Should drug prices be regulated or decided by competition?

The Health Ministry hopes to come up with a comprehensive medicine price list by next year. — AFP

The debate rages on about how to put in place a price control mechanism to regulate drug prices to make medicines more affordable for Malaysians. Malaysia’s pharmaceutical market is dominated by prescription drugs that account for approximately 60% of the pharmaceutical market share by value.

As there is no price control mechanism for pharmaceuticals in Malaysia, drug prices are not regulated and it is left to market forces to determine the prices.

Medicine procurement in the public sector is through volume-based national tenders, where the government picks up the tab and patients get their medicines free or at a nominal fee.

But prices in the private sector are solely determined by free market forces.

Medicine prices and mark-ups (or profit margins) for both innovator and generic drugs have been observed to be higher in Malaysia than in other countries, sometimes by as much as 400%!

These high prices, coupled with other out-of-pocket medical-related expenses, are impeding accessibility to treatment, resulting in catastrophic outcomes for patients.

In May 2019, Health Minister Datuk Seri Dr Dzulkefly Ahmad said the ministry will use external reference pricing to benchmark drug prices in Malaysia, choosing the three lowest prices and averaging them to determine the ceiling price.

But will imposing a ceiling price provide a solution and satisfy all stakeholders?

The Malaysian Pharmaceutical Society (MPS) organised its first annual National Pharmacists Convention n April 26-28, 2019, with the theme “Empowering Pharmacists in a New Healthcare Landscape”.

One of the highlights of the convention was the Medicine Pricing Forum, which saw participation from various organisations in the industry.

The panel comprised of MPS president Amrahi Buang, Pharmaceutical Association of Malaysia (PhAMA) president Chin Keat Chyuan, Malaysian Organisation of Pharmaceutical Industries (MOPI) exco member Diong Sing Peng, Malaysian Association for Pharmaceutical Suppliers (MAPS) president Lim Teng Chyuan, non-profit policy research organisation Third World Network (TWN) programmes director Chee Yoke Ling and Health Ministry (MOH) Pharmacy Practice and Development Division deputy director Salbiah Mohd Salleh.

Here are excerpts from the lively forum, moderated by MPS treasurer Lim Jack Shen.

Do you think price control should be implemented in Malaysia?

Chin: For PhAMA, we want to make sure our innovative medicines are made accessible to all and we fight to collaborate with key stakeholders. Whether or not we agree on regulating the price is highly subjective. When we look at affordability, how do we define it and how do we separate affordability versus innovation?

Diong: Medicine pricing is very complicated and we are not against or for it, until further clarity is given. Does pricing result in more or less accessibility for medicine? It could turn out to be the other way round where accessibility could be an issue.

For retailers, for example, if you run a shop, you’ve got costs and expenses. If your shop is at a high-end place, the cost is much higher than small towns. No one hat fits all. Generic medicine already faces a lot of competition. We have big and small manufacturers, and we all have different costs.

Chin: Based on statistics of out-of-pocket healthcare spending by private patients, 14% is from medicine, so 86% has nothing to do with medicine – it comes from many other areas.

Ultimately, what are we trying to achieve? Is medicine price the only one thing to make drugs accessible? Do you need to regulate it based on the percentage? In 2017, the total government healthcare spending was roughly RM57.4 billion and only 8% was spent on medicine, so a large portion of it is not medicine.

Amrahi: The price issue has always been there and we have had discussions with all parties. If you don’t get an itemised bill, how are you going to know what is the reality?

Teng Chyuan: I am for lower prices, but where are the price points that are high? If you look at the study done by the government, mark-ups range from 24% to 400%, and analyses show that high mark-ups are from generics!

We are here to make prices low, but the 400% is not coming from a monopoly, but from a captive market, i.e. an artificial monopoly. And the price points that are high are not in retail or independent pharmacies!

If you want to implement a price, think of protecting the small players. The big players, such as hospital pharmacies, can survive because they have money. A hospital pharmacy can also be turned into a cost centre, rather than a profit centre.

They are there to attract patients to their hospitals, and have other services to generate revenue. The Malaysia Competition Commission gave 12 recommendations when it comes to helping lowering prices, but I fail to see why medicine price is the only focus.

Can you give us an update on the model?

Salbiah: The model we have proposed after we had a briefing session with all the stakeholders has two levels of control, i.e. setting the ceiling price for the wholesale price and the consumer price. The scope of coverage will be for single-source products and for single-source generics in the market.

The ceiling wholesale price – that is the price purchased by dispensing outlets such as private practitioners, private hospitals and other private healthcare facilities – is for medicines under the MOH-gazetted list.

Currently, there is a Consumer Price Guide on our MOH website, which consists of 2,000+ items, including over-the-counter and prescription drugs, though only 20% are prescription drugs.

Now, we’re looking at ceiling prices for prescription drugs only – those whose registry number starts with MAL and ends with the suffix A. There are about 1,000 products, but we’re still gleaning and trying to make sure whether it’s supposed to be price-controlled.

When we cap the maximum for wholesale and consumers, it means you can sell lower than the maximum to the consumer, but not more than the price gazetted, which is wrong. The supplier will then have to adjust how much percentage he wants to make on profit.

We are not fixing anything. We are just capping the price because our current dual system of private and public has not changed. We cannot interfere unless the national health insurance is introduced; then, we’ll be more stringent in terms of pricing.

By 2020, we hope to come up with a list of all medicine prices, to be transparent and to be shared with consumers.

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Listening to Teng Chyuan (with microphone) speak during the forum are (from left) Salbiah, Amrahi, Chee, Diong and Chin. — S.S.KANESAN/The Star.

In 2016, a contextual analysis on the Malaysian healthcare system conducted by MOH with the Harvard T.H. Chan School of Public Health, showed that public sector outcomes are better than private sector outcomes. Is it because of the dispensing separation (DS) system within the hospital (where only pharmacists provide medicine, not the doctors)?

Amrahi: The only sector that does not have DS is the private general practitioners (GPs). This is challenging because on the public side, there is some form of control, but in the private, it is free for all – you can see what is happening is really chaotic.

Teng Chyuan: The biggest problem we are hearing is that hospital charges for medicines are very high, so even with DS, you don’t get low prices. These patients who go to private hospitals are in a captive market – there is no free market. There will be a lot of political opposition when it comes to DS, that is the truth.

Amrahi: The government is not going to change the system, so how are you going to handle the private sector? We still need to have a hybrid system. What the government should do is ensure doctors give prescriptions without the patient asking.

Salbiah: Giving a prescription, with or without DS is the same. The patient will see the doctor, who will then issue a prescription. At that point, the doctor will ask the patient if he would like to buy the medicine at that clinic or another pharmacy.

For example, if the patient thinks the pharmacy can give a better price, he might go there, or if it’s too much of a hassle, he might opt to buy at the clinic.

Pharmacists have to create their own demand, prove that you are needed in the community – that’s why you are called community pharmacists. If you cannot get this demand from your own community, then how can you progress forward?

Diong: Again, the subject of DS is complex. When there is DS, no doubt you feel that the medicine prices are going to be cheaper at the pharmacy. The doctors lose an income, so where do they get their income? Their prices.

The largest R&D (research and development) spender last year was Amazon at USD$22.68 billion (RM94.41 billion), not a drug company. Out of the top 25 companies, eight are drug companies and 10 are automobile companies, and they have a rough margin of 5% (Amazon) and 10% (automobiles). The top pharmaceutical companies have an operating margin of 22%, so why is there a disparity?

Chin: Amazon’s margin might be 5%, but who’s the richest guy in the world? If you’re looking at R&D – the average lifespan of humans has increased. If you zoom in further, in the US today, two out of three cancer patients have a survival rate of more than five years, and 83% is because of drug innovation.

There are still many diseases that have not been discovered or have no cure. If you don’t encourage ploughing money back into R&D for unmet needs, who is going to do that? Not IT companies. We have to do it because many patients are waiting.

Chee: Some of the best innovations have come from medical and other areas, from public competitive-collaborative research. Today, in the pharmaceutical and IT sectors, a lot of R&D is still from public investment. The numbers are good and healthy.

Some companies are willing to share their data, others are not. We do hear that some companies make much more money than us, but we cannot compare industries.

Let’s use the breast cancer drug trastuzumab as an example. It was very expensive; we provided it in the public sector and the first biosimilar was registered a few months ago, so there was competition.

Immediately, a tender was called. The generic company offered a 50% bid. The innovator brought the price down by 51.5%, so they got the tender. When asked how the pricing was done by an oncologist at a forum, our Health Deputy Minister Dr Lee Boon Chye responded that there is no benchmark.

What’s the point of having a drug that works when people cannot afford it? This is the ugly side of capitalism. We all want to do business, but the price has to be fair.

Within the industry, there are different layers, different players. Even the 400% mark-up by generics … what is it a mark-up from? When you talk numbers, you must have all the numbers on the table.

There’s a concern among community pharmacists that with price control, it will kill off generics. If there is a single mark-up over pricing across the board, e.g. 40% on innovated drugs and 40% on generics, then no one will sell generics because the margin will be too small.

Diong: Not every one of your products will sell well, the same goes for generics. If you have a company with 200 registrations, not all those products make the same margin.

If a company is the only one selling an item in the country and they’re selling it at a high price, then I think it’s alright because they may have nine other products that don’t make as much.

The pharmaceutical company's expenses are much higher than a pharmacy because our capital expenditure is much higher. Buying a piece of land and putting the building up is the easy part. The requirements to run a factory is very expensive.

As long as there is competition, a free market works very well, because with a fixed price, a lot of us may not make it. For items such as paracetamol strips, do you mark-up by 20% or 200%? There is no choice because you have to break even. The cost, rental, labour, etc, differ from place to place.

Salbiah: In our price mechanism proposal, generics will be handled differently. What we intend is to put a fair price both for consumers and industry.

Chee: We don’t always have to ask for the lowest price. The issue of competition is a complex one, that’s why we have a combination of policies. We have a policy of access (medicine and health) and to promote the local industry to have competition.

We tend to grant a lot of patents too easily. We strongly recommend a review of the patentability criteria for medicines so that we really reward innovations.

Chin: Is setting the ceiling price the best thing to do? It might hinder access. For example, there is a product. With competition, the prices will naturally come down, but now, the price is set. Whoever's setting the price might jack it up and create a barrier to access.

Why not let it flow as a free market pricing instead of putting another control?

Salbiah: There are two parts here - one is product and the other is service provider. Competition will benefit the patient. If I put a maximum price for the consumer, competition can happen below the maximum price. And there is no block to access. That ceiling offers protection to the consumer.

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In small towns or villages, the pharmacist may be the only other healthcare professional available to help patients. Photo: Filepic

How will the community pharmacist’s profession be affected by this price control move as there is no level playing field when it comes to discount culture in the market?

Teng Chyuan: Even with the ceiling price, the pricing war continues. There is no solution to the problem. In the South African model, which has been in place for 15 years, a lot of pharmacies went bankrupt.

The private, individual, standalone or small chain pharmacies were the ones most affected, so much so that the profession is no longer attractive.

The number of students enrolling in pharmacy courses declined and because the numbers have dropped to such a level that one pharmacist is doing the job of 2.5 pharmacists, there are long queues waiting for prescription.

In the township of Alexandra, pharmacists are being replaced by pharmacy dispensing units ala ATMs.

Chee: We do not seem to appreciate the role of a pharmacist. In smaller towns, the pharmacist is the only other person with medical knowledge, so they have many roles to play. A free market doesn’t exist … there is always unequal power relations.

If you allow a free market, then pharmacy chains become more powerful because they can offer all kinds of discounts and bonuses, and squeeze out smaller players. So this is a challenge. MOH is trying to correct an imperfect market.

The first phase is looking at single-source products. You can be a captive market or have a patent so there is no competition, and in that situation, we need to use price as one factor. If you have dominance in the market, it is not necessarily wrong, but if you abuse that dominant position and set high prices, then it’s not fair.

Teng Chyuan: When I did my pupilage in a community pharmacy, our prices were not the cheapest, yet we still had loyal consumers, so why should you compete on price? Compete on your services.

Diong: About 1,000 graduates will enter the market every year. As a result of policies made at the higher level, when pharmacists can’t find jobs, they will stop going into such courses. That’s the cycle.

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