Managing of drug prices: How to balance the interests of companies and citizens?

In this article, our Managing Partner Nguyen Van Phuc and Lawyer Nguyen Nhat Duong will address the difficulties and shortcomings in the current drug price management. The article was published in The Saigon Times No. 04-2024, dated on January 25, 2024. Below is the English version:

Medicines are a special commodity circulating in the marketplace, and therefore the current management of pharmaceutical prices differs from many other goods. Effective drug price management not only helps citizens to have access to different medicines at affordable prices, but also gives companies in the pharmaceutical sector ("companies") confidence in their investments. This in turn encourages investment in the production and importation of medicines. Overall, efficient drug price management contributes to the development of the pharmaceutical industry in Vietnam. However, the current drug price management still faces many difficulties and shortcomings, resulting in challenges for enterprises, citizens and relevant authorities. This situation poses a challenge for relevant authorities to find a balance between the interests of enterprises and citizens in drug price management.

Challenges and shortcomings

Since its enactment, the Law on Pharmacy 2016 has stipulated various measures for drug price management, in particular the declaration and listing of drug prices. However, the implementation of these regulations has revealed several shortcomings.

Sources: https://thesaigontimes.vn

First, the current pharmaceutical market in Vietnam is highly dependent on the global pharmaceutical market. The value of domestic drug production accounts for only about 47% of demand, and a significant proportion of imported pharmaceutical ingredients also influence the market[1]. Consequently, the prices of drugs produced or imported by pharmaceutical enterprises are influenced by the international market. According to applicable law, all types of drugs must declare and re-declare prices before circulating in the Vietnamese market. This requires businesses to repeatedly declare prices if there are adjustments or price increases. In cases of continuous fluctuations in drug prices, enterprises, to maintain competitive pricing, are compelled to re-declare prices with the relevant authorities. This process not only consumes time but also incurs additional costs for enterprises.

In addition, according to the provisions of Decree 54/2017/ND-CP, for drugs without the same active ingredient, concentration, composition, and formulation available on the Vietnamese market, the declared import prices and wholesale prices must not exceed the average import prices and wholesale prices in ASEAN countries where the drugs are imported and circulated. This regulation requires government authorities to compare the declared drug prices with the average prices in ASEAN countries. However, this is difficult in practice due to differences in procurement mechanisms, payment systems, and health insurance practices, resulting in price disparities between countries. The comparison may not yield meaningful results due to differences in language expression and lack of information on official websites regarding drug price management in ASEAN countries. In addition, when submitting drug price declaration documents, companies self-declare the cost components, including raw materials, labor costs (for domestically produced drugs), or financial expenses, selling expenses, management expenses (for imported drugs). It is difficult or even impossible for government authorities to verify the accuracy of the cost components declared by enterprises. Verification of the accuracy of cost factors depends on the honesty of the companies and is difficult to isolate for specific evaluation at the smallest packaging unit, as these costs are common across business operations and many products. Given these challenges, it is clear that government agencies require a significant amount of time to review drug pricing documentation. This not only disadvantages companies, as mentioned above, but also directly impacts citizens by delaying access to medicines due to lengthy administrative processing.

Second, for certain types of drugs with only one or two manufacturers, proprietary drugs, rare drugs, drugs still under copyright, drugs with unusual concentrations, and other specific cases, current regulations require that price negotiations be conducted for the procurement of these drugs. However, drug price negotiations often require confidentiality of price information for companies. Therefore, the requirement to disclose drug prices in all cases seems increasingly inappropriate in practical situations. In addition, for these types of drugs, the declaration of drug prices may not be of great importance. As analyzed above, the costs reported by companies are often difficult for government agencies to verify for accuracy, and this uncertainty is heightened when examining drugs with only one or two manufacturers, proprietary drugs, rare drugs, drugs still under copyright, drugs with unusual concentrations, and other special cases. 

Third, regarding the requirement to sell drugs at wholesale and retail on the basis of declared and listed prices. At present, this regulation does not seem to contribute effectively to drug price management. It is not uncommon to find many retail outlets selling drugs at prices higher than the declared drug prices or even without listing drug prices at their wholesale and retail outlets. This creates confusion for citizens when the same type of drug is publicly priced in the Ministry of Health's system, but individuals end up paying significantly higher prices, with differences observed between different retail outlets.

Need for adjustments to align

On June 19, 2023, the National Assembly approved the Law on Prices 2023, which will come into force on July 1, 2024. The Law on Prices 2023 introduces notable changes compared to the Law on Prices 2012, in particular regarding the requirement to declare the prices of certain goods and services. In the healthcare sector, the law concerns the declaration of prices for goods and services listed in the price stabilization category, including essential medicines used in healthcare facilities. As a result, the current provision in the Pharmacy Law that requires the declaration of prices for all medicines will no longer be applicable. Instead, the focus will shift to the declaration of prices for essential medicines used in healthcare facilities. However, the Law on Prices 2023 also stipulates the need to declare prices for other essential goods and services to be determined by the government. The establishment of this list will require proposals and coordination between the relevant administrative agencies and the Ministry of Finance. Therefore, the Ministry of Health, within its jurisdiction, is responsible for proposing and coordinating with the Ministry of Finance to formulate a list of essential drugs that require price declaration. In summary, the Ministry of Health must limit price reporting to essential drugs instead of applying it to all drugs as currently regulated.

In addition, under the Law on Prices 2023, the provisions regarding the responsibilities and powers of provincial people's committees in organizing the assignment and delegation of receiving price declarations within the province are now clearer. As a result, the burden of drug price management can be shared with provincial people's committees and other specialized agencies in the future. This provides a basis for competent authorities to significantly strengthen inspection and examination activities for enterprises, wholesale and retail drug outlets. This will ensure that the regulations on drug price declaration and listing are not just formal requirements, but are effectively enforced.

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