Pharma regulation: A complex problem

Medicines are critical for human wellbeing but its regulation, which is inherently complex, is even more challenging in India

Many consumer goods contain an asymmetric information problem. It is unreasonable to think that a consumer will run tests and verify the purity and soundness of a product, especially in the case of food and drugs. As an example, on March 13, there were reports of a big fake drugs racket in Delhi. Government intervention could potentially be useful in addressing this “market failure”, if commensurate state capacity can be created. On March 12, the Government of India notified the Uniform Code for Pharmaceutical Marketing Practices (UCPMP) 2024. Though well intended, this is an odd document, as it is a “voluntary” code of good ethical practices in pharmaceutical promotion activities.

Ordinarily, markets work well. When we buy clothes, we rely on the reputation of the maker. If a shirt shrinks or a button breaks, the next time around we switch brands. Customer exit creates feedback loops; firms immediately see the impact on their quarterly performance and their stock prices. This competitive process keeps the firms on their toes, vying with each other to better serve the customer.

Such trial and error by consumers is harder when it comes to food or medicines. When food is deep-fried in oil that has been kept hot for hours, it generates a long-term adverse impact on the body, which the consumer may not be able to attribute to a food producer. When a spurious antibiotic still delivers a decline of the infectious disease, this is because the human body can fight most infections on its own, and a little placebo effect helps the recovery. On the other hand, many in India face poor healing because the medicines are often sub-par.

The industry and the regulators have developed a sophisticated toolkit to ensure high quality of drugs. Manufacturing facilities need to be licensed. The details of inputs that go into the manufacturing are inspected and recorded; the qualifications of persons in charge of manufacturing are prescribed; and production facilities are continuously inspected.

India has legislation dealing with this subject and an administrative machinery to prescribe and enforce these regulations. The legislation is over 75 years old, with many patchwork amendments. There has been much learning in the field of “regulatory theory” in India, with remarkable improvements in the general techniques of how state capacity in regulators can be achieved. Most of this knowledge has not, as yet, found its way into the regulation of drug quality.

A difficult feature of drugs, which is not present in financial regulation, is the concurrent jurisdiction of both the Union and the states. In contrast, finance is clearly with the Union government. While state governments have viewed drug manufacturing as their target of regulation, it would make more sense to shift the focus away from in-state manufacturers to in-state consumers. Each state should devote itself to protecting consumers for purchases made within its own borders. This would align incentives properly and reorient the state regulator towards improving the lives of its own people.

At the manufacturing end, one valuable feature of the Indian environment is the presence of overseas drug quality regulators in the country, pushing up the quality of factories that seek to export. Potentially such factories can signal their quality by asserting that the production facility is, say, US Food and Drug Administration approved. A key limitation that hampers this progression is the price controls used in India, which often interfere with the expenditure levels required for high quality.

But going beyond quality in manufacturing, the problems extend to the entire distribution chain. Bad actors can slip in at any point. In the dispensing of medicines at pharmacies, potentially there are two problems that can arise that can harm the consumer.

The medicines could be fake or spurious and may have been substituted in place of the original medicines by unscrupulous middlemen who are part of the distribution/transportation chain. The second problem relates to situations that call for substituting an alternative medicine or an assessment of the right medicines. This may occur when the brand of medicine recommended by the doctor is not available, or when the doctor has prescribed a generic or category (e.g. paracetamol) without specifying a brand or a particular name. In either situation, the dispensing person in the shop needs to be knowledgeable and give the patient/consumer exactly what is required. Innovative strategies are required to deliver progress in the Indian context, while recognising the limitations of state capacity in India.

Drug traceability systems on public blockchains can potentially help improve the authenticity of medicines throughout the supply chain. A key aspect of blockchain-based drug traceability is the assignment of a unique identifier to each drug unit. By associating each drug unit with a digital identity, stakeholders can easily track and verify its origin, authenticity, and movement across the supply chain.

While there are approximately a million pharmacies in India according to record, there are also a large number of unauthorised pharmacies in operation. The law requires the presence of a registered pharmacist for dispensing and selling medicines. The regulatory responsibility here also is distributed across the Union and the state governments. The additional complication is that there is a separate regulator to deal with the education, profession, and practice of pharmacists. It will require special effort to find good solutions within this constitutional landscape.

Every important argument of this article lends itself to a set of statistical measures, which are at present lacking in the country. In the absence of data, it is hard to diagnose problems, imagine solutions, or obtain feedback loops when mistakes are made in policy interventions. In the journey to progress, there exists a policy pipeline where steps cannot be skipped: We run from data to research to innovative solution design to public debate to policy decisions to policy implementation. This field is bedevilled by limitations in the foundations of data. The need of the hour is to establish a better measurement system to understand how the drugs industry works and the prevalence of various kinds of failings.

The writer is an honorary senior fellow at the Issac Centre for Public Policy and a former civil servant