The government has not yet formally announced the new drug pricing policy that it has finalised at the eleventh hour to meet a Supreme Court deadline set for later this week. However, it has reportedly firmed up one key element. The price of a drug coming under control will be the average of the prices of all brands of that drug with at least one per cent market share. This means a lower price than what would have emerged had the earlier formula of applying a weighted average price been accepted. Predictably, the biggest players – whose prices tend to be higher – are unhappy. The industry as a whole had earlier welcomed moving away from the practice of fixing controlled prices on the basis of costs to one of relying on market prices because the latter is less discretionary and contestable. Civil society groups whose litigation before the Supreme Court had forced the government to come up with a new pricing policy to replace the one framed in 1995 are also unhappy. They fear that while the cut in the price of costlier brands will be marginal, the new formula will only allow the earlier cheaper brands to charge more, since the new benchmark is higher.
One aspect of the new policy that will hold the key to its success is whether the formula will close the loophole that the producers of costlier drugs use in order to get out of price control: stopping the production of a controlled formulation, replacing it with a slightly tweaked new combination, and getting doctors to prescribe this instead of the controlled product. Even if the new policy forces those who indulge in such tweaking to report it to the authorities and thus invite censure, as is being suggested, the end result may not be very helpful. It is easier to impose price control than to force a firm to produce something that it chooses not to. It is even more difficult to get doctors liberally induced to prescribe particular brands to change their ways.
In fact, the solution to the problem of ensuring the supply of cheap-quality medicines cannot lie solely in the domain of price control. It can happen if the government’s declared policy of ensuring cheap medicines for all and the setting up of Jan Aushadhi shops for the sale of unbranded generics are followed up. While those using privately delivered healthcare can buy cheap medicines from theses shops, the public healthcare system has to be adequately supplied with such cheap medicines. Thus, the key issue is: how to ensure supply? This has to stand on two legs: ensuring through a proper incentive system that pharmaceutical firms including those in the public sector produce adequate amounts of generic medicines; and following a well-designed and transparent public procurement system. That would assure private manufacturers of adequate orders so that they could build up the resources to produce quality medicines and still earn a decent margin so as to remain in business. The technology to produce cheap-quality medicines is not the problem; the weakest link in India’s delivery system is corrupt and inefficient public procurement.