On April 20, 2015, a panel of 31 lawmakers of the Standing Committee on Chemicals and Fertilizers tabled its report in the Indian Parliament. The committee emphasized that patients in India should have access to all medicines, including life saving drugs, at affordable prices. Accordingly, it recommended expansion of the scope of price control to all medicines available in the country.
The Committee wondered why all medicines are still not listed in the ‘National List of Essential Medicines (NLEM)’ and is of the view that drugs of all kinds are essential and are required by the patients for treatment of various disease conditions.
Currently, the National Pharmaceutical Pricing Authority (NPPA) has fixed prices of 509 formulation packs, covering 348 drugs, based on NLEM, as specified in the Drugs Price Control Order (DPCO) 2013. Such price controlled essential drugs currently contribute less than 18 percent of the total pharmaceutical market of India in value terms. Whereas, according to reports, total number of formulation packs in India would be much over 60,000.
The panel noted that the ceiling prices of even all those medicines, which should come under price control under DPCO 2013, are yet to be announced by the NPPA. Accordingly, it advised the Government to expedite the process of notifying ceiling prices for all the remaining medicines featuring in the NLEM, without further delay.
The Parliamentary Standing Committee observed that Rs 17,944 Crore was spent in 2013-14 to import medicinal and pharmaceutical products. It expressed dissatisfaction on the Department of Pharmaceuticals’ (DoP) explanation that imports were made on quality and economic considerations and not necessarily because the products were unavailable at home.
“The Committee is of the strong view that to realize the dream of ‘Make in India’ concept in pharmaceutical sector, the government should boost and incentivize domestic bulk drug industry and discourage Indian pharmaceutical firms from importing”, the report said.
It also observed that to make India self-reliant in this area, revival of sick public sector units was necessary to create capacity of bulk drugs. The Committee urged the DoP to expedite formulation of ‘Make in India’ policy for APIs (active pharmaceutical ingredients) in India.
Indictment against the DoP:
The committee reportedly came down heavily on the DoP for its inability to utilize funds allocated for various purposes, which clearly speaks about “the poor performance of the department in utilization of its plan allocation.”
The report clearly mentions, “The committee therefore feels that department could not achieve its avowed objectives and targets set for various scheme/programs unless the funds are utilized by the department optimally and efficiently.”
Stating that the department “should make earnest efforts for optimum utilization of funds allocated to them”, the committee expressed it would “like to be apprised of the initiatives undertaken by the department in this regard”.
A quick recapitulation:
In may 2012, the Department Related Parliamentary Standing Committee on Health and Family Welfare in its 58th Report also expressed great concern on rampant prescription of irrational and useless drugs by many doctors with ‘ulterior motives’ and expressed the need of inclusion of the essential and lifesaving drugs under strict price regulation.
As it usually takes a very long time to effect any perceptible change in India, the above critical observations, as well, remained virtually unattended, even today.
Does ‘Competition’ impact Branded generic pricing?
I am personally a strong believer of ‘free-market economy’, driven by ‘market competition’, for the industrial sectors in general. It ensures rapid economic progress and growth, creating much needed wealth to cater to the growing needs of various kinds for the citizens of a nation.
However, I would strongly argue that Indian pharma industry is one of the key exceptions in this regard; as it is basically a branded generic market contributing over 90 percent to the total domestic pharmaceutical retail market.
Although, domestic market of branded generic drugs is quite crowded with a large number of respective ‘brands’ of exactly the same off-patent molecule/molecules available at widely different price ranges, patients do not derive any economic benefit out of such intense competition in a ‘free-market economy’. This happens, as the patients have no say or role in the brand selection process of the doctors to choose a price of their likings and affordability, especially when the basic drug/drugs are the same for all those brands.
Examples of huge rice variation in branded generics of the same drug:
A Research Paper published in The Indian Journal of Applied Research’ of May 2014, titled, “Cost Variation Study of Anti-diabetics: Indian Scenario” observed as follows:
“In Single drug therapy, among sulfonylurea group of drugs, Glimepiride (2 mg) shows maximum price variation of 829.72%, while Glipizide (10mg) shows minimum variation. In Meglitinides groups of drugs Repaglinide (0.5mg) shows maximum price variation 194.73% and Nateglinide (120mg) shows Minimum price variation. In Biguanides & Thizolidinediones groups of drugs, Metformin (500 mg) & Pioglitazone (15 mg) show maximum price variation of 384.18% & 600 % respectively. In α-glucosidase inhibitor group of drugs, Voglibose (0.2mg) shows maximum price variation of 387.17%, while Miglitol (25mg) shows minimum price variation.”
“In combination therapies, Glimepiride+Metformin (1+500mg) combination shows the maximum variation up to 475 %. In case of Insulin Premixed 30/70 100IU/ml shows maximum price variation of 1881.24%, while minimum variation is found with short acting 40IU/ml.”
Similar scenario prevails virtually in all therapy categories in India.
No qualms on branding:
It is understandable that generic drugs are branded o create differentiation even within exactly identical drugs. There are no qualms on branding per se, which comes at a reasonably high cost though. However, the question is, who pays for this branding exercise and for what additional tangible value/values?
If no additional tangible value is added to a generic medicine through branding, why should most of the patients sweat to pay significantly extra amount, just to help the pharma companies fighting with each other to increase their respective pies of revenue and profit?
Why drug price control in a ‘Free Market Economy’?
It is indeed a very pertinent question. Equally pertinent answers are also available in a 2014 paper titled, “Competition Issues in the Indian Pharmaceuticals Sector” of Delhi School Economics (DSE). The paper deals with issues related to failure of ‘Free Market Economy’, despite intense competition, especially for branded generic drugs in India.
In an ideally free-market economic model, for each of these brands of identical drugs, having similar regulatory approvals from the Indian drug regulator on efficacy, safety and quality standards, competitive forces should have prompted uniform or at least near uniform prices for all such products.
Any brand of the same drug/drugs charging more, should generally have attracted lesser customers, if consumers would have exercised their purchase decisions directly; efficacy, safety and quality standards being the same, as certified by the drug regulator.
Interestingly, for prescription medicines, the much proven process of consumers exercising their free choice to select a brand, influenced by advertising, does not happen at all.
Branded generics pricing paradox:
In the pharmaceutical market place, the scenario is almost just the reverse of what should happen in a highly competitive ‘free market’ model.
This means, highest priced branded varieties of identical drugs, mostly enjoy highest market share too. This in turn proves that competition within the pharma brands do not bring down the prices, benefiting the consumers/patients.
Branding of generic drugs:
Unlike many developed nations, in India, even the off-patent generic drugs are branded and differentiated on flimsy perception based intangibles to the prescribers, along with other contentious and dubious sales tools, decrying unbranded generics.
This is done in the guise of so-called pharma ‘sales and marketing’ strategies, which are sometimes shrewd and many times equally blatant, if not crude.
The DSE paper, very clearly says, ‘head to head’ competition between undifferentiated (non-branded) products would certainly cause a precipitous fall in prices.
However, it is generally believed, the prescription demand of branded generic drugs is basically created by influencing the prescribing behavior of the medical practitioners. Not just by personal selling through medical representatives, medical advertising and publicity of different types, but also through a chain of processes that many stakeholders, including the Government and law-makers generally consider as grossly unethical.
In January 2015, the Government directive for implementation of the ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’ by the pharma industry in India, further reinforces the point.
‘Dorfman-Steiner’ condition vindicated:
The above paper from the DSE underscores the old and well-established ‘Dorfman-Steiner’ condition that mathematically proves that the price-cost margin is positively related to the ratio of advertising expenditure to sales revenue.
Quoting a practicing surgeon, the DSE article states:
“Sometimes it could be just plain ignorance about the availability of a cheaper alternative that makes doctors continue to prescribe costlier brands. But one cannot ignore the role of what are euphemistically called marketing “incentives”, which basically mean the inappropriate influence pharmaceutical companies exert on doctors. This runs deep. Hospitals choose to stock only certain drugs in their in-house pharmacies and insist that hospitalized patients buy drugs only from the hospital pharmacy. Drug companies sell drugs to hospitals at a price much lower than what the patient is charged, further incentivizing the hospital to stock their products. The cheaper brands often get left out in this game.”
Reasons for success of high-priced branded generics:
Low priced non – branded cheaper generics have been systematically made to perceive as of low quality. In several media reports, including some recent ones even some well-known doctors castigated the low priced non- branded cheaper generics. Pharma industry lobby groups, in tandem, has been strongly resisting various Government initiatives of un-branding the generic drugs.
Over a long time, a common public perception has been painstakingly created that high-priced branded generics are more of high quality; MNC brands are of better quality than their ‘Desi’ counterparts and branded generics are more reliable than their non-branded equivalents.
This perception is fuelled by poor enforcement of the Drugs and Cosmetics Act of India that also regulates drug-manufacturing standards in the country, besides the prevailing overall drug regulatory scenario in the country.
The New Government attributes “Market Failure for pharmaceuticals”:
In its price notification dated July 10, 2014, the NPPA has categorically stated the following:
- There exist huge inter-brand price differences in branded-generics, which is indicative of a severe market failure, as different brands of the same drug formulation, which are identical to each other in terms of active ingredient(s), strength, dosage, route of administration, quality, product characteristics, and intended use, vary disproportionately in terms of price.
- It is observed that, the different brands of the drug formulation may sometimes differ in terms of binders, fillers, dyes, preservatives, coating agents, and dissolution agents, but these differences are not significant in terms of therapeutic value.
- In India the market failure for pharmaceuticals can be attributed to several factors, but the main reason is that the demand for medicines is largely prescription driven and the patient has very little choice in this regard.
- Market failure alone may not constitute sufficient grounds for government intervention, but when such failure is considered in the context of the essential role of pharmaceuticals play in the area of public health, which is a social right, such intervention becomes necessary, especially when exploitative pricing makes medicines unaffordable and beyond the reach of most and also puts huge financial burden in terms of out-of-pocket expenditure on healthcare.
Civil Society echoed the same sentiment:
In this context, it is important to note that in a letter dated August 20, 2014 written by seven large Civil Society Organizations to Mr. Ananth Kumar, the present Minister of Chemicals and Fertilizers with a copy to Prime Minister Modi, articulated similar view, as follows:
“Limiting all price regulation only to a list of 348 medicines and specified dosages and strengths in the DPCO 2013 goes against the policy objective of making medicines affordable to the public. The National List of Essential Medicines, a list of 348 rational and cost-effective medicines, is not the basis for production, promotion and prescription in India. In reality the most frequently prescribed and consumed medicines are not listed in the NLEM.”
I broached on a similar issue in my blog post of April 6, 2015 titled, “Would Affordable ‘Modicare’ Remain Just A Pipe Dream In India?”
An opposite view: ‘Bad Medicine’
On April 23, 2015, an Editorial with the above headline, articulating exactly opposite viewpoint, was published in a leading English business daily.
With all due respect to the concerned editor, it appeared quite funny, if not ‘hilarious’ to me for several reasons. One of which is seemingly total lack of understanding on the issue by the concerned editor.
I am quoting below some of the most obvious ones, just to cite as examples:
A. Quoting the above recommendation of the Parliamentary Standing Committee on drug price control the Editorial states:
“Not only will this make investors from other countries look at India with suspicion – Japanese pharma firm Daiichi just exited its disastrous investment in Ranbaxy (later taken over by Sun Pharma) – it will ensure Indian patients are deprived of good quality medicines.”
It is known to everybody that drug price control in India had got nothing to do with the exit of Daiichi. It was primarily due to import bans by the USFDA, caused by alleged falsification of GMP related data in Ranbaxy’s manufacturing plants selling drugs to America.
B. The Editorial continues:
“So much for Make-in-India—the other problem with price controls is that, with little incentive to invest in fraud-prevention, between a fourth and a third of India’s pharmaceuticals production is estimated to be spurious. Also, price caps have resulted in a situation where R&D expenses are very low, and there is little research on drugs of particular relevance to India.”
Again, it is much known fact that over 82 percent of Indian pharmaceutical market is currently outside price control, offering free-pricing opportunity. What does then prevent the drug companies to come out robust ‘fraud-prevention’ measures for all those free-pricing drugs?
C. The Editor stated:
“Since Indian prices are amongst the lowest in the world, it is not clear what exactly the committee had in mind, more so since costs of medicine are not, in any case, the most expensive part of medical treatment.”
Of course, all concerned knows that lowest range of generic drug prices in India, are perhaps the cheapest in the world. However, the point is, should it be considered in isolation? Not in relation to per capita income of the Indians? Not in terms of Purchasing Power Parity? In drug pricing context, one Committee Report of the DoP had shown, when adjusted against these two factors, drug prices in India are as high, if not more, as compared to the developed countries of the world.
I hasten to add that I fully resect all different view points. If I have made any mistakes in understanding this piece of bizarre editorial, I am more than willing to stand corrected with all humility, as this a very serious issue of ‘what is right’ and NOT ‘who is right’.
India is a market of branded generics, where brand differentiation process involves creation of mostly unsubstantiated perceptions.
As the stakeholders, media and even the Indian Government have alleged, drug companies exert a strong influence in the brand prescription decision of the doctors, even at the cost of patients who cannot afford the same.
Even in a free-market economy with cutthroat competition, patients do not have any means to exercise their price preferences even within identical branded generic drugs. They are compelled to buy high priced brands, as prescribed by their doctors, even where low priced identical equivalents are available.
This condition gives rise into ‘Market Failure’, especially for branded generics in India. The NPPA has unequivocally enunciated it, which I have quoted above.
Being a strong believer and votary of ‘free-market economy’ and ‘market competition’, I find this pharma scenario unique. It is a rare example of failure of otherwise so successful free-market economy model, especially in the branded generic pharma space of India.
Around a decade ago, the ‘Indian Journal of Medical Ethics’ (IJME, January – March 2004 issue) captured the very essence of this deliberation, epitomized in the following sentence:
“If the one who decides, does not pay and the one who pays, does not decide and if the one who decides is ‘paid’, will truths stand any chance?”
By: Tapan J. Ray
Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.