By Ranil Angunawela and Malsirini de Silva
The current shortage of various drugs in the market has brought to light the regulatory regimes affecting the availability of drugs in Sri Lanka. He also raised the question of whether such a regulatory regime has a negative impact on consumer rights.
The supply and sale of medicines in Sri Lanka is regulated by the National Medicines Regulatory Authority (NMRA), which was established in 2015 under the NMRA Act.
The main purpose of the NMRA is to “ensure the availability of effective, safe, and good quality medicines…to the general public at affordable prices”.
The NMRA is expected to strike a regulatory balance between ensuring the availability of drugs on the one hand and ensuring that these drugs are offered at an affordable price on the other. Achieving this balance would depend on an effective pricing mechanism – one that provides pharmaceutical companies with the ability to secure the supply of these drugs with some degree of financial certainty. Any uncertainty about the ability to supply these drugs – caused by arbitrary and opaque pricing regulations – would invariably disrupt the market, as no company would be willing to supply drugs below the current market rate.
This article discusses how the NMRA Act allows for arbitrariness in drug pricing in Sri Lanka, and thus sabotages its main purpose of ensuring the availability of drugs in the market.
Arbitrary pricing when signing up
The retail price of any drug is determined by the NMRA at the time of drug registration. The Medicines Evaluation Committee (MEC), established under the NMRA, performs technical evaluations of medicines submitted for registration and submits reports to the NMRA. These reports specify the benefits and risks associated with these drugs as well as the quality, effectiveness, safety, necessity and cost of these drugs.
As part of this process, a Pricing Committee (PC), established under the NMRA Act, provides the MEC with a recommendation on pricing at the time of registration.
Further details of PC are set out in the 2019 Tariff Rules (“2019 Rules”). The 2019 Regulations authorize the PC to obtain relevant information and recommend appropriate drug price increases and decreases. Additionally, at the time of registration (or renewal), the PC is allowed to recommend the maximum retail price (MRP) of a medicine.
However, neither the NMRA nor the 2019 regulations prescribe a protocol to be followed when pricing drugs. The current absence of a legally enacted and transparent pricing protocol grants broad and unfettered discretion to the PC, and therefore the NMRA, to determine the price of drugs.
Therefore, the NMRA Act contains a loophole where arbitrary decisions can be made regarding the determination of a drug’s MRP.
The whim of the minister
Arbitrariness in pricing can also take place at any time during or after drug registration due to the Minister of Health having absolute discretion under NMRA to set the MRP of any medication. Neither the NMRA Act nor the 2019 Regulations stipulate the procedure by which or the circumstances in which the Minister may exercise his powers to regulate the price of medicines. Although the Minister is required to consult the PC and the Consumer Authority, the law does not require the Minister to justify his final decision or to follow the recommendations of a stakeholder. The Minister can thus arbitrarily set the MRP of a drug at any time during or after its registration.
For example, the minister published several gazettes from 2016 setting the MRPs for various drugs. There is no publicly available information on how these drugs were identified as requiring price controls. In 2016, 48 medicines were subject to price controls. In 2018, MRPs were issued for twelve additional medicines, which were previously not subject to price controls. In 2019, previous MRPs were canceled and new MRPs for 60 medicines (whose prices were already controlled) were issued.
Are consumers losing out?
Drug supply in Sri Lanka is dominated by the private sector which to date has ensured the wide availability of drugs. Setting MRPs for important drugs could ensure that consumers have access to these drugs at affordable prices, thereby fulfilling the primary purpose of the NMRA. However, achieving this fundamental objective would depend on the ANRP, the PC and the minister always acting in the best interests of consumers. The NMRA law, in its current form, offers no guarantee against bad faith or incompetence by any of these actors.
In this context, the NMRA law can self-sabotage its fundamental objectives. Arbitrary or ill-informed pricing under the law can discourage the supply of medicines to the market, as no supplier would like to suffer a commercial loss.
The supply of drugs depends on market forces, including the variability of the exchange rate at which these drugs are imported. A regulator that is rarely flexible enough to adapt to the market variables inherent in the import process and that has the power to arbitrarily set price limits only serves to create uncertainty for the importer and deprives the consumer of the possibility of buying the medicines of his choice.
For example, at the time of registration, if the NMRA and PC arbitrarily decide to set an unworkable MRP for Brand X – a high quality and safe brand of a particular drug – the supplier of Brand X may be forced to interrupt its supply. The market would only retain cheaper alternatives that might not be of the same quality as Brand X. Ultimately, consumers who prefer to pay a slightly higher price in exchange for better quality and safety would be deprived of access to the drugs of their choice.
Nothing in the NMRA Act or the 2019 Regulations protects against such arbitrariness, as these legal instruments do not define clear and transparent pricing protocols. For example, a protocol requiring the NMRA and PC to apply a pricing formula based on average market prices of drugs in the region would be a step towards mitigating arbitrariness in pricing.
The NMRA Act and Regulations 2019 urgently need reform to limit the discretion of regulatory actors. They should be required by law to follow a clear and transparent pricing protocol for drugs in Sri Lanka. If such reforms were introduced, providers of life-saving medicines would regain their confidence in the certainty and predictability of pricing regimes, and consumers would have better access to effective, safe and high-quality medicines at affordable prices.
(Ranil Angunawela is a lawyer and senior partner at LexAG – Legal Consultants; Malsirini de Silva is a lawyer.)