Govt considering one-time settlement option in drug overcharging cases

The government is actively considering options, including a one-time settlement, to expedite the recovery of dues from drug companies that allegedly overcharged customers for medicines under price control.

The outstanding dues now stand at Rs 5,476.9 crore, of which Rs 4,032.5 crore is stuck in litigation. Recovery has been particularly dismal in the past three years.

The National Pharmaceutical Pricing Authority (NPPA), the country’s drug pricing regulator, sends to pharma companies notices specifying the recovery of overcharged amounts and penalties, along with 15 per cent interest, in accordance with the Essential Commodities Act.

The NPPA, which comes under the Department of Pharmaceuticals (DoP), fixes prices of drugs that feature in the National List of Essential Medicines (NLEM) under provisions of the Drug Price Control Order (DPCO) of 2013.

According to a senior official in the know, the Ministry of Chemicals and Fertilisers wants to settle the pending litigation with companies where cases have been dragging for years and the government is losing money. Over 666 cases are pending in various courts of the country. The number of cases of overcharging as of June 2019 was 2,038.

Earlier this year, there were discussions between the DoP and industry representatives about a one-time settlement offer to drug firms where the government would waive the interest amount accrued over the years on the penalty (which came around Rs 1,300 crore), provided there was no litigation on the principal amount thereafter. The finance ministry, however, has not approved the proposal, claimed sources. Therefore, the DoP has been asked to come up with a new solution to expedite the recovery.  The total amount demanded by the NPPA so far (including interest) is Rs 6,370.2 crore, of which Rs 5,476.8 is outstanding. Of the outstanding amount, Rs 4,032.5 crore is stuck in litigation.

“We are in talks with various government departments on what procedures they follow to expedite the recovery from companies, and options for one-time settlement. As such there is no provision for any one-time settlement under the Essential Commodities Act,” said the official. He added that options like upfront payment of the interest amount and subsequent payment of the principal amount in tranches are being considered.

Pharma companies feel that working out an overarching solution for the entire industry is cumbersome and unlikely to work out. “The government's intent is positive. It wants to settle the cases fast. However, each case pending with courts is different and no one-size-fits-all solution can be worked out with consensus,” said a senior representative of a pharma lobby group.

The Indian Drug Manufacturers’ Association (IDMA) had earlier indicated to the DoP that it could not pro-actively act as a mediator between drug firms and the government to find an overarching solution as each case was different. In a letter to the DoP sometime back, it had stated, “Each case has its merits and demerits and the issues involved in each case are dissimilar, which need to be sympathetically considered by the authorities concerned. Such issues cannot be settled by the association on behalf of individual companies.”

Another industry executive pointed out that a lot of overcharging cases could be ruled out if the government considered implementing price change from subsequent batches. “The government insists that ceiling prices (which are revised from time to time) be implemented even on the batches that are in circulation. Companies are expected to call them back from circulation, re-label them, and distribute once again. This is cumbersome and leads to an inflated number of cases of overcharging,” he said.

Pharma companies feel that working out an overarching solution for the entire industry is cumbersome and unlikely to work out. 

“The government's intent is positive. It wants to settle the cases fast. However, each case pending with courts is different and no one-size-fits-all solution can be worked out with consensus,” said a senior representative of a pharma lobby group. 

The Indian Drug Manufacturers’ Association (IDMA) had earlier indicated to the DoP that it could not pro-actively act as a mediator between drug firms and the government to find an overarching solution as each case was different. In a letter to the DoP sometime back, it had stated, “Each case has its merits and demerits and the issues involved in each case are dissimilar, which need to be sympathetically considered by the authorities concerned. Such issues cannot be settled by the association on behalf of individual companies.” 

Another industry executive pointed out that a lot of overcharging cases could be ruled out if the government considered implementing price change from subsequent batches. “The government insists that ceiling prices (which are revised from time to time) be implemented even on the batches that are in circulation. Companies are expected to call them back from circulation, re-label them, and distribute once again. This is cumbersome and leads to an inflated number of cases of overcharging,” he said.