JEANNE MADDEN, KUMARIAH BALASUBRAMANIAM AND ISAAC KIBWAGE

J. Madden

K. Balasubramaniam

I. Kibwage

THE WHO/HAI price survey methodology not only collects field data on actual prices to consumers - it also examines the structure underlying those prices. Through interviews with experts in local pharmacy systems and review of government policies, investigators try to separate the component parts of prices to the consumer.

For imported medicines, the price structure starts with the "CIF" price (Cost, Insurance, Freight), which is whatever the manufacturer charges for the medicine itself, plus extra charges to bring a shipment of medicine into a country's port. Typically, after CIF, there are additional payments that must be made to the national government and to agents for getting medicines through the port. There may also be import taxes, and/or fees charged by importing companies. Once inside the country, there are usually additional mark-ups for each step in the distribution chain. And there may be additional taxes levied along the way. Consequently the final price to the consumer is considerably higher than the simple CIF price.

The typical mark-ups from CIF price to consumer price vary from country to country. This is partly because of differences in government policies with respect to entry procedures, taxes and allowable mark-ups. Also, countries differ in how their private markets are structured - for example, how many links there are in the distribution chain, whether there is meaningful competition, the size of profits sought and obtained by various businesses, and other factors. If it is believed that a country's medicine prices to consumers are too high or have other problem patterns, the first step towards possible intervention must be to describe the structure that lies beneath prices.

International comparisons are useful in evaluating price structure. Figure 1 shows findings from the WHO/HAI pilot surveys in Sri Lanka and Kenya. These were the maximum price mark-ups typically seen within these two countries' private sectors. Significantly, however, in Kenya, retailer mark-ups were occasionally found to be far higher than depicted here, particularly for the cheapest generic drugs. (Retailers told the study team that they must mark these up higher, because their customers believe that drugs that are "too cheap" cannot be effective).

The mark-up amounts in Figure 1 have been presented as a percentage of the CIF price. Because mark-ups are normally added in a sequence or chain, the mark-ups are somewhat larger here than they would appear when presented as the percentage added to the price one step earlier. For example, in Sri Lanka, private retailers add 16% to the price that they pay for medicines, but because retailers are at the very end of the distribution chain, and the price of medicines has already been marked up about 42% over the CIF price before the retail stage, the retailer's mark-up is about 23% of the CIF price.

When results for Sri Lanka and Kenya are compared, one obvious difference is that there is a large importer mark-up in Sri Lanka that is not seen in Kenya. The importer is a government agency that purchases all imported drugs and then distributes to both the government's own health sector and to private wholesalers. This arrangement was not seen in other pilot survey countries. Except for the unusual importer mark-up in Sri Lanka, all mark-up amounts in Kenya were found to be much larger than those in Sri Lanka. Neither Kenya nor Sri Lanka had a Value Added Tax (VAT) on medicines. However, in some of the other WHO/HAI pilot surveys, VATs as high as 18% were found at the point of retail sale.

If the typical price mark-ups are known for a country, we can work backwards from the consumer price to estimate the CIF price. In Sri Lanka, mark-up amounts in the private sector are fairly well-known and stable. Thus, we can presume that when a median price of 990 rupees was found for a treatment course of 21 amoxicillin tablets (250mg each) in the private pharmacies' surveys, the original CIF price was about 602 rupees.

Figure 1. Local mark-ups over CIF price for imported medicines: private sectors in Sri Lanka and Kenya