Brazil's Federal Government Sets Pharmaceutical Price Increase of Up to 5.85%

Brazil's federal government yesterday (19 March) approved a price increase of up to 5.85% for all drugs throughout the country. According to Sao Paolo pharmaceutical association Sindusfarma, cited by Agencia Globo, about 48% of the drugs should have their prices reduced. According to the source, the reviewed list of prices was calculated on the basis of generic competition for each drug level, which means the market share is for that generic product at a specific drug level, with the greater being the increase in price. A full list of adjusted 2012 prices can be seen on regulatory agency Anvisa's website. The increase is expected to come into force from 31 March and will reference back to the manufacturer's price as of 31 March 2011. According to resolution number 2/2012, the government decided to divide the drugs into three levels. Level 1 is a drug class where generics account for at least 20% of market sales, for which there is a maximum allowed price increase of 5.85%, the highest increase allowed on the market. Pharmaceuticals classified as Level 2 are drugs for which generic sales occupy 15–20% of the market; the price increase for this level can be a maximum of 2.80%. The last drug class, Level 3, corresponds to those products with a share of generic competitors of less than 15%; for these drugs, the government allows a price reduction of up to 0.25%. According to Sindusfarma, cited by the source, "the coming into force of the resolution does not mean that there will be immediate and automatic increases in pharmacies". According to the association, "there is usually an adjustment period, which lasts about two to three months", which should make the first price changes perceivable in June or July. The new prices are being implemented on 31 March and will be kept in place until March 2013. The new price increase applies to about 20,000 items on the pharmaceutical market, such as antibiotics and over-the-counter drugs. High market competition drugs, herbal and homeopathic products are not subject to the price adjustments determined by the Pharmaceutical Price Council (CMED), as their prices can vary according to the manufacturer's determination.
The calculation of the adjustment of medicines takes into account a number of factors. The first element to be considered is the Consumer Price Index accumulated between March 2011 and February 2012. The second is the competitiveness of a particular drug on the market, measured against generic competition. The higher the share of generic sales, the higher the price increase. Drug increases proposed by the CMED can be considered as price ceilings: drug makers are allowed to submit lower prices for CMED's consideration.

Outlook and Implications

As a consequence of resolution number 2/2012 of CMED, a pharmaceutical increase of up to 5.85% will apply to all drugs countrywide starting from 31 March. Given the fact that drugs will be classified into three different levels based on the percentage of generic competition on the market for that level of drugs, with a maximum price increase corresponding to each drug level, the average price increase is calculated to be 2.81% (source: Anvisa). Although two out of the three drug levels will be experiencing price increases, the third drug level is expected to experience a price decrease of up to 0.25%; this price drop is of particular concern to Sindusfarma, as the pharmaceutical industry is constantly experiencing an increase in production cost, which is set to be 10% in 2012 (source: Globo).

Although the 5.85% drug price increase is scaring consumers and consumer associations across Brazil, this 2012 drugs price increase is lower than 2011's 6.01% increase. Drug price increases have still not returned below official inflation levels, but price increases are lowering. The pharmaceutical sector in Brazil is still growing strongly despite the crisis, but lowered price increases are a reflection of the global financial crisis's effect on the country's economy and the international companies present in the country. Although the new prices officially come into force on 31 March, they are expected to be implemented fully throughout the country and hit consumers around June–July.