The pricing of pharmaceutical products is a sensitive issue in which governments across the world adopt varying approaches.
The US, which operates a free-market system in respect of pricing, where the price of pharmaceutical products is determined by the pharmaceutical companies, has come under increased scrutiny, particularly in recent years where the price of pharmaceutical products has risen rapidly. It is a heavily debated topic in the US in respect of which both of the candidates for the upcoming presidential election in the US have raised concerns.
In the UAE, pharmaceutical pricing legislation is in place and provides fixed margins for the distributors and pharmacies in respect of registered pharmaceutical products sold to consumers.
In accordance with Article 65 of UAE Federal Law No. 4 of 1983, all pharmaceutical products imported into the UAE, need to be registered with the Ministry of Health. At the time of being registered, a committee at the Ministry of Health will undertake a review of the pharmaceutical product and then determine the “CIF” price for the particular pharmaceutical product. Pursuant to Incoterms, CIF (cost, insurance and freight) generally means all of the costs incurred to get the relevant product from the place of origin to the named port of destination.
In accordance with Ministerial Resolution (140) of 2013 (the Pricing Resolution), once the CIF price for a pharmaceutical product has been set by the Ministry of Health:
- the agent or distributor of the pharmaceutical products (that supplies such products to private hospitals and pharmacies); and
- the pharmacy or private hospitals (that then sell the pharmaceutical products to the end consumer),
shall each be paid a fixed margin of the CIF price as set out in the table below. The margin changes in accordance with the 3 CIF pricing categories:
Accordingly, pursuant to the Pricing Resolution, the price of the pharmaceutical product to the end consumer is the CIF price, plus the agent’s margin, plus the pharmacy’s margin.
Previous UAE legislation relating to the pricing of pharmaceutical products made a distinction between pharmaceutical products used for chronic diseases and non- chronic diseases, however, the Pricing Resolution removed this distinction and applied a single set of margins as detailed above.
The Pricing Resolution applies to both prescription pharmaceutical products and pharmaceutical products which are available over the counter. Certain generic products such as paracetamol and aspirin are products that are not covered under the Pricing Resolution.
The Pricing Resolution applies to the supply of pharmaceutical products to the private sector, including pharmacies and private hospitals. Where drug companies are supplying pharmaceutical products directly to government authorities such as the Dubai Health Authority or to government owned hospitals or to the Abu Dhabi Health Services Company (SEHA), the pricing of pharmaceutical products is not subject to the Pricing Resolution and the price of pharmaceuticals in this instance is determined as set out in the commercial arrangements entered into between the relevant pharmaceutical company and government body or hospital.
It should be noted that the increase in the supply of generic pharmaceutical products in the market place (as a result of the expiry of patents applying to private label products) and the government’s shift to generic medicines (where possible) is also having an impact on the pricing of pharmaceutical products.
In 2011, the UAE government issued a circular which prohibited the discounting of pharmaceutical products or the provision of additional/bonus pharmaceutical products, which could also be interpreted to cover sample products. Whilst this is another example of the government attempting to exerting control over the supply and pricing of pharmaceuticals, there are questions whether, in practice, this circular is strictly adhered to or enforced in the marketplace.