Who sets drug prices in Ukraine: manufacturers, distributors, or pharmacies?
Drug prices are a concern for every Ukrainian. This issue has resurfaced sharply following discussions around the controversial amendments to bill №11493. UNN is starting a series of publications to explore how drug prices are determined in Ukraine and who has the most influence over them.
It is noteworthy that, according to international analysts from Proxima Research International, the manufacturing plant accounts for 71.8% of the cost of a medication, while pharmacies and distributors contribute 22.3% and 5.9%, respectively.
The Role of Manufacturers, Distributors, and Pharmacies
The first step in price formation is the establishment of the wholesale price by the manufacturer.
In its pricing, the manufacturer includes:
- The cost of raw materials and packaging;
- Manufacturing expenses;
- Salaries for employees and medical representatives;
- Fixed costs (depreciation, utilities, advertising);
- Logistics to the manufacturer's warehouse.
In Ukraine, prices for certain medications are regulated by the government, especially when they are purchased with budget funds. Manufacturers have the right to set their own prices, but strict limits exist for certain categories of drugs to ensure their accessibility to the population.
Specifically, for drugs included in the National List of Essential Medicines, if purchased with budget funds, the maximum retail markup is capped at 10%. Meanwhile, on the retail market, the markup varies and ranges from 25-50% depending on the cost of the drug packaging.
However, as noted by sources in the pharmaceutical market speaking to UNN, manufacturers often disregard this rule and apply whatever markup they deem necessary. In some cases, it can exceed 500%.
Distributors purchase medications from manufacturers and add their markup, which is typically fixed at around 6-7%. This price includes costs for storage, transportation, administrative expenses, profit, and so forth.
Pharmacies, in turn, set their own margin when selling to the end consumer. Specifically, pharmacy chains factor in expenses such as rent, employee salaries, taxes, and profit into their markup. The margin for pharmacies usually does not exceed 22%. At the same time, for medications included in the National List, the markup according to legislation cannot exceed 15%.
Public Opinion
Surveys conducted by journalists from UNN show that most Ukrainians believe that the base price of medications is primarily determined by manufacturers, which means they are the source of rising drug costs for consumers. Some survey participants expressed the view that price control for medications in Ukraine is insufficient. Manufacturers effectively have the freedom to set prices, which often results in inflated final costs for consumers.
Thus, as we can see, the greatest influence on price formation comes from the manufacturer, as the establishment of the base price for a drug dictates how much the consumer will ultimately pay.