Consequences of Mandatory Drug Pricing: Cheaper on Paper, Shortages at Pharmacies!

Beyond daily expenses, pharmaceutical companies need continuous investment to maintain production lines and meet quality standards. If revenue from product sales cannot cover current costs and essential investments, the company's resources will gradually decline.

According to Ambassador Arjan, for a patient who has to take a certain medicine every day, lack of medicine is not just a word in official reports; Rather, it means not going to several pharmacies, but a long search to find a medicine and worry about the continuation of the treatment. In such a situation, the drug that was kept cheap on paper with the aim of protecting the patient, may become a hard-to-find commodity in practice due to reduced production or supply disruption.

Prescriptive pricing, which has been a topic of discussion for many years in the market of basic goods such as bread, rice and some other consumer items, has now become one of the serious issues in the drug market. The difference between this market and many other markets is that medicine is not a product of choice for the patient, and sometimes the continuation of life and control of the disease depends on its regular access.

The cost of drug production is not only raw materials / labor wages, energy, packaging, transportation, equipment maintenance, financial costs and working capital all affect the final price.

Behnam Ahmadi, a pharmacist and an activist in the field of drug production, told Ambassador Arjan about the consequences of mandatory drug pricing: The main problem arises when the final price of the drug is determined without considering the actual changes in production costs.

He adds: drug production includes a series of numerous costs, and it is not possible to judge the finished price of a product just by looking at the price of raw materials. Of course, a significant part of the costs of the pharmaceutical industry is related to raw materials, but in recent years, almost all components of the production chain have faced increased costs.

This pharmacist states: Labor wages, energy, packaging, transportation, equipment maintenance, financial costs, and working capital all affect the final price. In some cases, raw materials or production equipment are dependent on currency, and exchange rate changes can increase company costs more quickly.

Ahmadi emphasizes: When the price of the medicine is corrected with a long time interval, the production costs do not stop in this interval. Therefore, a product that was profitable at the time of setting the price may not be economically justified at the same price a few months later.

This activist in the field of drug production says: The problem starts when the selling price of a drug is fixed or modified with delay, but the production costs increase every month. In this situation, the distance between the approved price and the actual cost increases and the pressure is placed directly on the producer.

Unprofitable production cannot continue forever / the economic reality is that the producer must at least be able to cover his costs.

He explains: In addition to daily expenses, a pharmaceutical company needs continuous investment to maintain production lines and meet quality standards. If the income from product sales cannot cover current costs and necessary investments, the company's resources will gradually decrease.

Dr. Ahmadi says: Sometimes it is thought that if the price of a drug is kept low, the producer is obliged to continue production at any price. But the economic reality is that the producer must at least be able to cover his costs. If this does not happen, the continuation of production depends on other resources of the company, and these resources are not unlimited.

Sales growth of pharmaceutical companies does not necessarily mean more profits / In an inflationary economy, the increase in the sales figures of companies alone cannot be a suitable measure to measure profitability.

This activist in the field of drug production also warns about the increase in the value of the riyal in the drug market and the perceptions of this issue about the profits of companies.

He says: In an inflationary economy, the increase in the company's sales alone cannot be a good measure of profitability. A company's sales may have multiplied compared to a few years ago, but at the same time, the cost of raw materials, wages, energy, equipment, and finance costs have also grown.

Ahmadi continues: When the price of a drug increases, a part of the society thinks that the pharmaceutical company has made more profit, while the increase in the selling price may be only a partial compensation for the growth of production costs. If costs rise faster, even sales growth won't solve the problem.

Drug shortage is not only the result of reduced production / the problems of importing raw materials and the distribution process also play a role in the drug supply situation

He emphasizes: not all the problems of the drug market should be attributed to pricing. Supply of currency, liquidity, pending claims, problems of importing raw materials and distribution process also play a role in the supply of medicine. However, in his opinion, disproportionate pricing can exacerbate the effect of all these problems.

This activist in the field of drug production states: The pharmaceutical company needs cash to buy raw materials, pay salaries, provide packaging and continue operations. If the company's claims are paid late and at the same time the price of the product is not adjusted according to the new costs, the financial pressure will double.

If cheap medicine is not available, it is not a support for the patient

He further emphasizes: the main goal of drug policy should be the patient's access to the drug, not just keeping the price on the package low. The price of a drug may be low in the official list, but if its production is reduced and the patient has to go to several pharmacies to find it, the support policy has practically not achieved the desired result.

Patient support should be done through insurance

Stating that all the pressure of supporting the patient should not be transferred to the drug manufacturer, Ahmadi says: If the policymaker wants the price paid by the patient to remain low, he should use insurance and subsidy tools. That is, the economic price of production should be recognized, but a significant part of the cost should be covered by insurance so that the direct payment of the patient does not increase.

He adds: This method pursues two goals at the same time. The producer gets the possibility to continue the activity and planning, and the patient does not have to pay the entire cost increase from his pocket.

Support for the domestic production of medicine is not realized only with the slogan of supporting the production

From Ahmadi's point of view, supporting the domestic production of medicine cannot be realized only with the slogan of supporting production. If the pricing is such that the production of the product is a loss for the factory, the domestic production capacity will decrease in the long run.

He warns: reducing domestic production in the field of medicine can increase dependence on imports; An issue that increases the risk of drug supply in the conditions of currency restrictions and international disturbances.