Govt’s drug pricing formula comes under fire; activists seek method overhaul

National Pharmaceutical Pricing Authority: In 2013, the government had shifted to market-based prices in its formula to fix the maximum price of the drugs instead of the cost of production.

DPCO, Drug Price Control Order, National List of Essential Medicine
Drug Price Control Order: The number of drugs in the list has gone up from 530 in 2011 to 857 in 2015.

DPCO: As the Modi government looks to give more teeth to the National Pharmaceutical Pricing Authority to fix the prices of essential medicines, the pricing formula employed by the regulator to fix the prices has come under attack from the consumer activists. Under the drug prices control order, the government fixes the prices of more than 800 essential medicines. The existing formula uses the average price paid by a retailer called price to retailer (PTR). This price is average of the retailer’s price of all the brands and generic drugs having more than one per cent market share.

The Union government Tuesday informed the Lok Sabha that under the essential list of medicines, NPPA has fixed the ceiling of 857 drugs. The government fixes the price of essential drugs since 1995, however, the earlier formula for deciding the ceiling was changed from cost-based formula to market-rate based formula by the UPA government in 2013. Consumer advocacy groups are demanding the government to use the earlier formula that was based on the average cost of production for fixing the maximum price of essential drugs.

“The formula used by the government in itself is flawed. Earlier, in terms of value, nearly 18% of the drugs sold in the country were covered under the drug pricing control order. Now this has come down to just 10%,” said Malini Aisola of All India Drug Action Network (AIDAN), a consumer rights group.

Chemicals and fertilisers minister V Sadananda Gowda informed the Lok Sabha that the number of essential drugs covered under the DPCO has gone up from 530 drugs in 2011 to 857 drugs in 2015. However, the number of formulations, where the reduction in the price was more than 40%, has come down from 126 drugs in 2011 to just 59 in 2015.

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Similarly, the number of formulations, where the reduction was insignificant or less than 10%, has gone up from 130 in 2011 to 372 in 2015. It means the number of drugs where the reduction in price was insignificant or less than 10% has gone up from one-fourth of the drugs covered under the price control order to close to 45% of the medicines in the list.

“They can give all this data but the fundamental problem is that they are keeping the most expensive drugs out of the price control,” Leena Menghaney a lawyer and activist working on the issues of drug pricing told financial express online.

Activists believe that recent developments demonstrate further weakening of price control mechanism. They suggest going back to the use of cost of production formula used by the World Health Organisation (WHO). They also complain that market based formula is prone to manipulation as in some cases, there is huge difference between distributor’s price of medicine and its maximum retail price (MRP) that is used in fixing the ceiling under DPCO.

Leena Menghaney also complains that the government is keeping the most expensive and latest drugs out of the price control order.

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“Earlier this year, they (the govt) made an amendment where they said that patented medicines will be out of price control for a period of five years from the date of marketing approval in the country. So even though there might be reduction in the prices of older medicines but the newer medicines, which are patented, continue to be obscenely priced,” complained the lawyer-turned-activist.

Consumer advocacy groups have filed a public interest litigation (PIL) in the Supreme Court seeking direction to the government to use the cost of production instead of market based price in its formula while fixing the maximum price of essential drugs. The petition is still pending before the top court.

In his reply, chemicals and fertilisers minister V Sadananda Gowda informed the Lok Sabha that there was no direction from the Supreme Court to stick to cost-based pricing formula.

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