The Ecuadorian government has introduced price controls for essential medicines, which account for more than 54% in the Ecuadorian pharmaceutical market.
IHS Life Sciences perspective | |
Significance | The new regulation regulates prices of essential medicines, which account for more than 54% in the Ecuadorian pharmaceutical market. |
Implications | The National Council for Fixing and Reviewing Medicine Prices is the new institution in charge of introducing medicine price controls in Ecuador. The Prices Decree establishes three price control regimes. |
Outlook | The main driver for the introduction of this regulation by the Ecuadorian government is the goal of reducing healthcare expenditure, with the aim of achieving import substitution by encouraging local production. |
The new regulation to review and control medicine prices in Ecuador, which was promulgated through the Government Decree 400-2014, regulates the prices of essential medicines, which make up 54% of the Ecuadorian pharmaceutical market in terms of volume sold. Decree 400-2014 (Prices Decree) can be accessed here.
Price-setting authority created
The National Council for Fixing and Reviewing Medicine Prices (CNFRPM) is the new institution responsible for medicine price controls in Ecuador, which will include the country's health, industry, and development ministers. This National Council will have a technical secretary, which will be in charge of receiving and reviewing applications for new pricing, and will have 60 days to resolve price–setting requests.
Three price controls regimes:
The Prices Decree introduces three levels of regulation of medicine prices based on the type of product that is under control:
- Regulated: This regimen of regulated prices consists of setting the price caps for each market segment of medicines considered essential or new. The price caps for each segment will be calculated with the average of the retail prices in the private market. For new medicines, the level of therapeutic innovation will be used as the basis for establishing the price cap.
- Direct estimation: The governmental intervention through the CNFRPM for unilaterally setting medicines prices will apply only to specific situations, when essential and new medicines are commercialised without price regulation or companies do not adhere to the price caps for their segment (Article 21).
- Price freedom: The free setting of medicine prices will apply only to the products that are not included in the two previous regimens. Manufacturers will be free to set prices but the CNFRPM must be notified.
Producers and distributors are able to find out from the CNFRPM which of the three price-setting regimes their drugs would fall under. The CNFRPM has 120 days (from 14 July) to publish a price list with the description of each segment cap. Additionally, the decree establishes that the retail prices must be labelled on the pharmaceutical product.
Outlook and implications
The introduction of regulation of medicine prices is the result of the Ecuadorian Government policy of reducing medicine prices. Price control efforts have also been prompted by the currently low use of generics in the Ecuadorian market, as 93.5% of medicines in terms of value of sales are branded pharmaceuticals. The country's pharmaceutical market is worth more than USD800 million, but the vast majority of supply is from international companies.
According to La Hora, only 180 of the 800 drugs included in the national healthcare plan (Cuadro Nacional Básico de Medicamentos) are produced locally, the rest are imported. Therefore, medicines prices are high and continue to increase.
Therefore, the main driver for the introduction of the Prices Decree is to reduce medicine prices and healthcare expenditure. The government is expected to reinvest savings achieved as a result of price control to boost the local production of medicines and achieve import substitution.
Ecuador is not alone in implementing pharmaceutical price controls in the Latin American region. Other countries in the region have recently boosted price control for medicines by a unilateral government resolution that sets medicine prices such as in Argentina and Venezuela or through the incorporation of a reference price system such as in Colombia and Mexico (see Colombia: 6 March 2014: Colombian government to publish new list of price-controlled drugs and Argentina: 9 July 2014: Argentine government to introduce medicine price controls).
Related articles
Ecuador: 18 July 2014: Ecuadorian government regulates medicine prices
Ecuador: 19 June 2014: Ecuadorian health reform to reduce medicine prices
Ecuador: 9 September 2013: Ecuador's pharmaceutical retail market hits USD1 bil. in 2013
Ecuador: 4 February 2011: Local Pharmaceutical Companies in Ecuador Ask Government to Reduce Drug Imports