Russia: Pricing in the Pharmaceutical Industry

In Russia, the start of pricing system development during transition to a free market economy presumably was given by the introduction of the VED (Vital and essential drugs) concept: in 1988, there appeared the first list comprising 90 drugs. Subsequently, the pricing system underwent several key changes affected by the following events:

• 1991 - price liberalization (Decree of the RSFSR President No. 297 dated 03.12.1991 “On price liberalization measures”.) that caused a sharp rise of drug prices;
• 1992 - start of price regulation by the state (Russian Federation Government Resolution No. 970 dated 11.12.1992 “On drug and medical purpose product price formation procedure and measures of social protection of the population”.);
• 1993 - implementation of a procedure of beneficiary and free-of-charge drug coverage for the out-patient treatment and for expense estimation (Russian Federation Health Ministry Executive Order No. 16 dated 21.01.1993.).
• Profit from VED-listed drug sales has been tax exempt since 1996 (Russian Federation Government Resolution No. 478 dated 15.04.1996 “On the institution of VED and MPP list”.).
• In 1999, VED pricing rules were applied for the first time to local and imported drugs, including price and maximum markup registration (Russian Federation Government Resolution No. 347 dated 29.03.1999 “On measures of drug price state control”.). 
• In 2010, state regulation of VED-listed drugs was introduced, and caps imposed on wholesale and retail markups. Currently, two-level VED pricing regulation is in place in Russia (introduced in 2010): on the federal level, the VED list is revised and re-approved annually, with the manufacturer’s maximum price registered on a mandatory basis (the calculation methodology has been developed by the Federal Tariff Service (FST) of Russia for both local and imported drugs); and wholesale and retail trade markups are established on the regional level. Calculations of maximum drugstore markups for each region are available on the official www.minzdravsoc.ru web-site. The price dynamics for VED-listed drugs is shown in Table 1. Notably, the VED list has grown more than 6-fold during its 20-year history in Russia;
• in 2011, such preparations accounted for one third of the total retail drug sales (36% in value terms and 39% in real terms). Price and trade markup formation for preparations not included in the VED list is governed, at all stages of their market life, by general economic rules typical for a free market competition.

Table 1. VED segment dynamics*, 2009—2011 

*Calculations are made in consumer prices, RUB.

The federal agencies authorized to develop the VED list and control VED-listed drug prices are Minzdravsotsrazvitia of the Russian Federation, FST, and Roszdravnadzor. 

Wholesale and retail markup caps established by the executive authorities of Russian Federal subjects are presented in Table 2.

Table 2. Maximum wholesale and retail VED price growth in Russia

Source: Russia’s Government Resolution No. 1938-r dated 11.11.2010;Russia’s Government Order No. 865 dated 29.10.2010

Thus, state pricing regulation in Russia is applied to the VED category, which accounts for about one third of the retail pharma market, by means of manufacturer maximum price and maximum wholesale and retail markup registration. 

Source: Pharmexpert