Who will benefit from prices reduction for pharmaceutical drugs?
Usually, the authorities start talking about reducing prices for pharmaceutical drugs when they need to distract from something or ’fix’ someone’s declining ratings. In this case, however, the initiative, oddly enough, came from the bottom up.
In early February, representatives of the pharmaceutical market signed a Memorandum with the government to reduce prices for 100 of the most popular pharmaceutical drugs by 30% and put forward proposals to regulate the market.
Could 500 pharmacies close?
As a result, several documents were developed to regulate the market and influence pricing policy. For instance, the National Security and Defense Council (NSDC) adopted a decision "On Additional Measures to Ensure the Availability of Medicines for Ukrainians," which was enacted by a Presidential Decree. Additionally, in accordance with the NSDC decision, Parliament drafted amendments to the Law on Medicinal Products, which sparked considerable debate but were ultimately passed by Parliament and signed by the President of Ukraine. Another key document was Resolution No.168 of the Cabinet of Ministers, which also provoked significant controversy among market participants.
As a result of negotiations, the agreement expanded the price reduction by 30% to not just 100 but more than 200 popular pharmaceutical drugs produced by Ukrainian manufacturers, along with a reduction in the maximum allowable mark-up on pharmaceutical drugs. Several economic measures were also proposed, the most debated of which was a ban on marketing payments.
Naturally, the initiative sparked an immediate outcry. Opponents claimed that direct budget losses alone would reach UAH 7 billion per year, with an additional UAH 1.8 billion in indirect losses, as well as a decline in income tax revenues and marketing payments. It was also argued that 500 pharmacies would be forced to close due to the new regulations, while prices for foreign medicines would rise. This was attributed to the fact that most international pharmaceutical companies would no longer be able to apply flexible pricing strategies for pharmacies, resulting in patients losing access to personalized discounts and loyalty programs. Furthermore, strict price regulation could drive many Western pharmaceutical companies out of the market.
Horrific stories about an unprecedented surge in prices for imported pharmaceutical drugs began circulating on the Internet. Some volunteers even posted claims that prices had doubled, allegedly the new rates at which pharmaceutical drugs for people under their care would be sold. The American Chamber of Commerce, European Business Association, and other pharmaceutical market participants saw significant risks and urged the authorities to adopt a more balanced approach. And while pharmacies report no actual price hikes for imported pharmaceutical drugs or their withdrawal from the market, the risks remain.
Who is behind it?
Meanwhile, the reasons behind this extraordinary situation—where manufacturers themselves offered to make concessions so that the government would finally regulate the market—are worth examining. The issue had been brewing for a long time. According to one distributor, who spoke on condition of anonymity, two major distribution companies colluded, effectively monopolizing the market. They offered pharmacies exclusive contracts, blocking competitors from entering these pharmacy chains. This not only disrupted normal market operations but also led to unjustified price increases for pharmaceutical drugs and medical devices. Manufacturers were also dissatisfied, as pharmacies had begun imposing their own conditions, demanding so-called marketing payments—fees for the sale and promotion of pharmaceutical drugs.
The existence of a long-standing conflict in the market was confirmed by Ivan Zadvornykh, Director of the European Pharmaceutical Association (EPA): "Let’s analyze what exactly triggered state intervention in the relationships between pharmaceutical market participants. First, the monopoly in the wholesale market has expanded and strengthened over the past few years. Secondly, the AMCU (Antimonopoly Committee of Ukraine) failed to take timely and effective measures to ensure fair competition in the distribution market—time was lost, and the market ceased to be competitive. Thirdly, the presence of uncontrolled marketing in the sale of pharmaceutical drugs, which could account for up to 50% of the cost of a pharmaceutical drug, significantly inflated its base price. Without these marketing fees, pharmacy chains refused to stock pharmaceutical drugs from manufacturers and importers for sale. As a result, pharmaceutical drug prices in pharmacies remained excessively high."
However, the expert now believes that if the emotional aspect expressed by certain pharmaceutical market participants is set aside, everything the government is doing in this sector could yield positive results—not only for individual consumers but also for the state as a whole. According to him, the only unresolved issue remains "the lack of proper regulation of markups on original (innovative) pharmaceutical drugs. However, we have already prepared proposals to address this and submitted them to the Ministry of Health of Ukraine."
Other pharmaceutical associations and manufacturers that signed the Memorandum also maintain a fairly balanced stance. At least, this is evident from their official websites. As explained by the press service of Farmak, while the rise in pharmaceutical drug prices since 2022 has largely been driven by objective factors—inflation, currency fluctuations, rising fuel costs, etc.—the company is "committed to supporting patients during this difficult time and contributing to the stability of the medical sector." At the same time, the company guarantees that it will maintain the quality of its products, which are manufactured in accordance with European standards, and does not intend to reduce its range of offerings.
What is the government proposing to lower pharmaceutical drug prices?
Censor.NET spoke with Mykhailo Radutskyi, head of the Verkhovna Rada Committee on National Health, Medical Care, and Health Insurance, about the latest regulatory changes in the pharmaceutical market:
– When reading about recent developments in the pharmaceutical market, one gets the impression that the state is trying to dictate to private companies how they should structure their pricing policy.
– The state does not dictate; it can only regulate, as is the case in European Union countries with socially significant goods. All manufacturers, pharmacies, and distributors signed the Memorandum with the Ministry of Health, and I emphasize, it was their proposal to lower prices for certain pharmaceutical drugs by 30%.
– What does the state offer in return?
– We are taking several measures to help them reduce the production costs of pharmaceutical drugs. For example, we are expediting the implementation of the Bolar Rule. You know that as long as a license for an original pharmaceutical drug is valid, only the company that developed it has the exclusive right to produce it. However, worldwide, two years before the license expires, other manufacturers become eligible to produce generics—equivalent versions of the original drug. This allows them to enter the market with their products as soon as the license expires. In Ukraine, however, our legislation stipulates that manufacturers can only begin producing generics two years after the original license has expired.
– Yes, that is a sensitive issue for manufacturers.
– Secondly, we are fast-tracking the implementation of the law on pharmaceutical drugs and allowing the use of in bulk . Draft Law No. 11493, which was voted on today and signed by the President, clearly defines what constitutes a pharmacy chain and what qualifies as an individual pharmacy. As a result, we can introduce licensing conditions requiring that, for a certain number of pharmacies, at least one must have the right to manufacture pharmaceutical drugs, and at least one must be authorized to dispense controlled substances. This is currently one of the biggest issues for people with chronic pain—many pharmacies refuse to dispense these drugs, citing strict regulations. I agree that the requirements for pharmacies dispensing such medications need to be eased.
– Regarding in bulk, I have only heard this term used in the context of pharmaceutical manufacturers.
– This refers to a system where a pharmacy can purchase pharmaceutical drugs not in standard retail packages of 10–20 tablets but in large "hospital-sized" bulk packaging. When a customer requests the medication, the pharmacy then dispenses the required amount in affordable in-house pharmacy packaging. This reduces packaging costs for manufacturers, a practice already common in many developed countries, ultimately lowering overall costs for consumers.
– There is a lot of feedback that sometimes pharmaceutical drugs are cheaper abroad than in Ukraine. Is this because the state or local authorities partially compensate pharmacies or manufacturers for the price of certain pharmaceutical drugs?
– Claiming that pharmaceutical drugs are cheaper in Europe than in Ukraine solely because the government reimburses them is also a partial manipulation. We are comparing prices based on their original, non-reimbursed cost.
Another important point. In my opinion, we have a flawed system of marketing payments from manufacturers to pharmacy chains. Look, there is no single party solely responsible for high pharmaceutical drug prices. The market consists of three players: manufacturers, distributors, and pharmacies. We cannot place all the blame on pharmacies alone, nor on manufacturers or distributors. Today, manufacturers argue that they would lower prices, but they are bound by marketing payments—without which pharmacies refuse to place their products on the shelves.
– From what I’ve heard, complaints are mainly directed at two companies that have nearly monopolized the market—BADm and Optima-Pharm—which allegedly prevent others from entering pharmacies.
– There are 300 companies with distribution licenses. What do you mean they don’t "allow" them?
– They force pharmacies to sign exclusive agreements, for example.
– That’s not true. The conditions are equal for all 300. To create a level playing field regarding marketing payments, we have now included a provision in the law stating that a manufacturer cannot sell pharmaceutical drugs to any distributor under different terms. In other words, the conditions must be the same for everyone.
– Yes, sometimes manufacturers sold pharmaceutical drugs to pharmacies at a lower price, giving them a competitive advantage
– And marketing is not about distributors; it concerns the terms of cooperation between manufacturers and pharmacies. For example, there are currently 100 diclofenac products registered in Ukraine, including private-label brands from pharmacies. What are we talking about? Why should diclofenac from one company be prioritized over another? People should be able to make their own choices. However, for a pharmaceutical drug to occupy the most prominent shelf space in a pharmacy, manufacturers are required to pay 15–20% of the drug's cost as so-called marketing fees. Some foreign companies are even charged up to 60%.
– So, are we fixing the prices of manufacturers and distributors?
– We are not fixing anything; we are simply stating that marketing payments are prohibited. For the top 100 best-selling pharmaceutical drugs, these payments have been completely removed by the NSDC’s decision, as per a government resolution. However, for other pharmaceutical drugs, they remain necessary since manufacturers need to promote their products.
– I wonder how this will be monitored? Pharmacies still need to display products on the shelves—who will prove that placements weren’t paid for?"
– That is the responsibility of the regulatory authorities. Moving on, let’s discuss the new innovations being introduced. Every month, an electronic catalog will be compiled, indicating the lowest price for an active ingredient. All manufacturers can apply, but the listed price will be referenced against the average price in three neighboring Eastern European countries, just as is currently done for reimbursed pharmaceutical drugs. (These include the pharmaceutical drugs covered under the "Affordable Medicines" program and those procured by the state for hospitals. -T.H.)
Now, electronic prescriptions issued to patients will indicate the lowest state-regulated price, including all pharmacy and distributor markups. This way, when a person visits a pharmacy, they will know what price to expect. If a pharmacy does not stock the lowest-priced pharmaceutical drug, it risks losing its license. This is a licensing requirement, and I don’t see it as an interference in the commercial activities of pharmacies. People will feel the impact of this policy immediately.
We also have an issue with private-label brands: one manufacturer reported that their nasal drops, for example, are sold for UAH 58 in pharmacies, while identical drops produced by competitors at the same plant are sold for UAH 128. One plant, one molecule. So there are factors beyond exchange rate fluctuations, fuel costs, or Russian attacks that contribute to these price differences.
– Does this apply to all pharmaceutical drugs on the market?
–The restrictions do not apply to original molecules and innovative pharmaceutical drugs because we cannot do without them. However, most of the pharmaceutical drugs on the market are generics and produced in Ukraine. Ukrainian manufacturers, with some exceptions, do not produce original pharmaceutical drugs.
– The list of 100 pharmaceutical drugs, which now includes more than 200, contains drugs with no proven efficacy. Why does the government support this?
– This is a list of the most commonly used pharmaceutical drugs. According to the decision of the NSDC, the TOP 100 must be compiled and published. However, it is not fixed and will change based on demand. For example, in winter, when colds are more common, the list will reflect that need, and in summer, it will be different. These pharmaceutical drugs must be sold at a 30% discount, and this was determined not by us but by Ukrainian manufacturers in collaboration with the Ministry of Health.
– So, manufacturers included ten types of ascorbic acid and drugs without proven efficacy, and the government approved this?
– This is only the first step. The market has now signed a Memorandum with the state. And I will tell you this: if I do not have the ability to provide a discount, the state cannot force me to. Last year, the population spent UAH 175 billion on pharmaceutical drugs, excluding state and local procurement. We compare this with other countries—Moldova, Romania, Poland, Bulgaria, not to mention Turkey. If Turkey were in the European Union, prices would be significantly lower.
– But in Western countries, an insurance-based healthcare system operates, which affects the choice and price of pharmaceutical drugs.
– This is yet another manipulation being fed to us. Our National Health Service of Ukraine (NHSU) is also an insurance-based healthcare system. Just like there, insurance covers pharmaceutical drugs, and here, the state covers them where prices are fixed. What the state covers is not included in these UAH 175 billion.
– I am more concerned about imported pharmaceutical drugs…
–If it's a generic, you shouldn’t worry, because if a Croatian company doesn’t supply it, for example, a German company will, or a Ukrainian or Indian company. These restrictions do not apply to original molecules where no alternatives exist.
– So, imported pharmaceutical drugs will not disappear from the market?
– Well, unless someone deliberately sabotages the supply… But legally, the sale of such products will not be regulated in any way. There is, however, one sensitive issue. Some foreign companies do not have a representative office in Ukraine but operate through a distributor-importer. And we have restrictions on the mark-up that distributors can apply. What happens in this case? If we significantly limit the markup—for example, we previously had a 10% markup on certain pharmaceutical drugs for distributors. If the company representing them is also the distributor, it receives 10%, but it also has expenses: an office, employees, customs brokers, yet no logistics infrastructure of its own. So, they have to share this margin with another distributor that handles logistics. This could lead to situations where these companies are forced to shut down their offices. We understand this, which is why we approached the issue of distributor mark-up limitations with extreme caution. Currently, distributor profit margins range from 8% to 10%. Logistics costs account for 2% to 4%, leaving 4% as net earnings. Now, let’s do the math—4% of UAH 174 billion. That’s not a small amount, to say the least. The year before last, individuals spent UAH 130 billion of their own money on pharmaceutical drugs.
We also considered increasing VAT on pharmaceutical drugs from 7% to 10% and adding drug reimbursement so that the state could reimburse more. However, given the war, there are no funds in the budget for this. The vast majority of revenue is directed toward financing the defense sector.
* * *
Reducing the prices of 100 or even 200 of the most popular pharmaceutical drugs is unlikely to have a significant impact on the overall issue of high drug prices. After all, these are mostly low-cost pharmaceutical drugs to begin with. Moreover, this reduction will be quickly "eroded" by inflation. In other words, for the most part, market participants have resolved their own issues while giving the government an opportunity for positive PR. At the same time, the risk of original or innovative pharmaceutical drugs leaving the market remains, and everything depends on the government's timely and effective actions.
However, in the long run, bringing order to the market, eliminating regulations that have led to artificially inflated pharmaceutical drug prices, fostering real competition, and supporting domestic manufacturers will inevitably impact the price of every tablet—making it more reasonable and fair. And this is something we should all benefit from. At the very least, there is hope for it.
Tetiana Halkovska, Censor. NET
