Excerpts:

FE: Industry has been seeking a total overhaul of the current drug pricing policy. But has price control actually benefited the consumer?

DGS: The current structure and administration of controls have become counter-productive in several ways, both for industry and the consumer.

Companies have shied away from investment in and the production of drugs under price control eg. doxycycline, chlorpropamide etc. resulting in shortage or non-availability of these drugs or increased reliance on imports. This void has, in turn, attracted unscrupulous traders and manufacturers who offer spurious and substandard drugs.

There is also a shift to newer drugs which are outside price control, resulting in the use of more potent medicines than needed. Hence, the cost of treatment to the consumer has gone up several fold.

Price controls, in my opinion, have not only led to irrational use of drugs and promoted spurious and substandard drugs, but the consumer has also ended up paying more than what he would have in the case of conventional drugs.

Shouldn't industry and government, in general, be working towards a system where everyone has access to at least basic medicines?

Yes. But the difficulty arises when some people insist that everyone should have access, through price control, not only to the basic medicines but also all medicines of all manufacturers. Food, shelter and clothing are primary needs. But everyone does not eat the same food, have the same accommodation or even wear the same clothes. Likewise, everyone does not have access to the same medical facilities of hospitals, wards and doctors. This segmentation is accepted in all spheres of life.

Why should it then be any different in the case of drugs? Let the system ensure access to the basic medicines required for the diseases covered by the national health programmes and let competition take care of the rest of the medicines.

What are the key limitations of the pricing policy in its current form?

The current structure and framework of controls is outdated and cumbersome. The information compiled and relied upon for implementation of the policy is incomplete, its source unknown and data questionable. The method of price fixation for bulk drugs is also very cumbersome and requires company by company and product by product examination of cost data furnished by a company. This process results in delays and unexplained disallowance in cost.Moreover, the National Pharmaceutical Pricing Authority (NPPA) enjoys discretionary powers in the choice of methods (import price, market price or cost-cum-technical study), selection of manufacturers and disallowance of legitimate costs in the cost-price determination. This system also requires NPPA to assume certain market demand based on capacity utilisation norms.

As regards formulation pricing, the system requires case by case scrutiny of price fixation/revision applications based on normative costs, internal price ceilings for actives, excipients and packaging materials and yield/output norms etc.

Industry has been pressing for a price monitoring system that could replace the existing mechanism. Would this be appropriate in the Indian context?

Consumer interest will be better served by allowing greater interplay of market forces and minimising government intervention. However, given the political compulsions involved, an alternative system of price surveillance could be put in place for a defined period which will moderate price increases while withdrawing from micro-management of cost-price fixation.

This system of price surveillance can be with reference to a defined time or basket of defined market places of the world or a mix of both. The system, obviously, pre-supposes that the industry and the government will have to work closely and share each other's concern to jointly convert the challenges of globalisation into opportunities of tomorrow.

The finance minister, in his 1999-2000 budget speech, said that there was a need to reduce the rigours of price control. Would this necessitate a complete overhaul of the policy itself ie. new criteria for exclusion/inclusion of drugs under the DPCO?

Mere modifications that say increase the turnover limit (currently at Rs 4 crore) for exclusion of bulk drugs from price control or the use of combined turnover of single and multi-ingredient formulations in specific segments to assess the degree of competition may not be enough. Such modifications will not, in any way, make any proposed price mechanism more transparent -- objective or speedy.

What are the changes you propose to improve the transparency and objectivity of price control decisions?

Firstly, transparency would require that the database used for determining turnover and the degree of competition be in the public domain.

Secondly, the system should be so defined that the discretionary powers are reduced to the minimum. And, wherever discretionary powers are used, an explanatory statement should list the circumstances that led to the use of these powers. This will ensure objectivity.

Thirdly, the system of publication of the draft rules/amendments and inviting objections thereto, currently in vogue for The Drugs and Cosmetics Act and The patents Act should be introduced for inclusion/exclusion of drugs under price control. This will ensure accountability.

Fourthly, the system should ensure that any representation for correction of the Drug Policy/DPCO is disposed of within four weeks from the date of receipt thereof by the competent authority and action taken thereon.

Industry also claims that reduced price control and higher profitability will allow it to plough back funds into research and development. So should the Government be possibly linking relaxations in price control and R&D spends, more effectively?

R&D spends is a commercial decision driven mainly by the vision and the assessment of risk and potential. It is unlikely that a company would initiate R&D just because price controls are relaxed. But it is very likely that those who are engaged in or intend to initiate R&D activity will be encouraged to increase their R&D spends if they are able to meet the expectation of stakeholders as regards profitability even while increasing allocation for R&D. The role of the Government and its policy should be to create such conditions for knowledge-based industries. This is where the future of India lies.