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Same-Day Analysis

Pricing of 9,000 drugs to be regulated under new Venezuelan law

Published: 26 November 2012

The price of 9,000 drugs is to be regulated by the government in Venezuela through the Fair Prices Law, aim at lowering prices in non-state-owned pharmacies.



IHS Global Insight perspective

 

Significance

The Venezuelan government announced on 15 November that the pricing of 9,000 prescription and over-the-counter drugs will be regulated in the country under the Fair Prices Law. The move aims at establishing more affordable prices for the population by lowering drug prices in independent pharmacies across the country.

Implications

The move is expected to be unsustainable for independent pharmacies, large private pharmacy chains, and international pharma companies, which may leave Venezuela because of a lack of profitability.

Outlook

With the domestic pharmaceutical industry only servicing 50% of the overall healthcare demand, stakeholders in the country are concerned that the situation may lead to full nationalisation of the domestic pharma sector, which may lead them to quit the country, leaving the Venezuelan pharma sector government controlled.

The Venezuelan government announced on 15 November that the pricing of 9,000 prescription and over-the-counter (OTC) drugs will be regulated under the Fair Prices Law. The move aims to establish more affordable prices for the population by lowering drug prices in independent pharmacies. According to El Nacional, the move is headed by the national pricing and costs regulatory body Sundecop (Superintendencia Nacional de Costos e Precios). According to Sundecop's general manager, Karin Granadillo, the decision to regulate the drugs prices is a consequence of analysis carried out by Sundecop in the pharmaceutical sector, as the prices of most products were found to follow abnormal patterns, and were not affordable for patients. According to Granadillo, cited by the source, Sundecop is planning to carry out extensive analysis of pricing patterns in the sector, including of production, distribution, and marketing of products, with the aim of avoiding shortages of supplies.

Although there is not a specific timeframe as of when the new prices will come into place, Sundecop is reported to have already started the detailed analysis of some of the drug prices in question. According to the source, in order to be able to carry out the price analysis, all pharmacy chains and pharma companies must first register their prices on the automated system for the administration of prices, SISAP. According to Granadillo, independent pharmacies in the country manage between 3,000 and 5,000 drugs, and larger chains sell 1,200 drugs. According to Granadillo, the price revision process started on 15 November and will be based on the information provided via SISAP. Any companies entering incorrect, partial, or false data into the system may be sanctioned by the government as per the Article 44 of the Fair Prices Law. The new price regulation will apply to all parts of the pharmaceutical sector, from pharmacy chains to pharmaceutical companies, but no further details on the brand names or therapy area of the 9,000 drugs in question have been disclosed so far.

Outlook and implications

The government's action on pharmaceutical prices in the country was long expected since the Fair Prices Law first came into force in November 2011 (see Venezuela: 11 November 2011: Venezuela's New Price Regulation Law to Be Officially Implemented from 22 November). The analysis by Sundecop is aimed at producing lower drug prices, similar to what has happened to other products such as food stuffs. Although a full list of the 9,000 drugs in question has not yet been disclosed, IHS Global Insight expects it may appear by the end of the year or beginning of 2013, as governmental sources have hinted at the process taking "a few months". However, this move is expected to be unsustainable for independent pharmacies and larger pharmacy chains as well as pharma companies operating in the country, which may consider ending operations in Venezuela due to a lack of profitability.

Since it came into force in November 2011, the law has provoked much controversy, and is predicted to have negative effects for the healthcare and pharmaceutical sectors. In terms of pricing and reimbursement, healthcare and pharmaceutical actors across the country have voiced their concerns at the prospect of medical and pharmaceutical caps. Price caps in the private hospital sector have raised concerns among health workers worried that the 30–40% discount on private services envisaged by the government will make it unsustainable for private businesses to keep up with soaring infrastructure and material costs. Healthcare and pharmaceutical private health workers across the country are convinced that the new price law will represent a step towards a total nationalisation of the country's pharma sector, creating a hostile environment for business and making private businesses' cost structures unviable.

In terms of pharmaceuticals, the Fair Prices Law is forecast to affect foreign companies operating in the country and domestic medicines production, which currently provides for only 50% of internal demand. Domestic production will be affected as the price law will most probably act to further lower the price of domestic products, which in many cases have not changed since 2003, and international pharmaceutical firms will most likely be asked to lower the price of their branded products to meet new national standards. President Hugo Chávez's government has repeatedly threatened to take over international pharmaceutical plants, such as that of Pfizer (US), for domestic use. It is highly likely that several international pharmaceutical companies based in Venezuela may plan to move elsewhere in the region in the near future, with Costa Rica being a top destination.

Although the long-term sustainability of this new measure is yet to be assessed, the regulation of prices of other products in the country (such as food and domestic products) as a result of the new law has hit hard on the respective industries, and created product shortages on the markets as most brands have not conformed to the new rules.

The government is apparently looking to lower drug prices in private pharmacies to as low as those of the national social pharmacy network, Farmapatria. Although in the short term the population will enjoy lower prices, improve citizens' purchasing power, the implications of these changes can create pharmaceutical shortages and rising inflation that would be detrimental in the medium-to-long term.

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