Cure State health system first

SRI LANKANS are prey to overregulation. This double-edged sword is being wielded again, this time for the pharmaceutical industry, with the Government considering price control measures.

It is true that international pharmaceutical companies make billions in profit and patients in mostly poor countries find it hard to pay the bills. It is also true that unless regulated, pharmaceutical companies can make unconscionable profit. People’s lives are at stake in this question, making it an emotive one for many.

The Health Ministry is holding discussions with the Sri Lanka Chamber of the Pharmaceutical Industry on the possibility of reducing profits and implementing price control measures. Some media reports have indicated that as much as 85% of profits are enjoyed by these companies, but the industry body contends this statistic.

The chamber stresses that the price of drugs has reduced since State regulation of drug prices ended six years ago and that there is no reason to re-implement controls. They charge that if prices are controlled, drug quantities will also reduce, making room for substandard drugs to enter the market.

Whatever the other faults of the health industry in Sri Lanka, the country has managed to maintain decent standards in drug supply, unlike neighbour India that despite having cheap drugs also has quality issues. Backtracking would undoubtedly be a bad idea at this point.

To take this argument a step further, one has to consider the makeup of the pharmaceutical industry in Sri Lanka. According to Government statistics, the State is the largest consumer of drugs in Sri Lanka. In 2010 the estimated size of the local pharmaceutical market was Rs. 40 billion (about US$ 360 million), but local contribution was only about 10 per cent, leaving huge potential for investment. Government consumption alone was Rs. 15 billion (about US$ 135 million).

The annual growth of the local pharmaceutical industry is expected to be around 15 per cent for the next four years. Taking this into consideration, Cabinet approval has been given to establish an industrial zone in Sri Lanka exclusively for investment from pharmaceutical companies. The Cabinet approved the plan by the Industry and Commerce Ministry in November to allocate 48 acres of land in Kurunegala for the project.

 Already 10 companies have expressed interest in investing in this specialised industrial zone. Plans are also underway to establish a preferential system to procure drugs for the State Pharmaceutical Corporation (SPC), which distributes drugs to the entire country.

Therefore, it is clear that the Government is the one that will stand to benefit the most from price regulation, which will filter down to the poor, who often use State health services. Nonetheless, this must be done without allowing substandard products into the country.

Therefore, in the short-term, would it not make more sense for the Government to minimise the billions lost in wastage and mismanagement while also taking a stronger interest in stamping out corruption in the drug securing system? Surely the two must move together as well as assist the industry to use the investment zone to produce drugs locally so that price controls are sustainable?

Price controls must be implemented carefully so that the industry is not stifled while corrupt Government officials make millions in profit. Putting the Government’s house in order while regulating the industry to a reasonable level and ensuring long-term investment would a smarter path to take.