Sharma prescribes new formula to check prices of essential drugs

Written by Timsy Jaipuria | Soma Das | New Delhi | Updated: May 25 2012, 07:47am hrs
Commerce and industry minister Anand Sharma has mooted a new formula to the group of ministers (GoM) on pharma pricing to keep prices of essential medicines in check. Sharma recommended that the weighted average price of all drug brands that have more than 5% market share in a particular therapeutic segment should be fixed as the ceiling price of that particular drug.

If Sharmas proposal is accepted by the GoM, headed by agriculture minister Sharad Pawar, it will mark a major departure from the original proposal in the draft National Pharmaceuticals Pricing Policy (NPPP), 2011, that retail prices of essential medicines be capped at the average price of the three best-selling brands. It is also at variance with the health ministrys idea of capping the prices at the average of the three cheapest products with more than 1% market share or sticking with the existing method of cost based pricing. The health ministry had noted that in many cases, the top-selling brands in the market also have higher price tags.

Sharma believes the method proposed by him would help avoid cartelisation and the industry has found this acceptable too.

Sharmas formula is the closest approximation, albeit a modified version, of the method suggested as a second preference by the association of foreign drug makers determining the ceiling price as the weighted average price of all drug brands in a segment with more than 1% market share.

While market-based pricing is certainly a more judicious methodology than the cost-based price control as it prevails, perhaps a weighted average of all brands of formulations with more than 5% market share may be considered to avoid cartelisation, Sharma has said.

The industry has reacted favourably to the proposal. DG Shah, secretary general of the Indian Pharmaceutical Alliance, the industry association of top domestic drug makers, said: The IPA supports any pricing formula that seeks to achieve balance between access and availability. The formula must balance the short-term and the long-term interests of the patient, sustain production and attract new investments to meet growing demand of medicines and support domestic companies endeavours to research and develop new medicines that are safe, effective and cost efficient. The proposal mooted by the commerce minister appears to meet all three criteria.

Sharma also asserted that the span of price control should be restricted only to drugs enlisted in the national list of essential medicines (NLEM). The department of pharmaceuticals had suggested that along with the drugs listed, dosages and other combination drugs that consist of NLEM drugs should also be brought under the price net.

The note circulated to the GoM proposes to increase the coverage to about 75% of all pharmaceutical products, which will entail price monitoring of 15,000 individual formulations with the attendant risk of inspector raj. This coverage goes beyond the Supreme Court direction for identifying the national list of essential medicines as it includes all their combinations and doses in the price control policy, Sharma is learnt to have communicated to the GoM.

A commerce ministry impact analysis of the new proposed pharma policy suggests that its implementation will reduce the prices of about 52% of the medicines in NLEM 2011 by less than 5%, and of 32% others by less than 20%. This, the commerce ministry concludes, is because the prices of medicines are already low and imposing controls will not have the desired impact to reduce them substantially.

The GoM headed by Pawar is jostling with multiple formulae submitted by different stakeholders various industry associations, public health groups and MP Jyoti Mirdha to arrive at the most suitable method to control prices of essential drugs.