In contrast to most EU-15 Member States, Cyprus' pharmaceutical market is divided into two distinct sectors: public and private. These operate independently at all levels. Despite their similar size of £C 30 million, the total import prices (cost, insurance and freight - CIF) usually are lower in the public sector because of tendering. Furthermore, wholesale and retail margins are added in the private sector. Both sectors supply prescription and over-the-counter (OTC) products.

The public sector is funded by the Government Medical Services through budgets approved by parliament and included in the national budget every financial year. Patient coverage is dependent on financial status criteria, where 80% of all products in this sector are provided free to inpatients and outpatients. About 700 products in the public sector are available through hospital pharmacies only. In 2002, 2052 pharmaceutical products registered in Cyprus were available to all patients through private pharmacies.

Pricing pharmaceutical products

Pharmaceutical products and prices are governed at national level. Each medicinal product possessing market authorization to be sold in Cyprus must be priced according to the fixed maximum wholesale or retail price. The Minister of Health determines this price after consultation with the Medicinal Products Price Control Committee (MPPCC). The pricing method is the same for all pharmaceutical products, including patented medicines, generics and OTC products. Law 70 (I) 2001 regulates any preparation that is included in the list of controlled pharmaceuticals. Pharmaceuticals cannot be placed on the market unless the Minister of Health, in consultation with the MPPCC, has fixed the price. A price list is available to both private pharmacies and the public. The pricing method is the same for ethical, generics and OTC products, distinguishing between imported and locally produced pharmaceuticals.

A Ministerial Decision on Pharmaceutical Products for Human Use (28 February 2003) changed the method of calculating wholesale and retail prices for imported products as follows.

" The MPPCC obtains a certificate, issued by the competent authority of the exporting country, indicating the ex-factory price offered to wholesale dealers in the exporting country. " Up to 6% is added to the ex-factory price to cover CIF charges. This is the maximum accepted CIF price (basic price). " The maximum wholesale price is fixed at 25% higher than the basic price. This margin includes promotional expenses and customs fees. In the event that the wholesale price of the pharmaceutical product does not exceed £C 1.50 these margins do not apply and the wholesale price can be set at + 50% on the basic price. " For products imported from Greece an extra 12% is added to the basic price to cover expenses for free medical samples. If these samples are not provided the extra 12% is not added. " The maximum retail price is fixed at 33% higher than the wholesale price.

Prices that have been calculated using this formula must remain valid for at least one year.

The establishment of the maximum price is dependent on specific formulae that differ for domestically produced and imported pharmaceutical products. Further differences prevail in the price-setting methods used for medicines imported from Greece and products from other countries of origin. Currently, Cyprus uses the ex-factory price from the exporting country as a basis to establish private pharmacy prices. It has been argued that this may provide an incentive for importers to obtain medicines from high priced countries in order to obtain higher profits in absolute terms.

In contrast, locally produced products are priced according to a basic price determined by the manufacturer. This price must be lower than that of an imported original product in order to be accepted by the MPPCC. Similarly to imported products, the maximum wholesale price can be fixed at 25% higher than the basic price and the retail price at 33% higher than wholesale.

Prior to the implementation of this pricing method, the old system entailed: i) competent authorities in the country of origin issuing a certificate indicating the ex-factory price offered to wholesalers in the exporting country; and ii) the addition of markups. The most notable changes have been the decrease of wholesale margins from 30% to 25% and the increase of retail margins from 30% to 33%.

Pharmaceutical pricing decision-makers

The Minister of Health makes pricing decisions, in consultation with the Medicinal Products Price Control Committee (MPPCC). This committee is appointed by the Ministerial Council and has eight members: " two officials serving in the pharmaceutical services of the Ministry of Health; " one official serving in the Ministry of Finance; " one official serving in the Ministry of Trade, Industry and Tourism; " one private sector pharmacist (proposed by the Pan Cyprus Pharmaceutical Society); " one person with knowledge and experience of pharmaceutical wholesaling (proposed by local importers); " one person with knowledge and experience of pharmaceutical manufacturing (proposed by local manufacturers); " one person proposed by the Pan Cyprus Association of Consumers. These members serve for a three-year term from their date of appointment.

Reimbursement and patient co-payments

As with the overall health care coverage in Cyprus, pharmaceutical products are provided to different groups of patients at different costs. Individuals entitled to free medical care by the government medical services are also entitled to free medicines. Patients entitled to reduced-fee services are reimbursed at 50%, private patients are not reimbursed.

A pharmaceutical product can be reimbursed only if it is included in the list prepared by the Drugs Committee of the Department of Pharmaceutical Services. This official list (yellow book) is the formulary of hospital drugs that is procured by the public sector.

In order for a new product to be added to the reimbursement list (Formulary of Hospital Drugs) a formal drug request form has to be submitted by a specialist physician practising in a public hospital. A group of clinical pharmacologists evaluates the products based on the current literature on three main evaluation criteria: efficacy, safety/toxicity and cost. Products can be removed from the formulary once they are withdrawn from the market or when equivalent products become available at a lower cost.

Medicines can be prescribed by doctors working in government hospitals and outpatient clinics and are dispensed by government pharmacies to eligible patients. These government pharmacies can dispense only prescriptions from government doctors, who cannot have a private practice. However, the Ministry of Health can authorize private physicians' prescriptions to be dispensed from public pharmacies for specific categories of patients (i.e. cancer patients). The hospital list of drugs is smaller than the number of available drugs in the market.

The community councils are currently involved in determining eligibility to income-tested free-of-charge or at-reduced-fees care. It is estimated that over 90% of prescriptions in 2001 were not subject to a patient co-payment.

Importers/wholesalers

There are about 60 importers of pharmaceutical products for human use in Cyprus (if pharmacies who occasionally import their own medicines are included, the number rises to 110). The top 8-10 importers account for approximately 50% of the trade in medicines.

The laws governing parallel importation of medicinal products in Cyprus are regulated under Articles 21-25. The Drugs Council oversees the issue of parallel import licenses subject to the importer fulfilling specific requirements and relevant documentation (Article 22). The parallel imported product must be: covered by the marketing authorization of the medicinal product (referred to as the "reference product"); manufactured by the same company for which the marketing authorization has been granted (Article 23-2b); and sold under the same name (Article 23-3). Additionally, market authorizations must be valid in both the Member State from which the product is imported and Cyprus (Article 23-2c).

Repackaging of the medicine is permitted only when authorized by the Drugs Council and the authorization is valid for five years. The product of importation must be "identical" to the reference product.

Authorized wholesalers in Cyprus must meet specific obligations which include: (i) they must perpetually have available, and be able to deliver in a short period of time, an adequate supply of medicinal products to meet the requirements of the geographical area specified in their wholesale distribution authorization (Article 84e); (ii) they must have an emergency plan to recall products effectively from the market when deemed necessary (Article 84c); (iii) they must comply with the principles and guidelines of good distribution practice (EU Council Directive 92/25/EEC and Article 84h).

In many cases wholesalers are also marketing authorization holders because of the small size of the Cyprus market. As of 1st May 2003, wholesale margins were reduced to 25%.

Pharmacy sector

Pharmacies are the exclusive distributors of medicinal products to the population including all prescription and non-prescription/OTC products (with the exception of aspirin that can be sold elsewhere, i.e. in supermarkets). Moreover, 0.3% of physicians have dispensing rights. There is a total of 616 pharmacists in Cyprus. There are 436 private pharmacies in the private sector, employing 456 pharmacists. Of these pharmacies, the majority (around 440) are owned by sole proprietary pharmacists, 20 are company-owned chains and 5 are partnerships.

A non-pharmacist may not own a pharmacy and a pharmacist must always be present when drugs are dispensed. On average there is one pharmacist per pharmacy. In addition, there are 140 pharmacists working in the public sector and 40 hospital pharmacies that are open to the public. Recent regulation will control the number and geographical distribution of pharmacies. Currently there is no claw back of profits on pharmacies by the government. Approximately 20 pharmacists work as medical representatives or in the industry.

Demand side measures

Demand side measures provide appropriate incentives to doctors and pharmacists, who influence the patient/consumer demand for pharmaceutical products. Such methods are currently lacking in the Cyprus pharmaceutical market. Physicians are required to prescribe pharmaceuticals included in the Formulary of Hospital Drugs and must strictly follow specific prescribing guidelines. In order to assist physicians with their prescribing, the Drug Information and Poison Control Centre maintains a library with the latest pharmacological and medical texts, medical and pharmaceutical journals and newsletters. The library also boasts an extensive computerized database that is available to all physicians upon request.

Examples of these demand side measures include: fixed or indicative budgets for doctors, fixed budgets for pharmaceutical expenditure, practice guidelines, cost-effectiveness guidelines, positive or negative lists and formularies, controlling the number of products available, prescription audit and ceilings on promotional expenditure. Furthermore, doctors can use information systems for effective prescribing. These systems can also serve for monitoring, evaluation and audit. Other information sources geared at physicians include educational detailing and independent information provided by government authorities and insurance funds.

The dispensing practices of pharmacists can control the mix of medicinal products demanded. Such measures include: allowing pharmacists to substitute lower cost medicines (such as generics and parallel imported products), increasing their advisory role and increasing the availability of OTC products. Furthermore, encouraging the acceptance and creating appropriate incentive structures for generics could increase their market. Generic substitution may be permitted and methods of remunerating pharmacists may provide an incentive for this practice.

Consumption of medicinal products

In Cyprus in 2002, the total annual gross turnover of human medicines was £C 77.2 million (€131.8 million). In 2002 the value of pharmaceutical product sales in the private sector totaled about £C 50 million, an increase of 6.5% from 2001 (at retail prices). If CIF values were used for the private sector the total would be £C 25.5 million, similar to that of the public sector for the same year. This total value8 can be broken down into prescription medicines, accounting for 77.3% and OTC products accounting for 22.7% (at retail prices). The top 50 most expensive products (by value) accounted for only one fortieth (2.5%) of this volume, while the top 50 most sold products (by volume) accounted for over one quarter (27.0%) of the total volume of sales.

In comparison, the total value of sales in the public sector was £C 7.2 million, an increase of 19.5% from 2001. The top 50 most expensive products (by value) accounted for 15.56% of the global annual cost while the top 50 most sold products (by volume) made up almost half of this total (48.7%). As the 50 most sold products have a disproportionate representation in the public sector, making up only 27% of the private sector, there will be implications if distribution is extended to the latter. A possible explanation for this high concentration in the public sector is the consumption of expensive anti-cancer therapies. According to the Anatomic Therapeutic Chemical (ATC) classification system, the total annual volume of sales in the private sector were: anti-infectives for systemic use - penicillins, cephalosporins, vaccines (17.1%); nervous system - analgesics (14.1%); alimentary tract and metabolism - antacids, anti-ulcer (12.8%); and cardiovascular system - statins, antihypertensives (12.0%). By contrast, in the public sector, the products that comprised the greatest proportion of the total sales were: antineoplastic and immunomodulating agents - interferon, cyclosporin (20.6%); cardiovascular system treatments - statins, cardiac therapy (17.3%); followed by treatments for blood and blood-forming organs (12.8%).

While there are currently no initiatives for generic substitution, a great proportion of the pharmaceuticals used in government hospitals are generics due to the low prices at which they are purchased. A legislative proposal was recently submitted to the House titled "Amended Pharmacy and Poison Law 2003", which suggests geographical and population criteria for the opening of new pharmacies.