DRAFT – FOR FURTHER DISCUSSION

NOT FOR DISTRIBUTION OR CITATION

Regulating Mark-ups and Other Insulin Price
Components in the Supply Chain
Douglas Ball Pharmaceutical Consultant Delhi, India
Draft Prepared for Multi-Stakeholder Meeting September 2017

Background
Diabetes is a chronic condition that is on the increase worldwide. It is estimated that more than
400 million people are living with diabetes worldwide. Many will need insulin for their long-
term care – for some it is literally life-saving - yet only half of those in need have reliable
access(1). Insulin places a high financial burden on health systems and insulin users (2)
especially since syringes, blood glucose meters, education, information, and family support are
also required (3).

The price of a medicine, such as insulin, can have a substantial impact on access especially
amongst those in low-resource settings. Even where it is available for free in the public sector, a
lack of availability can mean that people have to purchase medicines out-of-pocket from private
retailers. Reducing the price people have to pay for their insulin can increase access to this
essential medicine and improve the health outcomes of those with diabetes. This document
examines some of the factors in the supply chain that influence the price of insulin and related
policy options that could be considered to increase access to this important medicine in both
public and private sector.

Price and Price Component Regulation

The price paid by a person or other payer for a medicine is determined by a number of factors.
The manufacturer sets a selling price to cover the cost of production, marketing and other costs
plus a profit margin. As the medicine moves along the supply chain, through importers,
wholesalers, distributors and retailers to the patient, it incurs a series of cumulative add-on
charges and mark-ups to arrive at the final patient price. These include freight and insurance
charges, import levies and duty, distribution and operating costs, taxes, and profit margins for
all in the supply chain. Depending on where these are incurred in the supply chain and their
magnitude, they can have significant impact on the end price. Studies of medicine prices in low-
and middle-income countries (LMICs) have shown cumulative mark-ups varying between 11
percent and 6,894 percent (4) but data on insulin are limited.

Price regulation has the objective of reducing medicine prices and containing pharmaceutical
expenditure, while ensuring prices are sufficient to achieve availability and assure product
quality(4). Many LMICs have no or weak regulation of medicine prices whilst most OECD
countries regulate price components such as wholesaler and retailer mark-ups, in their public
sector as part of a comprehensive pricing strategy. It is possible to study prices and price
components in a country (5) in order to inform policy decisions about how to regulate, reduce or
eliminate these price components (4) and taxes (6,7) in the public and private sector (8).

Government Procurement of Medicines

The base price of a product is the manufacturer’s selling price (MSP). Good procurement
practice based on evidence-based essential medicine lists (EMLs) (see box below) with use of
competitive tenders helps to ensure a lower price for the government payer and public sector
patients. However, the limited number of manufacturers of insulin can result in less competition
and higher prices. Some countries use negotiation to try and get a lower price, and some
manufacturers (such as Novo Nordisk for human insulin) offer discount prices for low-income
countries. However, there is little transparency of pricing, and it is difficult to know what a good
or fair price is – one that covers the cost of production, permits production of a quality-assured
product and allows a ‘reasonable’ profit. Market research including use of publicly available
price information sources (e.g. MSH International Medical Product Price Guide 10) and
participation in price-sharing fora (e.g. WHO PIEMEDS11) formally or informally can help
inform procurement decisions. Some international procurement agents and United Nations
agencies (e.g. UNICEF) may be able to offer quality-assured insulin upon request but their
prices may not be better than public tenders.

Insulins included in WHO List of Essential Medicines 20 th Edition 2017 (4).

Insulin injection (soluble)

– 40IU/ml in 10ml vial or 100IU/ml in 10ml vial

Intermediate acting insulin

– 40IU/ml in 10ml vial or 100IU/ml in 10ml vial
(as compound insulin zinc suspension or isophane insulin)

In particular public health cases, it may be possible to make publicly procured medicines
available to the private sector in order for priority medicines to be available at lower prices. This
should be done in such a way as not to undermine the private sector stakeholders. There are two
notable examples of this. Mali allowed its central medical store to sell medicines to private for-
profit retail pharmacies as part of its strategy to increase access to a limited list of essential
medicines (12). In a similar strategy, the government of Trinidad and Tobago implemented a
Chronic Disease Assistance Programme funded by general taxation (13). Under this programme,
centrally-procured medicines for non-communicable diseases (NCDs), including diabetes, are
made available free to people through the private pharmacy network. Mechanisms need to be in
place to ensure that mark-ups, if any, are adhered to and that the lower price is passed on to
people.

Public Sector Price Regulation

Public sector distribution chains may incur mark-ups and other add-on charges (Table 1). Available
evidence in LMICs has shown public sector mark-ups on medicines ranging from 10-20 percent for
wholesale distribution and 0-30 percent for retail sales to patients at the pharmacy (14). For example,
the National Medical Stores in Uganda charges a 10 percent distribution mark-up on the tender price to
Ministry of Health facilities (15) and government hospitals in the Philippines may charge a retail mark-up
of 30 percent to patients (16). It is not wise to compare such mark-ups between countries without
knowing how the supply chain and health system operate. In some countries, medicines are available
free-of-charge whereas in others the supply chain operates on a cost-recovery or even commercial basis.
However, any mark-ups should be based on sound data of actual costs and should be monitored and
enforced to prevent some facilities charging excess amounts. While it is possible to apply lower mark-ups
for higher priced items, such as insulin (see Private Sector Regulation), there is always a danger that such
mark-ups will be seen as income-generating. Removing all mark-ups in the public sector, and funding the
distribution costs through budget allocation, simplifies implementation and can help to reduce prices
and increase access.

Table 1. example of the components making up the patient price of a medicine like insulin

Even if insulin is sold at the government tender or procurement price, this may still be a
significant barrier to some people needing insulin. One way to ensure price is not a barrier in the
public sector is to make insulin available free-of-charge – or fully reimbursed by health
insurance – rather than charging those already disadvantaged. However, it is important to
ensure availability; one study of seven countries that provided insulin for free showed that only
two (Mauritius and Kuwait) had substantial availability of the product (2).

A number of approaches are possible to the provision of medicines for free (or fully reimbursed)
in the public sector which could include covering:
• All medicines provided through public health outlets;
• All medicines on the EML;
• Only medicines for certain public health programmes e.g. HIV, TB, NCDs;
• Only specified high priced or high public health priority medicines;
• Only medicines for the poor or identified disadvantaged groups.

Supplying all medicines free-of-charge may be easiest to implement, but means loss of revenue
for the government. Ideally, the medicines in the public health sector should be based on an
EML - this needs to be evidence-based and regularly updated in order to be relevant and avoid
scarce resources being used for products of limited benefit. Basing reimbursement or free supply
on the EML supports the national essential medicines policy. Exempting only some essential
medicines of particular public health priority e.g. medicines for NCDs can increase access to
medicines of high public health impact with less loss of revenue.

Private Not-for-Profit Sector

Some countries have part of their health care services provided by non-governmental or faith-based
organisations. These health provision partners should be engaged with to discuss the options for
provision of insulin at low or no cost to people. Such organisations may not use competitive
procurement procedures for insulin and could use mark-ups on medicines for income-generation, so may
not be aware of the impact this has on access. Depending on the legal provisions in a country, it may be
possible to regulate the mark-ups used in the private not-for-profit sector. This sector may also qualify
for discounted prices from some insulin manufacturers. Another option is to source their insulin supplies
from government procurements in order to provide access to lower priced supplies.

Private Sector Price Regulation

The provision of medicines in the private health sector may act independently or may be
integrated with the public sector, particularly where a health insurance reimbursement
mechanism exists. Even where the private sector is separate from the public sector, lack of
availability of medicines in the public health facilities may force people to seek their supplies at
private retail outlets (3). Regulation of private sector prices of all medicines, or a selection of
high priority medicines, is one option for increasing access. It can be particularly relevant for
high priced medicines that have a single or limited number of suppliers in the market, and
where competition is unable to act effectively. Insulin, with a limited number of manufacturers,
could meet this criterion.

Supply Chain Mark-ups

There is little evidence of the impact of the regulation of wholesale and retail mark-ups on access to
medicines in LMICs (5) and the WHO has developed policy guidance on the regulation of mark-ups in the
supply chain (9) (box below). However, many high-income countries regulate supply chain mark-ups as
part of a comprehensive pricing strategy.

WHO Recommendations on Regulation of Mark-ups in the Supply Chain (9)

 As part of an overall pharmaceutical pricing strategy, countries should consider regulating
distribution chain mark-ups (i.e. regulation of distributors and wholesalers).
 As part of an overall pharmaceutical pricing strategy, countries should consider regulating
retail chain mark-ups and fees (i.e. regulation of pharmacies, dispensing doctors, and
dispensaries).
 If mark-ups are regulated, countries should consider using regressive mark-ups (i.e. lower
mark-up for higher-priced products) rather than fixed percentage mark-ups, given the incentive
that the latter provide for higher-priced products to receive a higher net margin.
 Countries should consider using remuneration/mark-up regulation to provide incentives for
supplying specific medicines (e.g. generics, low volume medicines, reimbursable medicines) or
to protect specific patients or population groups (e.g. vulnerable groups, remote populations).
 In systems where rebates and discounts in the distribution chain occur, countries should
consider regulation and should make them transparent. This information should be taken into
account when reviewing and regulating mark-ups and prices.

It is important to note that regulating mark-ups alone, without regulating the initial
procurement and/or final selling price is not likely to be effective as these may be manipulated.
There needs to be sufficient enforcement capacity to ensure that the regulations are followed.
Furthermore, availability and price monitoring mechanisms should be in place to evaluate the
effects of pricing regulations since they may have unintended effects, such as some essential
medicines being removed from the market and supplies of products with higher profit margins
being promoted.

Fixed percentage mark-ups are common in LMICs at wholesale and retail levels, but these can promote
the sale of higher priced medicines that will realise a greater profit. Regressive percentages mark-ups
e.g. a lower percentage on higher priced products, is one alternative. Fixed fees can also be used to
promote the sale of low-priced essential medicines, and combination strategies may be used (Table 2).

Figures 1 and 2 show examples of price components and wholesale and retail mark-ups for insulin
products in Ghana, Uganda (no price regulation) and India, and what proportion each contributes to the
final price (15). Most variability was seen in the retail mark-ups, varying from 13 percent to 131 percent
but other price components also showed substantial differences between countries. Conducting a
national insulin price and availability survey, and studying the price components of insulin and the
incentives in the market, can help to understand if price regulation would help to lower prices and
increase access (5).
Table 2. potential distribution mark-up regulation strategies (may be applied in combination)

Strategy Description of charge added to cost price

Fixed or flat fee A fixed amount is added to all items.
Differential fixed or regressive flat fee Items in one category incur a higher/lower fixed
amount e.g. EML vs. non-EML, POM vs. OTC,
cold chain vs. normal.
Regressive flat fee Higher cost items incur a lower fixed amount.
Fixed percentage A fixed percentage of the cost price is incurred.
Differential fixed or regressive percentage Items in one category incur a higher/lower fixed
percentage e.g. EML vs. non-EML, POM vs. OTC,
cold chain vs. normal.
Regressive percentage (whole procurement price) Higher cost items incur lower percentages
according to defined cost thresholds.
Regressive percentage (part of procurement price; Higher cost items incur lower percentages
“sequential”) according to defined cost thresholds, with the
mark-ups applied ‘sequentially’ to the amount of
purchase price remaining.
Fixed maximum fee Maximum fixed amount is regulated but lower
amounts can be incurred.
Fixed maximum percentage Maximum percentage of cost price is regulated but
lower mark-ups can be applied.
Regressive maximum percentage or fee Higher cost items incur lower fixed amounts or
percentages according to defined cost thresholds,
with each specifying a maximum mark-up.

Key : POM – prescription only medicine, OTC – over-the-counter, EML – essential medicine list
Figure 1. Magnitude of price components for selected insulin products in three countries
Taxes and Tariffs

Taxes and duties, such as import tariffs, VAT or other sales taxes, can be important components
of the final price of a medicine. While taxes are necessary for governments to provide the
structures and services that allow society and the economy to function properly, when applied to
essential medicines, those who are already adversely affected and who may be unemployed
because of their illness end up bearing the brunt of the charges.

Removing import duties, tariffs and taxes can contribute to a lower final price for medicines,
although a monitoring mechanism is needed to ensure that savings are passed on to people in
need. Exemptions could be applied to all medicines regardless of their indication, or just
medicines on the national EML, life-saving medicines, chronic disease medicines, and/or
medicines with important public health benefits. Insulin is a good example of a medicine that
should be exempt of all tariffs and taxes.

Many countries have already made moves to reduce or eliminate import charges for medicines, including
insulin. A recent study of the price components of insulin in six LMICs found that four had removed
import duties on essential medicines, although in some cases additional tariffs and processing fees were
applied. However, sales tax or VAT was common and was sometimes substantial (Table 3).

Table 3. Sales tax and VAT on private retail sales of insulin in selected countries
(August 2016) (15)

Country VAT on insulin (%)

Brazil (Rio de 20
Janeiro)
China 17
Ghana 17.51
India (Haryana 5.25
State)
Indonesia 10
Uganda Exempt

The loss in revenue from import and tax exemptions will need to be made up from general
taxation or similar instruments. One strategy can be to raise taxes on health-damaging products
such as tobacco and alcohol. The Philippines government has successfully used such ‘sin taxes’
by earmarking them for particular health policies including providing coverage for social
insurance packages for the poor including management of diabetes (17). A similar strategy could
be to tax sugary drinks and unhealthy foods to raise funds to support insulin access, while at the
same time promoting healthy lifestyles.

Discounts and Rebates

Discounts, rebates, bonuses and other trade deals are frequently used in commercial
interactions between manufacturers, wholesalers and retailers in order to boost sales, promote
particular products and reward client loyalty. These ‘savings’ are not necessarily passed on to
people, and the costs to the supplier will be recouped through the pricing strategies of the
manufacturer or other supplier. Thus such schemes probably do not lead to lower-priced
medicines, and can blur transparency and support corrupt practices. While it is easy to
discourage or ban such practices in public tenders, it is more difficult to identify and prevent
them in the private sector. Most countries accept them as a part of business. However, South
Africa has banned such practices in order to promote price transparency (18). Such measures
need to be supported by robust information and enforcement mechanisms.

Recent Studies of Price Components of Insulin

Little information is available on the price structure and mark-ups on insulin. However, a recent
study by ACCISS of case studies of insulin price components from Brazil, China, Ghana, India,
Indonesia, and Uganda have shown no clear international trends (15). There were no specific
differences in the add-on costs and mark-ups between those products manufactured by the three
large multinationals and smaller biosimilar insulin producers, nor between human and
analogue insulin. Despite insulin distribution requiring maintenance of the cold chain for its
appropriate storage, there was no evidence that wholesalers or retailers increased their mark-
ups on insulin compared to other medicines.

The magnitude of mark-ups tended to be country-specific (Figure 1) with cumulative mark-ups

sometimes doubling the MSP and in a few cases the patient price more than three times the
MSP. Countries with price regulation showed more uniform mark-ups but total cumulative
mark-ups and patient prices could still be high. There were examples of loopholes being used to
apply excessive mark-ups in Indonesia for people not covered by national health insurance
underlining the need for monitoring mechanisms to evaluate the effects of price regulation.
While import duties had largely been removed for essential medicines, sales taxes such as VAT
were substantial in the private sector (Table 2). Discounts and deals were reported in the supply
chain and pricing was not transparent in the countries without price regulation.

The results of the cases studies suggested that there is no standard approach to improving
insulin access through price components, apart from elimination of taxes and tariffs, and that
countries need to evaluate their own situation and take appropriate steps according to their
capacity and needs. There is a clear need for transparency of MSP and patient prices of insulin.
A summary of options to regulate insulin price components in the supply chain is given in Annex
1.
Summary and Conclusions
While data from the recent surveys needs to be seen in conjunction with other evidence on the
price and availability of insulin and other factors affecting access, it is clear that analysis of the
price components in the supply chain of insulin products can identify areas that could help to
improve affordability and access. However, apart from measures such good public procurement
practice and the removal of tariffs and taxes, there is no one-size-fits-all approach. The situation
in each country needs to be evaluated separately to identify where significant issues lie. Price
regulation can play a role in the absence of significant competition in the private market.
However, it requires careful assessment of the local insulin market, cost drivers and incentives,
and there needs to be sufficient capacity for monitoring prices in the market and enforcing any
regulations.

For more information see “The Regulation of Mark-ups in the Pharmaceutical Supply Chain” (14) and
“WHO guideline on country pharmaceutical pricing policies” (9).