India’s mechanism for governing drug prices

Syllabus:GS2/Health 

In News

The Supreme Court heard petitions on medicine, medical equipment and generic pharmaceutical pricing

Observations of SC

• It expressed concern over the sharp disparity between the Price to Retailer (PTR) and consumer price, notably in the case of cancer drugs. 
• It asked whether the 16% retailer margin under the DPCO, 2013 could not be extended to other essential medicines also. 
• It flagged the practice of hospitals asking patients to buy drugs from their pharmacies.
  • It pointed out that higher rates in government schemes like Ayushman Bharat are ultimately a drain on taxpayers’ money.

Legislation governing drug prices in India 

• The Essential Commodities Act, 1955: It gives the Centre power over essential goods, including medicines.
  • Section 3(1) allows it to regulate production, supply, and distribution “for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair price”. 
  • Section 3(2)(c) allows for issuing orders controlling commodity prices.
• Drugs (Prices Control) Order 2013 (DPCO, 2013):  Prices of drugs are regulated as per the provisions of the Drugs (Prices Control) Order 2013 (DPCO, 2013).
  • DPCO separates pharmaceuticals into scheduled and non-scheduled preparations.
    •  Scheduled drugs are those found in Schedule I of the National List of Essential Medicines (NLEM), which are under government price limits, while non-scheduled drugs are not under the usual price ceiling system. 
  • As per extant provisions of DPCO, 2013, the National Pharmaceutical Pricing Authority (NPPA) fixes the ceiling prices of the drugs included in Schedule I of DPCO, 2013, which is based on the National List of Essential Medicines (NLEM) published by the Ministry of Health & Family Welfare (MoHFW).
    • The current Schedule I includes 384 drugs, which make up about 20% of the total turnover of the drug market

Issues and Concerns 

• Coverage issues:  Drugs not covered in the NLEM are generally classed as non-scheduled formulations and are not covered by fixed price ceilings under the DPCO.
  • Manufacturers may establish the initial MRP with a provision that the MRP cannot be raised by more than 10% in 12 months.
  • But the first launch price is not regulated; the manufacturers can have an excessively high MRP from day one, which makes the subsequent 10% price-hike cap meaningless.
• Fundamental Rights violations:   The PILs argue that the unregulated first setting of MRP is violative of the right to health under Article 21 as it offers undue discretion to the makers to fix the pricing of the pharmaceuticals without any relation to the real cost of manufacture.
• Price disparity: There are exorbitant mark-ups charged by shops and hospitals, with profits going up to 10-16 times the allowed 16% margin.
• Corporate intersset: The plea has claimed that pharmacy charges contribute for 30 to 40 per cent of hospital bills of critically ill patients and that the medicines are priced by corporate hospitals.
  • It also points to the huge gap in prices of generic and branded drugs, quoting from Lok Sabha testimony that generic medicines might be 50-90% cheaper than the branded ones.

Conclusion 

• India’s medicine-pricing framework aims to combine affordability, availability and incentives for pharmaceutical innovation. 
• However, the complaints submitted before the Supreme Court point to the loopholes relating to initial pricing of non-scheduled medicines, exorbitant trade margins, hospital pharmacy mark-ups and the price disparity between branded and generic drugs. 
• So there is a need for greater transparency in the pharmaceutical supply chain, monitoring of MRPs and trade margins, wider availability of affordable generics, stronger enforcement of existing price controls, and evidence-based regulation of non-scheduled medicines

Source :TH