ECONOMYNEXT – Sri Lanka’s National Medicines Regulatory Authority (NMRA) has set formulae to control the prices of drugs, which it called maximum retail prices (MRP) and maximum ceiling prices (MCP).
The prices will be reviewed every six months, unless the central bank steeply depreciates the currency.
When plans were made to start price controls in 2015, analysts pointed out that the solution was to bring an effective law to controls the central bank’s discretionary powers and take away its independence to create high inflation and depreciation.
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At the time the central bank was in initial stages of a single policy rate or targeting a mid-corridor rate with excess liquidity at the rupee was falling from 131 to the US dollar. Now the rupee is 300 and the central bank has been holding it there with broadly deflationary policy.
But analysts have warned that if the central bank continue on the previous path of cutting rates with printed money, the rupee will fall and Sri Lanka can default again.
Central bank’s inflation not only increase the cost of drugs, but also reduces the money available to buy drugs, because food and energy prices also rises in tandem.
The so-called Yahalapalana administration, which engaged in peculiar socialist actions started price controls on drugs and the set up the NMRA to promote generic drugs.
The price controls have led to frequent lobbying between importers, manufacturers. As regulations tightened, the NMRA has been embroiled in controversies and scandals.
Download drug price formula gazette from here – Price Control Formula
Pricing Mechanism for the Maximum Retail Price (MRP)
4. The MRP shall be calculated according to the following formula – MRP = CIF+DT+SCTM
MRP denotes the Maximum Retail Price (in local currency) of an individual product (originator, brand or generic);
CIF denotes Cost, Insurance and Freight (in local currency);
SCTM denotes Supply Chain Total Markup (in local currency);
DT denotes Duties and Taxes paid to (in local currency)
It shall be lawful for the Authority to verify the Cost, Insurance and Freight (CIF) value declared by an importer, using external and internal reference pricing approaches.
6. The average United States Dollar exchange (Selling) rate of the past three months, published by the Authority based on the exchange rate of the Central Bank of Sri Lanka shall be considered for the purpose of determining the MRP.
7. The duties and taxes shall be considered if any and may be represented as a percentage of Cost, Insurance and Freight (CIF) in Sri Lankan rupees.
8. The Supply Chain Total Markup (SCTM) in Sri Lankan rupees shall be expressed as a percentage by CIF as follows: –
SCTM= (β% CIF)
β% may be expressed either as a single value (single slab) or as regressive values (multiple slabs).
Pricing Mechanism for the Maximum Ceiling Price (MCP)
11. The MCP shall be determined by –
(a) using an internationally recognized information portal for identifying the market share by value of different brands or generic versions of a particular medicine;
(b) verifying retail prices of the relevant dosage form and strength of a particular medicine from retail pharmacies of different parts of the island and information provided by the State Pharmaceutical Corporation; and
(c) using Internal Reference Prices, External Reference Prices and Supply Chain Total Markup.
