Chile Economy — 12 April 2016

Drug prices in Chile are high.  The market is concentrated and now is dominated by foreign owners.  Pharmacy executives have been charged with price fixing some years ago, which was not a crime at the time.  Insurance does not pay for drugs.  The pharmacies are supposed to offer generic medicines in place of brand name drugs.  But the health officials say that the drug makers are “boycotting” this system.  Consequently it is difficult if not impossible to find generic drugs. Some pharmacies have been caught engaging in the illegal practice of paying their employees to push certain drugs. That was only made illegal a few years ago. Anger over all of this had led to cities creating their own non-profit pharmacies.

The pharmacy market here is dominated by three companies, whose pharmacies dot seemingly every street corner in the capital.  These are Sacobrand, Ahumada, and Cruz Verde.  There are small independent pharmacies too, but their market share is tiny.

70% of the pharmacies in Chile are foreign owned.  A Mexican firm bought 60% of Cruz Verde who controls 41% of the local market.  The American giant Walgreens bought Ahumada, who controls 28% of the market.  Only Sacobrand is still owned by Chileans.

Anger over drug prices in Chile has led a handful of cities to create non-profit “public pharmacies” (farmacia publics) usually located right inside the municipal offices. These public pharmacies are able to buy directly from the supplier to the hospital system there.  So they can offer discounts of 20% to 80%. The government created regulations that made it possible to set up these non-profit pharmacies. The goal is to create them all across the country.  There are already a dozen or so in operation. Santiago wants one.  The Nuñoa neighborhood in Santiago already has one.  And even the major of Viña del Mar, who is a member of the pro-business UDI political party, wants one there too.

Insurance here in Chile does not pay for medicine.  And drugs here are sold at world market prices.  So they are quite expensive.  Some drugs sold here are not available in generic form even though they are sold as generics in other countries.

Many people living on the minimum guaranteed retirement pensions are paying up to 40% of their pension on drug prices.

La Tercera reported that the person in charge of policing the the market here, Felipe Irarrázabal, told a congressional committee that there are impediments to fair pricing here.

He said that local pharmacies cannot compete with the major chains because they do not have the negotiating power.  Nor do they have the cash flow to wait for the laboratories to pay their bills.  So they are stuck selling only certain brands. And he said there is too much market concentration with the three big chains having control over the vast majority of the market.

Another issue, and one which the pharmacies have been able to block in the legislature, is you cannot buy over-the-counter medicines in any place but the pharmacy.  For example, you cannot aspirin in grocery stores.

While he did not specifically say that drug companies are paying doctors to write prescriptions for their drugs he did say that is it necessary to police whether this is the case.  Regarding policing in general, he says the prosecutors do not have the resources to do that adequately. Among items that need policing are curtailing the practice called “canela” where pharmacies pay their employees to promote certain drugs. He said there are “sophisticated ways for the pharmacies to skirt the law on that.”

The official criticized the 15 to 20 year period by which drug companies are given a patent over their drug.  He said it was obviously necessary to reward drug companies for their innovation and investment but that it needs to be in a “just manner” and not subject to manipulation where the drug companies are able to arbitrarily extend this period of time.  Of course practically all drugs are invented by firms in the USA and Europe and not Chilean ones.  Those patents are recognized here by international trade treaties.  Regarding manufacture, drugs sold here are manufactured in Chile and other parts of Latin America for the most part.

Finally, regarding generic drugs the pharmacies here have signs to remind their customers to ask for low prices generic drugs but when you actually ask for those they tell you they are not available.  The prosecutor asks, “The question is how effective has the government been in increasing the availability of generics in order that the situation might be better than it has been.”

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