On September 28, 2020, new rules entered into force governing the determination of maximum wholesale and retail markups on the actual manufacturer prices of pharmaceutical products included in the Vital and Essential Drugs (VED) list.

Government Decree of the Russian Federation No. 1541 dated September 24, 2020, “On Amending Certain Acts of the Government of the Russian Federation” (hereinafter – Decree No. 1541), also amended Government Decree of the Russian Federation No. 865 dated October 29, 2010, “On State Regulation of Prices for Medicinal Products Included in the List of Vital and Essential Drugs.”

The new rules largely replicate the previous framework for establishing maximum markups on manufacturer prices for VED products, which had been utilized by both regional authorities and market participants, including distributors, pharmacies, and healthcare organizations.

Pursuant to Decree No. 1541, the executive authorities of the constituent entities of the Russian Federation shall adopt decisions to establish and/or amend the maximum wholesale and retail markups on actual manufacturer prices (excluding VAT) for medicinal products included in the VED list, subject to prior clearance of the draft decisions with the Federal Antimonopoly Service (FAS Russia).

The maximum wholesale and retail markups on actual manufacturer prices, expressed as a percentage and differentiated based on the cost of the medicinal products, apply to wholesale trade organizations, pharmacies, individual entrepreneurs holding a pharmaceutical license, healthcare organizations holding a pharmaceutical license, and their remote branches located in rural settlements where no pharmacies operate.

Regional authorities shall establish maximum wholesale and retail markups in accordance with the statutory methodology approved by FAS Russia, which ensures:

• the reimbursement of economically justified costs associated with the procurement, storage, and sale of medicinal products;
• the calculation of profit margins necessary to provide organizations with funds to service attracted capital and finance other justified expenses;
• the inclusion of all taxes and other mandatory payments within the markup structure.

The review and approval procedure for markups comprises the following stages:

1. The executive authority of the constituent entity of the Russian Federation shall submit the draft decision to FAS Russia, accompanied by calculations and an explanatory note.

2. FAS Russia shall, within 30 working days from the date of registration of the draft decision, issue its decision to the regional executive authority either (a) approving the draft decision or (b) refusing its approval.

3. Should the provided documents require clarification or supplementation, the regional executive authority shall submit the relevant documentary evidence upon request by FAS Russia.

The regional executive authority must submit the requested information within 15 working days from the date of receipt of the FAS Russia request.

If the regional executive authority fails to provide the requested documentary evidence within the prescribed timeframe, FAS Russia shall issue a decision refusing approval within 5 working days from the expiration of the general review period.

Grounds for refusing approval include:

• inconsistencies between the calculations of maximum markups on actual manufacturer prices and the statutory methodology;
• submission of inaccurate information to FAS Russia;
• absence of information required under the approved methodology within the submitted documents;
• submission of an incomplete set of documents;
• failure of the regional executive authority to submit the requested documentary evidence within the prescribed timeframe.

4. Subsequently, the regional executive authority shall adopt its final decision within 10 working days from the date FAS Russia approves the draft. The authority must then submit a copy of the decision to FAS Russia within 3 days and publish information regarding the adopted decision on its official website at least 10 working days prior to its entry into force.

Distributors may sell pharmaceutical products included in the VED list at prices (excluding VAT) that do not exceed the sum of the actual manufacturer's price (which itself cannot exceed the registered or reregistered maximum manufacturer sale price on the date of sale by the manufacturer) and the wholesale markup, which must not exceed the maximum wholesale markup established in the respective constituent entity of the Russian Federation. Distributors shall include VAT in the final sale price of the medicinal product.

The cumulative wholesale markup applied by all wholesale trade organizations involved in the supply chain of a medicinal product, calculated based on the actual manufacturer's price, shall not exceed the corresponding maximum wholesale markup established by the executive authority of the constituent entity where the product is delivered.

Distributors operating retail subdivisions may calculate retail prices for medicinal products by applying both wholesale and retail markups simultaneously to the actual manufacturer's price (excluding VAT), provided that the cumulative markups do not exceed the regional maximum wholesale and retail caps, respectively, and subject to maintaining separate accounting records for wholesale and retail operations.

Distributors selling medicinal products to consumers under a consignment (commission) agreement on behalf of retail organizations (agents) may calculate the sale price by applying both wholesale and retail markups simultaneously to the actual manufacturer's price, provided the cumulative amounts do not exceed the maximum wholesale and retail markups established in the specific region.

Pharmacies, individual entrepreneurs holding a pharmaceutical license, healthcare organizations holding a pharmaceutical license, and their isolated subdivisions (ambulatory clinics, paramedic centers, obstetric stations, and general or family practice centers) located in rural settlements without local pharmacies shall sell medicinal products at prices (excluding VAT) that do not exceed the sum of the actual manufacturer's price (which must not exceed the registered or reregistered maximum manufacturer sale price on the date of sale by the manufacturer) and the wholesale and/or retail markups, which must not exceed the maximum wholesale and retail markups established in the constituent entity. Pharmacies, individual entrepreneurs, and healthcare organizations shall include VAT in the final sale price of the medicinal product.

The retail markup calculated based on the actual manufacturer's price and applied by pharmacies, individual entrepreneurs, and healthcare organizations selling medicinal products shall not exceed the corresponding maximum retail markup established by the executive authority of that constituent entity.

When calculating sale prices for medicinal products using maximum wholesale and/or retail markups, wholesale trade organizations, pharmacies, individual entrepreneurs, and healthcare organizations shall round such sale prices to the nearest hundredth of a ruble in accordance with standard mathematical rounding rules. In calculating the applied markups, a margin of error not exceeding the rounding discrepancy is permitted.

The actual manufacturer's price for a medicinal product from an EAEU member state means the price (excluding VAT) specified by the manufacturer in the shipping documentation, which must not exceed the registered or reregistered maximum manufacturer sale price as of the date of transfer to the Russian buyer (or their authorized representative). If specified in a foreign currency, the parties shall convert the actual manufacturer's price into Russian rubles at the Central Bank of the Russian Federation exchange rate on the date of transfer under the transfer act or a similar delivery document.

The actual manufacturer's price for a medicinal product from a foreign manufacturer (excluding EAEU member states) means the price (excluding VAT) specified by the foreign manufacturer in the shipping documentation used for the customs declaration, including costs related to customs clearance (payment of customs duties and clearance fees), which must not exceed the registered or reregistered maximum manufacturer sale price as of the release date indicated in the customs declaration. If declared in a foreign currency, the parties shall convert the actual manufacturer's price into Russian rubles at the Central Bank of the Russian Federation exchange rate on the date of the customs declaration.

Distributors, pharmacies, individual entrepreneurs, and healthcare organizations shall only sell medicinal products if they possess a price coordination protocol for the supplied drugs, executed in accordance with the prescribed statutory form, except for medicinal products that were not included in the VED list at the date of acquisition by the aforementioned entities.

The parties may generate the price coordination protocol as an electronic document signed with an enhanced qualified electronic signature of the authorized representatives of both the supplier and the buyer.