DRUG PRICING POLICY

WHY IN NEWS

• The prices of some antibiotics and drugs used to treat cancer and cardiac diseases are likely to be cut as the government is moving to update the National List of Essential Medicines (NLEM) and bring some of them under price control.

BACKGROUND

• The price ceiling policy has been in place for more than two decades and India has one of the lowest drug prices in the world.
• Around 14 percent of drugs by value and 25 percent by volume fall under price controls in India.
• But the out-of-pocket expenditure on healthcare remains high (61 per cent) and many Indians continue to be deprived of access to life-saving drugs

NEED FOR DRUG PRICING REGULATION

• Price of medicines has been a sensitive subject in India, where more than 55 million people are pushed into poverty every year due to out-of-pocket healthcare expenses.
• Of the total out-of-pocket healthcare expenses, a little over 50 percent is spent on purchasing medicines alone. The affordability of medicines is a crucial element in availing medical treatment by all sections of the people, particularly by the poor
• The rationale behind price ceilings is to make drugs cheaper and easily accessible to everyone.

EXISTING REGULATORY MECHANISM FOR DRUG PRICING

•  In India, prices of essential drugs are regulated by the central government under the Essential Commodities Act, 1955.
• The National Pharmaceutical Pricing Authority (NPPA) was set up in 1997 to fix or revise prices of pharmaceutical products, enforce the provisions of DPCO (Drug Price Control Order) and monitor the prices of controlled and decontrolled drugs.
• NPPA is an independent body of experts under the Ministry of Chemicals and Fertilizers.
• Currently, DPCO lists 851 drug formulations whose prices can be capped.
• The DPCO follows a market-based pricing mechanism.
  • The ceiling price is worked out on the basis of the average price of all brands having at least 1 percent market share of the total market turnover of that drug plus a notional 16 percent retailer's margin.
  • The ceiling prices of scheduled medicines will be allowed an annual increase as per the Wholesale Price Index as notified by the Department of Industrial Policy and Promotion.
  • In case of non-scheduled medicines, while there is no price cap, but a price increase of 10 percent per annum is allowed.

• This policy is, however, not applicable for patented drugs or fixed-dose combination (FDC) drugs
• The National List of Essential Medicines (NLEM) 2015 is adopted as the primary basis for determining essentiality, which constitutes the list of scheduled medicines for the purpose of price control
• Under the provisions of DPCO 2013, only the prices of drugs that figure in the National List of Essential Medicines (NLEM) are monitored and controlled by National Pharmaceutical Pricing Authority.
• The Ministry of Chemicals and Fertilizers has amended DPCO in 2019.Key amendments are:
  • A drugmaker who has brought in an innovative patented drug will be exempt from the price control regulations for 5 years from the date of marketing.
  • Drugs for treating rare or “orphan” diseases too will be exempt from price control, with a view to encouraging their production.
  • Centre Government will continue fixing prices in line with market-based data available on drugs.

ISSUES REGARDING DRUG PRICING REGULATION

• Trade-off between price and quality:
  • Current drug price control policy has led many pharmaceutical companies to go out of production because their profit margins decreased.
  • This has led to substandard and spurious drug manufacturers dominating the pharma market.
  • In the absence of strict quality regulations, there has been a trade-off between price and quality
  • A report by the United States Trade Representative claims that 20 per cent of drugs in India are fake

• Deterred future investment:
  • Decrease in profit margins of quality manufacturers has led to a reduction in spending in research and development.
  • It has deterred future investments in the pharmaceutical sector.

• Outcome of DPCO is opposite to what it aims to do:
  • Economic Survey 2020 states that regulation of prices of drugs through the DPCO 2013, has led to increase in the price of a regulated pharmaceutical drug vis-à-vis that of a similar drug whose price is not regulated.
  • Many manufacturers migrated to non-essential drugs or stopped promoting essential drugs.
  • Thus, the sale fell for drugs with capped prices, and rose for drugs that didn’t have a price ceiling.

• Lack of coverage:
  • There are only 376 drugs under the current NLEM, hence leaving many essential drugs outside its purview.
  • There has not been much impact on the prices of many life-saving drugs (for example, HIV, cancer, non-communicable diseases) since they have not been on the essential list.

• Not covered the combination drugs:
  • If a price-controlled drug is combined with the non-price controlled drug, it will come out of the price control.

• Information asymmetry:
  • An information asymmetry between the buyer and the seller has created a breeding ground for mis-selling and misinformation (adding or changing of ingredients) in India’s pharma industry.

• Frivolous patents:
  • Chances of frivolous patents (as patented drugs are not on the essential list) have increased.

• Increased import of bulk drugs:
  • Our current drug pricing policy has also forced manufacturers to import Active Pharmaceutical Ingredients (API) and bulk drugs from China to reduce their input costs.
  • So, it has damaged India’s indigenous drug manufacturing industries. About two-thirds of APIs are imported from China.

• Issues with the system ‘National List of Essential Medicines (NLEM)’:
  • If an essential medicine is under NLEM, but its price control is economically unviable then the purpose is defeated because availability will become an issue.
  • Also if it is an essential medicine but not included under NLEM, price won’t be controlled and affordability will be affected. And if the medicine is not essential and included in NLEM, then limited resources are strained.
  • So the list will have to be relooked

• No penalties:
  • No penalties against the companies in case of non-compliance with respect to the orders of NPPA

• Ineffectiveness of price regulation:
  • A unique feature of pharma industry is that the consumer (patient) has no choice but to buy what the doctor says. As most of the doctors are not prescribing generic drugs, our drug pricing regulation is not effective.

• Exemptions:
  • Exempting rare or orphan drugs from price control through recent amendment will considerably impact patients.
  • It is because only MNCs are manufacturing orphan drugs at present; hence lack of price control will negatively impact its affordability.

WAY FORWARD

• Ensure quality:
  • Instead of price controls, other mechanisms like promoting competition among manufacturers and strictly regulating the quality of drugs will deliver better outcomes for India’s pharmaceutical industry.

• Public procurement:
  • The recent report of the Competition Commission of India reveals that retailer’s margins as a primary cause of high prices of medicines.
  • This can be addressed through building mechanism for bulk procurement of generic drugs by public institutions for distribution (Tamil Nadu being a good example)

• Increasing public spending on health:
  • As stated in National Health Policy, 2017 raise public health expenditure to 2.5% of the GDP

• Promoting transparency:
  • Tackle information asymmetry by promoting transparency

• Delinking of price control with inclusion of drugs in NLEM:
  • All drugs included under NLEM need not be price controlled by National Pharmaceutical Pricing Authority (NPPA)
  • Delinking of price regulation will give a broader mandate to Standing National Committee on Medicine (SNCM) to possibly include more expensive drugs which are absolutely necessary for population in NLEM, and pricing can be dealt with separately by NPPA at their level

• Awareness generation:
  • Need to create awareness among both doctors and patients to prescribe or use generic medicines.

CONCLUSION

• The present drug pricing policy has neither been very successful nor is it free of unintended consequences.
• Instead of existing price control mechanisms, the Indian government needs to find better remedies for sustainable production of drugs.

PRACTICE QUESTION:

Q. “Price regulation in the pharmaceutical sector has increased the accessibility and affordability of India’s healthcare system”. Critically analyse.