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. Last Updated: 07/27/2016

State to Limit Markups on Pharmaceuticals

Faced with skyrocketing prices on pharmaceuticals, the Russian government said Thursday it would move to limit profits by distributors.

Health Minister Vladimir Starodubov said at a news conference Thursday that in the next few days the government will pass a resolution forcing local and foreign producers to provide information on the prices of their pharmaceuticals. The government will then set limits on the markups that distributors can charge on resale.

The measures will help bring drug prices down by up to 30 percent, Starodubov said, and the population will feel the difference as early as the spring.

The government also plans to streamline a system which gives certain social groups such as pensioners, veterans and the disabled access to free medicines.

About 17 million Russians are eligible for free medicines and another 13 million for a 50 percent reimbursement. As a result, before the Aug. 17 crisis, about half the cost of pharmaceuticals was borne by the state. Most of the responsibility for administering the system rests with regional governments.

Starodubov said the government wanted to restrict the number of free or subsidized drugs that doctors could prescribe. He said this would cut costs by 20 percent.

The government wants to limit profits made by pharmaceutical traders, who sometimes mark up as high as 70 percent, but pharmaceuticals producers were doubtful that the measures would work.

According to Starodubov, forcing every pharmaceutical company to declare the price of its product will "not restrict the producer in any way, but will create a transparent system so we do not have situations when the final price is six times the initial price after passing through six intermediaries."

David Kennedy, executive director of the Association of International Pharmaceutical Manufacturers, said producers will be "more than happy to register their prices" if they were quoted in dollars.

"Our prices have never been secret, but if they have to be set in rubles, this is going to be a problem" because of an unstable ruble rate, he said.

"Markups aren't necessarily a problem as long as the patient gets access to quality drugs," Kennedy said. "If only cheap drugs get through ... the state may get more money, but it's a fake solution."

"The government needs to be concerned [about the markups] but how they achieve all this is hard to say," Kennedy said.

Other drug industry sources said that putting caps on markups by distributors may save the state some money but it would damage the market and hurt patients and doctors.

"A fixed price on medicine is a return to Gosplan," said a health economics manager with a major U.S. pharmaceutical company. "Prices should be regulated by the market. Competition will bring them down."

He was also skeptical about the government's ability or desire to change the system of reimbursement of drugs.

"The only way one can change the benefits is cut them, which is bound to cause a social upheaval, something the government will hardly venture on the year of election."

The state simply does not have the money to set up bodies that would enforce the restrictions of markups, said Vitaly Fyodorov, an analyst with Skate financial research. And with the ruble now down to one-third of its value, cutting markups will not compensate for the rise in the cost of imports.

It is relatively easy to prevent embezzlement when medicines are sold through pharmacies, but not when they go to hospitals, according to Fyodorov.

"If an intermediary agrees with a hospital director on a 20 percent markup and gives him 10 percent back, how can you stop this?" he said.

"There's a lot of vested interest," said one industry insider.