The government’s proposed pharma policy for drug pricing has received a near-unanimous approval from the industry while civil society groups think it will hurt the poor.
On January 17, the Supreme Court is expected to resume the hearing of a public-interest-litigation that seeks government monitoring and control over the prices of all essential medicines sold in the country.
There are many with vested interests eagerly awaiting this event as the resumption of the hearing is expected to see the central government submitting a final version of its “Draft National Pharmaceutical Pricing Policy (NPPP) 2011”—the basic drug price control plan formulated by the ministry of chemicals and fertilisers—for SC’s approval.
Even if the SC ratifies the government’s version of the NPPP, it still has to be given a final shape by the Group of Ministers (GOM), after which it faces approval by Parliament. Yet, the NPPP has already triggered a series of debates among all stakeholders—pharmaceutical manufacturers, organised drug trade, international health organisations and civil society groups—on what kind of policy this should be, and more importantly, the extent of price control needed for medicines in India.
Understanding the NPPP
The NPPP, seen by many as the government’s quick response to the SC demand, suggests a radical shift in the way medicine prices are being fixed by the government today. Instead of the current practice of cost-based price fixation—where the cost of each and every component that goes into the production of medicine will be identified and added, along with a reasonable profit margin, to arrive at the final price—NPPP talks about an upper ceiling price for medicines based on the market value.
In a broad sense, this would mean that the average of the prices of three largest selling brands of a drug will be fixed as an upper price ceiling of that medicine. Plus, the companies will be allowed to revise their prices based on the changes in the Wholesale Price Index periodically.
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The basis for price control will also shift from the current 74 bulk drugs (basic raw materials) and all formulations (final medicinal product) made out of these bulk drugs, to the 348 medicines that are mentioned in the Health Ministry’s “National List of Essential Medicines (NLEM) 2011”.
What’s at stake
According to official estimates, the turnover of NLEM medicines is over Rs 29,000 crore and hence covers 60 per cent of Rs 48,200 crore domestic market. The government’s proposal looks quite ambitious as only 15 per cent of the domestic market currently comes under price control. This is because of the 74 bulk drugs supposed to be under price control, 30 bulk drugs are not in production and use, thereby limiting the effective price control to just 47 bulk drugs.
This proposal to liberalise medicine price control system —through a shift from cost- based pricing to market valuation—has received a near-unanimous approval by industry. However, both domestic as well as foreign drug multinationals want the policy to be applied strictly to the specific medicine strengths mentioned in the NLEM and not bring every medicine that contains some element of NLEM drug under the span of price control.
There are other concerns. Indian Pharmaceutical Alliance (IPA), the lobby group of top domestic drug makers, argue that the proposed NPPP will raise the span of control to 75 per cent of the retail market and will enlarge the scope of price regulation by over eight times the current volume to about 68,000 packs making the task unwieldy and ineffective.
“IPA estimates that domestic price reductions alone will result in aggregate loss of sales of approximately Rs 3,000 crore, to the industry. It will impact mainly the leading domestic companies and will directly translate into loss of Profit Before Tax (PBT) of Rs 3,000 crore, or 22.4 per cent of the industry profit of about Rs 13,371 crore”, says DG Shah, secretary general, IPA.
However, there are those who don’t quite agree with IPA’s estimates. Market research firm AIOCD AWACS calculates that of the Rs 3,000 crore estimated loss, the hit for the industry will be less than Rs 1500 crore, as the rest will be loss to retail and wholesale trade due to reduced trade margins.
IMS Health, whose data has been the basis of formulating NPPP, also feels that the industry loss will not be over Rs 1500 crore. “The top ten companies account for approximately 50 per cent of the NLEM impact. The major therapeutic segments affected will be anti-infectives (Rs 400 crore) cardiac and gastro (each Rs 150 crore each). Acute and primary care medicines may turn more affordable if NPPP gets accepted”, Amit Backliwal, managing director of IMS Health (India) said. Among the top ten companies, 60 to 65 per cent of adverse impact will come from the respective top three brands of each company, Backliwal added.
Kumar Hinduja, senior director of IMS Health explained that NPPP-related price reduction will be seen only on 16 per cent of the total medicines sold in the country. Even within NLEM portfolio, where all medicines are supposed to come under price control, only 40 per cent of the existing brands will need a price correction.
The detractors
The changes, however, have been strongly opposed in its entirety by civil society groups, and several others, as they feel the increase in the span of price control has no meaning as drug prices will not come down or become affordable for the masses under NPPP.
For instance, Samit Sharma, managing director of state government run Rajasthan Medicine Services Corporation (RMSC) feels that the policy of market-based pricing will only benefit the drug industry at the cost of poor patients because it will effectively legitimise high prices by providing a ceiling price that is an average of the top three, often most costly, brands. Citing RMSC medicine procurement data, Sharma says the actual prices of drugs are much less than the printed MRP (maximum retail price).
A similar apprehension on the actual price of medicine was expressed by World Health Organisation (WHO) when it questioned the use of high cost proprietary IMS data for preparing public policy. Despite its reliability, IMS data has severe limitations, observes WHO. “Their data does not take into account the discounts, rebates and bundling deals and when the data is collected at the level of the wholesaler they estimate the retailer and patient prices”, WHO stated in its response.
Jyoti Mirdha, a Lok Sabha member from Madhya Pradesh was highly critical of NPPP.
“Under this policy, the weighted average of three top selling brands will be the ceiling price. There is no logic in restricting the formula to just three brands. Why not five? Why not 10 in order to arrive at a more representative and reasonable figure?” she asks.
The Department of Pharmaceuticals is busy preparing its final draft on the basis of over 30 representations received over the months.
With civil society groups already planning to express their reservations on NPPP in the Supreme Court, the apex court’s views on the matter will also be keenly watched.