This article summarizes the system for setting and controlling the prices of drugs for human consumption[1] and points out some observations made by the pharmaceutical sector to such system with regard to the possible reform of Executive Decree 400.
Pricing
The pricing of drugs corresponds to the National Council for Fixing and Reviewing the Prices of Drugs for Human Use and Consumption (hereinafter, the “Council”).
The Council sets the prices in accordance with the Regulation for the Pricing of Drugs for Human Use and Consumption (hereinafter, the “Regulations”). This Regulation foresees three pricing regulations: regulated, direct, and released as explained below.
1. Regulated Pricing Regulation
This regulation establishes a ceiling price for each market[2] segment of strategic[3] and new drugs[4].
For registered[5] drugs considered strategic, the ceiling price shall be the equivalent to the median of the retail prices of the private market of the participating drugs in the corresponding market segment, excluding those prices considered atypical. Drugs with retail prices lower than the ceiling price will not be able to increase their prices.
For new drugs, the Council must decide beforehand whether it is a strategic drug or not. If the drug is strategic, the therapeutic advantage of such shall be analyzed:
- If there is no therapeutic advantage, the ceiling price shall be determined based on a drug-economic analysis between the drug and the existing therapeutic alternatives.
- If the drug has a therapeutic contribution, the marketing price of the same drug in other countries (at least three) shall be considered, and its ceiling price shall be the equivalent in national currency to the average price of the three lowest reference prices adjusted by the purchasing power parity.
In this case, the Council has a maximum term of sixty (60) days from the submission of the request to issue a reasoned resolution determining the market segment to which the drug belongs and the maximum price at which it may be marketed. If this is not done within that period of time, the price proposed by the applicant[6] is deemed fixed until the Council comes to a resolution.
2. Direct Pricing Regulation
The Direct Pricing Regulation is an exception and consists of the Council’s unilateral determination of the prices of drugs for human use and consumption.
The Council applies this regulation in the following cases:
- When the sale prices to the public to which the drug is marketed have exceeded the ceiling for the corresponding market segment established by the Council.
The new price shall be calculated according to the formula below, where P * is the price fixed directly by the Council, A is the ceiling price according to the market segment to which the drug belongs, and B is the effective price at which the drug was marketed.
P * = A2 / B
In this case, the drug will be subjected to Direct Pricing Regulation for a period of three (3) years.
- When the sale prices to the public to which the drug is marketed under the regulated pricing have been increased annually in a higher percentage than the accumulated inflation of the year.
If this is the case, the Council shall set as the new selling price, the price at which the drug was already being marketed minus the last annual increase recorded for that drug. The drug will be subjected to Direct Pricing Regulation for a period of two (2) years.
- When drugs classified as new and strategic are marketed without prior fixation of ceiling prices by the Council.
To calculate the ceiling price, It shall be considered if the current sale price of the drug exceeds or not its price defined by its market segment. In the first case, whenever it is a new drug, the new price shall be obtained based on the formula indicated in letter a); in the second case, the price at which the offender was marketing the drug shall be set as the sale price.
In both cases, the drug being the cause of infringement will be subjected to Direct Pricing Regulation for a period of three (3) years.
- When the prices and information provided to the Council are not true and there is an intention to hide, omit and / or falsify information with the purpose of deceiving the State and / or obtaining any particular benefit.
In this alternative, the price to be set will be the one corresponding to its market segment as per the last price revision carried out by the Council. If the Regulated Pricing had been applied, the price shall be reduced by ten percent (10%) for each year or period in which the drug was sold at a price set based on non-truthful information, or up to a maximum of 70% reduction.
The offender will be subjected to Direct Pricing Regulation for twice as much the time he committed the infraction.
In the event of committing the same offense again in any of the aforementioned cases, the Direct Pricing Regulation will be applied to the importer, national laboratory or distributor for an additional period of five (5) years.
3. Released Pricing Regulation
This rule applies to those drugs that are not classified under the Regulated Pricing or the Direct Regulated Pricing. Their prices will be freely determined; the holder of the health registry must notify the Council the price of the respective drug on a bi-annual basis.
Pricing Control
No drug can be marketed at a retail price above the ceiling price set by the Council. Therefore, the retail price of all drugs must be printed in their secondary packaging permanently.
To ensure compliance with the ceiling prices set by the Council, the National Agency for Health Regulation, Control and Surveillance – ARCSA performs field checks on a regular basis. When a breach is identified, the ARCSA notifies the Technical Secretariat of the Council which will issue a reasoned report to the Council, so that the latter may apply the Direct Pricing Regulation as appropriate.
Additionally, when the Council receives a complaint about the breach of ceiling prices, it will notify its Technical Secretariat to verify its existence. In the event that such breach was verified, the Council will apply the Direct Pricing Regulation.
Observations
The Regulation has been object of commentaries and questions on the part of the pharmaceutical sector because it considers that the regulation does not respond to the reality of the market, to the development of the pharmaceutical industry, and/or to the interests of the consumer.
In 2017, PhRMA[7] concluded that the Ecuadorian government’s price control represents a barrier to access the market. According to PhRMA, the Regulation might have caused uncertainty in the pharmaceutical industry because, among other things, the scope of its application or the criterion according to which medicines will be categorized as strategic under the Regulated Pricing Regime is not clear.
PhRMA also pointed out that in respect to drugs classified within the same therapeutic area, the price system does not adequately take into account differences in quality, efficacy or safety. These factors would affect the quality of medicines in Ecuador, threaten the patient’s safety, and reduce the incentives to introduce innovative medicines in the Ecuadorian market.
The observations made by PhRMA are not alien to the local opinion. Several representatives from the pharmaceutical sector consider that the term “strategic medicine” should be eliminated and another simpler and clearer term should be included; one that stablishes directly when the price of a drug must be regulated or released. In addition, PhRMA proposes to recognize pharmaceutical technological innovation as an element to differentiate the prices of drugs that, although sharing the same active ingredient or fixed dose of active ingredients or pharmaceutical form with other medicines, they include, for example, new devices that facilitate their posology and administration.
In relation to the Regulated Regime, it was pointed out that drugs with sale prices to the public lower than the ceiling price set by the Council cannot increase their sale price. The effect of this provision is the “creation” of two groups of medicines that must compete in the market with different ceiling prices, despite sharing the same active ingredient or combination of active ingredients, the same pharmaceutical form up to the first level of disaggregation and the same concentration.
This provision has caused the industry to maintain the existence of a “double ceiling” and to question the convenience of applying different prices to drugs that correspond to the same market segment, “punishing” those who offered a drug at a price lower than the one fixed by the Council subsequently.
Regarding the application of the Direct Pricing Regulation, specifically when a drug is sold at a price higher than the one set by the Council, it is highlighted that the holder of the health registration of the drug only finds out about the alleged breach when notified with the Resolution that unilaterally fixes the new ceiling price, without having the opportunity to exercise its legitimate defense and present the corresponding discharges before the application of the sanction regime.
In view of the above, the willingness of the Presidency of the Republic and the Council to hold meetings with the pharmaceutical sector in order to analyze the reforms needed to the Regulation is commendatory.
Mario Fernández
Asociatte at CorralRosales
mfernandez@corralrosales.com
[1] Decree 400 (Second Supplement to the Official Registry 299, 29-VII-2014).
[2] According to literal n) of Art. 2 of the Regulation, the market segment refers to medicines that correspond to the same active ingredient or combination of active ingredients, to the same pharmaceutical form up to the first level of disaggregation and to the same concentration.
[3] Strategic medicine is considered to be one that meets the criteria established by the Council through Resolution No. 07-2014. Through Resolution No. STLM 16-660, the Council authorized the publication of the FAITH OF ERRATAS of Resolution No. 07-2014.
[4] According to literal l) of Art. 2 of the Regulation, a medicine is considered new when: (i) a drug whose active ingredient or fixed-dose combination of active ingredients is not commercialized in the Ecuadorian pharmaceutical market; and, (ii) a drug whose active ingredient or fixed-dose combination of active ingredients is commercialized in the Ecuadorian pharmaceutical market and it requests pricing in a concentration or pharmaceutical form different from those already commercialized in the country.
[5] According to literal k of Art. 2 of the Regulation, a registered drug is understood to be those whose active principles or combinations of active principles have already been registered with the Health Authority and / or previously commercialized in the national market, under any pharmaceutical form, pharmaceutical concentration, commercial presentation, denomination or brand.
[6] According to the literal or Art. 2 of the Regulation, an applicant is understood to be a duly authorized natural or legal person who requests the Council to set the price of a medicine for human use or, when that is not possible, notifies the price for sale to the public.
