Drug Price Rise An Efficacious Move?

National Pharmaceutical Pricing Authority (NPPA) has allowed pharma companies to increase the prices of 509 essential medicines in tune with an increase in the wholesale price index (WPI). Industry stakeholders are optimistic about the move though some still feel it is not enough By Usha Sharma


National Pharmaceutical Pricing Authority (NPPA) has allowed pharma companies to increase the prices of 509 essential medicines in tune with an increase in the wholesale price index (WPI). Industry stakeholders are optimistic about the move though some still feel it is not enough By Usha Sharma

Since the establishment of the concept of ‘essential medicines’ by the World Health Organization (WHO), it has evolved and matured into a critically important element of national health system policies and practices. Essential medicines are those that satisfy the priority healthcare needs of the population, according to International Federation of Pharmaceutical Manufacturers and Associations (IFPMA). They are selected with due regard to public health relevance, evidence of efficacy and safety, and comparative cost-effectiveness.

IFPMA states that ‘As the WHO moves toward a revision of the model Essential Medicines List (EML), it is timely to revisit the evolution of the list since 1977 and its use across a range of countries.’

According to a PTI report, recently, the Indian government also allowed pharmaceutical companies to increase prices of 509 essential medicines by 3.84 per cent with effect from April 2015. These medicines are used for treating various ailments like diabetes, hepatitis and cancer.

Shobha Mishra Ghosh

Shobha Mishra Ghosh, Senior Director, FICCI (Industry’s Voice for Policy Change) says, “As per National Pharmaceutical Pricing Policy 2011 duly discussed with Group of Ministers (GoMs) and approved by the Cabinet, there is a clear cut provision of an annual increase of National List of Essential Medicines (NLEM) drugs as per the Wholesale Price Index (WPI) as notified by the Department of Industrial Policy and Promotion (DIPP): Government of India. It is proposed that companies shall be allowed to revise the NLEM drug prices up to the limit of the increase in the WPI for the previous year.”

Ranjana Smetacek

Ranjana Smetacek, Director General, Organisation of Pharmaceutical Producers of India (OPPI) too agrees and says, “DPCO 2013 categorically lays down the guidelines for price revision, saying manufacturers can increase maximum retail price (MRP) of scheduled formulations once a year, in April, on the basis of the WPI of the preceding calendar year. Accordingly, the National Pharmaceutical Pricing Authority (NPPA) list has revised ceiling prices, taking into account the WPI for the preceding calendar year.”

Recently, IMS Institute for Healthcare Informatics has released a report titled, ‘Understanding the role and use of Essential Medicines Lists,’ which mentions that as the movement toward universal health coverage strengthens, so does the role of essential medicines as a key part of bringing to all people the health services they need without suffering financial hardship when paying for them.

The National Pharmaceutical Pricing Authority (NPPA) has recently issued a memo on the WPI increase for the preceding year 2014. The memorandum mentions that as confirmed by the Economic Adviser (Ministry of Commerce and Industry) the annual increase in the WPI works out to 3.84 per cent during the calender year 2014 over the corresponding period in 2013.

Dr Milind Antani

Ever since the announcement became public, there has been a debate on, how the government will make drugs affordable and reachable to end consumers?

Dr Milind Antani, Legal and Tax Counselling Worldwide, Nishith Desai Associates replies cautiously, “We believe that the increase in the ceiling price of essential drugs as per annual increase in WPI is fair. This move by the government should not affect the government’s push for affordable healthcare as the increase in WPI usually also corresponds to the increase in purchasing power of the consumers.”

SV Veerramani

SV Veerramani, President, IDMA justifies the medicine price hike and says, “This increase is given to the manufacturers for taking care of the inflatory cost and increase in the cost of operations, overheads, manpower, etc. Hence, it is fully justified. While manufacturing drugs, the inflatory cost need to be taken into consideration, otherwise, manufacturing will become non-viable. This small increase of 3.84 per cent is not going to impact government’s push for affordable healthcare.”

Anay Shukla

Anay Shukla, Member, Pharma and Healthcare Practice, Nishith Desai Associates, agrees with the pattern of increasing medicines price based on WPI, “The annual increase in WPI indicates the increase in price of a basket of commodities over the span of one year. It is, therefore, a reliable estimate of the year-on-year increase in cost of raw materials required to manufacture essential drugs. A pharma manufacturer must be allowed to pass-on the increase in cost of raw materials required to manufacture essential drugs. A pharma manufacturer must be allowed to pass-on the increase in cost of raw material to the retail price, otherwise it will not be financially viable from business perspective. Thus, it is fair to increase the ceiling price of essential drugs by annual increase in WPI.”

Besides policy makers, corporates, regulators, legal firm, research analyst firm also keep their watch on pharma activities as it is linked to market volatility.

Avinash Lodha

Avinash Lodha Associate Director – India Ratings & Research, a Fitch Group Company feels, “We believe that by implementing the provisions of DPCO in a timely manner, the government has now moved to ensure that the policy is implemented in its entirety. This is a good move and will also ensure affordability of life saving drugs which is maintained in the long run.”

For betterment

World Health Organisation states that essential medicines are intended to be available within the context of functioning health systems at all times, in adequate amounts, in appropriate dosage forms, with assured quality and adequate information, and at a price the individual and the community can afford. The concept of essential medicines was pioneered by the WHO in 1977 with the introduction of the first essential medicines list (EML). The list has been revised every two years since then. As per the information available in the public domain, the prices of 509 medicines which have increased from its existing range includes alpha interferon injection which is used to treat hepatitis B and C as well as certain types of cancer, carboplatin injection used for cancer treatment and fluconazole capsules indicated for fungal infections, among others.

Dr Gopakumar Nair

Dr Gopakumar Nair, Chief Executive Officer, Gopakumar Nair Associates expresses, “Nation and national interests are paramount. Patients and public interests including affordable access is important within the national interest umbrella.”

Commenting on the affordability aspect, Lodha says, “India Ratings believes that the issue of affordability was addressed while applying the cap on the NLEM listed drugs. With the price-caps, the government’s objective of removing wide disparity in retail prices of essential drugs was served and substantial drug price cuts were achieved.”


Nair reaffirms the industry’s dilemma and notes, “India is acknowledged globally as the country producing lowest priced medicines. The hyperactive NGOs and civil society has been doing immense harm and damage to the Indian pharma industry’s innovative research efforts and activities by misguiding Supreme Court and other courts of India in areas like clinical trials, price control and related issues. Extreme activism in price control on drugs, such as recently practised by NPPA, has been detrimental to the much needed pharma research efforts, which is highly essential to upgrade Indian pharma globally from a pure generic manufacturer to innovative dosage form and new chemical entities (NCE) developing and inventing manufacturers. This route is being blocked for Indian pharma by the apparently well-meaning but in practice, ill-meaning relevant departments and ministries. They are hand in glove with the NGOs and civil societies whose only single-minded focus is to keep reducing the already low drug prices in India.”

Use of WHO model EML and implementation by National Health Systems

According to WHO, lists of essential medicines also guide the procurement and supply of medicines in the public sector, schemes that reimburse medicine costs, medicine donations and local medicine production.

IMS Institute for Healthcare Informatics in the report ‘Understanding the Role and Use of Essential Medicines Lists’ mentions that it is a cost-effective means of providing guidance toward safe, effective treatment for the majority of communicable and non-communicable diseases.

Nearly all developing countries (95 per cent) have a published national EML, of which 86 per cent have been updated in the past five years. Some countries also adopt EMLs at a sub-national or state/ province level depending on regional requirements and priority health needs. A few developed countries formally use the WHO model EML as guidance in the development and implementation of their pharma policy. While the WHO model EML serves as a guide for the development of national and institutional EMLs, the final list is decided based on regional factors such as patterns of prevalent diseases; availability of medicines, treatment facilities and personnel; affordability; and genetic, demographic, and, environmental factors. Standard treatment guidelines, national expenditure on essential medicines, and procurement practices are some of the factors ensuring optimum utilisation of the national EML. Relevant regional treatment practices also need to be considered. For example, in China where traditional medicine is widely practised, a separate medicines list is published to address this area.

The report also says that changes in the structure of the list and categorisation of drugs are the most commonly seen modifications for adaptation at the national level. For example, the WHO EML includes anti-diabetic agents such as insulin and metformin in the category “Medicines Used for Diabetics,” while national lists for India and China include it under “Hormones, Other Endocrine Medicines and Contraceptives” and “Hormones and Endocrinal Agents” respectively.

Particularly, in India the important objective of policy is to maintain availability of drugs. It is to encourage availability that the DPCO allows manufacturers to maintain their viability. When the government is working on various programmes to make healthcare better accessible and reachable to the Indian population at affordable prices, NPPA’s recent memorandum of allowing pharma companies to increase medicine prices of 509 drugs by 3.84 per cent could raise doubts among consumers.

Veerramani says, “Many people who are below the poverty line cannot even afford low priced medicines and they require free medicines. The increase in price is an option, given to the manufacturers. But, the manufacturers may not take this increase if their current prices are workable.”

While commenting on the affordability part, Nair comments, “Affordability to travel is a two-sided coin. Affordability for manufacturers to make the drug is equally important as the affordable access. Access-less status, where drug is not available, in the market does not facilitate affordability.”

Mishra-Ghosh avers, “If manufacturers are not allowed to cover increases in costs and increase in inflation, the industry will find manufacturing of these drugs a non-viable proposition. This is bound to cause more harm than benefit to the patients.”

She continues, “When prices are allowed to be increased only to the extent of increase in inflation (WPI), the manufacturers experience little, if any real revenue growth. There is invariably an increase in cost of raw materials, packaging materials, transportation and ever evolving regulations on quality standards and so forth. Salary payouts are traditionally always higher than increase in WPI.”

Nair says, “While India’s exports to Rest of World countries can grow by leaps and bounds, the overseas clients do benchmark export price negotiations based on domestic prices.”

Mishra Ghosh suggests, “The government on its part can help the patients by abolishing VAT and excise duty on essential medicines. A stronger drug procurement system in public health delivery would also go a long way.”

Since the present government had given health priority status in their manifesto, they are duly bound to find different avenues to make healthcare affordable to the Indian population.

But this cannot be at the cost of burdening pharma companies.

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