“The profitability of the pharmacy business tends to zero”: drugs are doomed to rise in price

Many Russians complain about the rise in price of drugs in pharmacies. However, prices may rise further, and immediately by 10-20%. And this will affect many popular medicines, both those that are not included in the list of vital and necessary, and those whose prices are regulated by the state. This was stated by several network pharmacies and pharmaceutical market experts at once. This will inevitably happen if the State Duma approves the draft law on limiting marketing bonuses, which today represent a significant part of the income of pharmacies.

On May 2, 2023, a draft law was submitted to the State Duma of the Russian Federation to amend the laws “On the Fundamentals of State Regulation of Trading Activities in the Russian Federation” and “On the Circulation of Medicines”. The document establishes restrictions for the retail and wholesale link on the amount of remuneration for the purchase of a certain number of medicines, the provision of promotional services, logistics services, services for the preparation, processing, packaging of medicines. In particular, it is proposed to limit the amount of remuneration to pharmacies for the provision of drug promotion services to 5%.

The authors of the initiative seem to want “the best” – in their opinion, pharmacies receive too much from its manufacturers for promoting the drug, and if such costs are reduced, this will somehow protect the poor. According to the logic of the developers, the prices for medicines in the country will decrease, because it is the high size of the “marketing fee” that is to blame for the fact that they are high today.

But in fact, as representatives of several pharmacy chains and pharmaceutical experts said at once, this will lead to completely opposite results. Due to the reduction in profits, it will be necessary to raise prices for the assortment – primarily for drugs that are not on the list of vital and necessary ones. As an option: it will be necessary to close pharmacies, which will become unprofitable to keep, primarily in hard-to-reach regions of the country.

While the document is in the State Duma, a collection of proposals and comments on the document has been announced until June 24, the consideration of which is scheduled for the autumn session. In connection with the emergence of such an initiative, the Alliance of Pharmaceutical Associations addressed a letter to the State Duma, in which it lists a number of arguments why such measures will only harm patients.

There are a lot of comments from industry representatives. It is not clear, for example, why amendments on drug trade are going to be introduced into the Law “On the Fundamentals of Regulation of Trade Activities in the Russian Federation”. After all, medicines are still not a commodity for free sale, their sale is allowed only in pharmacies and medical organizations with an appropriate license and by specialists with specialized education. “Drugs, including non-prescription drugs, do not belong to daily demand goods, have a limited shelf life, their use is strictly individual, and the amount depends on the course of treatment. The sale of medicines is possible only at licensed stationary facilities; remote sale is due to a large number of mandatory requirements. Medicines are dispensed by persons with special education,” the letter says.

At the same time, the pharmacy segment in the country is represented not only by large pharmacy chains of the federal level, in which remuneration reaches 30%. In hard-to-reach, remote and rural areas, the drug supply of the population lies exclusively with single pharmacies or pharmacies with a small number of retail outlets. The entry into force of the norms of the bill will deprive the citizens of such territories of the opportunity to provide medicines, since the 5% limit on remuneration will not allow small pharmacies to cover the costs of even delivering medicines to hard-to-reach territories, experts say.

They also say that interference in the activities of an economic entity by the state should be caused by extraordinary reasons, and regulation should not improve the position of some at the expense of the deterioration of the position of others. The law establishes that pharmacy organizations have a strictly limited list of goods sold, of which more than 80% are medicines. Of these, 3/4 are medicines from the Vital and Essential Drugs List, the prices for which are already regulated by the state. At the same time, the presence of a pharmaceutical license implies large mandatory costs for personnel training, purchase and repair of equipment, maintenance of a minimum assortment, and provision of special storage conditions for certain groups of goods. “On a detailed examination of the economic component of small regional pharmacies, it becomes obvious that pharmacy organizations, unlike food retailers, have significantly less economic freedom and business opportunities, and financial and social obligations and costs in the absence of government support are much greater,” they write. experts conclude that the adoption of this bill will lead, at best, to an increase in drug prices, and at worst, to the disappearance of the pharmacy segment in regions where there are no federal pharmacy chains and convenient and cheap supply chains.

As the head of the Alliance of Pharmaceutical Associations, Victoria Presnyakova, tells MK, pharmacies do not threaten to raise prices, but warn that the new initiative is populist in nature: “This can really lead not to cheaper drugs, as they say, but to a rise in price. Our recent study showed that in recent years, pharmacy spending on some items has increased significantly. The profitability of the pharmacy business began to tend to zero. In this case, marketing contracts that are concluded between pharmaceutical manufacturers and pharmacy chains help to keep the price for the consumer, not to increase it. Marketing contracts are not bonuses. They include training for pharmacists, display, possible promotions in pharmacies. In many countries, these pharmaceutical services provided by the pharmacy are paid for by the state. Manufacturers have taken it upon themselves.”

According to the expert, the pharmacy business in Russia is one of the most overregulated: “We work for the consumer and the patient. When they interfere in the process without understanding all the ins and outs, this is not entirely correct. We have enough problems that need to be addressed: industrial pharmacies, the lack of a single retail control center, the availability of medicines in remote regions. It is impossible now to deprive pharmacies of marketing contracts, otherwise it will affect patients. The most important thing is that our lawmakers and deputies listen to the industry.”

And yet, Victoria Presnyakova does not advise buying medicines at current prices. “We will work with the State Duma. We are not preparing for a rise in prices, we are just telling how it can be, ”she reassures.

Published in the newspaper “Moskovsky Komsomolets” No. 29057 dated June 27, 2023

Newspaper headline:
Medicines are expensive