It does sound paradoxical. While the union chemicals ministry is trying to bring in regulations to control drug prices through a new pharma policy, it also might allow companies to raise prices of drugs outside price control by more than 10% a year. The proposal, if ultimately implemented, will surely bring relief to pharma companies, which have been demanding a relaxation in how much they can hike the prices of drugs that are outside the government?s price regulation. However, there are bound to be raised eyebrows among those who feel that drug companies have been charging consumers exorbitantly on some medicines that are outside the ambit of government control.
The Drugs Prices Control Order (DPCO), 1995, issued by the Government of India under Sec 3 of the Essential Commodities Act, 1955, regulates the prices of drugs in the country. The order provides the list of price-controlled drugs, procedures for fixing and implementing drug prices, and penalties for defying such provisions. The powers to implement DPCO provisions have been vested in the National Pharmaceutical Pricing Authority (NPPA).
The latest to demand an increase in the prices of drugs that are outside price control is the Associated Chambers of Commerce and Industry of India (Assocham), which in its letter submitted to the prime minister, has warned that leading domestic pharma companies might be pushed Ranbaxy Laboratories? way in case unwarranted regulatory pressures are not eased. In June, Japan?s second largest pharma company, Daiichi Sankyo, acquired over 51% stake in Ranbaxy, in a transaction valued in the range of $3.4 billion to $4.6 billion. This shocked the pharma fraternity since Ranbaxy was looked upon as an industry benchmark in scale, products portfolio and global reach. Critics lost no time in blaming the existing policies for such a dramatic sell off.
Assocham has urged that the PMO should advise the ministry of chemicals & fertilisers to allow pharma companies to hike the prices of non-scheduled drugs by 20% each year in view of their rising input costs. Ranga Iyer, who is the president of the Organisation of Pharmaceutical Producers of India (OPPI), which is a powerful body of leading pharma companies as well as MNCs in India, says: ?Every industry needs to adjust prices to reflect input costs and other factors. Plus, there is plenty of historical evidence to prove that artificial caps on prices have repeatedly caused harmful disruptionsin availability.?
Complaints and court cases
Incidentally, NPPA, in the last three years, has initiated action against various drug manufacturers, including majors such as Cipla, Aurobindo, Ranbaxy, Cadila Healthcare, Dr Reddy?s and Sun Pharma, for ?overcharging?. Several cases are pending before various courts related to overcharging of drugs involving around Rs 1,526 crore. Over 50% cases involving about Rs 830 crore were initiated against several drug companies in just the last three years. Major player Cipla itself has been fined about Rs 750 crore for overcharging.
In February this year, NPPA had even started an online complaint system. ?Anyone can send complaints on issues relating to overcharging, counterfeit drugs, non-availability or shortage of any medicine, and the authority would take action within 30 days,? Ashok Kumar, chairman, NPPA, had said. The regulator has also announced a cash prize of Rs 1,000 for each complaint that is found to be correct. ?The measure is likely to bring us more complaints, thereby strengthening our monitoring process even in remote places,? Kumar added. NPPA has fixed and revised prices of 283 bulk drugs and 5,703 formulations. In 2007-08, prices of 27 bulk drugs and 776 formulation packs have been fixed and revised till mid-February, 2008.
Amar Lulla, joint managing director, Cipla, had told FE last year that the company has received legal advice that the NPPA notices are untenable. Also, the Allahabad High Court had earlier ruled invalid a series of notifications issued by the NPPA from the year 2000 to 2003 for calculation of retail prices of formulations and quashed the NPPA notice to Cipla for recovery of the ?overcharged? money. The Supreme Court had also directed all drug companies to first deposit 50% of the overcharged amounts as calculated by NPPA before contesting in courts. The case is still dragging on.
The Assocham letter says that undue regulatory pressure is further creating frustration for domestic pharma companies to such an extent that if immediate corrective measures are not taken, many life savings drugs are likely to go out of production. It is ironic that the Indian industry, which was encouraged in 1991 to meet the global challenge, is today being held back from growth by archaic, short-sighted policies and red tape, it says.
Another association for the small and medium-sized pharmaceuticals companies in India, the Confederation of Indian Pharmaceutical Industry (CIPI), is of the opinion that the NPPA should work out a standard formula on cost based pricing. This would facilitate the industry to work freely and allow market forces to keep the prices low. TS Jaishankar, chairman, CIPI, says, ?Raw material prices have shot up over 300-400% in many cases. Also the cost of drugs hardly forms 10% of the total cost of treatment on an average.?
Raw materials? rising costs
BN Singh, president, Indian Drug Manufacturers Association (IDMA), says a price hike is inevitable in the backdrop of increasing material costs and transportation charges. ?We have asked the government for a 20% hike for the products. The manufacturers do not want to produce the drug if they don?t get a better margin, which is difficult nowadays, given inflation and rising material costs. Also, insufficient intermediate imports made the situation worse.?
Sajjan Jindal, president, Assocham, echoes: ?Recently, the Chinese government has cracked down on intermediate and active pharmaceutical ingredients (API) manufacturers and stopped exports of those not adhering to strict pollution control norms. Some of these industries in China have consequently shut shop. The remaining manufacturers have jacked up prices. As a result, the prices of APIs like Vitamin C, coming from China, have increased by 50% in the last one year. Instead of taking cognizance of the rising prices and inflation and offering relief, the NPPA has further lowered ceiling prices of multivitamin formulations.?
According to Assocham, input costs have also been impacted by the currency fluctuation between the dollar, rupee and Yuan, by the crude oil price increase, by price hikes of packaging materials like plastics and PET, and by the 25% price rise of commonly used antibiotics like ciprofloxacin, ofloxacin and cefixime.
Commonly used antiulcerants like famotidine have risen by 50% as have a large number of chemicals used in R&D. Finally, travel costs and manpower costs have risen substantially. In this light, a price control policy that puts a cap on even non-scheduled drugs and which does not allow prices of drugs under price control to be increased, is causing a severe setback, Jindal added. Jaishankar says, ?The government should stop doing drug-wise costing in an industry where raw material costs fluctuate heavily and which tends to avoid manufacturing price controlled items.?
However, Ranga Iyer is of the view that the lack of healthcare infrastructure and non-availability of medicines is the real crisis the country is facing now. ?Even after 60 years of independence, 65% of our population does not have access to healthcare facilities. This has nothing to do with prices, but everything to do with lack of health infrastructure. The government should focus on improving healthcare infrastructure. Pharmaceuticals are only one of the components of healthcare.?
S Srinivasan of Locost, a Baroda-based NGO, says, ?In the case of API prices increasing by 50 to 200%, the hike may be legitimate. Still many vitamin APIs are no longer available even in the bulk pack generics market. The actual crisis is yet to hit the retail market completely.? However, the drug companies? demand for a 20% hike needs to be seen on a case by case basis. Especially as medicines are the only commodity in which the end-user (the paying patient) does not decide what to buy and at what cost.
If one studies the ORG-Nielsen list of top-selling 300 medicines accounting for more than Rs 35,000 crore sales (almost 90% of the retail market), at least 60% of the top-selling 300 medicines are not in the national list of essential medicines (NLEM). Therefore, 2/3rds of medicines sold in India are not essential medicines by the government’s own definition, he said.
He suggested, ?Price regulation of medicines is a key public policy measure for the health of India’s teeming masses. Only the government of India can do it. Like it has done for cell phone rates, insurance premia, electricity tariff, bank interest rates, etc.? All market distorting factors like irrational fixed dose combinations, hazardous and banable medicines should be removed, he adds. Unfair and unethical practices of drug companies need to be curbed. These will reduce health expenditures significantly.
The issue on drug pricing is bound to rage on, with both sides having their own strong points to put forward. But what needs to be considered is a balance of both the timely availability of affordable medicines, as well as the long-term health of the companies manufacuring them.