the drug chain and challenge the primary goal of the support policy, which is to prevent the transfer of the cost to the patient. In fact, the effect of currency policy on the drug market is not limited to the new exchange rate; It also depends on when and with what mechanism the resources expected to compensate for the increase in costs will be provided to insurance companies and other related sectors.

Referring to the impact of sanctions on the drug market, Saboor said: "Although drugs are considered humanitarian goods, financial and transportation restrictions can make the process of buying and transporting drugs and its raw materials difficult. In some cases, after knowing the final destination of the shipment, European companies impose restrictions on the shipment of the goods or it is difficult to transfer the money for its purchase. Therefore, even in cases where the drug itself is legally subject to exemption or humanitarian exception, practical obstacles due to financial and logistical sanctions can affect its supply.

According to Sabour, the restriction of sea routes has added to this situation.

Referring to the dependence of an important part of drug import on sea transportation, he emphasized: Disruption in these routes can increase the time and cost of drug supply. In addition to that, the preparation of raw materials and the provision of some items have also faced difficulties. Despite these problems, the drug supply chain continues to operate and the activists in this field try to provide the necessary drugs to patients despite the restrictions.

Pending claims and uncertainty of the private sector

Saboor further considered liquidity problems and delays in payment of claims as other serious challenges in the field of medicine and said: insurance companies have faced long delays in paying the claims of the contract parties and in some cases, the claims have not been paid for about 9 to 10 months. Private sector activists are in a situation where they do not have clear information about the method and time of settlement of their claims. The discussion of using tools such as step bonds or other payment methods has also been raised, but a specific program that will clarify the status and schedule of claims settlement has not been announced to the activists in this field. This member of the Board of Directors of the Association of Pharmacists considered the way policymakers deal with the private sector as one of the important issues in the health field.

Referring to the rulings of the 7th Progress Plan regarding shrinking the government and handing over some affairs to the non-governmental sector, he said: the capacity of the private sector in the field of health has not been used enough. In critical periods, the private sector bears an important burden of providing and providing services, and the government alone cannot meet all the needs of the country's population. Ignoring the private sector in the decision-making process, along with the delay in payment of claims and the uncertainty of the debt settlement mechanism, can aggravate the existing problems in the drug supply chain.