identifying, finding and analyzing the component costs of essential medicines who/hai medicine...
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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 chain0 manufacturer’s selling price1 + insurance & freight2 + 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: FeePercent
Order Type of ChargeCharge status
Charge basis
Amount of Charge
Resale price Value Fee
VAT/GST F / P
Dispensing fees F / P
Cost to patient FeeStage 5
Charge status: Not applicableNot foundUnknownValue
Stage 4
Only data collection: “Source” information is just used in tracking
Order Type of ChargeCharge status
Charge basis
Amount of Charge
Source
Order Procure price Fee
Stage 4 Transport F / P
Mark-up (observed) F / P
Local taxes F / PRetailer or public dispensary Total
Stage 3
Order Type of ChargeCharge status
Charge basis
Amount of Charge
Source
Order Procure price FeeStage 3 Transport F / P
Mark-up (observed) F / P
Regional taxes F / P
Total
Wholesale or public purchaser
Stage 2Order Type of Charge
Charge status
Charge basis
Amount of Charge
Finance/banking fees F / P
International inspection F / P
Stage 2 Port charges, clearance F / P
Import tariff F / P
Importer's markup F / P
Pharmacy Board fee F / P
Other fees F / P
Local transport F / P
National tax F / PLanded cost
Total
Stage 1
Type of ChargeShipping
termsCharge basis
Amount of Charge
Manufacturer's selling price Fee
Stage 1 Insurance and freight
B MSP and freight Value FeeProcurement cost
A
Total
CIF, DDU, EXW, FOB
Analyzing component costs
Enter data in Price Component Workbook
Automatically calculates totals
MSP51%
Stage 111%
Stage 223%
Stage 315%
Stage 50%
Stage 40%
MSP
Stage 1
Stage 2
Stage 3
Stage 4
Stage 5
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
0
2
4
6
8
10
12
14
16
18
20
MSP Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Public
Private
Mission
Contribution of component costs by stages
International comparison Compare stages, not components When data not separable, can
still be compared A B C D