NPPA said it considered the view that unviability of these formulations should not lead to a situation where these drugs become unavailable in the market and that the public is forced to switch to costly alternatives
Last week, the National Pharmaceutical Pricing Authority (NPPA) set a new precedent by invoking paragraph 19 of the Drug Price Control Order (DPCO), 2013, to increase the ceiling prices of 21 formulations by 50 percent.
While this decision may increase out-of-pocket expenses for patients, it will provide some relief for companies producing these drugs who are absorbing rising costs of active pharmaceutical ingredient (APIs) and intermediates. India imports about 80 percent of APIs from China, to formulate its essential medications.
NPPA said it considered the view that unviability of these formulations should not lead to a situation where these drugs become unavailable in the market and that the public is forced to switch to costly alternatives.
The authority had used these extraordinary powers under paragraph 19 of DPCO, 2013 just thrice. The first instance was in July 2014 when it fixed prices of 108 antidiabetic and cardiovascular non-scheduled formulations; second instance was in August 2017 to cap prices of coronary stents and the third was in February when the government put a cap on trade margin of 30 percent and directed manufacturers to fix their retail price based on price at first point of sale of product (Price to Stockist), of the non-scheduled formulations containing any of the 42 cancer drugs.
But, the upward revision of prices also points to the inherent weakness of the current market based price control policy.
India’s price control regime, 2013 onwards, had moved from a cost-based to market-based pricing mechanism, where simple average price of all brands or formulations (listed under National List of Essential Medicines), with a market share above 1 percent is considered. The annual price hike of the drugs covered under DPCO are linked to Wholesale Price Index (WPI).
Unlike the cost-based price, the market-based does not take into account the movement of raw material prices.
However, industry complains that API prices have increased far higher than the WPI increase in last six years.
"While the WPI price CAGR (2014-19) was 2.9 percent, most APIs for the analysed formulations have increased in excess of 10 percent during the same period," said a PWC report.
What this meant was that companies were on the lookout for loopholes in DPCO 2013 to avoid or to evade pricing regulation.
"(Companies had to) tone down production and sales promotion of the medicines covered under DPCO 2013 and instead migrate to other medicines of the same or similar chemical / therapeutic class, or strengths, dosages and delivery system not covered under DPCO 2013," the PWC report said.
"A few examples are, the addition of Lactobacillus to Norfloxacin to evade price regulation; changing the composition of the concentrations of the ingredients and reclassify as dietary supplements, or over-the-counter drugs. These consequences defy the basic motive of price regulation, defeating its very purpose," the report said.
Companies are also aggressively promoting therapeutic substitutes in the same category. For example, a physician can prescribe Ranitidine for simple gastric-related issues such as hyperacidity. But, due to the heavy promotion of Rabeprazole and combination brands, pharmaceutical companies started prescribing such brands, making patients spend more money -- may be ten times the cost of Ranitidine. Just to add that Ranitidine was covered under NLEM 2011, but was subsequently removed when NLEM 2015 was prepared.
Even today, the medical fraternity is not much aware about essential medicines and NLEM 2011 or NLEM 2015. What they know are the brands promoted by the pharmaceutical companies in the specific therapeutic indications, the PWC report added.So, the policy needs to be flexible enough to address rising costs of raw materials and rein in unfair commercial practices by the industry. The government is hinting at moving towards trade margin rationalisation. It is interesting to see where we are heading.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.