Drug prices- to raise or not to raise?

There has been much uproar recently over the hike in pharmaceutical drug prices with the government cracking down on companies selling drugs at exorbitant prices. For the PTI, this seems to be the best option to quell the frustrations of the masses given that its election manifesto included providing affordable healthcare to the less fortunate segments of society.

Recently, the Drug Regulatory Authority of Pakistan (DRAP) has reportedly suspended production of 143 medicines of 31 manufacturers due to overpricing. It has also seized stocks of hundreds of medicines of countless pharmaceutical companies and production has been halted at their plants.

But the Pakistan Pharmaceutical Manufacturers Association (PPMA) has retaliated back with a threat of stopping production of almost 500 essential medicines in case the government does not raise drug prices again.

To give some background context, DRAP increased the maximum retail price of drugs under the hardship category by 9 percent which are decided on a case-to-case basis. The prices of all other drugs were raised by 15 percent. This price increase came after almost twenty years and was mostly done in light of the massive rupee depreciation which caused raw material prices to skyrocket.

But the PPMA in particular and pharmaceutical companies in general argue that this price increase comes as too little, too late. They certainly have a valid point as inability to pass on the rise in production costs will likely result in stopping production of these medicines by companies if it reduces their bottom-line. It is not just raw material prices which have witnessed an inflationary trend but also utility prices as well as packaging and distribution costs.

All of these factors have rendered the industry unable to be competitive in international markets while even reliable supply of good quality medicines domestically has also become a challenge. So even if the government is aiming to please the masses, it is not the best of ideas to start a crackdown against drug companies and stop their production. This will only serve to exacerbate the shortage of medicines and further distort prices. As with any product, pharmaceutical prices would have been better left to market demand and supply dynamics rather than price fixing by the government. If no vertical integration has been done by local pharmaceutical firms, it is primarily due to the lack of financial incentives for such large investments. It would be wise to address the genuine concerns of the pharma sector rather than a taking a populist stance similar to governments of the past.