An assessment of the implications of distribution remuneration and taxation policies on the final prices of prescription medicines: evidence from 35 countries.

ABSTRACT

This paper analyses the structure of and variability in taxation and prescription drug distribution policies and quantifies the impact of such policies on the cost of prescription drugs to health systems in 35 countries. Taxes on prescription drugs remain highly prevalent (83% of the sample) although 63% of the sample countries implement a lower than standard VAT rate. Three remuneration types of the wholesale and retail distribution chain have been identified. Wholesale and retail distributors are remunerated on a regressive mark-up basis, which is price-dependent, although fixed fees and fixed percentages, which are non-price dependent, are also highly prevalent. Price component analysis for three groups of products classed as high-, medium- and low-priced suggests that mark-ups plus taxes varied significantly across countries and products, and ranged from 5% to 187% of ex-factory prices. Average margins also vary significantly by countries and products ranging 5-65% of retail prices. The cost of distribution and taxation contributes significantly to prescription drug costs for health systems. Although distribution chain remuneration raises efficiency and overall affordability questions, these need to be considered together with the regulatory framework shaping market structure of the distribution chain, as well as any prevailing horizontal and vertical integration policies. The overall cost of prescription drugs could be reduced immediately by eliminating taxation; this could go some way to alleviate fiscal pressures on health budgets, whilst avoiding resource re-allocation from health to other sectors.