53325 Action Needed: Spiraling Drug Prices Empty Russian Pockets Patricio Marquez and Mikhail Bonch-Osmolovskiy1 Spending on Drugs in Russia Key Messages High out-of-pocket (OOP) expenditure for drugs in Spending on drugs contributes to the high level Russia relative to OECD countries. of out-of-pocket (OOP) payments for health care in Russia. This is mostly due to lack of an In large measure, this is due to the relatively low level of outpatient drug benefit under the Mandatory public health spending in the country (about 3.6 percent of Health Insurance Program and the underfunding GDP in 2008) that underlines the significant gap between of drugs for hospital care. the constitutional commitment to a range of medical care services and the actual funding to pay for them. While drugs are supposed to be provided to hospital patients free Drug prices in Russia increased substantially of charge, an estimated 80 percent of inpatients still have to during the ongoing economic crisis. While the pay part of the costs of their medicines and most outpatients official Consumer Price Index (CPI) increased by must purchase them from pharmacies. The outpatient drug 15 percent between March 2008 and March 2009, program under mandatory health insurance covers only retail drug prices increased by 29 percent. around 16 million people (11 percent of the total population in the country), with more than half of them opting to The increased drug prices have had a receive cash rather than in-kind benefits under the 2005 significant impact on the affordability of ,,monetization of prescription drug benefits. Those who medicines, particularly among vulnerable continue with the in-kind benefits appear to be the ones population groups. As a result of the recent greatest in need of drugs. The situation is further aggravated increase in drug prices, the poor, on average, may by the countrys ineffective enforcement of controls on have lost more than 1 percent of their total wholesale and retail mark-ups for medicines. Household household expenditure. expenditure on drugs accounted for about 30 percent of total health expenditure in Russia, as compared to 12 percent in There are several options for improving access OECD countries in 2008 to and affordability of drugs in Russia, including adopting an essential outpatient drugs benefit package that could be offered through the Recent Evolution of Drug Prices in Russia Mandatory Health Insurance Program. Drug prices in Russia increased substantially during the ongoing economic crisis, partly reflecting the substantial depreciation of the ruble since the onset of the crisis in 1 The authors wish to thank, for their consultation and advice, the following international pharmaceutical September 2008. specialists: Albert Figueras, Catalan Pharmacological Institute, Barcelona, Spain; Rob Verhage and Wilbert Bannenberg, Health Research for Action (HERA), Suriname and the Netherlands; Martin Auton, Health While the official Consumer Price Index (CPI) increased by Action International (HAI), Amsterdam, the Netherlands; Kalipso Chalkidou, National Institute of Health and Clinical Excellence (NICE), London, England; and Igor Sheiman, Professor of Health Economics, Higher 15 percent between March 2008 and March 2009, retail School of Economics, Moscow, Russia. Additional comments were provided by Zeljko Bogetic, Lead drug prices rose by 29 percent. As shown in Figure 1, most Economist, Russia Country Management Unit; Andrei Markov, Senior Human Development Specialist; of the relative increase in drug prices began after the start of Salman Zaidi, Senior Economist, ECSPE, Willy de Geynd, Lead Health Specialist (ret.), and Sevil Kamalovna the depreciation of the ruble. Early indications are that Salakhutdinova, Health Specialist, World Bank. This brief was also reviewed by Andreas Seiter, Senior Health Specialist-Pharmaceuticals, World Bank. prices will continue to rise in the private sector. ECA Knowledge Brief Figure 1: Trends in Drug Prices in Russia, March 2008-2009 Impact of Drug Price Increases on Households As a result of the recent increase in drug prices, the poor, on average, may have lost more than 1 percent of their total household expenditure. Rosstat data for 2006 indicate that about 95 percent of survey respondents who purchased medical drugs in the last three months of the year, paid out of pocket. The increase in drug prices can therefore have a significant impact on the budgets of families with chronically ill members who require a daily drug intake. According to data from the 2005 Russian Longitudinal Measurement Survey (RLMS), over 75 percent of households had a member with one or more chronic illnesses6, with two illnesses reported on average per household member. The average budget share of expenditures on drugs for the poorest 10 percent of the households that had to purchase drugs regularly was about 9 Sources: Rosstat; www.gks.ru, DSM group: report www.dsm.ru2 percent. However, as discussed below, this average hides the grim reality that the amount could be significantly Drug prices not only increased substantially as a whole, higher for many households--actual spending on drugs but also showed significant price variability. greatly depends on the particular illnesses to be treated and the kinds of drugs that are prescribed. This was true for both brand-name and generic drugs (the latter are generally cheaper than brand-name drugs). An The cost of treatment of liver cirrhosis, for example, has assessment of changes in median, minimum and maximum risen from less than 50 percent to more than 110 percent distributor prices of equivalent drugs in St. Petersburg3 of a hypothetical household's budget. showed that overall, between March 2008 and 2009, median drug prices increased by about 40 percent but maximum Table 1 provides a conservative estimate of the potential prices (usually for brand name drugs) increased by 105 monthly expenditures for treating several common chronic percent on average. On the opposite end of the spectrum, illnesses for a typical household consisting of two the minimum prices (usually for generic drugs) increased by pensioners, each receiving a typical subsistence minimum 14 percent. High overall variability is accompanied by pension of 4000 rubles (this estimate is conservative as the higher variability in prices for the same class of drugs in the real retail mark-ups are estimated to be much higher than Russian market; moreover, drug prices in Russia are much the ones used here). The last two columns show the median higher than in the international market. While in March price increases for the recommended drug treatment, and 2008, the average ratio of maximum to minimum distributor the additional expenses that will have to be incurred by the prices for the same drug was about five times, by March household due to the price increases for several drugs. For 2009, the ratio had increased almost 10 times4. Comparison example, the median price of ,,ademetionine, one of the of median distributor prices in St. Petersburg with the drugs commonly used for the treatment of liver cirrhosis, international reference prices for 52 drugs5 shows that increased by almost 2.5 times. This would result in almost prices in Russia are on average three to four times higher 4,800 rubles of additional expenditure for the monthly than international reference prices. treatment of liver cirrhosis, relative to what Russians were to pay if the price of ,,ademetionine increased at the same 15 percent rate as the CPI. In this context, recent evidence indicates that drug 2 Rosstat monitors prices of 20 selected drugs. The DSM group publishes Laspeyres retail price index for all drugs on the market, with weights taken proportional to sales volumes in 2007. affordability has likely fallen, with the contributing factors 3 A pre-selected list of 80 essential drugs from the PharmIndex magazine, between March 2008 and March being the increase in drug prices and a nine-year high 2009; for each of the 80 drugs, the minimum, median and maximum price of a daily dose of the drug were unemployment rate of 10.2 percent. documented. 4 For five cases, the maximum price was more than 50 times higher than the minimum published price: Ciprofloxacin - 56 times, Acetylsalicylic acid - 58 times, Loperamide - 67 times, Omeprazole - 144 times, Diclofenac -119 times. These medicines typically have very high brand premiums. 5 International Drug Price Indicator Guide, http://erc.msh.org 6 The questions asked were about heart, lung, liver, kidney, gastrointestinal, spinal and other chronic illnesses ECA Knowledge Brief Table 1. Estimated Expenditure on Drugs Using Median Distributor Prices Share of Average Median Price Effect of price subsistence Suggested Suggested monthly 2009/ increase above the Condition minimum budget Treatment daily dose expenditure, Median Price CPI increase, for two rubles 2008 rubles pensioners, % Liver Cirrhosis Ademetionine 1200 mg 8874 111 2,48 +4757 Stroke prevention Clopidogrel 75 mg 3478 43 2,51 +1882 Stroke prevention Aspirin 100mg 90 1 1,10 -45 Arthritis Diclofenac 100mg 87 1 2,11 +39 Hypertension Enalapril 20 mg 186 2 1,40 +33 Diabetes Insulin soluble 50 ME 1384 17 1,03 -168 Gastric ulcer Omeprazole 20 mg 143 2 1,53 +36 Prostatitis Tamsulosin 400 mcg 1595 20 3,06 +996 Prostatitis Terazosin 10mg 1250 15 1,38 +216 Ischemic heart disease Trimetazidine 50 mg 238 3 0,97 -44 Source: Distributor prices published in ,,Pharmindex on March 2009. A retail mark-up of 10 percent was used to estimate retail prices and calculate average expenditures. According to federal legislation in Russia, the maximum mark-up over the manufacturers price is 25 percent, and retail prices should not exceed wholesale prices by more than 30 percent for essential drugs; the limit is higher for other drugs. It is estimated that in general actual mark-ups are much higher than the official ones. How Can Essential Drugs Become More Accessible Provide an essential outpatient drugs benefit package: and Affordable? One option to explore for dealing with this challenge under current fiscal constraints would be adopting an essential Russias public spending on health over the medium-term outpatient drugs benefit package for priority, high-burden needs to increase above the current level of 3.6 percent of diseases, to be provided as part of the Medical Program of GDP. The major long-term drivers of health care spending-- State Guarantees. It could include approximately 70-100 rising incomes, technological change and demographic different essential medicines for high-burden chronic change--all point to a significant, long-term rise in health diseases--such as, cardiovascular diseases, mental disorders, care expenditure. It is reasonable to assume that part of this diabetes, chronic respiratory problems, digestive disorders, increase could and should be met by public provision of and frequent infections,7--selected on the basis of health services. The Russian Government can consider therapeutic efficacy, efficiency, and value for money several options for improving access to and affordability of criteria. drugs in Russia. The proposed essential drug benefit program could be Change drug policies and prescription practices: A funded through an improved allocation of overall public typical households drug expenses or the cost of a expenditures, including a shift toward long-term needs of subsidized drug program could be substantially lowered, social sectors such as health and away from less productive thereby raising affordability. This could happen if drug categories of public expenditures (for example, untargeted policies and prescription practices are based on the evidence subsidies and transfers, general administration expenditures of demonstrated efficacy and safety of equivalent drugs, as and unproductive public investments). Other funding well as on comparisons of their costs. For example, the options include increasing taxes on cigarettes (the current evidence on the demonstrated efficacy and benefits of price of cigarettes in Russia is very low compared to major ,,clopidogrel, a drug used in Russia for stroke prevention at international cities) and liquor, and taxing high sugar soft a cost of 1,481 rubles per month, is scant. The alternative drinks. would be to use the lower cost and efficacious and safe generic ,,aspirin costing only 50 rubles per month as the ,,best buy first-line drug for stroke prevention in most patients. This would result in a major saving of 1,431 rubles 7 The 2005 World Bank report, "Dying Too Young: Addressing Premature Mortality and Ill Health Due to per month, while ensuring the demonstrated benefits of an Noncommunicable Diseases and Injuries in the Russian Federation," provides health and economic arguments alternative drug. to concentrate on these diseases. ECA Knowledge Brief Promote Rational Drug Use: A critical measure that and influence personal preferences for generic use, which in would need to be supported in Russia as part of health turn could result in improved adherence to essential system restructuring efforts to complement the introduction medications.9 of outpatient drug benefits is the development of new methods and approaches to strengthen rational drug Develop drug pricing and procurement reforms to prescription processes. These could be in the form of new or support the implementation of demand side priorities as revised evidence-based clinical guidelines to treat some defined by the adoption of an outpatient essential drug diseases, therapeutic pocket guides that offer quick list targeting priority, high-burden diseases and related consultation guidance to the doctors on how to treat the rational drug use measures: Proper consideration also most common health problems, and continuing in-service needs to be given to supply side practicalities such as medical education programs. Additionally, there are wholesaler/pharmacist mark-ups and differential margins electronic modules that can be incorporated as part of the for the establishment of an uniform drug pricing framework; development of health information systems that could enforcement of price controls; procurement and tendering facilitate on-line consultations by physicians before processes, including possible negotiated arrangements with prescribing. Given the ever growing number of drug producers and suppliers to contain drug price inflation; the therapies, if physicians do not have access to scientific competitiveness of the generics market; and the availability information and do not have enough technical knowledge of pharmaceuticals in rural regions. for making a critical appraisal of new medicines, the prescription process will be vulnerable to marketing Conclusion techniques by the pharmaceutical industry and decisions will not be taken in terms of the best option for the patient There is plenty of evidence worldwide to show that timely and the health system as a whole. To promote rational drug access to essential medicines yields large overall savings use for priority, high-burden diseases on an outpatient basis, through fewer hospitalization, tips the balance in favor or a tiered co-payment arrangement could also be developed to survival when a person is affected by a chronic disease or fully reimburse the cost of generic drugs but set high co- prevents the disease altogether, and contributes to higher payments for brand name drugs to cover the cost productivity when the patient is at work.10 Also, from an differential. This would create a powerful incentive to shift ethical and medical point of view, protecting and/or toward higher use of generic equivalents. increasing expenditures on medicines is critical for continuing to treat conditions such as tuberculosis and Improve the incentive framework for physicians by HIV/AIDS, and hence prevent the onset of (sometimes regulating perverse financial incentives: These include untreatable) drug resistance among patients. While the prescribers earning money from the sales of medicines, current economic downturn imposes rigid budgetary which only encourages over-prescription of medicines. constraints, improved access to and better use of Generic drugs could be promoted by setting up incentives in pharmaceuticals under public subsidy arrangements should the form of performance-based payments, as is currently not be delayed because it could, in the medium term, done in some Russian regions such as in the Chuvash contribute towards improving the health status of the Republic8 to reward doctors for achieving program targets, Russian population, reducing the risk of impoverishment of improve health outcomes and lower overall medical vulnerable population groups, and enhancing overall social spending. welfare. Educate patients about generic medications: There is a About the Authors widespread perception among patients in Russia that Patricio Marquez is a Lead Health Specialist, Human generic drugs are cheaper because they are lower quality Development Sector Unit and Mikhail Bonch-Osmolovskiy and not as efficacious or safe as their equivalent brand name is an Economist in the Poverty Reduction Sector Unit of the drugs. Broader efforts by health insurance agencies, policy Europe and Central Asia Region of the World Bank. makers and providers are needed to educate patients about _________________________ generic medications, help them make informed decisions, 9 W.H. Sharank et al, "Patients Perception of Generic Medications," Health Affairs (March/April 2009): 546-556. ________________________ 8 Developed as part of the health system restructuring program supported under the World Bank-funded 10 "Prescription for Change. A Survey of Pharmaceuticals," The Economist, June 18, 2005. Health Reform Implementation Project over 2004-2008. "ECA Knowledge Brief" is a regular series of notes highlighting recent analyses, good practices and lessons learned from the development work program of the World Banks Europe and Central Asia Region http://www.worldbank.org/eca