SC to examine pharma pricing policy, order on drug control

Written by fe Bureau | New Delhi | Updated: Aug 7 2013, 05:32am hrs
The Supreme Court on Tuesday decided to examine the new National Pharmaceutical Pricing Policy-2012 for fixing prices of essential medicines in the country and also the Drugs (Prices Control) Order 2013 (DPCO 2013), notified by the government in May.

A bench headed by Justice GS Singhvi asked the Centre to file its response on a fresh application filed by the All India Drug Action Network (AIDAN) seeking quashing of both the 2012 policy and DPCO 2013, which would reduce prices of 348 essential medicines, notified by the department of pharmaceuticals on December 7, last year, and May 15, respectively.

After looking at the data provided by AIDAN, analysing the market price, price fixed by government and the cost of production of drugs, the bench observed that the margin of profit being taken by manufacturers and dealers has become 10 -1,300% of the cost of manufacture of the drug and asked additional solicitor general Siddharth Luthra how far have the drug manufacturers influenced the 2012 policy

The bench also pulled up the Centre for dilly-dallying on the issue of fixing prices for the last 10 years and saying that nothing has been done by the Centre despite various committees, including parliamentary committee, deliberating on the issue.

While seeking amendment to its earlier 2003 petition, AIDAN sought a direction to the government to continue with cost-based ceiling prices of all essential drugs in NLEM 2011 as per DPCO 1995.

Stating that the government had undermined the apex courts directive that medicines should be made affordable for the common man, AIDAN in its application stated that it had done this by making a pretense of price control by introducing market-based pricing (MBP) rather than cost-based pricing (cost of raw material plus costs of conversion plus a margin) followed since 1979.

Senior counsel Colin Gonsalves said that DPCO 2013 is a poorly designed public policy instrument even as the underlying policy NPPP 2012, which it seeks to implement, is a rashly conceived policy as the DPCO 2013 increases prices of essential and non-essential drugs by sanctioning yearly increase of at least 10% (or as per the wholesale price index increase).

Alleging that the effect of DPCO 2013 will be inflationary and would lead to unnecessary increase in drug prices, AIDAN argued that the simple average formula notified as DPCO 2013 is tantamount to legitimising the current unaffordable prices of medicines and, in effect, is farcical price control, arbitrary and


According to them, the simple average formula is as faulty as other market-based mechanisms (like weighted average price of brands with more than 1% market share) as it has no relation to the cost of production. Besides, prices of brands reflect brand value rather than the actual cost of production and, as a result, unreasonable super profits are earned by drug makers, to the tune of 200-4,000%; and such unreasonable profits are being used for questionable marketing practices in the name of brand promotion, the application added.

The government, by taking the convenient option of choosing the market-based pricing mechanism, is not addressing the issue of what is a legitimate profit margin: 100% or 1000% or 4000 %, Gonsalves stated, adding that NLEM drugs cover only R16,000 crore of the total domestic market of R72,000 crore.