Standard costing And pharmaceutical pricing

Lecturer Assoc. prof. M.V. Leleka

Standard costing is an important subtopic of cost accounting. Standard costs are

usually associated with a manufacturing company's costs of direct material, direct

labor, and manufacturing overhead.Rather than assigning the actual costs of

direct material, direct labor, and manufacturing overhead to a product,

many manufacturers assign the expected or standard cost.

This means that a manufacturer's inventories and cost of goods sold will

begin with amounts reflecting the standard costs, not the actual costs, of

a product. Manufacturers, of course, still have to pay the actual costs. As a

result there are almost always differences between the actual costs

and the standard costs, and those differences are known as variances.

Standard costing and the related variances is a valuable management tool.

If a variance arises, management becomes aware that manufacturing costs have differed from the standard (planned,

expected) costs. If actual costs are greater than standard

costs the variance is unfavorable. An unfavorable variance tells management that if everything else stays constant the company's actual profit will be less than

planned.

If actual costs are less than standard costs the variance is favorable. A

favorable variance tells management that if everything else stays constant the actual profit will likely exceed the

planned profit.The sooner that the accounting system

reports a variance, the sooner that management can direct its attention to

the difference from the planned amounts.

If we assume that a company uses the perpetual inventory system and that it carries all of its inventory accounts at

standard cost (including Direct Materials Inventory or Stores), then the standard cost

of a finished product is the sum of the standard costs of the inputs:

      1. Direct material      2. Direct labor

      3. Manufacturing overhead           a. Variable manufacturing overhead

           b. Fixed manufacturing overhead

Usually there will be two variances computed for each input:

Input for Product Variance #1 Variance #2

Direct material Price (or cost)Usage (or quantity)

Direct labor Rate (or cost)Efficiency (or quantity)

Manufacturing overhead-variable

Spending Efficiency

Manufacturing overhead-fixed

Budget Volume

Fundamentals of Pharmaceutical Pricing

1 - Cost of raw materials and basic materials (incoming ingredients, packaging, упаковочных материалов и др.); packaging materials, etc.);

2 - другие материальные затраты (вспомогательные материалы,

освоение и под- - Other financial expenses (auxiliary materials,

developing and under- готовка производства, цеховые и

другие расходы); cooking production, craft and other expenses);

3 - трудовые затраты (основная и дополнительная заработная плата); - Labor costs (basic and additional wages);

4 - The cost of research;

5 - The cost of pharmaceutical information; 6 - прибыль фармацевтических предприятий; - Profits of pharmaceutical companies; 7 - налоги: налог на прибыль (30%) и др.; - Taxes: income taxes (30%) and others;

8 - торговая наценка оптовой торговли (издержки, прибыль, натоги ); - Wholesale trade margin (costs, profits, taxes); 9 - торговая наценка аптек (издержки, прибыль, налоги). - mark-up pharmacies (cost, profit, taxes).

The pharmaceutical market in the developed countries due to the specifics of his goods for which demand is growing even in times of crisis, in matters of pricing

formation has several features. The level of prices of medicines affects many factors,

however, such major components of value, as the cost of raw materials, energy, wages are not of critical importance. The primary factor that determine the price of prescription

drugs ready abroad are: high efficiency of new drug and the level of USO provement over existing, the possibility of the

appearance- of competition from drug-analogues, the popularity of the market and among doctors, the costs of

research and development.

Currently, the main source of revenue in the big pharmaceutical companies are the original patented medicines (brand holes), supplied by the market at monopoly prices.

However, the period of monopoly in the market limited to the duration of patent protection or will leniem competitors.

Therefore, production of medicines, along with electron Noah and air space industry is among the industries with intensive development of scientific papers.

For more than forty years of existence of the single European market to EU countries have not

developed a unified approach to the formation of prices for medicines. In

order to create a unified internal market medicine, most EU countries have enacted legislation regarding

the regulation of prices for pharmaceutical products

Maximum allowance of wholesalers is not higher than 8% and retail trade - 25%. It is this the method of regulation is typical for

Russia, and several other Eastern European countries.. Although the level of marginal increments are somewhat higher than in

Western Europe. For example, in Bohemia marginal increase of wholesale trade was 12.9%, retail - 24-26%. . In Bulgaria, the

marginal wholesale allowance equal to 18%, and retail - 28% of the price of

manufacturer.

Creating a positive transition river is a kind of method of regulating the prices of medicines.

Government agencies use the opportunity to include specific medicines the spatial drug to a "grace} '"

list as a means of pressure on pharmaceutical companies. Provided that reducing the price of the drug, including its to the positive list that in turn,

provides a guaranteed high volume purchases. Необходимо указать, что в многих странах при

создании положительных перечней преимущество предоставляется медикамен те Should indicate that in many countries, creating

positive lists of priority is given to those medikamen

 

value - the sum of all costs of producing goods

 Price - a monetary value of cost of goods, economic category, which is used for indirect

Measurements spent on production values Public the necessary working time.

PROCEDUREpricing of medicines and medical products, for which the government introduced a regulation1. Set:1) for pharmaceuticals and medical products, included in a national list of essential medicines and medical devices (except narcotics, psychotropic drugs, precursors and medical gases), limiting supply and Supply premium no higher than 12 percent of wholesale priceswholesale prices and marginal trading (retail) allowances are not higher than 25 percent of the purchase price (Retail Price );

2) for pharmaceuticals and medical products (except drugs, psychotropic

drugs, precursors and medical gases), acquired wholly or partly for the budget,

limit supply and Supply premium no higher than 10 percent of wholesale prices and

marginal trading ( retail) premium no higher than 10 percent of the purchase price.

Medicines and medical products of domestic manufacture, wholesale price

which is lower than 12 USD per package, not subject to state regulation, except

those purchased by the budget. "

Simple discount is offered with or reference value.

Discount "Skonto" - a discount in case of cash settlement. In those cases where the reference price provided short-term loan and the buyer agrees to pay for goods in cash, it can be given such a discount.

Progressive discount is subject to prior agreement on the acquisition of serial party products.

Bonus discount, or discount for circulation, provided the seller to its permanent agents for the implementation of a number of products.

Dealer discount provided by the manufacturer to its permanent representatives or intermediaries dealing with product sales.

Special discount is offered to favored customers, orders in which the most willing seller. Similar discounts can be provided in case of trial shipments.

Seasonal discounts are available for purchase off-season. The discount depends on the nature of the goods.

Export discount provided by the seller when selling goods overseas buyers over the existing discounts for buyers of the internal market.

Hidden discount given in the form of discounts on freight, and preferential interest-free loans by providing free services.

In some cases the discount as such is not mentioned in the text of the contract, and in the process of negotiating the final price is determined by taking into account discounts, and the price fixed in the text of the contract.

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IntroductionA reference pricing system is a system that establishes a reimbursement level or reference price for a group of interchangeable medicines. If a medicine is priced above the reference price, the patient pays the difference between the price of the medicine and the reference price, in addition to any other co-payments, e.g. prescription fee, percentage co-payment [1].Unlike its name suggests, a reference pricing system is not a pricing system, but in fact a reimbursement system.

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Reference pricing can help governments to contain public pharmaceutical expenditure as it controls the reimbursement level of medicines. A reference pricing system may also promote generic medicine use because originator medicines priced above the level of the reference price are likely to lose market share as a result of the additional patient co-payment.

Many European countries have already installed a reference pricing system, see Table 1. Sweden had adopted a reference pricing system in 1993 but abandoned this in 2002 [2].

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In Norway, reference pricing applied from 1993 until the end of 2000. In 2003, the Norwegian government installed a system called ‘index pricing’ to a set of off-patent medicines, which has many resemblances with a reference pricing system [3, 4].

Reference pricing is in many European countries combined with other policies such as prescribing by international non-proprietary name or generics substitution, as this combination of policies seems to positively influence each other

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Conclusion

Reference pricing is used by many European countries as one element of governments’ strategies to contain public healthcare expenditure. It puts pressure on pharmaceutical companies to compete with the reference priced product but also reduces competition beyond this reference price. It also makes patients sensitive of drug prices, as an increased use of drugs priced at or below the reference price level was observed.

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The introduction of reference pricing generates a once-only setback of expenditures but does not affect the overall growth rate of health expenditure in the long term.

No association between reference pricing and health outcome has been observed.

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LIST of antihypertensive drugs from the pilot project

1. Amlodipine2. Bisoprolol3. Enalapril4. Lisinopril5. Metoprolol6. Nebivolol7. Nifedipin6. Enalapril and diuretics7. Lisinopril and diuretics8. Lisinopril and Amlodipin

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Pricing procedure:

1.Wholesale price must be registered

2. By the wholesale price is added up to 12% - the purchase price

3. To the maximum purchase price is added 25% - retail price

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Price for the patient= retail price-reference price