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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