National List of Essential Medicines (NLEM) and Drug Pricing in India – Explained, pointwise

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The Union Ministry of Health recently released the new National List of Essential Medicines (NLEM). The NLEM has been modified after 7 years. The previous list was issued in 2015. The Ministry updates the list every few years in consultation with health experts. The new NLEM (2022) has added 34 new medicines and dropped 26 old ones from the previous list (2015). It has included more cancer medicines, newer diabetes drugs, and 4 drugs that are under patent. A total of 384 medicines feature on NLEM 2022 under 27 therapeutic categories. The primary aim of NLEM is to promote rational use of medicines, considering three important aspects: cost, safety, and efficacy.

What is the National List of Essential Medicines (NLEM)?

The National List of Essential Medicines (NLEM) was launched for the first time in 1996 in India, along the lines of the World Health Organisation’s (WHO) Essential List of Medicines (ELM).

According to the World Health Organization (WHO), essential medicines are those that satisfy the priority health care needs of a population. The list of essential medicines is made with due regard to: (a) Disease prevalence; (b) Public health relevance; (c) Evidence of efficacy and safety; (d) Comparative cost-effectiveness. They are intended to be available in the health systems at all times, in appropriate dosage forms, of assured quality and at affordable prices.

The WHO issues list of essential medicines every two years, which is used by countries to develop their own national lists. The essential medicines list needs to be country specific addressing the disease burden of the nation. It contains medicines required at the primary, secondary and tertiary healthcare levels. The National list of essential medicines is one of the key instruments in balanced healthcare delivery system of a country.

India has regularly modified its NLEM. Since the first issue in 1996, NLEM has been modified in 2003, 2011, 2015 and now in 2022.

Drugs listed under NLEM are known as scheduled drugs. They are cheaper because the National Pharmaceutical Pricing Authority (NPPA) caps medicine prices and changes only based on wholesale price index-based inflation.

How is the NLEM updated?

The NLEM is a dynamic document which is prepared after several rounds of wide consultations with experts from different disciplines from different parts of the country and from various organizations.

For inclusion in NLEM, the drugs have to be: (a) Useful in treating diseases that are a public health problem in India; (b) Licensed/approved by the Drugs Controller General (DCGI); (c) Proven efficacy; (d) A safety profile based on scientific evidence; (e) Comparatively cost-effective; (f) Aligned with the current treatment guidelines.

They have to be recommended under the National Health Programs of India (for instance, ivermectin is part of the Accelerated Plan for Elimination of Lymphatic Filariasis, 2018). When more than one medicine from the same therapeutic class is available, a prototype of the best-suited medicine for that class is included. Besides this, the price of the total treatment is considered and not the unit price of a medicine.

A medicine is deleted from the list if; (a) It is banned in India; (b) There are reports of concerns about the safety profile; (c) A cheaper medicine with better efficacy is available; (d) The disease, for which a particular medicine is recommended, is no longer a national health concern. Additionally, in the case of antimicrobials, if the resistance pattern has rendered an antimicrobial ineffective, it is removed from the NLEM.

For updating the 2015 list, the Standing National Committee on Medicines (SNCM) was constituted by the Union Health Ministry in 2018. After detailed consultation with experts and stakeholders, the Committee revised the NLEM, 2015. The Government accepted the recommendations of the Committee and adopted the new list.

No specific drugs for the treatment of Covid -19 have been added to the new list, although it includes four drugs that are still under patent.

How is drug pricing controlled in India?

Legal Basis: In India, prices of essential drugs are regulated by the Union Government under the Essential Commodities Act, 1955. The rationale behind price ceilings is to make drugs cheaper and easily affordable to everyone. A large section of the Indian population finds it difficult to bear the cost of medications, which forms a significant chunk of out-of-pocket expenditure on healthcare. The Drug Price Control Order (DPCO) is issued under Section 3 of the ECA, 1955  to regulate the prices of drugs. The Order provides: (a) The list of price controlled drugs; (b) Procedures for fixation of prices of drugs; (c) Method of implementation of prices fixed by Govt.; (d) Penalties for contravention of provisions etc.

Implementation: The powers to implement the DPCO are vested with the National Pharmaceutical Pricing Authority (NPPA). The medicines listed in the NLEM are sold below a price ceiling fixed by the NPPA. NELM 2022 contains 384 drugs.

National Pharmaceutical Pricing Authority NPPA, Drug Pricing in India NELM UPSC

Fixing of Prices: The ceiling price of a scheduled drug is determined on the basis of simple average of price to retailer (PTR) of all branded-generic and generic versions of that particular drug formulation having a minimum market share of 1%. A notional retailer margin of 16% is added to it.

The manufacturer of a non-scheduled drugs (drugs not under direct price control) is not required to take price approvals from NPPA. However, the NPPA is required to monitor the prices of such drugs and take corrective measures if required. Scheduled drugs roughly constitute 17-18% of the estimated INR 1.6-trillion domestic Pharma market.

What are the benefits of controlling drug pricing?

First, It ensures the accessibility, affordability, and safety of some of the most essential drugs.

Second, it helps in optimum utilisation of healthcare resources and budget, drug procurement policies, health insurance, improving prescribing habits, medical education and training and drafting pharmaceutical policies.

Third, A study by Public Health Foundation of India, noted that more than 55 million Indians are pushed into poverty every year due to out-of-pocket healthcare expenses. The Government spends less than 1.3% of the gross domestic product (GDP) on healthcare. The out-of-pocket expenditure on healthcare is 80% in Bihar and 50% in Gujarat. The world average is 18.6%, according to the World Bank. Capping prices of essential drugs mitigates the impact of out-of-pocket expenditure to an extent.

Fourth, high drug prices impact health-seeking behaviour negatively, leading to higher morbidity. Controlling drug prices helps to reduce this.

What are the issues in controlling drug pricing in India?

First, 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. But the out-of-pocket expenditure on healthcare remains high and many Indians continue to be deprived of access to life-saving drugs. In terms of their relative per capita income, Indian consumers pay more than people in high-income countries. Hence, accessibility and affordability still remain critical challenges in India’s healthcare system. Only ~18% of drugs in the market are under price controls.

Second, The current drug price control policy has had some unintended consequences. For example, many pharmaceutical companies have opted 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% of drugs in India are fake.

Third, 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 and also diluting the Intellectual Property (IP) rights.

Fourth, Many manufacturers have migrated to non-essential drugs (80% of the drugs in non-essential list) or stopped promoting essential drugs. For instance, an anti-fungal cream called Tolnaftate has not been promoted for several years now. Thus, the sale fell for drugs with capped prices, and rose for drugs that didn’t have a price ceiling.

Fifth, Some pharmaceutical companies in India have started promoting different drug categories: non-National List of Essential Medicines (NLEM), FDCs (not on NLEM) and non-standard dosages (for instance, doctors routinely prescribe splitting of medicines). 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.

Sixth, As prices of costlier drugs decrease, there is a tendency for a poor consumer to opt for a recognisable brands. The company selling drugs at a lower price loses the incentive to sell it at that price. Also, the chances of frivolous patents (as patented drugs are not on the essential list) have increased.

Seventh, The policy has also forced manufacturers to import Active Pharmaceutical Ingredients (API) and bulk drugs from China to reduce their input costs. So, it has negatively impacted India’s indigenous drug manufacturing industries. About two-third of APIs are imported from China. Any threat from China has the potential to impact the manufacturing of critical drugs in India.

Out-of-Pocket Expenditure

Out-of-pocket payments are expenditures borne directly by a patient where insurance does not cover the full cost of the health good or service. They include cost-sharing, self-medication and other expenditure paid directly by private households.

What should be the approach going ahead?

First, The price control mechanism being set up by the government needs to be tweaked to ensure accessibility and affordability in a real sense. Some experts suggest Trade Margin Rationalization (TMR) instead of price ceiling. The Government can rationalize the trade margins of all stakeholders in the drug supply chain (from stockist to the retailer). This will have similar effect on regulation of prices of medicines and devices.

Second, For the industry to be able to continue to make and supply the medicines from NLEM, the Government should ensure that inflation is taken into account while fixing the ceiling price.

Third, There is  need to educate healthcare professionals and doctors against using several fixed-dose combinations (FDCs) of antibiotics. This has also been highlighted by the Standing National Committee on Medicines (SNCM).

Fourth, Instead of price controls, other mechanisms can be explored like: (a) Bulk procurement of generic drugs by public institutions for distribution; (b) An increase in public spending on healthcare; (c) Promoting competition among manufacturers; (d) Strictly regulating the quality of drugs; (e) Tackling information asymmetry by promoting transparency. This will be helpful in delivering better outcomes for India’s pharmaceutical industry


Medicines are a fundamental part of health care and a well-controlled functional pharmaceutical sector is a pre-requisite for universal health coverage. Healthcare is a public good and it is the responsibility of the Government to ensure affordable and equitable access to medicines and healthcare for all citizens. Addressing some of the concerns and proper implementation of NLEM is therefore vital to enhance the Human Development Index (HDI) and achieving the targets of Sustainable Development Goals by 2030.

Syllabus: GS II, Issues relating to development management of Social Sector/Services relating to Health.

Source: Indian Express, Business Standard, Mint, Vikaspedia

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