Drug Pricing Pressure to Escalate Further?

On February 09, 2018, NITI Aayog released its “Healthy States, Progressive India” Report. The study ranked the States based on ‘health index’. Kerala, Punjab and Tamil Nadu featured as top three in terms of overall performance in 2015-16. However, the interstate variation of ‘health indices’ was quite significant, with the highest being 76.55 (Kerala) and the lowest in Uttar Pradesh with 33.69, during the same period.

Importantly, the report also noted: “About one-third of the States have registered a decline in their performance in 2016 as compared to 2015, stressing the need to pursue domain-specific, targeted interventions.” It’s worth noting, the reported decline in performance was registered despite several promises of the Government in this space, during immediately preceding years.

Apparently, as a corrective measure to this effect, the world’s largest government-funded health care program – the ‘National Health Protection Scheme (HPS)’ of India was announced in the Union Budget Proposal, on February 01, 2018. HPS is expected to provide insurance cover of up to ₹500,000 to 100 million poor and vulnerable families, covering around 500 million population in the country.

As enshrined in the National Health Policy 2017 (NHP 2017), HPS too seeks to ensure improved access and affordability of quality secondary and tertiary care services with a significant reduction in Out of Pocket Expenditure (OOPE) on health care, for the common citizens in the country.

Such a massive public health care program as HPS, is obviously expected to use a transparent drug procurement and logistics framework. This, in turn, would necessitate tough price negotiations with the pharma manufacturers for the purchase of medicines, leading to significant reduction in drug prices. This is already happening in some States, like Tamil Nadu.

High OOPE on health:

According to the December 2016 report of the Union Ministry of Health and Family Welfare, of the total 64.2 percent OOPE in 2013-14, 53.46 percent was spent on medicines and 9.95 percent was spent on diagnostics, in India. 82.29 percent of the total OOP medicines expenditure and 67 percent of total OOP diagnostic expenditure was for outpatient treatment. Of the total OOPE, 15.96 percent was on traditional medicines/ AYUSH, of which equal proportion was spent on outpatient and inpatient care.

In an interview, published on December 18, 2017, the Chairman of the Insurance Regulatory and Development Authority of India (IRDAI), reportedly, also said, OOPE makes up about 62 percent of all health care costs in India, causing impoverishment of many patients. In a comparative yardstick, OOPE is about 20 percent in the U.S. and the U.K. and 20-25 percent in BRICS countries. Thus, there is a need to significantly bring it down in India, he said.

Curiously, the ‘Health in India’ report, which draws data from the 71st round of the National Sample Survey conducted from January to June 2014, presents a somewhat different picture. It reportedly says, of the total OOPE, 72 percent in rural and 68 percent in urban areas was towards buying medicines for non-hospitalized treatment. The Health in India report shows, in rural India, 25 percent patients relied on “borrowings” for hospitalization, and 68 percent on household income and other savings. In urban India, 18 percent patients had to borrow while admitted in hospital, and 75 percent relied on income or savings – the report further added.

Containing OOPE – a dire necessity:

Be that as it may, OOPE for health in India and, especially, on drugs, is indeed very high, by any measure. To contain this burden on the general population in the private market, the Government had introduced, since quite some time, a balancing mechanism through various Drug Price Control Orders (DPCO).

Similarly, to contain its own health care expenditure, as HPS comes into force, the Government is expected to choose a digitalized and transparent drug procurement process. This would, almost certainly, prompt tough price negotiations for the purchase of medicines, as well.

Thus, HPS may further add to the current discomfort of the pharma players in this area, as they mostly want free pricing of drugs that will only be regulated by market forces. Unfortunately, market forces do not work for drugs. I explained it in an article, published in this blog on April 27, 2015, titled “Does Free Market Economy Work For Branded Generic Drugs In India?

Industry lobbying for free pricing of drugs and devices:

It is well known that pharma industry, supported by other businesses dependent on it, including a section of the media, is still against such a move by the Indian policy makers, for various reasons. The primary one being, such pressure on drug prices would stifle  innovation, impacting patient access to the best possible health care.

Pharma Multination Corporations (MNC) appear to be in the forefront of this ‘innovation’ bandwagon to score a brownie point in this area, as many say. This is an ongoing process for them. Even recently, in the report titled, ‘2017 Accomplishments’, the US-India Business Council’s (USIBC) made a strong assertion in this regard, quite expectedly, though.

The report articulated, as part of advocacy around price controls, USIBC had sent a letter to the National Pharmaceutical Pricing Authority (NPPA), detailing American industry concerns on setting up ceiling prices for drugs and medical devices. USIBC, reportedly has also sent a letter, expressing its concern on the “serious problems for US companies that sell these products in the Indian market.” Advocacy initiatives of this kind, reportedly included the then Foreign Secretary, Minister of Commerce and Industries of India, and the Prime Minister’s Principal Secretary, as well.

Pricing pressure getting more intense, even in the US:

Curiously, a similar and equally interesting scenario is rapidly developing alongside in the largest pharma free-market economy in the world – the United States. On January 30, 2018, during his State of the Union address, President Donald Trump said that he wants his administration “to make fixing the injustice of high drug prices one of our top priorities.”

Likewise, as reported by Bloomberg on February 09, 2018, President Trump’s Health and Human Services Secretary – Alex Azar reaffirmed that he plans to take up the President’s promises to do something about pharmaceutical prices to reduce patients’ out-of-pocket spending. He assured, “The president is firmly committed in this space.” Incidentally, Alex Azar is a former executive at drug maker Eli Lilly & Co.

HPS needs efficient public procurement and logistics mechanisms:

As the cost of drugs and devices contribute so much to the total OOPE on health, together with ensuring patients’ easy access to convenient to reach primary, secondary and tertiary health care facilities – access to drugs, devices and diagnostics for the target population of HPS must also increase, effectively. Thus, bulk procurement and distribution of these, free of cost, at the designated health centers, assumes paramount importance for its success. Consequently, the trust of the HPS beneficiaries will keep ascending.

The Public Health Foundation of India (PHFI) too, had aptly asserted, any inefficiency due to poor governance, lack of transparency and inequities in public health financing and delivery would greatly impede access to medicines and diagnostics for those who would need these most.

Admitting its importance, the NHP 2017 noted: “Quality of public procurement and logistics is a major challenge in ensuring access to free drugs and diagnostics through public facilities. An essential prerequisite that is needed to address the challenge of providing free drugs through the public sector, is a well-developed public procurement system.”

Thus, putting in place an effective framework and process for this purpose, at both the central and the state government levels, as the situation would warrant, requires to be a key priority focus area of the HPS implementation process. There doesn’t seem to be any other viable choice, either.

Any need to ‘reinvent the wheel’?

The answer is, of course, ‘no’. Perhaps, to attain similar goals, the Government had established the fully autonomous Central Medical Services Society (CMSS) as a Central Procurement Agency (CPA). This was intended to streamline drug procurement and distribution system of the Ministry of Health and Family Welfare of India. Accordingly, the Gazette Notification on the formation of CMSS said that it:

  • Will be responsible for procuring health sector goods in a transparent and cost-effective manner and distributing them to the States/UTs by setting up an IT enabled supply chain infrastructure including warehouses in 50 locations.
  • Will ensure uninterrupted supply of health-sector goods to the State Government, which will then maintain the flow to the government health facilities, such as district hospitals, primary health centers and community health centers.
  • All decisions on procurement will be taken by the CMSS without any reference to the Ministry of Health and Family Welfare.
  • The Ministry will be responsible only for policy decisions concerning procurement and for monitoring its performance.
  • The CMSS will also assist the State Governments to set up similar organizations in states to reform their procurement.

Currently, CMSS carries out procurement for following ‘Disease Control and Welfare Programs’ of the Union Ministry of Health & Family Welfare:

  • Revised National Tuberculosis Control Program (RNTCP)
  • National Vector Borne Disease Control Program (NVBDCP)
  • Family Welfare Program (FWP)
  • National Aids Control Organization (NACO)

The scope of services of CMSS includes tendering, bid Evaluation, procurement decision, concluding rate agreement, placing purchase orders, receiving in stores, sampling and testing, releasing payment to suppliers and keeping stocks of drugs available in warehouses for distribution to state program offices.

So far as State Governments are concerned, a World Bank article says, the Tamil Nadu Medical Services Corporation (TNMSC) had successfully demonstrated a cost-effective model. This IT enabled system is an integral part in the supply chain infrastructure to support the management decisions, and adequate attention to quality in drug procurement.

CMSS follows similar processes to procure and distribute supplies to States through web-connected warehouses in State capitals. An IT vendor takes up the IT work with a quality control framework in place. Its warehouses are being equipped with necessary storing and warehousing equipment, which will distribute to the States the items that are procured by the Ministry. Since the warehouses will be connected through the IT system, it will be possible for the Society to monitor the inventory in warehouses preventing stock outs and wastage.

Many State governments have also adopted a similar reform process. However, any duplication in the drug procurement and logistics systems needs to be avoided.

Conclusion:

Hence, I reckon, CMSS can be extended to the procurement process of both the new ‘Health Protection Scheme (HPS)’ and also for the ‘Health and Wellness Centers,’ without trying to ‘reinventing the wheel.’

As stated before, this seemingly transparent drug procurement process for public use, would naturally involve tough price negotiations, leading to significant reduction, not just in drug prices, but also containing the overall HPS cost to the Government, enabling the country to experience the roll out of Universal Health Coverage (UHC) for all. From this perspective, it appears, while translating into reality, this noble Government intent of providing wider access to health care, including free medicines, overall pressure on drug prices may escalate further.

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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