Govt keen on market-based drug pricing

Written by Soma Das | New Delhi | Updated: Oct 15 2012, 06:26am hrs
The government has decided to stick to the new market-based formula for essential drugs. The formula was proposed by a group of ministers (GoM) headed by Sharad Pawar in the last week of September to fix prices of 348 drugs in the National List of Essential Medicines. The department of pharmaceuticals is set to circulate the final Cabinet note early this week to seek approval for the proposal to fix prices of these essential drugs based on the weighted average price of all brands which command a market share of more than 1% in a particular therapeutic category.

The Supreme Court (SC) earlier this month asked the government not to alter the existing price structure (cost-based mechanism of fixing prices) of essential drugs. The court said: ....the government should not alter the price structure of drugs as notified vide notification dated 13.07.1999 and similar notifications which may have been issued thereafter. The court's reference was to a notification which dealt with determining conversion cost, packing charges and process loss during drug manufacturing to determine the retail ceiling prices of medicines whose prices are controlled under the Drug Prices Control Order (DPCO) 1995. This method is used by the National Pharmaceutical Pricing Authority to fix the ceiling prices.

Read in a straight way, it could tie the hands of the government, preventing it from bringing about any change in the manner of fixing prices. But officials with direct knowledge of the matter said that the SC directive could also be interpreted in another way. The 1999 notification mentioned in the SC order derives its powers from the DPCO 1995. So, when the proposed pricing policy is notified under a new DPCO, the older DPCO of 1995 would stand repealed and all the notifications flowing from it including the referred 1999 notification would automatically cease to exist thereafter, an official said. And, therefore, the government would not be violating any judicial order in execution of its duties, he added. Whether this contention would be accepted by the government remains to be seen.

While there are NGOs and consumer groups who feel the policy change being proposed by the government won't really help the consumer, there are observes who note the court has stepped into the executive's domain by showing preference to a particular methodology to fix drug prices.

It is reckoned although the changes in policy proposed in the cabinet note will result in a marginal increase in the span of price control (from a quarter of the market to almost a third), the regime could be more lenient because it would be less intrusive, more transparent and market-based.

Meanwhile, the department of pharmaceuticals which circulated a draft Cabinet note to complete an inter-ministerial consultation last week, plans to move the final Cabinet note on Monday. After it gets the green signal from the Cabinet, the new drug price order will be ready for notification, paving way to bring in 348 essential drugs enlisted in NLEM under the price net. Currently, 74 bulk drugs and their formulations fall under the (cost-based) price control regime.