On July 15, 2015, while hearing a petition related to the current ‘Market Based Drug-Pricing Policy’ of the country, the Supreme Court of India expressed its bewilderment on the very rationality of the ‘National Pharmaceutical Pricing Policy 2012’ and directed the Government for its review.
The petition was filed by an NGO called, ‘All India Drug Action Network’. It pleaded before the honorable court that ‘Market Based Drug-Pricing’ that is currently followed in India, was never used for any price regulatory purposes. Under this new policy, simple average ‘Ceiling Prices’, in many cases, are higher than the market leader price.
The petitioner reportedly also alleged that under the new drug policy, the profit margin for pharma companies and dealers has become in the range of 10-1300 per cent. Thus, the NGO sought a direction to the Government to continue with earlier ‘Cost-Based Pricing’ to arrive at ‘Ceiling Prices’ for all essential drugs.
‘All India Drug Action Network’ contended that the ‘National List of Essential Medicines (NLEM)’ consisted of only 348 drugs and had left out many other essential medicines from price control. Thus, it sought inclusion of more life-saving medicines in the NLEM whose prices would be regulated by the government. It also pleaded that the price control must extend to various “dosages, strength and combinations” of those drugs falling under NLEM.
Expressing its serious concern, the three-judge bench of the Apex Court reportedly told the Government, “You are fixing the maximum price of a medicine above the retail price of the leading company of the same drug. It is absurd.”
The honorable Supreme Court reportedly also observed that the “pharmaceutical companies were already charging 5,000 times of the production cost and then you are taking the average of them and fixing under the drug price control order. This is legitimizing the profiteering”.
Many construe this observation of the Supreme Court as virtual endorsement of ‘All India Drug Action Network’s accusation that the earlier ‘cost-based drug-pricing’ model was better for the patients, whereas the new ‘market-based drug pricing’ model just legitimizes profiteering and pushes drugs out of reach of the poor, who are already suffering under very high ‘out of pocket’ health expenditure burden.
The Honorable Court reportedly asked the Department of Pharmaceuticals of Union Ministry of Chemicals and Fertilizers to reconsider aspects like the formula to fix prices. And thereafter pass a “reasoned” order on the representation of the NGO on the issue within six months after hearing all parties concerned. It also asked the Centre to file a copy of its decision on the representation of NGO, which would file it in six weeks.
However, at the very beginning the bench had expressed, “this is not an easy area for the courts to intervene and it is very difficult for a court to sit in judgment in such kind of policy matters.”
The Additional Solicitor General appearing for the Government reportedly submitted that the Government is open to consider the representation. “We will have a look to add some more drugs under the price control order”, she reportedly said.
Key objectives for drug price control in India:
As has now been well established, backed by robust data, that in a country like India ‘Out of Pocket Expenditure’ for medicines is very high.
According to the World Bank Out-of-pocket health expenditure (% of private expenditure on health) in India was last measured at 85.88 in 2013.
In a situation like this, to ensure adequate access to affordable essential medicines for the common man, the Government has hardly any option but to regulate the prices of, at least, the essential medicines.
To achieve this objective meaningfully, the Government through the ‘National Pharmaceutical Pricing Authority (NPPA)’ tries to make sure that all such medicines are:
- Adequately Available
- Reasonably Affordable
Therefore, maintaining a right balance between ‘affordability’ and ‘availability’ of medicines is of critical importance, while framing any drug pricing policy, .
A January, 2013 article titled, “Pharma Policy 2012 and Essential Drug’s Pricing” gives the following examples to illustrate how current ‘market based pricing’ mechanism is going to make many drugs costlier:
|Market-based pricing (simple average)
|Cost based pricing
Source: Jan Swasthya Abhiyan (JSA)
Why ‘drug price control’ at all in a ‘Free Market Economy’?
It is indeed a very pertinent question to ponder over.
However, equally pertinent answers are also available. One such was deliberated in a 2014 paper titled, “Competition Issues in the Indian Pharmaceuticals Sector” of Delhi School Economics (DSE). The paper deals with the subject related to failure of ‘Free Market Economy’ especially for branded generic drugs in India, despite seemingly intense price competition.
In an ideally free-market economy 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 or other available information, does not happen at all.
A snapshot of key changes in the new drug policy over the previous one:
The ‘Drug Price Control Order 2013 (DPCO 2013)’ clearly articulates two basic changes in the criteria for drug price control in India, as follows:
1. Span of price control:
This was re-defined in DPCO 2013 based on the ‘essentiality criteria’ of the drugs, which in turn is based on the ‘National List of Essential Medicines 2011 (NLEM 2011)’, instead of bulk drug based price control of DPCO 1995.
2. Methodology of price control:
This was also re-defined in DPCO 2013, making a clear departure from ‘Cost-Based Price Control’ of DPCO 1995 to ‘Market-Based Price Control’. The ‘Ceiling Prices’ are now arrived at by calculating the simple average price of each essential drug with market share of 1 percent and above. Instead, in DPCO 1995, ‘Ceiling Prices’ of price-controlled drugs used to be arrived at by applying specified ‘Maximum Allowable Post Manufacturing Expenditure (MAPE)’ on the manufacturing costs of each of such formulations.
Key lacunae in DPCO 2013:
Besides contentious methodology of price control in DPCO 2013, NLEM 2011 does not also cover a wide range of essential drugs, which are so important for patients. I had highlighted this issue in one of my earlier blog posts titled “Is The New ’Market Based Pricing Model’ Fundamentally Flawed?”
NLEM 2011 does not cover many combinations of TB drugs, a large number of important drugs for diabetes and hypertension. Many other critical life saving medicines, such as, anti-cancer drugs, expensive antibiotics and products needed for organ transplantation have been left out of price control. In fact, the prices of a number of these drugs have reportedly gone up after the notification of DPCO 2013, though NPPA has now started acting on this avoidable trend.
The government has reportedly admitted in an affidavit filed before the Supreme Court that the market value and share of medicines covered by new DPCO 2013, as ‘Essential Drugs’, is a meager 18 per cent of the Indian Pharmaceutical Market (IPM), instead of 20 percent under DPCO 1995.
As a result, DPCO 2013 based on NLEM 2011 undermines the entire objective of making essential drugs affordable to all.
All these lacunae in the current DPCO 2013 calls for a major revision of NLEM 2011, besides methodology of ‘Ceiling Price’ calculations. The Union Health Ministry has reportedly initiated steps to revise the list considering the existing market conditions and usage of drugs by the patients. This has reportedly happened again as recently as on July 16, 2015.
Observations of Indian lawmakers:
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 at different times.
Government defines “Market Failure for pharmaceuticals”:
In its price notification dated July 10, 2014, the NPPA has categorically stated about “Market Failure for pharmaceuticals” as follows:
- 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 the 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 patients. This also puts huge financial burden in terms of out-of-pocket expenditure on healthcare.
Has DPCO 2013 delivered?
Many stakeholders, barring some NGOs, felt initially that DPCO 2013 would be a win-win drug pricing policy for both the industry and patients, as it would apparently be less intrusive for the pharma players.
Along side, through ‘Public Relations’ overdrive, a hype was successfully created in the media by vested interests to generate a feeling that the drug prices are coming down by 30-40 percent as a result of the new market-based price control regime under DPCO 2013.
That could well be true for a handful of drugs. However, the fact is that the industry was adversely impacted by just around 2.3 percent, with the provision for annual price increases for even the price-controlled drugs. On the other hand, the span of price control came down from 20 percent of the just pervious DPCO 1995 to 18 percent in DPCO 2013, not impacting the industry as significantly as it was hyped before. This is quite evident even from the reported overall performance of the industry.
For the general patients, by and large, DPCO 2013 has not delivered what it was expected to on the ground.
Realization of these facts has been just enough for the public disillusionment to set in, with a possible snowballing effect. Now the Supreme Court has intervened responding to a Public Interest Litigation (PIL). It has also made tough observations on the rationale of ‘market based drug price control’ and directed the government to review it.
On the other side, the Government appointed experts are reportedly revisiting the NLEM 2011 to include more essential drugs in this list.
In the midst of all these, the same drug pricing juggernaut continues to keep rolling, with almost similar narrative, though with different packaging and all associated theatrics of the day. Universal Health Care (UHC) for all now seems to be no more than an illusion, as vindicated by the recent union budgetary allocations for health in India
The Supreme Court of the country has observed afresh that India’s drug pricing policy is “Absurd, Unreasonable and Irrational”. This ticks the general population looking up to the honorable Apex Court as the savior to their long outstanding misery in this area, especially when steep ‘Out of Pocket Health Expenditure’ in India continues to stand out as a sore thumb.
Be that as it may, hoping against hope, the common man continues to clutch on mostly to Government assurances, just on its face value, that ‘Achhe din anne wale hain (Good days are coming)’ for most patients in the country…who knows?
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.