Identifying, finding and analyzing the component costs of Essential Medicines WHO/HAI Medicine Prices Project

Definition: Price components “…in the field of pharmaceuticals … retail prices, in particular, are often a distant relation to manufacturer’s selling price. Import duties, taxes, wholesale markups, both formal and informal, can double the price of a drug between manufacturer and consumer.” (WHO Secretariat 2001)

Retail price = manufacturer’s selling price + insurance & freight + import tariffs + taxes (national, state, local) + import markups + port, customs, inspection charges + wholesale markups + retail markups + local storage and distribution charges + VAT/GST + dispensing fees

Why component costs?  Regularly constitute 30%-45% of retail prices  Known to range to 85% or higher  Many unknowns, many variations among products, sectors & countries  Need to know impact for planning  Use information for price negotiation

Total Mark-up as a Percentage over CIF Price, with Portions Attributable to Different Component Costs Source: Madden 2004

The Price Components Handbook  Expands existing components section in “Medicine Prices”  Presents new methodology, better guidance  Approach: Identify, Find, Analyze

Identifying component costs  “Price Components” provides example components  Ask participants in supply chain  But: many don’t know costs exist Be a detective! Look for large price gaps, and ask questions!

Stages of the supply chain 0manufacturer’s selling price 1+ insurance & freight 2+ import tariffs & taxes + import markups + port, customs, inspection charges 3 + wholesale markups + distribution charges 4+ retail markups + local taxes & distribution charges 5+ VAT/GST + dispensing fees

Finding component costs  Start at retail shop, trace the products “up” supply chain to Supplier  Ask, ask, ask  Check from both sides But many obstacles:  Observed & official markups differ  Middlemen guard cost, markup info  MSP as “confidential information”

Data collection tool: Stage 5 Charge basis : Fee Percent Charge status : Not applicable Not found Unknown Value

Stage 4 Only data collection: “Source” information is just used in tracking

Stage 3

Stage 2

Stage 1

Data collection Drug 1Drug 2Drug 3 Public Private Other

Analyzing component costs  Enter data in Price Component Workbook  Automatically calculates totals Share of component costs across stages

Reports Provides reports on:  MSP vs add-on costs for each drug  Contribution each stage to retail cost  Comparison across drugs by stage  Comparison across sector by stage  Contribution MSP & add-on by stage Contribution of component costs by stages

International comparison  Compare stages, not components  When data not separable, can still be compared A B C D

Current status  Draft “Price Components Handbook” ready for review by project team  Complete coding of Price Components Workbook  Pilot test methodology this spring  Watch for updates on HAI website: