7 PM | Regulating drug prices | 28 February, 2019

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Context

The government has brought 42 non-scheduled anti-cancer drugs under price control, capping trade margin at 30 per cent, which would reduce their retail prices by up to 85 per cent.

Fast facts

• The Indian Pharmaceutical sector is largely fuelled by exports and is the 3rd largest foreign exchange earner for India.
• It is a private enterprise driven industry and the contribution of the Public Sector Undertakings (PSU) are negligible.
• Indian pharmaceutical industry has the largest number of U.S. Food and Drug Administration (USFDA) approved manufacturing facilities outside USA.
• The first comprehensive pharmaceutical policy called Drug Policy was formulated based on hathi committee in 1978. Prior to that adhoc orders given by the Government from time to time to meet the exigencies of the then prevalent situation guided and controlled the industry.

Need for price regulation

Lack of access to essential drugs, irrational use of drugs, and poor drug quality remain serious global public health problems

India is among the countries with the highest Out Of Pocket (OOP) expenses on health care. Expenditure on drugs constitutes over 67% of out of pocket expenditure on health. High Level Expert Group Report (HLEG) on Universal Health Coverage (UHC) for India recommended that an increase in the public procurement of medicines from around 0.1% to 0.5% of GDP would ensure universal access to essential drugs, greatly reducing the burden of out-of-pocket expenditures and increasing the financial protection for households.

Price regulation policy in India

• The National List of Essential Medicines (NLEM) is drawn up to include essential medicines that satisfy the priority health needs of the population.
• National Pharmaceutical Pricing Authority, Controls and regulates the prices of Pharmaceutical drugs in India under the Drug Prices Control Order (DPCO), 1995. NPPA began working since 1997.
• The NPPA currently fixes prices of drugs placed in the National List of Essential Medicines (NLEM) under Schedule-I of the DPCO. So far, around 1000 drugs have been brought under price control under the initiative. Non-scheduled drugs are allowed an increase of up to 10 per cent in prices every year, which is monitored by the NPPA.
• The DPCO controls the prices of all essential medicines by fixing ceiling prices, limiting the highest prices companies can charge.
• The current DPCO 2013 has three primary aims:
  • expanding the National List of Essential Medicines (NLEM),
  • authorizing the National Pharmaceutical Pricing Authority (NPPA) to regulate prices of India’s NLEM, and
  • authorizing the NPPA to regulate price increases of non-essential medicines.
• The DPCO follows a market-based pricing mechanism. The ceiling price is worked out on the basis of the simple average price of all brands having at least 1% market share of the total market turnover of that medicine.
• This has been done through the use of special powers to act in public interest under Paragraph 19 of the DPCO. These moves have brought about dramatic price reductions: 85% in the case of stents and 65% in the case of knee implants.
• Prior to 2013, the DPCO followed a cost-based pricing mechanism that was based on the costs involved in manufacturing a medicine along with reasonable profit margins.

Issues with price regulation

Health experts have argued that cost-based pricing policy resulted in comparatively lower prices than the current market-based policy. SC in 2015 termed national pharmaceutical pricing policy 2015 and drug price control order 2013 as unreasonable and irrational. The court order the government to review the market-based drug price policy.

In January, government constituted a standing committee headed by NITI aayog to oversee drug pricing regime. This committee will recommend affordable medicines and health products, and critically, assume NPPA’s powers under Para 19 of the Drug Price Control Order (DPCO) 2013.

Way ahead

Drug price cost 2/3^rd in case of outpatient care. There is urgent need to ensure affordable prices without manufacturing feeling disincentivise in the process. The recent report of the Competition Commission of India reveals that retailers’ margins as a primary cause of high prices of medicines. This can be addressed by investing in wholesale public procurement as done by Tamil Nadu and Rajasthan.

Besides public procurement, the state-led insurance can help keep health costs low. Ex Arogya shree model of Andhra Pradesh which combination both public procurement and state led insurance.

Pradhan Mantri Bhartiya Jan Aushadhi PariYojana Kendra (PMBJPK) by the Department of Pharmaceuticalsto provide quality medicines at affordable prices to the masses through special kendras known as Pradhan Mantri Bhartiya Jan Aushadhi Kendra is a step-in right direction. Brazil provide free medicines and India should follow the same path gradually.

Source: https://www.thehindu.com/opinion/op-ed/regulating-drug-prices/article26390045.ece