Pricing of Pharmaceuticals and the Fixed Exchange Rate

Healthcare and pharmaceuticals make up a highly regulated industry sector in Turkey, and the pricing of medicines is no exception. The prices of medicines that are to be marketed in Turkey are set in accordance with the Decision on Pricing of Human Medicinal Products (“Decision”) and the Communiqué on the Pricing of Human Medicinal Products (“Communiqué”) of 29 September 2017, issued by the Ministry of Health (“MoH”) who is vested with the competencies to regulate the area.

The Decision provides for a reference pricing system, whereby the least expensive ex-factory price in one of the listed EU countries, for the same product, is taken as the ex-factory price, in Turkey. The currency is then converted into Turkish liras, albeit not at the current exchange rate. In order to avoid the reflection of exchange rate fluctuations onto the prices of medicines, the Decision includes a provision that helps the MoH to issue a fixed exchange rate to be applicable in the pricing of medicines. Thus, the exchange rate applied to the reference price taken from the respective EU country is converted to Turkish Liras at a rate that gives out a much lower price than if it is converted at the current rate. Below is the history of the developments in the FX rate determination by the Turkish Government.

The Decision of 2015 set a much lower fixed rate than reasonably expected. The industry actors eagerly awaited an improvement in the rate, bearing in mind the ongoing lawsuits on the matter initiated by pharmaceutical companies. With the entry into force of the Decision of 2017, the rate was determined as 70% of the average Euro value of the previous year. Accordingly, the Price Evaluation Commission was to gather within the first 45 days of each year, and would announce the 1 (one) Euro value, based on the 70% calculation of the average value of the previous year.

After entry into force of the Decision, and just prior to the announcement of the Euro rate applicable for the year 2018, on 22 January 2018, a provisional clause was added to the Decision regulating that the value of one Euro would not exceed more than 15% of the one Euro value set for the previous year. Thus, although 70% of the average value for the year 2017 was greater, the Euro exchange rate applicable to medicine prices in 2018 was increased only by 15% as against the previous year, and it was determined as TRY 2.6934.

Initially, the Decision was issued by the Cabinet of Ministers. As a result of the referendum held on 16 April 2017, an amendment was made to the Constitution, and a transition was made to the Presidential Government System. The most fundamental feature of this system is the transfer of all executive authorities to the President with the annulment of the Office of Prime Ministry. Therefore, the rules and procedures for determination of pharmaceutical prices are now determined by the President, not by the Cabinet of Ministers, as of July 2018.

Considering that the average Euro value for the year 2018 was approximately TRY 5.65, the rate applicable for 2019 should have been announced at a value close to TRY 4 as per the Decision. However, with the amendment made through a Presidential Decree, which was published in the Official Gazette on 14 February 2019, the rate of “70%” provided in the Decision was amended to “60%.” Thereafter, the Price Evaluation Commission decided that the rate was determined as TRY 3.40, with an increase of 26.4% compared to the previous year.

Finally, on 14 February 2020, the Price Evaluation Commission determined the FX rate for 2020 as TRY 3.8155, which brings an automatic increase of 12%, when compared to 2019.

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