The National Pharmaceutical Pricing Policy (NPPP) 2011 has not been cast in stone yet. Nor is it going to be finalised any time soon, given the series of debates this policy initiative has triggered in various quarters. But one thing appears sure: the government will have a tough time exploring synergies and opportunities that address its core concerns and objectives, and ensure a level playing field within the industry.
So what has stirred up the hornet?s nest? Well, let?s take a sneak peek into the developments over the last few months. This draft policy abruptly emanates from an old writ petition pending before the Supreme Court, in pursuance of which the apex court called upon different ministries to file their affidavits so as to include the National List of Essential Medicines (NLEM) under price control.
For the uninitiated, in November 2011 the department of pharma (DoP) proposed a draft NPPP which looked to impose price controls on all 348 essential medicines (NLEM) through a new, market-based pricing mechanism, as against a cost-based system. It allowed companies to revise their prices based on the changes in the Wholesale Price Index periodically. The draft policy proposes to regulate an estimated 60% of the drug retail market, including prices of 1,154 drugs and 6,441 formulations in addition to the 74 drugs and 1,550 formulations already monitored.
Expectedly, the draft NPPP has evoked a volley of reactions from all stakeholders on the nature and the extent of price control needed for medicines in India. For one, the proposal to radically shift the price control system?from cost-based pricing to market valuation?has received near-unanimous approval by industry. On the flip side, while the domestic industry fears a significant cut in local profits, foreign drug-makers see far-reaching consequences that would affect investments in R&D, with a likely impact on production and availability of essential drugs. Opposing the changes, civil society groups and others have decided to air their views in the Supreme Court, as they feel the increase in the span of price control has no meaning unless drug prices come down for the masses.
At present, DoP is busy preparing its final draft on the basis of over 30 representations received, while dissenting parties are gearing up to take on the government in the Supreme Court. That said, even if the Supreme Court ratifies the government?s version of the NPPP, it still has to be given a final shape by the Group of Ministers, after which it faces approval by Parliament.
Although any policy initiative will face controversy and a diversity of views, the proposed NPPP has a larger share of them. In fact, a mere look at some facts and figures clearly reveals that the government is missing the woods for the trees. We will explain how.
According to the ?Report of Working Group on Drugs & Pharmaceuticals Industry for 12th Five-year Plan,? prepared by DoP, ?It is a fact that the drugs manufactured in India are considered to be amongst the lowest priced internationally. Still, a vast section of the Indian population is not in a position to access the needed healthcare as well as the medicines due to various reasons of access and affordability? It is, therefore, necessary to evolve a strategy which would meet the twin objectives of ensuring that the relative price of drugs does not deviate sharply from the pattern and growth of purchasing power in the country and, on the other hand, the Indian pharma industry continues to maintain its robust growth path.?
Undeniably, the government?s objective to improve affordability and availability of essential medicines is laudable, but this uni-dimensional focus on price control to achieve this task looks far-fetched. Here?s why. The previous price control regime in India (DPCO, 1995) has not improved patient access to price-controlled molecules and DPCO categories have not expanded in rural areas. Intriguingly, the share of DPCO drugs is declining in semi-urban India and, according to a recent IMS study, sales of DPCO medicines in Class II to Class VI towns have decreased from 47% in 2006 to 45% in 2009.
Low drug prices also do not mean a higher ability to purchase drugs, and this has been amply demonstrated in the cases of low-priced iron supplements and anti-HIV drugs, and their poor availability in public medicine distribution. This is because of factors such as few PHCs/ doctors and low government spending on drugs. Any justification for price control holds ground if there has been a marked rise in prices. Statistics, however, suggest that price rises of pharma products have been far lower than those of other essential commodities. For example, the price rise for pharmaceuticals has been ~1% while that of food has been ~9.4% and sugar ~14.9% during 2006-10. Clearly, for the industry, a reduction in revenues due to DPC would impact R&D expenditure, resulting in fewer new introductions of generic products.
While the draft NPPP 2011 is a step in the right direction, there is a need to modify certain elements to increase access to essential medicines. First, there is a need to limit the span of price control to strictly those formulations covered under NLEM 2011, as this will be consistent with the idea of an essential medicines list. It will also be easier for the government to implement the policy and monitor prices and availability across all government healthcare initiatives. Second, as per the proposed policy, manufacturers would be free to fix any price for their products equal to or below the ceiling price. This could lead to an overall increase in prices of all price-controlled formulations, thus negatively impacting patient affordability and defeating the very purpose of drug price control. Thus, to ensure that the industry pricing structure is maintained and that formulations priced below the ceiling price do not increase in cost, it is imperative to put a price increase cap on these formulations. Notably, a majority of the NLEM 2011 formulations are not under price control, as per DPCO 1995, and they are currently subject to a maximum of 10% per annum price increase. This could be applied to price-controlled formulations below the ceiling price as per NPPP 2011. Third, the proposed policy does not comment on taxes and tariffs on essential medicines. The government should abolish taxes on them, as these have the potential to provide a benefit of 11% of the MRP to the consumer. Fourth, the draft policy lacks clarity on the wholesale and retail margins that will be applicable on price-controlled formulations. Margins should be capped and the trade must also play a role in the reduction of the final price to the consumer.
Fifth, the draft NPPP says the annual price increase of price-controlled formulations can only be in line with WPI for manufactured goods. Analysis, however, shows that this would be lower than the annual rise in inflation itself, thus putting unnecessary pressure on manufacturers. This could ultimately impact the availability of essential medicines if manufacturers are not able to meet rising costs. Sixth, several non-price measures, such as strengthening retail channels in rural areas and monitoring prescription medicine price trends by supervising medicine utilisation and cost/treatment episodes for diseases/clinical outcomes, have enormous potential to increase access to essential medicines. Both the government and pharma companies can also use differential pricing in different geographical or socio-economic segments to improve access issues. Through this, pharma companies can maintain profitability and continue investing in R&D to manufacture new drugs. Another important step will be the manufacturing of drugs by the government, with direct control over manufacture and distribution channels. The most important component in improving access to drugs is healthcare financing. Several countries have attempted to create a universal healthcare financing system, covering all citizens.
The following steps would go a long way in improving access to essential medicines: setting up a National Essential Medicines Generic Fund to purchase essential medicines for government programmes and setting up generic medicine stores (like Jan Aushadhi), expansion of distribution channels to improve access to essential medicines and provision of PSU supply for essential medicines.
The author is secretary general, FICCI