E-DRUG: New article on pharmacy business structure and medicine mark-ups
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Dear e-druggers,
I am pleased to share our most recent publication that examines retail medicine mark-ups within the context of the cost of running pharmacy business in rural Kyrgyzstan. http://www.biomedcentral.com/1472-6963/10/205/abstract
The paper is a case-study of a not-for profit chain of 12 pharmacies in rural Kyrgyzstan. We used cost accounting methods to quantify all fixed and recurrent costs involved in establishing and maintaining these retail pharmacies. We compared these costs with revenues to estimate the level of profit over a three year time period. Lastly, we measured retail medicine mark-ups for the 50 top-selling products.
Summary of key findings:
1. With the right mix of public-private cost sharing, social capital, and community engagement, not-for-profit pharmacies can be established as a means of improving access to medicines in the most rural areas with low levels of funding.
2. In accordance with their mandate, the NGO running the pharmacies operated the network at practically break-even levels with no real profit.
3. Extreme variation exists across retail mark-ups applied to medicines, ranging from 32% to 244%.
4. 35% of the top selling medicines required mark-ups >100% in order to sustain pharmacy business at break even level. While operational efficiencies might result in a slight decrease in price, the pharmacies had little room for substantial medicine price reductions.
5. Mark-ups needed to sustain the pharmacies were much higher than anticipated in the design phase of the project.
6. Because the pharmacy network enjoyed several cost-sharing arrangements with the public sector, we expect operating costs in fully private pharmacies to be much higher than those measured in this study. As such, we expect that private retail pharmacies would need to apply even higher medicine mark-ups in order to sustain their businesses.
Why we think this paper is important:
1. There is a dearth of information about costs involved in establishing and maintaining retail pharmacy businesses. While countless not-for-profit pharmacy enterprises, revolving drug funds, and other similar initiatives have been established over the past few decades, very few of these have been documented in either peer-review or gray literature. We have very little information on the costs and potential revenue streams of pharmacies and therefore no clear means of determining initial mark-ups for medicines. Many pharmacy initiatives and RDFs have gone out of business for understimation of costs and insufficient revenues. We need to better document our failures and successes in this particular area to better inform future planning and decision-making.
2. Rightly so, there has been lots of global attention paid to high medicine prices in developing countries. If we expect Ministers of Health to take action on medicine prices, we need to have reliable information on what medicine prices and mark-ups are "reasonable" for a given region, striking a balance to provide affordable medicines at sustainable prices. We suggest this type of research be conducted (in conjunction with the new WHO/HAI medicine price components module) to better understand the contextual situation around medicine prices at local and regional levels. Downward pressure on medicine prices to levels that cannot sustain pharmacy business can result in pharmacy closures, disincentives to start new pharmacies in rural areas, and decreases in access to medicines.
We welcome your thoughts on this subject.
On behalf of all co-authors and with thanks to USAID for funding and logistical support,
Brenda Waning
Boston University
<mailto:bwaning@bu.edu>