Law for the Promotion of National Industry: distortions and overspending on public procurement of medicines

Abstract

The purpose of this research is to analyze the effects caused to the state and society by Law 27143 'Ley de Promoción Temporal del Desarrollo Productivo Nacional' with regard to public procurement of medicines. To this end, a database was constructed to calculate the amount of money overpaid by the state due to the 20% bonus given to domestic medicine producers. This was expressed as the difference between the price paid to the domestic producer who won the contract and the price otherwise payable to an importer. These numbers show the quantum of treatments that could have been offered to patients if the cheapest product had been bought. Finally a model was built to help understand the price-setting behavior of domestic firms awarded in this way.

Using this methodology, we ascertained that the state paid an excess of S/.37,57 million due to this law. With this amount of money, it would have been possible to offer 1.571.471 treatments to adults and 81.175 to children in the period 2002–2006. Finally we show that the domestic pharmaceutical laboratories use the 20% bonus as a price setting mechanism that enables them to keep charging high prices compared to the competition and still win the procurement process.