The Process of Formation of the Pharmaceutical Sector in Action

24/ 07/ 2017

Dmytro Aleshko, Legal Alliance Company, Partner

Natalia Spivak, associate at Legal Alliance Company

Regulation of pharmaceutical activities is a relatively young area of law, whose development over the last decade has gained significant momentum. Dynamism of development distinguishes “pharmaceutical” legislation from among many others. In recent years, this is particularly due to the active process of harmonization of Ukrainian legislation with that of the European Union, subject to Ukraine Association Agreement with the EU.

Recently, significant changes have occurred in the state regulation of prices for medicinal products in many aspects of public procurement of pharmaceutical products, licensing of economic activities related to medicinal products circulation, control over medicinal products quality, monitoring of side effects of medicinal products and so on. Some of these changes, of course, can be considered extremely important for health care industry. In particular, we are talking about the implementation of state programs of reimbursement of some categories of medicinal products “Affordable Medicinal Products”, reforming the system of selection of essential medicinal products for satisfying basic needs in the treatment of people in health care facilities and for public procurement through international specialized organizations . Moreover, soon a long-term strategy to provide the population of Ukraine with pharmaceutical products is to be approved.

Availability and affordability of medicinal products

Availability and affordability of medicinal products every year is determined as one of the points of the Plan of Priority Actions of the Government. Gradually, our country is adopting European approaches in regulation of the issue. Thus, the result of more than a year of work of the working group established at the Ministry of Health of Ukraine is the National Strategy to Implement the State Policy on Provision the Population with Medicinal Products in 2017 – 2025. Both domestic market players and international experts, such as the WHO Regional Office for Europe and the European Bank for Reconstruction and Development took an active part in the development of this document, which is strategically important for the pharmaceutical industry.

The main tasks of the National Strategy were to ensure availability and affordability of high-quality, effective and safe medicinal products; promote rational prescription, realization and use of medicinal products; improve professional development of human resources involved in the medicinal products circulation; optimize procurement and reimbursement of medicinal products using funds of the state and local budgets and their distribution among health care institutions; enhance price competition between producers and distributors of medicinal products and pharmacies to improve availability of medicines; develop and implement an effective system of state regulation of prices for medicinal products procured wholly or partly at the expense of the state or local budgets; increase the investment attractiveness of the pharmaceutical market of Ukraine. These are the main tasks that have to predetermine the vector of the industry and should be resolved within the next eight years.

This process has already been initiated in part, particularly in the areas of selection of essential medicinal products, the introduction of reimbursement, optimization of procurement of medicinal products at all levels of care and their distribution taking into account the actual needs of the population.

Introduction of the National List of Essential Medicines

In mid-2015, international technical assistance project “System of Improved Access to Medicinal Products and Pharmaceutical Services” (SIAPS), funded by the US Agency for International Development (USAID), in cooperation with the Ministry of Health of Ukraine initiated reforms of the model of the National List of Essential Medicines in Ukraine (hereinafter – the National List).

An example of reforms was the international practice of the World Health Organization to establish the Basic List of Essential Medicines, which is the basis used by many of the developing countries. Reforms, in particular, included the establishment of an expert body which would transparently select essential medicines, which include high-quality, effective and safe medicinal products with high rates of economic feasibility and construction of model of selection of essential medicines.

The goal of formation of the updated National List is to meet urgent medicinal care needs in public health care institutions for treatment financed by the state and local budgets.

In summer of 2016 an advisory body, the Expert Committee on the Selection and Use of Essential Medicines, was established at the Ministry of Health of Ukraine, and formed the first version of the National List that on March 16th, 2017 was approved by resolution of the Cabinet of Ministers No. 180. Currently, the Expert Committee has started working to supplement the National List with medicinal products that are included in industry standards (unified clinical protocols of medical care, the State Formulary of Medicinal Products), including taking into account results of the analysis of impact on the budget.

Then, tentatively by June 1st, 2017 applications of pharmaceutical market players on the inclusion of their medicines to this list will be considered. Formed based on the consideration of such applications, the list will be the basis for public procurement in fiscal year 2018. Later the list of essential drugs will be updated annually.

Also, it is worth noting that the prices for medicines included in the National List are subject to state price regulation when sold both at tenders and on the free market. Therefore, even for pharmaceutical companies that do not participate in public procurement, updating the National List is relevant.

International procurement of pharmaceutical products

In 2015, it was decided to transfer part of procurement authorities held by the Ministry of Health of Ukraine to the UN agencies (UNDP, UNICEF) and the British procurement agency Crown Agents. This practice is applied in countries that have not yet formed a clear and effective national model of procurement. In our country such a step was the result of long implementation of non-transparent procurement procedures, high commodity prices, lobbying of various players of the pharmaceutical market, absence of a separate special legislative regulation of the procurement of such socially important goods as pharmaceutical products. In addition, the public procurement system that existed did not prevent the ministry from full implementation of its functions of the systematic and comprehensive health care reform, the need of which is long overdue in Ukraine.

The procedure for implementing the mechanism of international procurement of medicinal products and medical devices involving specialized international organizations engaged in procurement was not easy. Lawyers of Legal Alliance Company were invited to take part in regulatory acts preparation from the very beginning of this process. Since there was no previous experience of such practice in the country, we had to build a model that would allow to procure quality medicinal products for Ukrainian patients at reasonable prices from the scratch.

Carrying centralized procurement in accordance with the internal rules and procedures of international specialized organizations greatly reduced the time required to conduct tenders, select suppliers, conclude respective agreements and reduce corruption risks. Changes in the Tax Code of Ukraine and in some bylaws allowed exempting such operations from value added tax.

Data from public sources indicate that the procurement of medicinal products and medical devices through international specialized organizations as a temporary mechanism demonstrated significant budget savings. Of course, despite all the positive aspects, unfortunately, it was impossible to avoid some mistakes and shortcomings. Unfortunately, the Ministry of Health of Ukraine has not yet signed agreements with international organizations for procurement for 2017 fiscal year.

The implemented mechanism of procurement of medicinal products and medical devices with the assistance of specialized international organizations is a temporary solution to the pressing problems. In parallel with its implementation, Ukraine must develop and enforce a local procurement mechanism, which will be effective and will achieve its goals.

The medicinal products state reimbursement program

For the last six months the press has been full of headlines about the government’s plans to reduce prices for medicinal products. The concept has been developed for a long time, during which approaches changed several times. As a result of hard work and dialogue of state agencies and representatives of the pharmaceutical market since the beginning of April 2017, a government program “ Affordable Medicinal Products” was launched to reimburse the cost of drugs used for the outpatient treatment of people suffering from cardiovascular disease, diabetes of type II and bronchial asthma. We are talking about resolution of the Cabinet of Ministers of Ukraine “On State Regulation of Prices for Medicinal Products” No. 862 and resolution “On Introducing Reimbursement of Medicinal Products” No. 863 as of November 9th , 2016.

Due to this government program, if patients have a prescription, they can purchase medicine at a discounted price (paying 1 to 75% of retail price) or even get some medicine for free. Medicines are reimbursed to pharmacies against targeted subsidies from the state budget to local budgets.

According to information available in open sources, the results of the program showed that in the first four weeks of the program, consumption of drugs, the cost of which is subject to reimbursement, has increased more than two times, while the consumption of drugs not subject to reimbursement has not recorded significant growth. In addition, average cost of medicines subject to reimbursement has decreased. This is possible due to introduction of external and internal reference pricing mechanism for drugs.

Pharmacies and manufacturers of medicinal products take part in the program “Affordable Medicines” voluntarily and their participation expand. According to the Ministry of Health of Ukraine, today the program involves about 3,000 outlets. Initially pharmacies face a number of problems associated with the need to revise some work points, in some regions it is problematic to ensure constant availability of drugs subject to reimbursement.

At present, funding for the state program is about UAH 500 million. The Government has already announced its increase by another UAH 250 million. In addition, in the near future extension of the list of drugs subject to reimbursement, and of the list of diseases covered by the program is expected.

All the outlined processes continue to evolve in condition of gradual integration. Despite the few problems that occur while implementing any good initiative, today we can say that the health care system in Ukraine is already in the process of reforming, that can in the foreseeable future lead us to a civilized pharmaceutical market. We are proud about not only being observers of pharmaceutical sector formation in action, but also about being immediate participants of this outstanding process. In addition, we hope that this year the Parliament will resume work on the harmonization of the Law of Ukraine “On Medicinal Products” with European legislation, especially Directive 2001 / 83 / EC.

Legal Alliance Company, founded in 1995, is today one of the leading Ukrainian law firms specializing in legal support to pharmaceutical companies doing business in Ukraine and CIS countries. The Firm advises leading companies working in the industries of pharmaceuticals, medical devices, consumer goods, healthcare, veterinary, cosmetics, parapharmaceuticals, chemistry, biotechnology, agriculture, food & beverages.

For additional information please contact Nataliia Duginova, duginova@l-a.com.ua, +380 44 425 40 50.

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