CIS: Drug price formation and regulation in CIS countries

Price is the monetary expression of a product value. Consumer price, beside development and production costs of a product (and often marketing and promotion costs as well), also includes markups imposed by the distribution network and sales outlets. In market economy, price is one of the most important characteristics of a product and a key element of the market situation influencing both demand and supply. Pharmaceuticals
are a special non-food class of goods possessing the following characteristics:

·         Social significance;

·         Price inelasticity of demand for multiple drug groups;

·         Influence asserted by specialists (doctors and pharmacists) on drug choice / decisions to buy drugs.

The process of end (consumer) price formation is influenced by a large number of manufacturing, market, regulatory and financial factors (Table 1). Beside the items described below, drug price may include marketing and promotion costs. 

Table 1. Groups of factors affecting pricing in a pharma market

Before 1990s, pharmaceutical production and drug coverage of the population was made within an organizational and legal framework characterized by strict centralization of pharmaceutical production at state-owned facilities. Drug purchases outside the country were also centralized. The same principles were applied to devising the proportions of local and imported drugs in the drugstore chain. The national pharma industry supplied up to 75% of the total demand of the USSR healthcare system. With the disintegration of the USSR, all CIS economies underwent a shock-therapy reform. Since the pharma sector actively interacts with other sectors of the economy, reforms initiated the formation of national pharma markets with the concurrent weakening of the state regulation role.

That said, the issue of drug coverage was resolved in each country in its own way. Over the past 20 years, drug pricing systems in each CIS country evolved in their own specific manner. Today, issues of social responsibility to their residents and national healthcare are of equal priority for all CIS states. Processes of change in search of an optimal pricing system continue even at this time, subject to country-specific economic and political conditions. The current state of retail pharma markets in each independent state is shown in Fig. 1.

Figure 1. Main characteristics of CIS and Georgia out-of-pocket pharma markets*, 2011

*Calculations are made in consumer prices, USD. For Uzbekistan, calculations are made in distributor prices. Ranged by pharma market size as of end of 2011.

Thus, pricing processes in the pharma market reflect the state of the system and encourage further development of the industry. Summing up the above, it may be said that drug consumption is affected by social responsibility of the state and the economic interests of the manufacturer and distribution chain. The system of drug pricing reflects the balance of those factors.