EKIP– Expert Club for Economics and Politics A Different Opinion
What is the problem?
One of the main problems with medicines disappearing from the Bulgarian market is state regulation, which is expressed in the form of price control. The Bulgarian government experimented with freezing the prices of medicines in 2013 and 2014, which had a negative impact on the market and resulted in the withdrawal from the market or the suspension of the production of vital medicines. Price referencing of medicines is a major problem facing the healthcare system. A problem that reflects negatively on competition between pharmaceutical manufacturers, by artificially lowering the price of certain medicines on the market, comparing it with 17 reference countries in the European Union.
What is the condition?
Every year, medicines are discontinued in Bulgaria - original and generic. There are two methods for influencing the price of medicines. On the one hand, Bulgarian manufacturers of medicines are obliged to sell at the lowest price in the EU. The other mechanism for price control is external price referencing, which in practice compares the agreed prices of medicines with 17 other European countries, or if a lower price is agreed for a given medicine in a country, it is automatically reflected in Bulgaria.
The problem with this type of policy is that the consumption of medicines is different in different countries in Europe – this directly affects the production capacity of companies in Bulgaria, due to the fact that volumes and sales cannot be compared with other markets. After a certain generic medicine (the production of medicines in Bulgaria is generic) is removed from the Bulgarian market, the price of another with the same active substance or group increases, because competition decreases. The lack of generic competition in the market leads to an increase in the prices of medicines in general, and from there to a decrease in access due to a high price for various disadvantaged social groups.
Similarly, price referencing affects drug importers – by forcing them to sell below the real market price. The incentive for their drugs to be on the Bulgarian market is lost due to excessive regulation in the sector. As a result, many companies continue to withdraw their medications both from the Positive Drug List and from the pharmacy network.
Simple example
Let's imagine that the government decides (as is happening in Bulgaria) that the price of a certain drug is too high and forces the manufacturing company to sell it at a low price. If the manufacturing company can afford to sell the drug at the price the government has set and still cover production costs, it will have to make do with the lower profits. In this case, consumers will be happy. In economics, this is called a “wealth transfer,” or simply put, the manufacturing company and its shareholders are forced to transfer their wealth to consumers. This naturally increases the demand for that product.
Now let's imagine that the manufacturing company cannot produce the drug at this price, cover its costs and make a profit. Let's imagine that the price that the state has set will have to be subsidized by the sale of other products of the manufacturing company, so that the given drug can still exist on the market. It will turn out that the company will prefer not to enter such a market at all, where it has to sell at a loss. In short – it will stop producing the given drug.
What is the solution?
Drug price controls are more difficult to remove than other price controls. For other goods and services, they can often be limited or short-lived, as people eventually resist the resulting shortages and economic distortions. The effects of drug price controls, however, are much harder to observe because they mainly affect drugs that are “invisible” to some, i.e., not needed by the whole of society, and also those that have not yet entered the market. Even if people and politicians realize that price controls are hindering the development of new drugs, removing the effects of these controls will be a difficult task. Patients will have to pay higher prices for years before they see the benefits.
Original publication on Puls.bg
