On January 10th, 2022, Brazil’s Technical-Executive Committee of the Drugs Market Regulation Chamber (CMED) set at 0% (zero percent) the value of the productivity factor (Factor X) referring to the adjustment of drug prices for the year 2022.
The Price-Cap System
According to the theoretical conception of the regulatory scheme known worldwide as Price-Cap (price cap system), the X Factor should generate incentives to companies and to the regulated sector to seek productivity gains in an organized way, and should not assume negative values, because, in this case, the incentives would be perverse: the less productive companies would benefit from price increases.
Based on this Methodology, when the econometric model generates the forecasts of a drop in the Labor Productivity Index of the Pharmaceutical Sector, the X Factor should be equal to zero.
Introduction: Brazil's CMED
The committee forecasts and observes the influence of the calculation of Factor X which is estimated to have a negative variation of -1.5% in the industry’s productivity for the period from July 2021 to June 2022.
As determined by Law 10.742/2003, Factor X is only one of the factors that make up the formula for the annual adjustment of the price of medicines, which occurs on March 31 of each year, based on the following components:
- Price index (National Wide Consumer Price Index – IPCA);
- Productivity factor (Factor X);
- Adjustment factor of relative prices between sectors (Factor Y);
- Factor of relative intra-sector prices adjustment (Factor Z).
CMED points out that the model adopted by Law 10.742/2003 aims to protect the interests of drug consumers, avoiding adjustments far above inflation (measured by the IPCA). At the same time, it also aims to ensure the viability of drugs in the market by producing or importing companies, being considered as an incentive regulatory model.
want to learn more about CMED criteria?
To read the criteria for the composition of factors for price adjustment of medicines, click here. (available in Portuguese only).
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