1. Drug price control: For cheaper medicines, we need a cost-based formula for caps

Drug price control: For cheaper medicines, we need a cost-based formula for caps

The lack of public health infrastructure and the non-availability of medicines in the public sector hospitals forces the majority of Indians to go to private health care facilities.

By: | Published: May 19, 2017 5:34 AM
This dependency on the private sector has lead to heavy catastrophic payments and impoverishment. (Reuters)

The lack of public health infrastructure and the non-availability of medicines in the public sector hospitals forces the majority of Indians to go to private health care facilities. This dependency on the private sector has lead to heavy catastrophic payments and impoverishment. As the National Health Policy, 2017, acknowledges nearly 63 million people in India are pushed into poverty due to out-of -pocket expenditure. Surprisingly, the main reason for the catastrophic payment is the cost of medicines and other health products. This shows that the conventional wisdom of competition failed to ensure access to medicines at affordable prices. This paradox, the source of low-cost medicine manufacturing failed to ensure access to affordable medicine, warrants an urgent intervention of the government to put a cap on prices of essential medicines and other health products. There is a constitutional obligation under Article 21 to protect the right to health as also entrust a duty on the government to protect the people from the actions of third parties, such as pharmaceutical companies and hospitals.

Against this background, the Drugs Price Control Order 2013 (DPCO 2013) is an important intervention, which brought all medicines in the list of national list of essential medicine (NLEM) under price control. The 2013 order resulted in a reduction of prices of medicines, but not to the required level. The main shortcoming of the drug price control order was its formula of price fixation. DPCO 2013 introduced a new formula of fixing prices by taking a simple average of prices of all brands enjoying 1% market share.

This 2013 formula sounds simple compared to the cost-based formula, but the effectiveness of the new formula to ensure access to affordable price is questionable due to the following reasons. Since, there was no regulation on maximum retail price (MRP) in 2013 for many products in the National List of Essential Medicines, medicines which were outside of Drug Price Control Order, 1995 (DPCO 1995) was at high level. As a result, the simple average did not result in the reduction of prices of many medicines which were not under price control earlier. Thus, the new drug price control order of 2013 legitimised a people-unfriendly price control mechanism.

As per available data, often highly-priced brands are the top-selling brands. Therefore, the simple average-based formula would not result in a reduction of the price to the required level. A simple average formula also lacks the transparency in the system compared to a cost-based formula especially in the absence of a verifiable public database. A simple average of maximum retail price would force the companies to launch new products with a high MRP to address the future price cuts in case of inclusion in the order.

The market-made price formula may not be effective at all in the case of high cost medicines and devices with high MRP. For instance, National Pharmaceutical Pricing Authority (NPPA) did not apply the simple average formula to fix the prices of cardiac stents, a product included in the national list of essential medicines due to the high MRP. Thus, the MRP of stents was reduced by 75% from the range of `1,00,000-`1,50,000 to `29,650, which would not have been possible through simple average formula.

Apart from these shortcomings in the price fixation formula DPCO 2013 provides certain exceptions to the application of the price control order, such as for non-application of price control in case of fixed dose combination, new drug delivery system, patented medicines including process patents-based domestic research and development. These exceptions provide multiple easy routes for pharmaceutical companies to bypass price fixation under drug price control. For instance, a fixed dose combination of medicines containing a medicine outside the national list falls outside the scope of price fixation. Similarly, the application of the drug price control order should be medicine-specific and not dosage-specific.

Therefore, the government should revisit the formula for price fixation under Drug Price Control Order 2013 vis-a-vis the cost-based formula. Similarly, the judiciary, including the Supreme Court, has a duty to review the effectiveness of simple average price fixation formula on whether it satisfies the constitutional obligation of the right to health as enshrined under Article 21.

-KM Gopakumar

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