Latvia has a significant pharmaceutical industry but drug policy is primarily oriented towards safety and quality rather than support for domestic production. Production, imports, exports and distribution are supervised by the Department of Pharmacy of the Ministry of Welfare.

Latvia adopted a law “On Pharmaceuticals” in 1993, which was updated in 1998 and June 2000. The aim of the law is to regulate the activities in the pharmaceutical field and to ensure that the pharmaceutical products produced and distributed are safe, qualitative and effective. The law determines the responsibilities of the Ministry of Welfare, the State Agency of Medicines and the State Pharmaceutical Inspection, and sets the main principles of registration, manufacturing, and wholesale and retail distribution (see Fig. 16).

The State Agency of Medicines (SAM) was founded in October 1996 from the reorganized Pharmacopoeia and Pharmacology Committee and Medicines Quality Control Laboratory. As can be seen in Fig. 16, the State Agency is a substructure of the Department of Pharmacy. The agency maintains a pharmaceutical products register, where all pharmaceutical products registered in Latvia are listed. The aims of SAM are evaluation of medicinal products and drugs, their registration, monitoring, quality control and distribution management within the country. It analyses information, develops norms and regulates prescribing of medications. The agency is responsible for drug import, export, and transit control. The Laboratory on Control of Medicines Quality is a part of the State Agency of Medicines.

Besides its main tasks, SAM fulfills the following duties:

• issues clinical trial performance licenses, monitors the process of the clinical trials and summarizes their results;
• gathers, summarizes and distributes information regarding quality control of pharmaceuticals;
• acts as a consultant and intermediary between various governmental institutions as well as among local and foreign entrepreneurs; 
• cooperates with international pharmaceutical organizations on various including issues of quality control;
• issues import and export, transit and distribution certificates of the medicines and drugs; 
• prepares and submits proposals to the Ministry of Welfare on the laboratories, institutes and other institutions to be included in the list of the organizations Latvia licensed to give official evaluations on the quality of medicines and drugs. Regulation of pharmacies is the task of the State Pharmaceutical Inspection.

In 1998, the Medicines Pricing and Reimbursement Agency was created in order to carry out a reform of the drug reimbursement system in accordance  with the EC directive 89/105/EEC. A key purpose of the new organization is to determine the positive list and to ensure the appropriate functioning of the new system. It is a non-profit organization with the legal status of a state limited company, intended to cooperate with professional organizations (such as those of physicians and pharmacists), pharmaceutical producers and the State Compulsory Health Insurance Agency. Among its functions will be the analysis and estimation of treatment expenses, overseeing of physician practices on prescription of drugs included in the positive list, and assessment of the results.

For drugs included in the positive list, prices are negotiated between the Medicines Pricing and Reimbursement Agency and the manufacturers. For drugs not included in the reimbursement system, prices are based on an unregulated manufacturer’s price with limited mark-ups for wholesalers and pharmacies. The wholesale price is calculated as the manufacturer’s price plus a maximum of 15% mark-up (ranging from 5% to 15% by the wholesaler). The margin paid to the pharmacist is regressive so that, as the wholesale price increases, the retailer’s margin decreases (20% for the most expensive products to 38% for the cheapest).

In 1998, regulations by the Cabinet of Ministers based on Directive 89/105/ EEC on pricing and reimbursement were issued, and are to be implemented during the years 1998–2002. The main principles are:

1. The Cabinet of Ministers has determined a list of 52 illnesses and conditions (severe and chronic) for which medication is partially or totally reimbursed.
2. There are three categories of diseases where medication is partly (50% or 75%) or fully (100%) reimbursed. Full compensation occurs in those cases where the patient has a chronic disease and the medicine is necessary to maintain the patient’s life functions. 75% compensation occurs in those cases where the patient has a chronic disease and the medication is necessary to maintain the patient’s health on the same level and prevent deterioration. 50% compensation is in those cases where the patient has a chronic disease and the prescribed medication could improve the patient’s health. The patient pays the difference between the drug cost in the pharmacy and the compensation sum. Even if the compensation is 100% the patient pays LVL 0.10 for the prescription. The costs of these drugs are reimbursed (by the sickness funds) if they have been prescribed by a doctor who has a contract with a sickness fund.
3. The Minister of Welfare approves a list of drug active substances (INN) for treatment of each illness or special cause according to the treatment schemes worked out by doctors’ professional associations.
4. According to the drug INN list, the Medicines Pricing and Reimbursement Agency issues a positive list containing specific presentations and their  prices based on the applications and negotiations with drug marketing authorization holders.
5. OTC medicines and homeopathic products are not reimbursed.

The cost of medications is paid fully by the patient, except in those cases that are designated by the Cabinet of Ministers regulations.

A product is placed in the reimbursement scheme (positive list) if the Medicines Pricing and Reimbursement Agency has approved the price and taken the decision to include the product in the list. The price is set on the basis of negotiations between the Agency and the holder of the marketing authorisation.

Reimbursable pharmaceutical products are prescribed by general practitioners and specialists who have an agreement with a sickness fund. In case of 75% and 50% reimbursement the patient pays the co-payment and additional LVL 0.10 for handling the prescription directly to the pharmacy. Reimbursable prescriptions are codified and are under control of regional sickness funds.

The pharmaceuticals included in the List of Reimbursable Medicine (positive list), must be registered in the Latvian Drug Register and classified as a prescription drug. Medical aids and prostheses must be registered in the Health Statistics and Medical Technology Agency.

With the development of this system Latvia will eventually come closer to implementing the basic principles and practices concerning pharmaceutical reimbursement and pricing in the European Union.

However, for the moment, there remain serious problems in the implementation of the system. First, the level of supplies is not sufficient to meet all the needs of individuals and hospitals. Hospitals do not have sufficient supplies, and patients often cannot afford to buy medications. Second, the health care budget is unable to cover all expenses necessary for the reimbursement of pharmaceuticals included in the positive list. While general practitioners and specialists are by law permitted to prescribe drugs, the sickness funds, though obliged to reimburse are unable to do so, and so are trying to influence prescribing through their contracts with providers. Pharmacies are involved in that they give out drugs for which they are not reimbursed. In the year 2000, the Association of Family Physicians started a campaign against the Ministry of Welfare due to the problem, which, however, has yet to be resolved.

Annual turnover of the Latvian pharmaceutical market was estimated to be around US $100 million in 1997. The volume of foreign drugs made up 85–90% of total consumption. Over half of imported pharmaceuticals comes from the former Soviet Union and eastern European countries due to cost  advantages. The Latvian market is extremely price sensitive, as most of the people cannot afford to buy expensive drugs.

In 1999, there were around 18 manufacturers, 74 wholesalers, and 668 pharmacies. Today, most of the producers and wholesalers, and about 90% of the retail pharmacies are privately owned. Most pharmacies that remain publicly owned are hospital pharmacies.

The Centre of Catastrophe Medicine has a list and reserves of pharmaceuticals, which could be used in extreme situations in the country.

Table 12 shows the structure of expenditures on pharmaceuticals in Latvia.