Regulator's dose works, drug prices steady

For the first time in its decade-long existance, drug price regulator National Pharmaceutical Pricing Authority (NPPA) has strong reasons to believe that it can prevent medicine companies from increasing prices at will.

Data to prove the effectiveness of regulatory intervention is available in market research firm ORG MARG's recent report on retail prices of medicines for October 2007.

The data show that except in one case, prices of all 53,899 packs with a moving annual total (MAT) value of Rs 29,769 crore tracked by ORG showed an increase of less than 10 per cent in October 2007 from October 2006. The companies cannot increase the price of a medicine by more than 10 per cent in a year.

The October data are not an aberration. The ORG data analysed by the NPPA during the last several months show the number of price increases above the permissible limit has seen a continous decline ever since the NPPA started cracking the whip on the pharmaceutical firms in 2007.

The NPPA found that the number of cases of price increase beyond the allowed limit was 79 in January 2007, 15 in April, 11 in July, eight in September and one in October.

The authority has also been successful in making the pharmaceutical companies reduce prices in 53 cases. In 22 instances where the companies failed to listen to the directives, the NPPA fixed the prices by invoking para 10(b), the public interest clause enshrined in drug price control order.

The industry refuses to concede that the NPPA has been successful. They allege that the "price violations" pointed out by the NPPA are not based on rational decisions.

"This dependence on a private market intelligence firm is not correct as its data are not authentic. Our price lists, issued to trade as well as the regulator, should form the basis of such observations. Even after we have proved the ORG data to be wrong, the NPPA continues to issue us notices. The authority should not penalise companies for having increased medicine prices between 10 per cent and 20 per cent when the maximum permissible annual increase was 20 per cent till March 2007," said an industry executive.

The industry feels the authority should not bring down the price-hike limit without any notice and then penalise companies for non-compliance. They say the price increases in 2006 were caused by several factors, including non-uniform taxation norms and the decision to include all taxes in the maximum retail price.

It should be noted that the primary responsibility of the NPPA is to fix and regulate the prices of 74 specific medicines. All other medicines are out of routine price control, though the authority can seek explanations for abnormal price increases in these drugs.

A key reason for this is the regulator's threats of invoking (and at times invoking) a public interest clause in the Drugs Price Control Order (DPCO), 1995, which allows it to decide the prices of all medicines sold in the country. This clause was seldom used by the authority till last year.