Nepal's health care system faces significant hurdles, particularly in the realm of medicine pricing. In 2019, the country spent US$ 53 per capita on health, with out-of-pocket expenditures comprising a substantial 56 per cent of total health expenditures, predominantly in the private sector. In this context, the urgency for an equitable and rational medicine pricing policy cannot be overstated.

The Department of Drug Administration (DDA) oversees the regulation and control of 17,000 types of medicines (50% manufactured domestically), 3,400 wholesalers and 28,000 pharmacies, including medicine pricing. Despite its mandate, the existing pricing framework is fraught with inadequacies. The current Maximum Retail Price (MRP) system, as stipulated by Section 26 of the Drug Act 1978, dictates that the price of an imported medicine cannot be higher than the MRP in the exporting country. However, this system lacks a legal framework for regular updates and does not adhere to standard criteria for determining MRPs.

This deficiency is glaringly apparent in the stagnation of MRPs for many medicines, which have remained static since their initial setting between 2007 and 2015, without adjustments for inflation or cost increases. The failure to account for price fluctuations in raw materials or imported medicines can lead to market withdrawals or shortages, exacerbating the challenges faced by patients.

An effective medicine pricing policy is crucial for ensuring medications are affordable and accessible to all socio-economic strata. Key to this reform is the establishment of an autonomous and well-resourced regulatory body, separate from the DDA, to oversee medicine pricing. This body must have the authority and capacity to update prices regularly and ensure transparency and fairness in the pricing mechanisms.

Globally, different countries employ a variety of medicine pricing strategies that Nepal can learn from. These include cost-plus pricing, external reference pricing (ERP), internal reference pricing (IRP) and mark-up regulation policies. Each approach has its advantages and drawbacks, and a combination of these strategies might be the most effective for Nepal.

Cost-plus pricing involves setting prices based on the costs of production plus a profit margin. While this method is straightforward, it requires extensive data on production costs, which can be challenging to obtain and verify. Moreover, it is less favoured due to its complexity and the administrative burden it imposes. ERP sets medicine prices based on the prices of the same medicines in other countries. This approach can help align local prices with international standards and is widely used in Europe and other regions. For Nepal, benchmarking against countries with similar economic conditions, such as India, Bangladesh and Sri Lanka, could be beneficial. However, ERP requires careful selection of reference countries and a robust mechanism to regularly update and monitor the referenced prices. In some countries, the benchmark is the lowest price, or the average of the three lowest prices, or the average of the three lowest prices plus 10 per cent.

IRP involves setting prices based on the costs of therapeutically similar medicines. It encourages competition among equivalent medicines, potentially lowering prices. This strategy is particularly useful where multiple generic options exist, fostering a competitive market environment that can drive down prices. Mark-up regulation policies regulate the profit margins at different points in the supply chain, from wholesalers to retailers. In Nepal, current mark-ups are significant, sometimes reaching 33 per cent by the time medicines reach consumers. Regulating these mark-ups could help reduce prices and improve affordability.

Implementing a rational medicine pricing policy in Nepal faces several challenges. Reliable data on costs and prices are crucial for any pricing policy. Establishing systems to collect and verify this data is essential. An autonomous pricing authority needs adequate resources, expertise and independence to function effectively. This body must be able to make decisions without undue influence from pharmaceutical companies or other stakeholders. Transparency in pricing decisions and profit margins throughout the supply chain is vital. This includes disclosing discounts, rebates and bonuses that can distort pricing. Price regulation must consider the impact on the availability of medicines. Overly strict price controls could lead to shortages if suppliers find it unprofitable to operate in the market.

A sustainable medicine pricing framework for Nepal should include mechanisms for regularly reviewing and adjusting MRPs based on cost and market changes. It should employ a mix of cost-plus, external reference and internal reference pricing methods to set fair prices. Clear rules for profit margins along the supply chain should prevent excessive mark-ups and maintain affordability. Additionally, all pricing decisions and profit margins must be transparent and subject to regular review by an independent authority.

Given the high out-of-pocket expenditures and significant reliance on the private sector for health care, ensuring affordable access to medicines is crucial. By adopting global practices and effective pricing strategies, Nepal must promptly establish a fair and effective pricing system. This will improve access to medicines, support the pharmaceutical industry's sustainability, aid health care providers, and strengthen the health insurance programme. Ensuring marginalised groups achieve universal health coverage is vital for meeting the Sustainable Development Goals. Immediate action on equitable and rational medicine pricing is both a regulatory urgency and a moral imperative to ensure health equity, quality services and improved health care outcomes for all Nepali citizens.

Dr Dulal is a health researcher and policy analyst