Price reductions for medications starting March 1: Will affordable drugs last in pharmacies, and should we expect a shortage?

Last week, President Volodymyr Zelensky enacted a decision by the National Security and Defense Council dated February 12 to ensure the availability of medications for Ukrainians, and shortly thereafter, the Cabinet of Ministers published Resolution №168 aimed at stabilizing drug prices. According to the Cabinet's resolution, starting from March 1, the retail markup on over-the-counter medications in pharmacies cannot exceed 35% of the purchase price. The markup level is linked to the drug's cost: for medications priced up to 100 UAH — 25%, from 100 to 500 UAH — 20%, and over 1000 UAH — 10%. The maximum supply and distribution markups are capped at no more than 8%. Limits have also been set for prescription medications.

Price Control on Medications: The Need to Limit Trade Markups

He notes: the issue is indeed that drug prices are rising, and medications are a very critical segment. However, the price problem should be addressed through competition, not control.

"Here we have a clear example of how these pharmacy chains initially eliminated competition from individual entrepreneurs. They complained that small businesses were allegedly engaging in unfair competition. In other words, they successfully eradicated it. After that, they raised prices. There are many pharmacy entities in Ukraine, yet the chains still agree on prices among themselves. Ultimately, this led the government to react in this way, as it found no better way to respond to the price increases," the economist points out.

Drug Shortages and Inflation: What Will Be the Outcome of the Restrictions

The expert recalled the year 2022 and the government's attempts to cap fuel prices, which resulted in a basic fuel shortage at gas stations. A similar situation is not ruled out this time.

"So, I understand that now a shortage will arise, and there will be manual pressure on these traders to sell what is necessary for patients, whether it is profitable or not. But the fundamental solution to the problem is to somehow revive competition in the pharmaceutical market," explained Volodymyr Dubrovsky.

In his view, the government is currently thinking in non-market terms, intervening in the economy. However, such actions are unlikely to have a long-term impact on inflation, according to the specialist.

"It is possible to halt price increases through measures like limiting trade markups. But only until pharmacy chains find a way to raise prices through higher purchasing costs. Because it is the trade markup that is limited, not the maximum price," says Volodymyr Dubrovsky.

In his opinion, as a result of the restrictions, cheaper medications may gradually be 'washed out' from the market. This means that the shortage will primarily affect drugs costing up to 500 UAH. "In other words, it will become unprofitable to sell cheap medications. Moreover, this will particularly affect domestic drugs, which are typically cheaper and harder to procure through offshore intermediaries, while imported drugs are easier to obtain. Therefore, pharmacies will find it profitable to purchase imported medications via offshore intermediaries and keep all the margins there. Consequently, consumers and domestic producers will suffer. Although these restrictions may indeed pause inflation for a while," the economist explained.

Recall that members of the Pharmacy Professional Association of Ukraine supported President Volodymyr Zelensky's initiative to reduce drug prices.