Overview of pricing regulatory issues in the Kazakhstan healthcare sector

As previously noted in our earlier reviews of regulatory legislation in the healthcare sector, the legislative framework is subject to dynamic changes, particularly in the regulation and pricing of medicines.

The latest version of the Rules for regulating prices for medicines dated April 19, 2019 (last amendments dated June 17, 2020) was repealed by the Order of the Minister of Healthcare of the Republic of Kazakhstan dated December 11, 2020 No. KR DSM-247/2020 “On approval of the rules for regulation, formation of maximum prices and markups for medicines, as well as medical devices within the guaranteed volume of free medical care and (or) in the system of compulsory social health insurance" (hereinafter, the "Rules 247"). It should be noted that the edition of the Rules 247 from 2020 has also undergone several changes, the last of which is dated July 3, 2023.

Despite the dynamics changes in legislation in this area, pharmaceutical companies, both local and foreign manufacturers, still face challenging issues. It can be boldly stated that the regulation of drug pricing is far from perfect, and frequent changes in regulations governing drug prices do not always lead to the desired results.

As of today, there are still problems that concern the pharmaceutical business. Some of these are highlighted below. 

Foreign manufacturers face currency risks

In our view, attention should be given to the issue of establishing and approving the maximum price, as procurement of medicinal products above the maximum price is not allowed. In this respect, if we consider it from perspective of the procurement of pharmaceuticals by a sole distributor from a foreign manufacturer, all currency risks are directly transferred to the foreign manufacturer.

Thus, in particular, according to the Rules for organizing and conducting the procurement of medicines, medical devices and specialized medical products within the framework of the guaranteed volume of free medical care, additional volume of medical care for persons held in pre-trial detention centers and institutions of the penitentiary (penitentiary) system, for account of budgetary funds and (or) in the system of compulsory social health insurance, pharmaceutical services (approved by the Order of the Minister of Healthcare of the Republic of Kazakhstan dated June 7, 2023 No. 110) (hereinafter, the “Rules 110”), when concluding a supply agreement in foreign currency, the price is fixed in this currency at the rate of the National Bank of Kazakhstan on the day of the last negotiations.

In the meantime, the contract price in the national currency, calculated at the exchange rate, must not exceed the amount allocated for procurement for the respective lot and the maximum price.

Thus, with this provision in the Rules 110 and the requirement to approve maximum prices for medicinal products for both local and foreign manufacturers in the national currency, it is evident that the opportunity to enter into a supply contract in a foreign currency is impractical due to the possible volatility of the foreign currency exchange rate, especially in terms of long-term supply contracts concluded with the sole distributor.

Despite entering into supply contracts in a foreign currency, foreign manufacturers face the need to provide discounts and credit notes to adjust prices in foreign currency due to the inability to exceed the maximum price (procurement price) in the local currency. These circumstances could have consequences for foreign manufacturers in covering production, marketing, and transportation expenses for medicines (components of the registered price of medicines), as well as for patients due to the possible lack of medicine supplies in the future, resulting in the unavailability of medicines within the guaranteed volume of free medical care and mandatory social health insurance.

Delays in the approval of maximum prices by the authorized body

According to the Code on People's Health and the Healthcare System of July 7, 2020, the authorized body approves the manufacturer's maximum prices for the trade name of the medicinal product no more than once in six months no later than the tenth day of the month following the reporting semester. This norm is established by the Rules 247 and previous editions of the Code.

In the meantime, tracing the changes in the Order of the Minister of Healthcare of the Republic of Kazakhstan dated August 5, 2021, No. KR DSM-77 "On the approval of maximum prices for trade names of medicines and medical devices within the guaranteed volume of free medical care and/or mandatory social health insurance" (hereinafter, the "Order 77"), it can be noted that amendments to the Order 77, particularly the approval of maximum prices for trade names, are often made with delays. For example, changes to the Order 77 were made on March 31, 2022, January 9, 2023, March 17, 2023, and August 9, 2023.

Therefore, there is not only a problem with regulation itself, but also with the application and enforcement of legislative requirements in practice by authorized bodies. In this case, it is important to remember that according to the regulations, procurement above the established maximum prices for international non-proprietary names and trade names is not allowed. 

Positive dynamics

Nevertheless, it is worth noting the positive dynamics associated with the introduced changes. For example, previously, according to paragraph 56 of the Rules 247, in case of absence of supplies to the territory of the Republic of Kazakhstan within the last 12 months, the price within the guaranteed volume of free medical care and/or the mandatory social health insurance system was registered with subsequent re-registration of the registered price within the said system and projected expenses. Not later than a year from the date of approval of the maximum prices for the trade name of the medicines, the applicant had to re-register the registered price and provide copies of documents confirming the price of the medicine, as well as information on actual expenses.

If the re-registration of the registered price within the guaranteed volume of free medical care and/or the mandatory social health insurance system was not carried out within a year, the applicant was notified on the web-portal for purchases by the state expert organization about the necessity of re-registering the registered price within the guaranteed volume of free medical care and/or the mandatory social health insurance system within one calendar month with informing the authorized body. In case of non-renewal within the specified period, the state expert organization informed the authorized body with subsequent exclusion from the project of maximum prices for the trade name within the guaranteed volume of free medical care and/or the mandatory social health insurance system.

Thus, the price re-registration procedure for medicines in case of absence of supplies within the last 12 months, in our opinion, imposed significant administrative and time burdens on pharmaceutical companies. Additionally, it entailed the risk of the medicine being unavailable to patients for a certain period of time due to the potential exclusion from the project of maximum prices for the trade name of the medicine. Furthermore, there was a practical problem with the non-fulfillment or delay in fulfilling obligations by the expert organization and failure to send the relevant notification.

However, as of the current date, the Rules 247, in our view, has been simplified and includes the following:

«If there is no supply of imported medicines to the territory of the Republic of Kazakhstan during the last 24 months before price registration, the registered price within the framework of the guaranteed volume of free medical care and (or) in the system of compulsory social health insurance is registered or re-registered on the basis:

          1)  a contract or agreement for the purchase of medicines, valid at the time of filing an application for registration or re-registration of the registered price of medicines;

          2)  information on the ex-factory price in reference countries or in the manufacturing country in the absence of state registration of medicines in reference countries».

Therefore, we can say that there is also positive momentum due to the implemented changes in legislation. Accordingly, regular highlighting of problematic issues and their discussion at the state level with representatives of the pharmaceutical business, in our view, logically leads to the effective development of the pharmaceutical industry and improved availability of medicines for patients.