• Thursday, April 18, 2024
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Rising drug prices squeeze health insurers’ margins

Drugmakers see decline in fortunes despite soaring prices

With drug prices recently going through the roof in Nigeria, health insurance companies are battling with increasing pressure on their profit margins.

The prices of some drugs have risen by over 200 per cent this year, undermining contract terms reached between health management organisations (HMOs), the insurers, and their provider partners (hospitals and pharmacies, among others), many of whom are now asking for rate reviews.

Tope Adeniyi, CEO of AXA Mansard Health, pointed out that HMOs partner with healthcare providers to render medical care to members registered on their plans.

He said that payment for rendered medical services is based on pre-agreed tariffs locked in for a contractual period.

The contract is usually a one-year agreement, during which the insurer will be responsible for paying specific expenses related to the insured person’s healthcare costs in return for payment of a monthly, quarterly or yearly premium.

The surge in drug prices is largely due to the continued depreciation of the naira amid foreign exchange scarcity, which has pushed up the cost of importing products and raw materials into the country.

For example, the price of Augmentin, an antibiotic, has jumped to as much as N20,000 from about N5,000 in January, while that of Ventolin, used by people having breathing difficulty, rose to N8,000-N10,000 from N1,500. The exit of GSK, the manufacturer of the products, from Nigeria compounded the price hike.

Adeniyi said the recent rise in the cost of medications has seen healthcare providers reaching out to the HMOs for a review of tariffs, “even though such a review is outside the contractual period”.

“At AXA Mansard, we understand our customers must be attended to when they need medical care. So we have had to adjust because our customers are always first,” he told BusinessDay in response to questions. “However, I must note that this increase is impacting the claims, and we now have to pay per hospital, ultimately affecting the loss ratio on customer premiums.”

Gideon Anumba, a doctor and head of operations at Leadway Health Limited, said there had been increasing requests from healthcare providers to renegotiate previously agreed tariffs, citing the significant rise in the cost of drugs and other hospital consumables.

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According to him, the requests have come as frequently as every quarter, whereas, in the past, the same tariff may hold for at least a year and occasionally up to two years.

“Given that our policies are annual, premiums are locked in for the full year and, therefore cannot be renegotiated at will, just like the healthcare providers do. Even for renewing policies, the market is very price-sensitive, making it quite difficult to get the kind of premium increases that we need to absorb the rising cost of care,” he said.

“So overall, our already thin margins are getting thinner, and for some policies, we are already in a losing position,” he added.

The exchange rate is the highest driver of costs for the healthcare industry in Nigeria due to the extreme import dependence of the service side of the industry, according to Anuba.

“We can only hope that the economy will pick up and that the exchange rate of the naira to the US dollar stabilises.”

BusinessDay carried out a survey of the prices of basic drugs in some pharmaceutical stores across Lagos and found that the price of Leonart, a malaria drug, has increased by 25 per cent to N2,500 per pack in October from N2,000 in June; Amartem, also used in treating malaria, has seen a 39 percent increase in price to N2,500 per pack from N1,800.

The rising drug prices have forced many Nigerians who cannot afford to buy expensive brands to opt for cheaper ones.

Harrison Okafor, a doctor and head of medical services at MetroHealth HMO, said the rapidly rising cost of drugs puts severe pressure on HMOs, adding that it had made nonsense of prior underwriting and actuarial projections.

“Considering that HMOs have agreed annual premiums with our clients, the galloping increase in the cost of drugs and other medical consumables and inputs led to losses in many health plans offered by HMOs,” he said. “The rapid increase in prices has made nonsense of drug tariff agreed with hospitals and pharmacies as these providers have resorted to negotiation or quoting their price at the point of service.”

Sam Ohuabunwa, former president of the Pharmaceutical Society of Nigeria, said recently that the pharmaceutical chain of the health industry has struggled with access to FX for many years, reducing imports, especially for raw materials.

He said the decline in imports is not a consequence of increased local production but because the Central Bank of Nigeria cannot meet the sector’s dollar demand adequately, leaving drugmakers to resort to the black market for a significant chunk of their FX needs.

The National Centre for Biotechnology Information (NCBI), in a report on why Nigeria must strengthen its local pharmaceutical manufacturing capacity, pointed out that with over 115 registered pharmaceutical manufacturers, Nigeria still depends on other countries for the supply of active pharmaceutical ingredients and excipients.

The NCBI said significant attention had not been paid to the local production of raw materials, pharmaceutical dosage formulations, or processing equipment, resulting in a decline in the country’s pharmaceutical manufacturing capacity.

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“Owing to the overall importance of the pharmaceutical industry, it is, therefore, essential to pay close attention to developmental issues affecting this sector,” it said.

Pamela Ajayi, president of the Healthcare Federation of Nigeria, said the federal government urgently needs to eliminate all taxes and duties and ensure people can bring in equipment for local drug production to flourish.

She urged the government to work with big pharmaceutical industries like Emzor and Fidson that turn things around.

“Already, we have the challenge of weak infrastructure and lack of power supply in Nigeria. To set up any industry is a challenge. We still think it is more expensive to produce locally,” Ajayi said. “The current challenge we have is with the devaluation of the naira and the fact that over 90 percent of the drugs we consume are imported. The crisis is real. We need to make sure people are encouraged to produce.”