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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 chain 0 1 2 3 4 5 manufacturer’s selling price + insurance & freight + import tariffs & taxes + import markups + port, customs, inspection charges + wholesale markups + distribution charges + retail markups + local taxes & distribution charges + 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 Order Stage 5 Type of Charge Charge status Resale price Value VAT/GST Dispensing fees Cost to patient Charge status: Not applicable Not found Unknown Value Charge basis Fee F/ P F/ P Fee Charge basis: Fee Percent Amount of Charge Stage 4 Order Type of Charge Charge status Charge basis Amount of Charge Source Order Stage 4 Retailer or public dispensary Procure price Transport Mark-up (observed) Local taxes Fee F/ P F/ P F/ P Total Only data collection: “Source” information is just used in tracking Stage 3 Order Type of Charge Charge status Charge basis Source Order Stage 3 Wholesale or public purchaser Procure price Transport Mark-up (observed) Regional taxes Fee F/ P F/ P F/ P Total Amount of Charge Stage 2 Order Stage 2 Landed cost Type of Charge Charge status Charge basis Finance/banking fees International inspection F/ P F/ P Port charges, clearance Import tariff Importer's markup Pharmacy Board fee Other fees Local transport National tax F/ P F/ P F/ P F/ P F/ P F/ P F/ P Total Amount of Charge Stage 1 Type of Charge Stage 1 Procurement cost A B Manufacturer's selling price Insurance and freight MSP and freight Shipping terms Charge basis CIF, DDU, EXW, FOB Fee Value Fee Total Amount of Charge Data collection Drug 1 Public Private Other Drug 2 Drug 3 Analyzing component costs Enter data in Price Component Workbook Automatically calculates totals Stage 4 0% Stage 3 15% Stage 5 0% MSP Stage 1 Stage 2 MSP 51% Stage 2 23% Stage 1 11% Stage 3 Stage 4 Stage 5 Share of component costs across stages Reports 20 18 16 14 12 10 8 6 4 2 0 Public Private Mission MSP Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Contribution of component costs by stages 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 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: www.haiweb.org/medicineprices