Absence of Domestic Production and Dependence on Imports Make Medications Expensive.
The money ordinary citizens spend on medical services considerably exceeds the financial solvency of the average family in Georgia. This factor places a heavy burden on members of our society, especially the poor. Excessive tariffs on medications aggravate the situation, especially since these prices constantly rise.
Medication prices are much lower in Europe and in neighboring countries, field experts say.
A couple of days ago, media agencies spread the information that the prices of certain medications in Turkey differ from prices at Georgian pharmacy networks, making expensive medications in Georgia are triple the price of the same products in Turkey.
Caucasus Business Week (CBW) inquired into the specific reasons behind this situation, and the available measures for medication price regulation in Georgia.
Unlike us, Turkey has made smart decisions, said David Sergeenko, the Minister of Labor, Health and Social Protection of Georgia. “In 2007 and 2010, we considered privatization decisions very simple, while Turkey carried out reasonable policies and maintained strong state-owned counterweights in both the clinical and pharmaceutical industries.”
“Secondly, Turkey is a huge market, and it is involved in negotiations with international manufacturers for production localization, that is: major pharmaceutical companies are welcome to produce medications in Turkey, and this factor essentially cuts expenses.”
“Thirdly, several years ago Turkey managed the region’s consolidated purchase, and several countries united their resources for buying the same medications, and this is a mechanism for preferential tariffs,” Sergeenko said.
Shota Gulbani, the president of the Association of Young Financiers and Businessmen (AYFB), said that several factors make medications expensive in Georgia. First of all, an uncontrolled pharmaceutical market, in which medication prices should be regulated by the free market of a competitive environment, has not brought the desired effect. The prices of medications and medical services only cause discontent and directly hit the poor, the absolute majority in our country.
“We have a paradoxical situation in the Georgian market. At a glance, there are many suppliers, and we have domestic production too, and this is a good precondition to lower medication prices in a competitive environment. However, we have different situation, and we see that medication prices grow irreversibly,” he said.
“When discussing expensive medications, it is desirable to specify what expensive prices mean and what parameters we use to make these conclusions. For example, our organization conducted medication market research during various periods and frequently, the extra price of medications exceeds 1000% of their actual value. Naturally, such prices genuinely enable us to say that medications are expensive. And the government cannot change this situation.”
“Another important reason is that we do not have domestic production and we depend on imports. When a majority of medications in the market are imported, naturally, prices mainly depend on currency volatility, while a deficit of domestic production directly precedes high tariffs,” Gulbani said.
As for why domestically produced medications are more expensive than in neighboring countries, Gulbani said: “Similar cases were recorded and it is difficult to say something, however, I believe this is related to the business strategy of pharmaceutical companies, which always aim to maximize their profits. When a businessman sees that the demand for medications grows and he is free to price as he wants, he will set prices which will bring higher profits. For example, in Armenia or in other countries where these medications are exported, manufacturers offer competitive prices to occupy a market niche and promote sales there. Therefore, we have higher prices in Georgia compared to foreign countries.”
“The government can use two mechanisms to prevent this. First, it can raise the interest of foreign investors in shaping new production and distribution networks, and this will enable real competition on the market,” he said.
Another mechanism is to share the strategy of European countries, where the government sets a top margin on extra prices.
“This is a widely-used method in Europe and is not innovation. Medication is not a commercial product, it has an important social importance and it is an in-demand product. Therefore, the government should take corresponding measures to curb growth in prices or to ensure attainability of medications for vulnerable groups,” Gulbani said.
Economic expert and analyst Merab Janiashvili said that Georgian-made medications are sold much cheaper in Armenia, because there is not healthy competition in Georgia.
“They set prices at their own discretion, while this is impossible in Armenia. For example, Aversi-manufactured medications are sold much cheaper in Armenia. If we analyze international brands, we will find a lot of medications that are much cheaper in Armenia than in Georgia,” Janiashvili noted.
The government does not make a real effort to eradicate this practice, because pharmaceutical companies are powerful lobbyists. “The Competition Agency does nothing, when this situation should be abolished,” Janiashvili said.