New rules regulating the prices of pharmaceutical products ("2019 Pricing Rules")1 will take effect in Kazakhstan on 14 May 2019. They will entirely replace (not amend) the current pricing rules adopted in July 2015, which were most recently amended in February 2018 ("Old Rules").2
1. Product covered
The Old Rules were limited in scope to prices of pharmaceuticals and medical devices that were procured within the framework of the Guaranteed Scope of Free Medical Care and the Obligatory Social Medical Insurance ("State Procurement System").
The 2019 Pricing Rules will regulate the prices of both pharmaceutical products included in the State Procurement System and pharmaceutical products intended for sale (both wholesale and retail trade) outside the scope of state procurement.3
2. The price control measures
The 2019 Pricing Rules provide two sets of price-control measures: one for pharmaceuticals included in the State Procurement System and one for pharmaceuticals in the private market (i.e., pharmaceuticals that are sold by distributors and pharmacies outside the scope of the State Procurement System).
Specifically, all pharmaceutical products included in the State Procurement System are subject to: (i) registration of the manufacturer's price; (ii) regulation by maximum mark-up; and (iii) regulation by the maximum price (i.e., price at which a medical institution can purchase pharmaceutical products and medical devices included in the State Procurement System).4
With respect to pharmaceutical products in the private market, their prices are regulated through the following measures: (i) registering the manufacturer's price; (ii) establishing maximum wholesale and retail mark-ups; and (iii) establishing maximum wholesale and retail trade prices.5
3. Specific aspects of the manufacturer's price registration6
3.1 Principal changes in the registration of prices of pharmaceutical products included in the State Procurement System
The 2019 Pricing Rules introduce the following principal changes to the registration procedure of prices of pharmaceutical products included in the State Procurement System:
- The list of information and documents that should be submitted by the pharmaceutical manufacturer as proof of calculation of the price submitted for registration has been extended. Specifically, in addition to the previously requested documents (e.g., ex-factory product prices in the reference countries), pharmaceutical manufacturers are now required to submit import invoices for the last 12 months.
- New criteria for registration of the manufacturer's price have been introduced (e.g., the manufacturer's price will be registered if, among other things, it does not exceed the highest price of three lowest prices at which this product was imported into Kazakhstan for 12 months preceding the date of registration).
The changes above are aimed at reducing the maximum prices at which the state can purchase pharmaceutical products. For this reason, the 2019 Pricing Rules require that all current registered prices be re-registered by 1 January 2020 to comply with the new criteria set forth above.
The 2019 Pricing Rules do not provide for specific consequences for failing to re-register the current price. However, we believe that non-compliance with this requirement may result in the relevant product being excluded from tenders.
3.2 Rules for the registration of prices of pharmaceutical products in the private market
The methodology for the calculation of prices of pharmaceutical products in the private market provided by the 2019 Pricing Rules is similar to the methodology for the calculation of prices of pharmaceutical products in the State Procurement System. Specifically, the price of pharmaceutical products in the private market submitted for registration should be confirmed by the manufacturer by the ex-factory prices of this product in the reference countries, a breakdown of expenses on transportation, customs, safety assessment and expenses associated with marketing the relevant product (the latter, however, may not be included in the price of products in the State Procurement System), and prices of this product specified in import invoices for the last 12 months.
The price submitted for registration will be registered if it meets the established criteria (e.g., expenses associated with marketing the relevant product should not exceed 50% of the manufacturer's price).
The 2019 Pricing Rules allow pharmaceutical manufacturers to amend their prices (by way of filing the relevant application to the Expert Institution)7 once every six months.
It is interesting that the Expert Institution has the right to register the manufacturer's price of the pharmaceutical product in the private market on its own if the manufacturer of this product will not apply for the price registration8 (this should not, however, restrict the manufacturer from re-registering the price in the future). In this case, the registered price is determined based on the highest price at which the relevant product was imported into Kazakhstan for the period of at least 12 months preceding price registration.
While the changes above were publicly discussed for about a year, it seems that pharmaceutical companies are not happy with the outcome as they need to expedite revisions to their pricing strategies for doing business in Kazakhstan.
If you have any questions or wish to receive a copy of the 2019 Pricing Rules, please contact Azamat Kuatbekov and Alissa Inshakova.
This LEGAL ALERT is issued to inform Baker McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.
1 Order of the Minister of Healthcare of the Republic of Kazakhstan No. ҚР ДСМ-42 dated 19.04.2019 "On Approval of the Rules Regulating Pharmaceutical Products Pricing."
2 Order of the Acting Minister of Healthcare and Social Development of the Republic of Kazakhstan No. 639 dated 30 July 2015 "On Approval of Rules for Establishment of Maximum Prices and Mark-ups for Pharmaceuticals and Medical Devices procured within the Framework of the Guaranteed Scope of Free Medical Care and the Obligatory Social Medical Insurance."
3 The prices of medical devices included in the State Procurement System will be regulated by separate regulations that are currently being developed by the Ministry of Healthcare. The prices of medical devices not included in the State Procurement System will not be subject to state regulation.
4 Maximum prices will be established both for a product’s international non-proprietary name (INN) and for a product’s trade name.
5 Maximum prices are established for a product’s trade name only.
6 This legal alert is mainly focused on the regulation of prices of pharmaceutical products that are imported into Kazakhstan.
7 The National Center for Expertise of Pharmaceutical Products, Medical Devices and Medical Equipment that is responsible for, among other things, for price registration ("Expert Institution").
8 For pharmaceutical products already registered and circulated in Kazakhstan, the deadline for filing a price registration application is 20 May 2019. For products that will be registered in the future, the deadline is 10 April or 10 October depending on the date of product registration.