Medicines pricing in Pakistan is controlled by government. This is in contrast to the more market-oriented approach to pricing in, for example, Malaysia, Thailand, the Philippines and Indonesia (Babar et al., 2007). The Price Review Committee, a subcommittee of the Drug Registration Board formed under the Drug Act 1976, until 1993 set the maximum wholesale and retail price for each medicine, with the maximum retail price printed on the medicine package. In that year, the pricing system changed such that all products were divided, for the purpose of pricing, into the categories of controlled or decontrolled drugs, with prices in both categories being regulated by government. About 800 essential medicines were placed on the controlled list. Prices for products on this list were subjected to periodic across the board increases on account of the general rate of inflation and changes in the rupee exchange rate. A more liberal system applies for products in the decontrolled category, with higher price increases allowed at more frequent intervals (Drug Control Organization, 2008; Kiani, 2009).
The maximum retail price is fixed on the basis of manufacturing costs and retail mark-ups. Shipping cost is an additional factor in the case of imported medicines. Prices of equivalent products in the South Asian
Association of Regional Cooperation (SAARC) countries (including India, Bangladesh and Sri Lanka) serve as reference points. In the absence of equivalent SAARC prices, international prices are taken into consideration. Locally manufactured products for export are not subject to the price control mechanism.
Notwithstanding government price controls, regulatory flaws and the absence of transparency present problems. For instance, local manufacturers frequently cite inflated costs of imported raw materials and packaging as a reason for price hikes, but APIs are in many cases exempted from excise duty. Hence, there is always scope for scaling down estimates of product costs by investigating the individual price-related components (Nishtar, 2010a). The price control system is excessively complex, and in reality manufacturers are often able to increase prices unilaterally due to poor enforcement of regulations.
In 2004 a World Health Organization and Health Action International (HAI) pricing survey was conducted in Pakistan. Local prices were compared with international reference prices, and median price ratios were calculated (Kiani, 2009; Network, 2006; WHO/HAI, 2003). Where this ratio was <1 for the public sector (government hospitals, clinics and so on) and <2 for the private sector (private pharmacies, medical stores), prices were considered reasonable (Babar et al., 2007). Public procurement prices were found to be below international reference prices for generics and above them for originator products (Pakistan Pharmaceutical Profile, 2010). Although overall prices were found to be reasonable in the public sector, prices of branded versions of some off-patent drugs, such as ciprofloxacin, atenolol and acyclovir, were very high when compared with the international reference price. Some generic prices, for example for ciprofloxacin, a commonly used antibiotic, were also found to be high. This is of particular concern given that 77 per cent of pharmaceutical expenditures are paid for out of pocket (Kiani, 2009; WHO, 2004).
Moreover, chronic shortages and non-availability of essential medicines are common in government health facilities. This partly explains why an estimated 67 per cent of patients consult private physicians and seek treatment almost three times more often from a private pharmacy than from a basic health unit or rural health centre. Physicians have dispensing rights, and it is common practice for patients to receive medicines from their physician as part of the consultation, instead of filling a prescription at the pharmacy (Kiani, 2009). The physician usually charges a global consultation fee which includes dispensed medications, so that what patients actually pay for medicines is not transparent. As already emphasized, only a small proportion of the population has access to any form of health insurance that covers the cost of medicines. This means that at least 45 million people living below the national poverty line (29 per cent of the population) have no, or very limited, access to basic essential medicines (Kiani, 2009).
Previously, drug inspectors from the Drug Control Organization visited pharmaceutical companies to audit and assure the quality of medicines produced (Drug Control Organization, 2008). They also visited private retail pharmacies to ensure adherence to relevant price regulation controls, but they never had the capacity to effectively monitor adherence to price controls (Network, 2006). Following the problems of decentralization to the provinces, one of the functions of the newly formed independent drug regulatory authority is to control medicine prices throughout the country (Government of Pakistan, 2012).