DPCO 's makeover a grave concern for Aam Admi's empty pocket
The move by the National Pharmaceutical Pricing Authority (NPPA) to increase the span of drugs under price control by adding new strengths of 43 drugs of already under price control and revising ceiling prices of some others has been opposed by industry and trade.
No effective date has been announced and J. S. Shinde, President, All India Organisation of Chemists & Druggists (AIOCD), said that although the move would bring around Rs.450 crore worth of new drugs under price control, “there is a possibility of a shortage in the market as had happened in the past. This is because the products will have to be withdrawn from the market, packed and dispatched to manufacturers and they would have to re-label with new prices and send them back to stockists.”
Logistics problem
He said the logistics problem could take six weeks to sort out.
“A far more desirable way would be to announce a batch number after which new prices could have come into effect,” Mr. Shinde said adding that the revision would impact wholesale margins by 2.4 per cent and [that of] retailers’ by 6.2 per cent.
The Drug Price Control Order 2013 capped the retail price of 348 drugs and in July 2014, added a further 108 cardiovascular and diabetes drugs.
The changes announced last week cover mainly anti-infectives.
“This has been the second salvo by NPPA post the new DPCO 2013,” said Rahul Sharma, pharma analyst, Karvy Stock Broking.
“The NPPA may target segments where the therapeutic segments are important from size and usage. Ceiling prices may be imposed on products in cancer, HIV, anti-malaria, anti-TB, cardiovascular, anti-diabetics, anti-asthmatic and immunological.”
The new revision has increased the uncertainty, said S. V. Veeramani, President, Indian Drug Manufacturers’ Association (IDMA). “When several cardiac and diabetes drugs also came under price control earlier, the total loss to industry was of the order of Rs.2,000 crore,” he said, adding that frequent changes made it difficult for companies to plan for future.
Industry bodies plan to meet the NPPA chairman at the end of the month to try and resolve the issues.
If the Government keeps a close watch over diesel prices, air fares and even mobile phone tariffs, why doesn’t it do something about the spiralling prices of medicines? If that’s your question, it does through the Drug (Pricing Control) Order (DPCO). Recently, it was much in the news after the Government decided to roll back the guideline which could have practically brought the entire industry under price control. To ensure that vital drugs are available at affordable prices, the Government exercises control over the prices of certain drugs it defines as ‘essential’. The Drug Pricing Policy 2013 provides the framework through which ceiling prices for these essential drugs are worked out. These price limits are given effect by passing the order referred to as the DPCO.
What is it?
Under the provisions of DPCO 2013, only the prices of drugs that figure in the National List of Essential Medicines (NLEM) are monitored and controlled by the regulator, the National Pharma Pricing Authority. Under the earlier avatar of the DPCO (1995), 74 drugs were subject to price control. In the 2013 version, the number of drugs under the price control was expanded five-fold to 348. The recent controversy over drug prices erupted after the NPPA decided to regulate the prices of drugs outside the NLEM; the Government has now said that it should stick to regulating essential medicines alone.
In May 2013, NPPA notified that the maximum prices for these 348 essential drug formulations cannot exceed the average price of various brands (of the same underlying formulation) with a market share of one per cent or more. This is a departure from the cost plus pricing formula used in DPCO 1995. Then, companies were allowed to make a nominal profit over manufacturing cost. While the coverage of newer drugs used to treat cardiovascular problems and diabetes under DPCO 2013 has benefited patients, the move from a cost- to a market-based pricing mechanism has been positive for drug-makers too.
Why is it important?
India is a branded generic market, which means doctors prescribe the brand of each medicine to be consumed by patients, rather than the underlying formulation. Despite availability of cheaper brands, doctors in many cases prescribe leading brands which are priced at a premium. As patients are ignorant about cheaper substitutes, they seldom switch to the low-cost equivalents of the expensive drug brands recommended by their doctors. Patients have little discretion in the choice, making it necessary for the state to intervene and make essential drugs available to the needy at reasonable prices.
Why should I care?
Every change in the NLEM and drug pricing policy can have a bearing on your medical bills, if the drugs prescribed by your doctor come under the essential medicines category. Also, if you have invested or intend to invest in pharma stocks which derive revenues and profits from the domestic market, you may have to keep a close watch on such moves. Any move by the Government to cut drug prices may help you as a patient but hurt you as an investor.
Bottomline
The Government fixing prices of drugs isn’t exactly ‘free’ market. But then, with patients going entirely by their doctors’ prescription, one can argue that the market for essential drugs is not free and fair either.
India’s drug price control agency is jumping through hoops to make a bad decision look good. In the process it is sending terrible signals to the industry and to the broader world about fairness and efficacy of India’s regulatory regime.
That should have ended the matter. With the guidelines being held untenable by the government’s law officers, the act of including 108 new drugs under price control, which derived its validity from the guidelines, should have been considered null and void. But amazingly, while the guidelines have been revoked, the expanded price control stays.
Anyone could see that the NPPA’s attempt to extend price control beyond the list of essential medicines would be challenged. The industry stood to lose hundreds of crores. Unchallenged, it would’ve set a precedent for future price cuts involving other “non-essential” drugs. Now, according to this report in The Economic Times, the Solicitor-General has held that the NPPA did indeed overreach. Next time, perhaps they should ask him beforehand?
Is it sustainable?
Price cuts, beyond a point, make companies cut back production. A country that relies on private industry to meet its demand for medicines is unwittingly courting shortages when it goes overboard with price controls.
The rollback emboldens industry to challenge similar moves in future. To consumer groups, the government looks like it has fallen prey to vested interests when all it has actually done is withdraw a decision it should not have made in the first place. In short, it is a public relations disaster all around.
Well-designed bulk purchases by government that ensure a fair margin to industry while creating access to affordable medicine will be more welcome than indiscriminate price cuts. While much has been spoken of making this a part of India’s universal healthcare agenda, little has been done.
Let us set the record straight on the so called #BJPPharmaLoot ‘campaign’ on social media. There is a lot of public sentiment getting whipped up around this hashtag, especially by AAP social media activists who claim it constitutes a betrayal by the Modi Government. While the reach and the ability of a simple platform to shape public debate amazes, the ability to make comments without having to justify them with evidence or stand up for mistruths when you are held to account, disappoints.
The chronology of events adds good perspective to the issue. On May 15, 2013, the Dept of Pharmaceuticals under the Ministry of Chemicals and Fertilizers issued the Drug (Prices Control) Order, 2013 which is commonly called DPCO or ‘price control’. This is not the first time that such an order was issued. Amongst many other policies, a similar price control order was issued in 1995. Following increased consumer activism around high medicine prices, the order was reviewed in the National Pharmaceutical Pricing Policy in 2012 and subsequently the DPCO 2013 was made law.
Under this order, only prices of medicines that fall into the National List of Essential Medicines (NLEM) are regulated. This was done to ensure that medicines deemed ‘essential’ or life-saving (as defined by the WHO) were priced reasonably and within the affordability of a majority of India’s population that could buy them. The hundreds of millions, who didn’t have a hospital in their village or a pharmacist to buy the medicines from, were left to their fate. But that’s another story.
As with most policy changes in India, the DPCO also was appreciated, critiqued and downrightlycondemned in equal measure. However, as the winds of political change swept India in May 2014, the National Pharmaceuticals Pricing Authority that is tasked ‘to implement and enforce the provisions of the Drugs (Prices Control) Order in accordance with the powers delegated to it’, decided to extend the price control order by citing Para 19 and giving itself sweeping powers to regulate prices of all drugs (essential and non-essential). In July, it issued an order to bring 108 more molecules that were not a part of the essential list of medicines and cap prices. Under paragraph 19 of the Order, the NPPA was empowered to do it only under “extraordinary circumstances, if it considers necessary to do so in public interest”. Extraordinary circumstances are understood as times of national disasters, epidemics or such grave situations that require the government to step in and take control. Thankfully, neither such circumstances prevailed nor was there such a grave situation in India at the time.
Since it was clear that the NPPA may have acted in haste to regulate prices of non-essential medicines, the industry sued the body. With its bluff called, the NPPA decided to reverse the guideline that gave it sweeping powers. This means that the NPPA can no longer act unilaterally to regulate the prices of medicines. What it definitely does not mean – as the #BJPPharmLoot hashtag erroneously claims – is that medicine prices in India have been deregulated.
Emotional messages such as in the picture above, are completely misinformed and spread untruths about the policy change.
There are questions about whether this was hastily done to coincide with Prime Minister Modi’s trip to the United States where IPR related issues are expected to take centre-stage. The two issues seem unrelated. Firstly, the US Government has never challenged India’s policy to regulate drug prices. Fighting against rising healthcare costs through the popularly known ‘Obamacare’ policy, it seems counterintuitive for the Obama administration to find fault with another Government for doing exactly that. Secondly, the US has only challenged India on what it calls ‘flimsy’ patent laws.
That has nothing to with the regulation of prices of non-patented medicines.
So, does the recent NPPA decision impact drug prices? The simple answer is not yet. Not only will the prices of medicines on the essential list (NLEM) continue to be capped as before, the prices of the new 108 non-essential medicines are also still capped. It is likely that the court may rule that the cap be removed, but until it does, who knows.
The only change that has happened in the recent development is that the Solicitor General of India held that the NPPA over-reached its brief and therefore asked that it step back. That is all that the NPPA has done. Medicine prices have not gone back through the roof. They remain where they are. This interplay involved the Solicitor General of India and the NPPA. Whence BJP, Pharma or Loot?
