Drug price control: If it affects quality, it would have done more harm than good

By: | Published: May 16, 2017 7:26 AM

If it affects quality and makes pharma cos wary of entering the market, it would have done more harm than good.

Although the monitoring of price movements has been cited as the reason, given these are classified as drugs, if the government wanted, it could impose price caps on them. (Reuters)

After capping the price of cardiac stents, the National Pharmaceutical Pricing Authority (NPPA) has asked manufacturers, importers and marketers of 19 out of 23 medical devices that have been notified as ‘drugs’ under the Drugs and Cosmetics Act—including hypodermic syringes and needles, HIV diagnostic devices, lenses, catheters, etc—to submit price movement data on these devices. Although the monitoring of price movements has been cited as the reason, given these are classified as drugs, if the government wanted, it could impose price caps on them. As per news reports, the government is moving to do away with the need to first notify medical devices as ‘drugs’ to make price-capping easier.

Stent-makers Abbott, Boston Scientifc and Medtronic had responded to the caps with applications to withdraw their products from the market, but the department of pharmaceuticals recently changed the rules to prohibit withdrawal before the expiry of a stipulated period. Thus, not only were the margins for the stent-makers cut sharply, they couldn’t also withdraw their products. As per some reports, stents have been priced significantly lower in some developed countries despite these being smaller markets than India—bolstering the case for getting companies to lower prices—but price-caps and illiberal bans on withdrawal of products are only likely to damage business sentiment. If companies—and not just in the healthcare business—wary of such uncertainty, were to scale down planned investment and presence in the Indian market it will be the Indian consumer, whether of stents or of other products, who will suffer.

What is the Indian drug pricing framework?

The government issues Drug (Price Control) Orders (DPCO) under Section 3 of the Essential Commodities Act that allow it to declare a ceiling price for essential and life-saving medicines so that these remain largely accessible. Price controls apply to the drugs listed in Schedule I of the DPCO, and these drugs are, therefore, often called scheduled drugs. Since the last DPCO (2013), the National List of Essential Medicines (NLEM) has become the basis of deciding which drugs are brought under Schedule I, though medicines not considered essential can also be brought under the DPCO under Para 19 of DPCO 2013 which states that the government may fix the ceiling price for any drug even if it is non-scheduled ‘in the public interest’.

It is interesting to note that while the NLEM is notified by the health ministry, the National Pharmaceutical Pricing Policy, or NPPP, (on the basis of which prices are determined for the NLEM medicines) and the DPCO are both domains of the chemicals and fertiliser ministry. The monitoring and control of prices as well as the notification of the DPCO rests with the NPPA that has been delegated the power of pricing drugs under the Essential Commodities Act.

Also Watch:

The department of pharmaceuticals is the reviewing authority—pharma companies can petition it against the prices fixed by NPPA. Fixing of the price ceilings for drugs is done on the basis of a market-based pricing formula notified in the DPCO. At present, some 729 formulations are included under the NLEM 2015. As per the provisions of NPPP-2012, all the manufacturers/importers manufacturing/importing the medicines as specified under NLEM-2011 will be under the purview of price control.

How are the prices of medical devices capped?

The government has to first notify medical devices as drugs before moving to include them under the Schedule I of the DPCO. So far, 23 devices have been notified as drugs, and four of them, including stents have been classified as scheduled drugs. The government is planning to do away with the need to first notify devices as drugs to bring them under the DPCO. Under Para 20 of the DPCO 2013, the NPPA has the power to monitor the price movement of non-scheduled drugs. It is under this that the review of prices of 19 medical devices non-scheduled medical devices has been sought by the NPPA.

Is there a need to have such a price-control mechanism?

Expenditure on drugs constitutes nearly 67% of the out-of-pocket expenditure of Indian households, as per the NSSO 68th Round, while the WHO estimates almost 65% of the country’s population lacks access to essential medicines. Against this backdrop, the department of pharmaceuticals points out that the price difference between a branded drug and its generic in some cases was as high as 17 times. All these would make it seem like there needs to be some way to ensure prices remain moderate.

But does NPPA-style price controlling achieve this goal? There is some indication of this given, as per the overcharging data compiled by NPPA, the number of overcharging cases has fallen between August 1997-2009 and FY17, from 653 to 138. But, given the overcharged amount demanded (including interest) has seen a slow increase (from `110 crore in the August 1997-2009 period) and remains quite low (at Rs 171.63 crore in FY17)—juxtaposed against an annual sale of Rs 1 lakh crore in 2016—it is likely that even in cases of overcharging, the margins may not be as drastically high as imagined.

What are the problems from having such a mechanism?

The constant threat of the Para 19 of the DPCO being invoked—that allows the imposition of price ceilings on even non-scheduled drugs/formulations under “extraordinary circumstances” and “in public interest”—erodes business sentiment. And if the governnment moves to make it easier to cap the prices of medical devices, this will be eroded further. But these are the smaller pains. The bigger concern is what NITI Aayog has pointed out in its Three-Year Agenda. It says, “There is a trade-off between lower prices on the one hand and quality medicine and discovery of breakthrough drugs on the other. It is therefore recommended that the Drugs (Price Control) Order may be delinked from the National List of Essential Medicines.”

With drug quality check in the country, until recently, being extremely constrained and anti-microbial resistance on the rise, it is difficult to argue for a price control mechanism that could compromise drug-quality. To be sure, the high out-of-pocket expenditure on healthcare as well as the kind of muscling of prices by a handful of companies as evident in the stents case do call for ensuring affordability. But that would be perhaps better achieved by increasing health insurance penetration in the country as well as focussing on monitoring prices to to guard against sharp spikes instead of putting a ceiling.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition