The 30-billion-dollar distribution markups and taxes of pharmaceuticals in Latin American countries: impact, options, and trade-offs

Giovanny Leon, Eduardo Gonzalez-Pier, Panos Kanavos, Eva Maria Ruiz de Castilla and Gerardo Machinicki

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Objectives: The World Health Organization provides 10 specific guidelines for managing the prices of pharmaceutical products. Many of those are widely known and used such as reference pricing, value-based pricing, price transparency, and tendering. Less attention and knowledge is concentrated in markup regulation across the pharmaceutical supply chain and distribution and in tax exemptions or reductions. This article quantifies the impact of these price components in the Latin American (LatAm) region and places the findings in the context of economic theory and international policy experiences. Methods: 2020 retail pharmaceutical sales data from 8 major LatAm markets covered in the IQVIA database were decomposed into ex-factory, distributor markups, and taxes using price build up information and the Price Decipher Methodology developed by the Novartis Global Pricing Governance and Negotiation team. The findings were reviewed by an international panel representing academia, health policy, health economics, patient, and industry. Results: The ex-factory market value of the analyzed markets was $49 billion. Distribution markups added $20 billion and taxes a further $10.5 billion. This represented a 63% increase over ex-factory prices, considered high if compared with 24% for an international benchmark of 35 ex-LatAm countries. Reducing markups for these LatAm countries to 24% would represent up to $19 billion in savings for payers and patients. Conclusions: There is potential for significant cost reductions associated with tax and distribution markup refinements in the LatAm retail pharmaceutical market. National policies should be informed by additional context-specific research for effective implementation.

Keywords: ex-factory prices; national pharmaceutical policy; pharmaceutical distribution; retail prices; taxation of prescription pharmaceuticals (search for similar items in EconPapers)
JEL-codes: H20 (search for similar items in EconPapers)
Date: 2024-11-01
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Published in Value in Health Regional Issues, 1, November, 2024, 44. ISSN: 2212-1099

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