State Regulation of VED Prices: Calculation and Registration of Maximum Manufacturer Selling Prices for Medicinal Products and Establishment of Wholesale and Retail Markups

 

Anna Ivanova, Attorney at BRACE Law Firm

February 19, 2023

BRACE Law Firm ©

 

As a general rule, medicinal products circulate freely within the Russian Federation without controlled pricing. However, for vital and essential drugs (the "VED"), the list of which is determined by the Russian фGovernment, the government establishes state price control. This involves determining maximum manufacturer selling prices for medicinal products, as well as wholesale and retail markups, with a prohibition on unreasonable price increases. Below are the key features of the legal regulation of VED pricing.

Pursuant to Article 60 of Federal Law No. 61-FZ dated April 12, 2010, On the Circulation of Medicinal Products (the "Law on Circulation of Medicinal Products"), state regulation of prices for medicinal products for medical use is carried out through:

• approval of the list of vital and essential drugs by the Russian Government (the "VED List");
• approval of the methodology for calculating maximum manufacturer selling prices for medicinal products included in the VED List, as well as the implementation of mechanisms for forming a reference price system;
• state registration of maximum manufacturer selling prices for medicinal products included in the VED List and maintenance of the registry of said maximum manufacturer selling prices;
• approval of the methodology for establishing maximum wholesale and retail markups by regional authorities to the actual selling prices set by VED manufacturers, and the direct establishment of the maximum sizes of such markups;
• approval of the procedure for regional authorities to issue directives to align decisions on establishing maximum wholesale and retail markups for VED with Russian legislation if they were adopted in violation of the law, as well as sending relevant directives to authorized bodies to align decisions adopted in violation of the law regarding maximum wholesale and retail markups for medicinal products included in the VED List;
• exercise of federal state surveillance in the sphere of circulation of medicinal products and regional state control over the application of prices for medicinal products, as well as the application of liability measures provided for by law for violating the VED pricing procedure.

This article examines the main features of pricing for medicinal products in Russia within the framework of the mechanisms listed above.

General Issues of Medicinal Product Pricing

As noted earlier, state regulation of prices for medicinal products is carried out by establishing maximum manufacturer selling prices and maximum wholesale and retail markups regarding the VED. The VED List was approved by Government Order No. 2406-r dated October 12, 2019. This list is constantly updated and supplemented. Consequently, problems sometimes arise when determining prices for medicines newly included in the VED List. In this regard, FAS Russia clarified that wholesale and retail organizations may not sell medicinal products included in the VED List until the state registration of the maximum manufacturer selling prices. When selling medicinal products included in the VED List, wholesale organizations must prepare a protocol of price coordination. If a medicine was purchased at a price higher than the maximum manufacturer selling price, the protocol must indicate the registered maximum manufacturer selling price, the actual manufacturer selling price, and the wholesale selling price, which is calculated based on the maximum manufacturer selling price.

A retail organization has the right to sell medicines from the VED List at a price:

• not exceeding the sum of the maximum manufacturer selling price, the maximum wholesale markup, and the maximum retail markup—if the purchase price was higher than the sum of the maximum manufacturer selling price and the maximum wholesale markup;
• not exceeding the sum of the purchase price and the maximum retail markup—if the purchase price was lower than or equal to the sum of the maximum manufacturer selling price and the maximum wholesale markup.[1]

Thus, as a general rule and according to the position of FAS Russia, the formation of the selling price for a medicinal product included in the VED List by wholesale organizations and (or) pharmacy organizations, and individual entrepreneurs holding a pharmaceutical license, depends on the actual selling price established by the manufacturer, as well as the size of the wholesale markups applied by preceding wholesale organizations involved in the distribution chain of the relevant medicinal product. In view of the above, the process of selling a medicinal product included in the VED List—in the context of considering which manufacturer selling price should be taken into account by wholesale and (or) pharmacy organizations and individual entrepreneurs (the actual selling price established by the manufacturer at the time of sale, or the price indicated in the Price Registry after the relevant changes are made to the Price Registry)—should be viewed as a single legal relationship beginning with the sale by the manufacturer and ending with the sale to the end consumer.[2]

The procedure for registering maximum manufacturer selling prices is discussed in more detail below.

Registration of Maximum Manufacturer Selling Prices for Medicinal Products

According to the general rule of Article 61 of the Law on Circulation of Medicinal Products, the maximum manufacturer selling price for a medicinal product included in the VED List is subject to state registration. The Rules for State Registration and Re-registration of Maximum Manufacturer Selling Prices for Medicinal Products Included in the List of Vital and Essential Drugs (the "Rules for Price Registration") were approved by Government Decree No. 865 dated October 29, 2010.

In accordance with Government Decree No. 865 dated October 29, 2010, On State Regulation of Prices for Medicinal Products Included in the List of Vital and Essential Drugs (the "Decree No. 865"), to perform the state registration (re-registration) of a maximum manufacturer selling price, the Marketing Authorization Holder (the "MAH") or its owner (or an authorized person) must submit the following documents to the Ministry of Health of Russia (in duplicate on paper and in electronic form):

a) an application for the re-registration of maximum manufacturer selling prices for medicinal products included in the VED List, according to the form in Appendix No. 2;

b) information on the license to manufacture medicinal products;

c) information on the Marketing Authorization for the medicinal product;

d) documents submitted taking into account the requirements of the Methodology for Calculating Maximum Manufacturer Selling Prices for Medicinal Products Included in the VED List During Their State Registration and Re-registration, approved by Government Decree No. 979 dated September 15, 2015, On Amending Government Decree No. 865 dated October 29, 2010, and Approving the Methodology for Calculating Maximum Manufacturer Selling Prices Set by Manufacturers of Medicinal Products Included in the List of Vital and Essential Drugs During Their State Registration and Re-registration (the "Decree No. 979"), which include:

• information on the volumes and selling prices of the medicinal product in circulation in the Russian Federation from manufacturers in Eurasian Economic Union (EAEU) member states and foreign manufacturers performing primary and (or) secondary packaging of the medicinal product in the Russian Federation;
• calculation of the maximum manufacturer selling price for the medicinal product submitted for state registration (re-registration);
• information on the volumes and import prices of the foreign-made medicinal product in circulation in the Russian Federation;
• information on the existence of registered maximum manufacturer selling prices for the declared medicinal product;
• calculation of the maximum manufacturer selling price for a generic or bioequivalent (biosimilar) medicinal product submitted for state registration;
• calculation of the maximum manufacturer selling price for a medicinal product from EAEU member state manufacturers submitted for state registration;
• justification for the calculation of the maximum manufacturer selling price for a medicinal product from EAEU member state manufacturers submitted for re-registration;
• justification for the calculation of the maximum manufacturer selling price for a medicinal product from foreign manufacturers performing primary and (or) secondary packaging of the medicinal product in the Russian Federation, submitted for re-registration;
• a document confirming the powers of the authorized person (Part 5 of Decree No. 865).

Similar norms are contained in the Methodology for Calculating Maximum Manufacturer Selling Prices, approved by Government Decree No. 979 dated September 15, 2015, On Amending Government Decree No. 865 dated October 29, 2010, and Approving the Methodology for Calculating Maximum Manufacturer Selling Prices Set by Manufacturers of Medicinal Products Included in the List of Vital and Essential Drugs During Their State Registration and Re-registration (the "Methodology for Calculating Maximum Manufacturer Selling Prices").

Mandatory Re-registration in 2019–2020 of Registered Maximum Manufacturer Selling Prices

The legislature established the deadline for the re-registration of prices previously set for VED (before the implementation of these Rules) until the end of 2020. As established by Government Decree No. 1683 dated December 16, 2019, manufacturers are not permitted to sell medicinal products for which maximum selling prices have not been re-registered as of January 1, 2021. At the same time, medicines sold in Russia before the effective date of the Ministry of Health order on re-registration in 2019–2020 of the maximum manufacturer selling price may remain in circulation until their expiration date, taking into account the actual manufacturer selling price, which must not exceed the maximum selling price applicable on the date of their sale. Such an order from the Ministry of Health of Russia on the mandatory re-registration of the maximum manufacturer selling price for a medicinal product takes effect five months after its adoption.

Within the framework of the above requirements, drug manufacturers raised questions about whether it is possible to account for transportation costs, customs clearance, and fees for exporting medicinal products from a foreign state during the re-registration of the maximum manufacturer selling price. FAS Russia clarified that during mandatory re-registration, the maximum manufacturer selling price for a reference medicinal product for each dosage form, dosage (concentration, activity in units of action), and the total quantity in secondary (consumer) packaging, regardless of the form of release, cannot exceed the minimum manufacturer selling price (excluding the manufacturer's production sites) for such a medicinal product in the foreign states listed in Appendix No. 3 to the Rules for the Mandatory Re-registration in 2019–2020 of Registered Maximum Manufacturer Selling Prices for Medicinal Products Included in the List of Vital and Essential Drugs (the "Rules for Mandatory Re-registration"), approved by Decree No. 865 (taking into account costs related to customs clearance), calculated in accordance with the data specified in Appendix No. 2 to the said Rules. This appendix accounts for the minimum manufacturer selling price (excluding production sites) in foreign states (Appendix No. 3) and the current customs duty rate and customs clearance fees. Consequently, the accounting of other expenses, including transportation costs, is not provided for.[3]

It is important to note that the re-registration of maximum manufacturer selling prices is possible downward upon application, whereas the re-registration of a maximum selling price registered in accordance with the Rules for Mandatory Re-registration upward can be performed no more than once a year based on an application submitted by the MAH or owner of the Marketing Authorization no later than October 1 of the calendar year. The MAH is also obliged to submit an application for price re-registration toward a reduction in the following cases:

• a reduction in the price in foreign currency for the medicinal product in the manufacturer's country and (or) in countries where the medicinal product is registered and (or) to which it is supplied by the manufacturer, or a reduction in the above prices for reference medicinal products (for corresponding generic or bioequivalent (biosimilar) medicinal products);
• the maximum manufacturer selling price for the first generic or bioequivalent (biosimilar) medicinal product of foreign manufacture exceeds the maximum manufacturer selling price for the second generic or bioequivalent (biosimilar) medicinal product, calculated in accordance with the Methodology for Calculating Maximum Manufacturer Selling Prices;
• the maximum manufacturer selling price for the first generic or bioequivalent (biosimilar) medicinal product from an EAEU member state manufacturer exceeds the maximum manufacturer selling price for the second generic or bioequivalent (biosimilar) medicinal product from an EAEU member state manufacturer, calculated in accordance with the Methodology for Calculating Maximum Manufacturer Selling Prices.

It should be noted that disputes regarding the re-registration of prices for medicinal products sometimes arose during state procurement. For instance, a potential bidder filed a complaint stating that the description of the procurement object does not allow bidders to offer an interchangeable medicinal product within the same INN. The petitioner also indicated that the medicinal product (INN Iopromide) is included in the VED List. However, the antimonopoly authority concluded that it is not permitted to sell or dispense medicinal products included in the VED List for which the manufacturer has not registered a maximum manufacturer selling price, nor to sell or dispense them at prices exceeding the registered prices. Furthermore, the medicinal products proposed by the petitioner were not included in the VED List and therefore could not be offered for supply. Consequently, the complaint was found to be groundless.[4]

Technical problems sometimes occur in procurements that specify maximum manufacturer selling prices. For example, the commission of the Novosibirsk OFAS Russia established that a medicinal product was included in the VED List with a registered maximum manufacturer selling price. The Customer posted a draft contract in the EIS for signature with the winner of the auction. However, the winner posted a protocol of disagreements in the EIS, according to which changes were made to the contract price in accordance with the maximum wholesale and retail markups for VED approved by the Novosibirsk regional administration. The Customer then posted a revised draft contract with a reduced price of 850,000 rubles. However, the Customer's argument that the EGISZ does not allow for a certain number of decimal places for the price per 1 ml of the medicinal product was found to be invalid, as it was not objective; the Customer is not entitled to adjust the contract price due to technical problems when filling out the contract form via EGISZ.[5]

Thus, currently, registration of the maximum manufacturer selling price is mandatory for medicinal products included in the VED List.

Procedure for Calculating Maximum Manufacturer Selling Prices for VED

A different procedure for determining maximum manufacturer selling prices has been established for medicinal products from EAEU member states and other foreign manufacturers.

According to the Methodology, the proposed maximum manufacturer selling price for an EAEU member state manufacturer for a reference medicinal product cannot exceed:

• the weighted average actual selling price for the reference medicinal product for the reporting period, calculated based on information on the volumes and selling prices of medicinal products from the EAEU member state manufacturer and foreign-made medicinal products whose primary and (or) secondary packaging is carried out or planned to be carried out in the Russian Federation;
• if the foreign-made or EAEU manufacturer's medicinal product is sold in foreign states for which information on the level of minimum selling prices is submitted—the minimum manufacturer selling price (excluding production sites) for the medicinal product in those states, calculated based on the maximum manufacturer selling price calculation submitted for state registration (re-registration), according to Appendix No. 3 to the Methodology, taking into account costs related to customs clearance.

The Methodology for Calculating Maximum Manufacturer Selling Prices provides the following formula for calculating the weighted average selling price:

where:

• actual selling price – the actual selling price of the EAEU manufacturer per consumer package of the medicinal product (indicated by trade name, INN, dosage (concentration, activity in units of action), dosage form, and quantity of dosage forms in the consumer package (number of doses, volume)) (rubles);
• quantity sold – the number of packages of the medicinal product from the EAEU manufacturer shipped during the reporting period at one price (units);
• total quantity sold – the total number of packages of the medicinal product from EAEU manufacturers within the framework of the Marketing Authorization manufactured and shipped during the reporting period (units). Export supplies, supplies within various types of humanitarian aid, and supplies for charity or with a residual shelf life of less than 5% are excluded from the total quantity. The reporting period is the calendar year preceding the day the application for registration of the maximum manufacturer selling price is filed. If the price is registered in the year the Government act approving the VED List for the next calendar year is issued, the reporting period will be the current calendar year.

The weighted average actual selling price for a foreign-made medicinal product whose primary and (or) secondary packaging is carried out or planned in Russia is calculated using a similar formula.

The proposed maximum manufacturer selling price for a foreign-made reference medicinal product also cannot exceed:

• the weighted average actual import price of the reference medicinal product for the reporting period, taking into account costs related to customs clearance, calculated based on information on the volumes and import prices of the foreign-made medicinal product in circulation in the Russian Federation during the reporting period;
• the minimum selling price for the foreign-made reference medicinal product (excluding production sites) in the foreign states listed in Appendix No. 2 to the said Methodology, determined based on the calculation provided in Appendix No. 3 to the Methodology, taking into account costs related to customs clearance.

Appendix No. 2 to the Methodology lists the following reference states: Hungary, the Hellenic Republic, the Kingdom of Belgium, the Kingdom of Spain, the Kingdom of the Netherlands, the Republic of Poland, Romania, the Slovak Republic, the Republic of Turkey, the French Republic, and the Czech Republic. The price in the manufacturer's country is also taken into account.

State re-registration of the maximum manufacturer selling price for foreign manufacturers is carried out considering: the projected inflation rate for the current year established by the federal budget law, but not higher than the difference between the projected inflation rate and the difference (calculated as a percentage of the registered price) between the registered maximum manufacturer selling price and the weighted average actual import price for the period since the last registration, taking into account the minimum manufacturer selling price (excluding production sites) in the relevant countries, with the submission of information (at the MAH's choice) confirming the minimum manufacturer selling price (on paper with a certified translation into Russian).

Below is the data on the calculation procedure for all indicators mentioned above.

The projected inflation rate for the current year established by the federal budget law for the relevant financial year and planning period.

The actual inflation rate of the preceding calendar year, considering the projected inflation rate for the current year, is calculated using the following formula:

$$\text{Actual Inflation} = \left( \frac{\text{CPI}}{100} \times \left(1 + \frac{\text{Inflation TG}}{100}\right) - 1 \right) \times 100$$

where:

• CPI – the consumer price index for goods and services of the preceding calendar year (percentage);
• Inflation TG – the projected inflation rate for the current year established by the federal budget law (percentage).

When calculating the weighted average actual import price, information on the volumes and import prices for the reporting period for each foreign manufacturer within one Marketing Authorization is considered.

The weighted average actual import price (indicated by trade name, INN, dosage, dosage form, and quantity in the consumer package) of foreign manufacturers listed in the Marketing Authorization, imported during the reporting period into the Russian Federation (weighted avg import price) (rubles), is determined by the formula:

$$Price_{weighted\_avg\_import} = \frac{\sum (Price_{actual\_import} \times Quantity_{imp})}{\sum Quantity_{total\_imp}}$$

where:

• actual import price – the actual import price of one consumer package (indicated by trade name, INN, dosage, dosage form, and quantity) from the foreign manufacturer (rubles);
• quantity imp – the number of packages from the foreign manufacturer imported during the reporting period at one price (units);
• total quantity imp – the total number of packages from foreign manufacturers within the Marketing Authorization imported during the reporting period (units).

It is important to note that the calculation of the weighted average actual import price for a specific foreign medicinal product into the Russian Federation is performed based on the information provided in Appendix No. 4 to the Methodology.

This appendix accounts for indicators such as:

• the import price of one consumer package (excluding VAT);
• customs duty and customs clearance;
• the import price of one package including customs duty and customs clearance (excluding VAT).

Similar data is contained in Clause 21 of the Rules for Mandatory Re-registration, approved by Decree No. 865, according to which the minimum manufacturer selling price (excluding production sites) in reference countries, taking into account customs clearance costs, must be submitted for price re-registration. No information regarding the inclusion of other expenses exists.

When re-registering maximum manufacturer selling prices, certain issues arose regarding the application of the calculation methodology. Specifically, FAS Russia noted that when calculating maximum prices for generic medicinal products in liquid dosage forms (classified by aggregate state), the maximum price is defined as the registered (re-registered) maximum price per consumer package of a medicinal product that matches the declared generic in terms of INN (or chemical/grouping name), dosage form, and dosage, with the maximum cost of one dosage form.

If several maximum prices are registered for such a medicinal product (meaning the comparator drug) within the Marketing Authorization that differ in quantity in the secondary consumer package from the declared generic, the maximum price is determined as the arithmetic mean of the last registered (re-registered) maximum prices for such medicinal products based on the cost of one dosage form, multiplied by the number of dosage forms in the secondary consumer package of the declared medicinal product, where Kf is equal to 1.

Thus, if there is no registered maximum price for a comparator drug matching the declared medicinal product in the quantity of dosage forms in the secondary consumer package, the calculation must be performed using registered maximum prices for other consumer packages of the comparator drug.

Different interpretations of these provisions could lead to calculating the declared maximum price based on comparator drug prices that differ significantly in terms of primary packaging (for example, a 1 ml ampoule vs. a 10-liter canister).

In view of the above, it is economically feasible to use the arithmetic mean of the last registered (re-registered) maximum prices for the comparator drug in release forms (in liquid dosage forms) that match the declared medicinal product in the quantity of dosage forms in the primary packaging (for example, comparing a 1 ml ampoule with a 1 ml ampoule or vial).[6]

Furthermore, since maximum prices are registered in rubles with two decimal places, FAS Russia considers it appropriate to round the arithmetic mean of the cost of one dosage form and unit of active substance to the nearest hundredth.[7]

The registration of the maximum manufacturer selling price for VED plays a key role in forming the final selling price to consumers. Specifically, the sale of VED is carried out by adding wholesale and retail markups to the maximum manufacturer selling price.

Procedure for Applying Wholesale and Retail Markups to Medicinal Product Prices

Executive authorities of the constituent entities of the Russian Federation establish maximum wholesale and retail markups for actual manufacturer selling prices in accordance with the methodology approved by the Federal Antimonopoly Service, based on the following principles:

• reimbursement of economically justified costs related to the purchase, storage, and sale of medicinal products for wholesale, pharmacy, and medical organizations and individual entrepreneurs;
• accounting for the amount of profit necessary to provide organizations with funds to service attracted capital and finance other justified expenses;
• accounting for all taxes and other mandatory payments in accordance with Russian law within the markup structure.

The sum of wholesale markups applied by all wholesale organizations involved in the sale of a medicinal product within a constituent entity of the Russian Federation must not exceed the maximum wholesale markup established by the executive authority of that entity.

The retail markup established by a pharmacy organization, individual entrepreneur, or medical organization selling medicinal products within a constituent entity of the Russian Federation must not exceed the corresponding maximum retail markup established by the executive authority of that entity.

When wholesale, pharmacy, and medical organizations or individual entrepreneurs form the selling price for a foreign-made medicinal product, the wholesale and (or) retail markups are applied to the actual manufacturer selling price declared when the goods cross the customs border of the Russian Federation, including customs clearance costs (customs duties and fees), not exceeding the registered maximum manufacturer selling price.

Regional executive authorities establish maximum wholesale and retail markups for VED in accordance with the methodology approved by the Federal Antimonopoly Service. Currently, the Methodology for the Establishment by Executive Authorities of the Constituent Entities of the Russian Federation of Maximum Wholesale and Retail Markups to the Actual Selling Prices Set by Manufacturers for Medicinal Products Included in the List of Vital and Essential Drugs is in effect, approved by FAS Russia Order No. 820/20 dated September 9, 2020 (the "Methodology for Establishing Wholesale and Retail Markups").

In accordance with this Methodology, maximum wholesale and retail markups are set as percentages, differentiated based on actual manufacturer selling prices for VED, and taking into account geographical distance, transport accessibility, and other features of the constituent entity.

The actual manufacturer selling price for VED from an EAEU member state is the price (excluding VAT) indicated by the manufacturer in the shipping documents, not exceeding the registered or re-registered maximum manufacturer selling price as of the date of transfer to the Russian buyer (or authorized person) via a transfer act or similar document.

The actual manufacturer selling price for a foreign manufacturer (not from the EAEU) for VED is the price (excluding VAT) indicated in the shipping documents on which the customs declaration is based, including customs clearance costs (duties and fees), not exceeding the registered or re-registered maximum manufacturer selling price as of the date of release indicated in the customs declaration.

The calculation of maximum wholesale and retail markups is performed by the regional executive authority based on materials submitted by wholesale and retail organizations operating in the region. The number of such organizations must be at least 15% of the total number of organizations in the region and must include different forms of ownership (state, municipal, private).

Maximum wholesale markups are established based on planned indicators from wholesale organizations operating within a single constituent entity (regional component) and data on the markup needed for gross profit by organizations supplying VED from the manufacturer (or customs border) to the constituent entity.

Planned indicators include:

• data on VED sales volumes in the reporting and planning periods; calculation of the weighted average wholesale or retail markup;
• data on VED volumes sold in the commercial sector by price group;
• calculation of VED sale costs (distribution costs, including depreciation, wages, transport, and building maintenance);
• calculation of required profit (including profit for development, incentives, dividends, etc.);
• a report on the distribution of profit for the required payments mentioned above.

Certified copies of the balance sheet, statistical and tax reporting for the last period, accounting policy orders, and explanatory notes justifying costs must also be provided.

The regional component accounts for the costs of wholesale organizations supplying VED to retail organizations. These markup values are maximums used to calculate the weighted average markup. This value must not exceed the percentage calculated by dividing the ruble amount by the weighted average cost of one VED consumer package planned for sale.

FAS Russia notes that financial statements are submitted within three months after the reporting period, and tax declarations are submitted no later than March 31 of the year following the expired tax period.

Decisions on wholesale markups are made by regional executive authorities after coordination with the Federal Antimonopoly Service. Information on the decision is posted on the regional authority's website at least 10 business days before it takes effect.[8]

The adopted Methodology for Establishing Wholesale and Retail Markups aims to balance the interests of manufacturers (accounting for production, customs, and labor costs) and consumers (ensuring markups are based on justified costs without allowing excess profits).

Registration of VED Prices in Cases of Shortage or Risks Thereof

The introduction of mandatory registration of maximum manufacturer selling prices with a new calculation procedure was intended to prevent unreasonable price increases for VED; however, these decisions led to some manufacturers and medicinal products leaving the Russian market.

Several measures have been adopted to address this. Specifically, under Part 6 of Article 52.1 of the Law on Circulation of Medicinal Products, manufacturers or importers must notify Roszdravnadzor and the Ministry of Industry and Trade of Russia at least one year before a planned suspension or termination of production or import.

Government Decree No. 1771 dated October 31, 2020, On Approving the Features of State Regulation of Maximum Manufacturer Selling Prices for Medicinal Products Included in the List of Vital and Essential Drugs and Amending Certain Acts of the Russian Government, establishes that the Ministry of Health of Russia must send information regarding a shortage or risks thereof to Roszdravnadzor within two business days of receiving it from circulation entities.

Roszdravnadzor must then request the following information within three business days:

• from MAHs (or authorized persons) for medicinal products within the same INN (or chemical/grouping name) with the same route of administration, information on planned volumes for release into civil circulation;
• from the Center for Expertise of the Ministry of Health, information on the presence of the drug in clinical recommendations or standards, the possibility of replacement, and the annual need for the drug;
• from the Ministry of Health and the Ministry of Industry and Trade, existing information on the shortage (or risks thereof) or the absence of drugs due to pricing.

Based on this information, a Conclusion on Shortage or its absence is formed within seven business days. The form for this conclusion was approved by Roszdravnadzor Order No. 10764 dated November 18, 2020.

The Ministry of Health then posts a proposal for re-registration of the maximum manufacturer selling price in the MAH's personal account within two business days. The applicant then submits the following in electronic form:

• an application for re-registration of the maximum selling price;
• a calculation of the proposed price with justifying documents;
• a calculation in accordance with the Methodology for Calculating Maximum Manufacturer Selling Prices.

The calculation may use the average monthly exchange rate for the month preceding the application if it exceeds the previous average rate by 10%.

FAS Russia then conducts an economic analysis, considering minimum selling prices in reference states (Appendix No. 2), and submits a decision to the Ministry of Health to approve or refuse the re-registration. The Ministry of Health then issues an order for re-registration within two business days of FAS approval. The re-registration period is one year.

Government Decree No. 556 dated April 8, 2021, clarified the application of the maximum manufacturer selling price when the registry contains multiple values for one drug. If there is a price re-registration decision under Decree No. 1771 and another decision under Decree No. 865 or Decree No. 441 (regarding emergency situations), the price established under Decree No. 1771 applies.

FAS Russia also clarified that MAHs should analyze their pricing and distinguish between drugs for which annual upward re-registration is sufficient and those for which economic conditions have significantly changed, necessitating measures to prevent a shortage.[9]

Maximum manufacturer selling prices and wholesale markups are particularly significant when determining the Initial Maximum Contract Price (IMCP) in state procurement. FAS Russia clarified that the VED supply price may exceed the registered price plus VAT (by no more than the regional wholesale markup) if the supplier is not the manufacturer and:

• for federal needs, the IMCP does not exceed 10 million rubles;
• for regional needs, the IMCP does not exceed the limit set by the regional executive authority.

If the supplier is not the manufacturer and the IMCP exceeds these limits, the supply price cannot exceed the registered maximum manufacturer selling price plus VAT. However, the supplier may apply a wholesale markup to the actual manufacturer selling price (which must be lower than the registered price) provided the final price does not exceed the registered maximum price plus VAT.[10]

The Government is developing measures to retain pharmaceutical manufacturers in the VED market. However, price containment does not always have the intended effect, as some drugs disappear from the market, and the VED List begins to be formed based on what is available. For instance, Government Order No. 4173-r dated December 24, 2022, made several changes to the VED List that drew criticism. For example, the drug for treating Hepatitis C—Glecaprevir + Pibrentasvir—was not included, despite being the only drug in Russia that can be used for children aged 3 to 12.[11]

Medicinal products are subject to exclusion from the VED List, High-Cost Nosologies List, and other lists in the following cases:

• inclusion of alternative drugs with proven clinical/economic advantages or better safety;
• information regarding toxicity or high frequency of adverse reactions;
• suspension of the drug's use in Russia;
• cancellation of state registration;
• termination of production or supply to Russia and (or) absence from civil circulation for more than one calendar year;
• recommendations from a Chief Expert of the Ministry of Health based on comparative analysis.

Thus, the formation of the VED List depends on the actual presence of manufacturers in the market. If production ceases, patients risk losing access to necessary drugs, with no possibility of purchasing them even at full cost.

In conclusion, the necessity of regulating VED prices is undeniable. Nevertheless, the mechanisms require refinement to meet patients' actual needs. Legal acts governing pricing will likely continue to undergo necessary changes.

_____________

References

[1] Letter of FAS Russia No. TN/96684/22 dated October 20, 2022.

[2] Letter of FAS Russia No. AK/10696/17 dated February 21, 2017.

[3] Letter of FAS Russia No. AD/65796-PR/20 dated August 3, 2020, On Providing Clarifications.

[4] Decision of the North Ossetia OFAS Russia dated July 22, 2019, regarding Case No. A168-07/19.

[5] Decision of the Novosibirsk OFAS Russia No. 054/06/34-670/2021 dated April 7, 2021.

[6] Information Letter of FAS Russia No. TN/4309/22 dated January 24, 2022.

[7] Letter of FAS Russia No. ATs/39362/19 dated May 14, 2019.

[8] Letter of FAS Russia No. TN/6752/21 dated February 2, 2021, On the Entry into Force of FAS Russia Order No. 820/20 dated September 9, 2020.

[9] Letter of FAS Russia No. TN/33468/22 dated April 7, 2022, On Issues of Applying Government Decree No. 1771.

[10] Letter of the Federal Antimonopoly Service No. ATs/38800/19 dated May 13, 2019, On the Application of Wholesale Markups When Supplying VED under State (Municipal) Contracts.

[11] Novelties Overboard: The 2023 VED List Did Not Meet Patient Hopes. V. Vinokurov. January 12, 2023.

February 19, 2023