Drug Price Control in India: When A Local Media Goes Against, A Global CEO Doesn’t

‘Variety is the spice of life’, as the good old saying goes. The week, just gone by, was indeed packed with a wide variety of surprises, well encompassing various important areas, some of which are as follows:

  • Effective November 08, 2016 midnight, Indian currency notes of ₹500 and ₹1000 denominations ceased to remain legal tenders. This demonetization followed extensive media coverage, both national and international, on unprecedented administrative and public chaos around this otherwise bold and good intent.
  • The same day witnessed much unexpected triumph of Trump as the 45th President-Elect and the Commander-in-Chief of the United States of America. It is entirely a different matter though, that post-election, millions of Americans reportedly took to streets across the United states to vent their fury over the billionaire’s election victory.
  • On November 07, 2016, a well-known Indian business daily, ‘The Economic Times’, in its editorial, apparently expressed its solidarity with the pharma industry, in general, to do away with drug price control in India. The key reason for this advocacy, as I could sense, is to encourage the drug players to grow by making more profits. I respect this view of the editor will all humility. However, the point that I am unable to ferret out though, what happens to especially the poor patients in such an eventuality. With hands-on experience in the pharma industry over several decades, it appears to me that the editorial suggestions, as well, grossly lack in requisite depth of understanding of the core issue.
  • On November 09, 2016, quite opposite to what the above editorial of ‘The Economic Times’, the current global CEO of GlaxoSmithKline – Sir Andrew Witty, in an interview, strongly argued in favor of the necessity of drug price control in India, that improves access to medicines for a vast majority of the country’s population. To substantiate this point Sir Andrew said in another interview on the same day, “We’ve seen demand of products jump 45 percent after the price is cut by 20 percent. The problem arises when we don’t have supply to cater to the demand, leaving patients frustrated. A bit more predictability (on the part of government) will help.”
  • As if this diametrically opposite views are not enough, on November 10, 2016, the well-known civil society organization – ‘All India Drug Action Network (AIDAN)’, reportedly sent legal notices to the CEO of Niti Aayog CEO and secretaries to the Health Ministry, Department of Pharmaceuticals and Department of Industrial Policy and Promotion over their talks to cut the powers of the National Pharmaceutical Pricing Authority (NPPA). AIDAN has termed this Government move “anti-national” and “anti-people”, further adding that it affects an ongoing case at the Supreme Court over various aspects of the drug price control.

In this article, I shall restrict myself to the pharma related issue of the past week, especially on the interesting advocacy through editorial, against the drug price control in India. Simultaneously, I shall also underscore its relevance in the country, primarily to improve access to medicines for millions of Indians, as articulated by one of the leading voices from the global pharma industry.

Is the yardstick of judging pharma industry different?

This particular question floats in my mind because of several reasons. One such is, almost regularly sponsoring fully paid trips for doctors, especially in an exotic foreign land, by many pharma companies. Such practices of the drug companies are generally inferred, more often than not spearheaded by a large section of the media, as dubious means of the organization to entice, or influence prescribing decisions of physicians in favor of their respective high priced brands, ignoring the health and economic interest of patients.

In similar context, just after having a quick glance over a not so important article, written on various operations at the headquarter of a global drug company situated in a beautiful locale of the world, when one focuses the fine print at the end as a disclaimer, which reads: “This reporter was in (name of the country) on an invitation by (name of the global company)…, do the readers arrive at the same conclusion on ‘gratification’, as above, and its consequent possible outcome on pharma related writings of these reporters?

Can the concerned members of the ‘Fourth Estate’ possibly claim desired intellectual independence in their analysis of a situation involving such companies or their trade associations, even after the above disclaimer? Or for that matter, related publications too, which allow acceptance of such avoidable ‘gratis’ by its reporters? Shouldn’t such incidences, whenever these happen, irrespective of who availed these, be perceived in the same light?

In the current scenario, this issue is something for us to seriously ponder. This is mainly because, for following similar practices, why should there be two different yardsticks to gauge the quality of professional independence of two different otherwise highly respectable professions?

This reminds me of a great pharma reporter, writing for an internationally acclaimed business daily, mainly on the drug industry and healthcare. I met him in India a few years back on his invitation. Although, I shall not take either his or his paper’s name. This is to show respect to our free and frank interaction. He flew down to India with his employer paying all the pharma reporting work related expenses. He met with all those in the Indian drug industry that he wanted to, primarily to capture the nuances of the thought pattern of large and small Indian pharma players. I was so impressed with his intellect, and independent professional outlook, like all those who met him during his that specific visit to India. Even now, I can feel his independent perspective, as I read his articles. It would be great to experience similar feelings, while reading pharma related articles and editorials, in various publications of my own country. At the same time, I shall be delighted to be proved wrong regarding any such possibilities in this area.

That said, I shall now move on to the relevance of drug price control in India.

Any relevance of drug price control in a ‘Free Market Economy’?

No doubt, this is 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.

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 is euphemistically called marketing “incentive”, 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.”

Further, in an ideal free-market economic model, for all approved branded generics with exactly the same formulation, having the same claimable efficacy, safety and quality standards, though marketed by different pharma companies, competitive forces should prompt some parity in their pricing.

Any generic brand with exactly the same formulation as others and offering the same therapeutic value, but costing significantly more, should ideally attract a lesser number of customers, if and where purchase decisions are taken by the consumers directly. However, for prescription medicines it’s not so. The well proven process of consumers exercising their own choice to select a brand, mostly influenced by advertising or word of mouth, does not happen at all.

The 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 generally unaffordable and beyond the reach of most and also puts the huge financial burden in terms of out-of-pocket expenditure on health care.

Civil Society echoed the same sentiment:

In this context, it is important to note that seven large Civil Society Organizations in a letter of August 20, 2014 addressed to Mr. Ananth Kumar, the present Minister of Chemicals and Fertilizers with a copy to Prime Minister Modi, articulated similar views, 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.”

Last week, AIDAN has also indicated that the reported Government move to curtail the power vested on the NPPA for drug price, affects an ongoing case at the Supreme Court over various aspects of the drug price control.

Are medicines cheapest in India…really?

It is often highlighted that medicines cost much cheaper, if not the cheapest, in India. This is too simplistic a view on this subject. It compares the prevailing Indian drug prices in Rupee, against the prices of similar drugs in other countries, just by simple conversion of the foreign currencies, such as, US$ and Euro into Rupee. To make the comparison realistic and credible, Indian drug prices should be compared against the same in other countries, only after applying the following two critical parameters:

  • Purchasing Power Parity and Per Capita Income
  • Quantum of per capita ‘Out of Pocket Expenditure’ on drugs

The Department of Pharmaceuticals (DoP) with the help of academia and other experts had earlier deliberated on this issue in one of its reports on patented drug pricing. The report established that post application of the above two parameters, medicines in India are virtually as expensive as in the developed world, causing great inconvenience to the majority of patients in the country.

Hence, common patients expectedly look for some kind of critical intervention by the Government, at least, on the prices of essential drugs in India.

‘Cannot do away with Drug Price Control’ – said the New Government:

On August 24, 2015 in an interview with a national business daily, V K Subburaj, the Secretary of the Department of Pharmaceuticals commented, “Price control on drugs a shot in the arm for health care” and “the Government cannot do away with it.”

He argued, “A large section of the population is poor. Suddenly, your system is disturbed if you have to spend more on drugs. Drugs are an important component of health care expenditure.”

Accepting the fact that in India, big and small companies investing in research would need more money, Mr. Subburaj said, “In India, we can’t afford to remove controls as the burden of disease is high.”

All stakeholders expect that there is some predictability in what the Government says. Can the stand taken by the policymakers change in just a year’s time, probably wilting under industry pressure?

Conclusion:

The drug price control in India is in vogue since 1970, uninterruptedly. The retail audit data continue to indicate that the growth of the Indian pharma industry, over the last four and half decade long price control regime, has been nothing less than spectacular. This would consequently mean, increasing consumption of drugs, leading to improved access to medicines in India, including its hinterland, though may still not be good enough. Sir Andrew Witty of GSK also articulated the same view, just the last week. It’s a different story altogether that some of the industry sponsored expensive market surveys attempt to wish it away.

Coincidentally, at the commencement of drug price control regime in India in 1970, almost all the players in the ‘Top 10’ pharma league table of the country, were multi-national drug companies. Today the situation has just reversed. Out of ‘Top 10’, about seven are home grown drug companies. Many of these companies were born post 1970. Without frequent M&As by the pharma MNCs, this number could have been probably higher today.

By the way, what’s the span of drug price control in India really – just about 18 percent of the total domestic pharma market now? Around 80 percent of the local drug market continues to remain in the ‘free-pricing’ and ‘high-profit’ zone.

When it comes to profitability, it is worth mentioning, the promoter of the so called ‘low margin’ generic pharma company – Sun Pharma, is the second-richest person in India. He created his initial wealth from India, despite ostensible ‘growth stunting’ price control.

Keeping this in perspective, is it not baffling to fathom the reason behind a local business publication’s apparently endorsing the advocacy initiatives of pharma industry against drug price control through an editorial, when a well-regarded global pharma CEO expresses a strong favorable view in this regard?

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.

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