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Review of Legal Regulation of Pharma Market of 2016. Outcomes in 2017

03/ 04/ 2017

Alexander Bondar senior associate, Legal Alliance Company

Zoia Zamikhovska associate, Legal Alliance Company

In the beginning of the 2017 our company ran a survey among the clients, mostly international pharmaceutical companies and their representative offices in Ukraine, to define the main challenges of the pharmaceutical market in Ukraine of 2016. As a result, current economic situation, low level of the consumers paying capacity, currency risks, corruption and instability of the law were specified as the biggest threats at the pharmaceutical market. Basically, the last one will be the object of this article.

Probably the shakiest legal field of the recent times has been pharmaceutical regulatory. In the end of 2016 key players of the pharmaceutical market, professional organizations and state authorities were challenged by the new piece of adopted legislation regarding the new mechanism of the state regulation of prices and implementation of the reimbursement of medicines.

Resolution of the Cabinet of Ministers of Ukraine “On state regulation of prices on medicines” dated November 09, 2016, № 862 stipulated implementation of the new state price regulation on the drugs included to the three nosologies, namely cardiovascular disease, type II diabetes, and asthma, from the List of the International Nonproprietary Names of the medicines (hereinafter referred to as “List of INN”) that was also newly adopted by the resolution of the Cabinet of Ministers of Ukraine “On implementation of reimbursement” dated November 09, 2016, № 863. According to the bylaws at stake such medicines should be registered and included into the National List of Essential Medicines, approved by the Resolution of the Cabinet of Ministers of Ukraine dated March 25, 2009, № 333.

What is also crucial is that medicines that are purchased by the centralized international organization do not fall under the scope of these regulations.

Resolution of the Cabinet of Ministers of Ukraine № 862, in particular, introduces state regulation of marginal prices for medicines by comparing the prices in reference countries (Poland, Latvia, Slovakia, Hungary, the Czech Republic). Such marginal prices for medicines, within which the wholesale prices shall be determined, are set by the Ministry of Healthcare of Ukraine independently. Thus, while disposing medicines of certain category, market players should be guided by the marginal prices set by the Ministry of Healthcare of Ukraine.

Moreover, according to the mentioned bylaws the medicinal products from the List of INN that are purchased for the state or local budget funds are a subject for a maximum supply and sales markup of 5% and maximum trade markup of 15% including taxes and charges.

Aimed at the fulfillment of the abovementioned legislation the Ministry of Healthcare of Ukraine adopted the order dated December 29, 2016, № 1423 that approves the Order of calculation of maximum wholesale selling prices of medicines on the basis of reference prices and the order dated January 23, 2017, № 53 that approves the Register of the maximum wholesale selling prices on medicines included to the List of INN.

At the same time we are still waiting for the order of calculation of the maximum supply and sales markup and maximum trade markup on the drugs that fall under the scope of the new regulation without which the mechanism cannot start its performing.

Under the pressure from professional players of the market by the resolution of the Cabinet of Ministers of Ukraine dated 01.02.2017, № 38 that came into force on February 4, 2017, the entering of the new state regulation of prices was rescheduled for the second time. Under the changes at stake it is prescribed that state regulation of prices will enter into force since April 01, 2017 instead of February 01.02.2017. In addition, till that time pharmacies are allowed to sell the stocks of the medicines that fall under the scope of such state regulation.

As a result, since April 01, 2017 we will have three different scenarios for state regulation of prices depending on the type of medicines. In particular, drugs included to the National list of the essential medicines will be regulated in the private sector and they will be subject for the markups according to the resolution of the Cabinet of Ministers of Ukraine dated October 17, 2008, № 955. Namely, the maximum sale and marketing markup will constitute 10% and maximum trade markup – 25%. At the same time for the medicines that are purchased for the budget funds in accord with the resolution of the Cabinet of Ministers of Ukraine dated September 05, 1996, № 1071, both markups shall not exceed 10%. However, markups for the medicinal products that are included to the 21 INN from the List of INN for the purposes of state procurements and reimbursement will constitute 5% for maximum sale and marketing markup and 15% for maximum retail markup. Nevertheless, there is a risk that control authorities will check compliance with the regulation of the Resolution of the Cabinet of Ministers of Ukraine № 862 regarding 21 INN from the List of INN regardless to the free market or solely state procurements sector. However, such performance may be a ground for successful appeal in a court.

Regarding the reimbursement program that shall also come into force since April 01, 2017 the draft order of the Ministry of Healthcare of Ukraine “On adoption of the Order of determination of the amount of compensation for the cost of medicines” has been recently published for public discussion. Pursuant to this bylaw it is suggested to reimburse brands, wholesale and selling price of a unit of a medicinal form of one defined dosage of which is set between marginal wholesale and selling price of a unit of a medicinal form of one defined dosage (estimated by the Ministry of Healthcare of Ukraine on the INN) and minimal price of a unit of a medicinal form of one defined dosage (sale price of a medicine in Ukraine). Consequently, if this document is adopted in the text published for the public discussion, reimbursement will apply solely for the drugs that fall within the mentioned frame. Thus, in 2017 in case the same regulation applies for the free market, all the medicines which price exceeds the mentioned limits may leave the market and patients may be deprived from their purchase in Ukraine.

Another crucial aspect within the review of the legal regulation of the pharmaceutical market is performance of the state procurements of the medicines and medical devices through the international specialized organizations. The experience in realization of the mentioned model of the state procurements in 2016 illuminated that main goals were merely achieved and the system is successfully working. At the same time the mechanism of the fulfillment of this model has been still elaborating.

It is to be emphasized that despite the various obstacles international procurements of the medicines and medical devices has proved their efficiency and generated significant saving of the budget funds. The majority of the medicines and medical devices of all the programmes were purchased for significantly lower prices comparing with the procurements through tenders conducted by the Ministry of Healthcare of Ukraine. According to the data available at the Patients of Ukraine Foundation website, after the procurement of necessary medicinal products and medical devices under the budget program for the previous year, about USD 8 million remained on accounts of international organizations. It means that patients will receive additional necessary medicines and medical devices.

Since the international procurements were launched there has been no opportunity to conduct supplementary procurements of goods for the saved funds. In order to fill the mentioned gap the Cabinet of Ministers of Ukraine adopted resolution dated August 23, 2016, № 557 stipulating that after the purchase of the defined amount of the medicines and devices that is specified in the list of medicines and medical devices procured under procurement agreements (contracts) with specialized organizations in areas of budget funds use in 2016 the Ministry of Healthcare of Ukraine may increase the quantity of units within the 100% amount of needs considering the amount of the saved funds at the bank accounts of these international organizations.

On October 2016 the Ministry of Healthcare of Ukraine selected international organizations for cooperation in the sphere of the procurements of the medicines and medical devices for the budget of 2016 that is to be fulfilled within 2017. As a result, the Ministry of Healthcare of Ukraine signed the respectful contracts with 3 international organizations, in particular UNDP, Crown agents and UNICEF.

Despite the overwhelmingly positive results of international procurement in 2015, the practice of procurement in the areas of budget funds use in 2015 demonstrated a number of issues, some of which were accompanied by loud scandals in the mass media.

In particular, it is necessary to establish mechanisms that would not allow for buying substandard products, create entirely new approaches to the formation of the nomenclature and establish mechanisms that would minimize the term for delivery of procured medicinal products and medical devices to health care institutions.

Today, a completely new approach to the formation of the nomenclature of the procured products cannot be formed within the procurement model implementation involving specialized international organizations. As a result, for example, the list of medicinal products procured under the budget program in 2015 included some medicines of dubious quality.

Long term of delivery is a negative point here. In this context it should be noted that Resolution of the Cabinet of Ministers of Ukraine “Some Issues of Public Procurement of Medicinal Products and Medical Devices Involving Specialized Organizations Engaged in Procurement” dated July 22, 2015, № 622 provides that the medicinal products and medical devices procured by specialized international organization are supported throughout the territory of Ukraine by state enterprises of the Ministry of Healthсare of Ukraine under the relevant agreements. Given that private logistics organizations may have better logistical support and, therefore, the level and efficiency of services for the supply of such goods can be much higher, in our view, it is appropriate to consider the possibility of eliminating the monopoly of state enterprises.

It should be noted that the involvement of the specialized international organizations in procurement is not some kind of “know-how” by the Ministry of Healthcare of Ukraine. This practice is employed in countries that have not yet formed a transparent and effective national model of procurement. Studies conducted by international NGOs indicate a low level of maturity of national programs and decentralized systems of medicine procurement in Ukraine both at the administrative level and at the level of service, immature anti-corruption measures, and low quality of the procured products. Nevertheless, it shall be highlighted that implemented mechanism of the procurements of the medicines and medical devices with the cooperation with the international specialized organizations shall be considered as the temporary mechanism solely for the fixing of the urgent problems. However, simultaneously with its implementation, Ukraine needs to develop and implement its local procurement mechanism that will be effective and will achieve its goals.

Attachments

Review of Legal Regulation of Pharma Market of 2016. Outcomes in 2017.pdf

Resource: The Ukrainian Journal of Business Law, #03 March 2017

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