National pharma pricing policy 2012 ties up all loose ends

UR Associates has come out with its report on pharmaceutical sector. According to the research firm, the ceiling price of the 348 drugs included in the NLEM 2011 would be determined by simple average price of all the brands having market share more than and equal to 1% of the total market turnover of that medicine. The data of prices of drugs will be provided by the market research firm IMS Health (IMS).

The government seems to have pretty much tied up all the loose ends in its National Pharmaceutical Pricing policy 2012. The new policy would replace the long standing and currently irrelevant Drugs Price Control Order 1995. Out of the 348 medicines listed in the NLEM-2011, only 34 drugs are included amongst the 74 drugs listed in the DPCO. The new policy would be regulating the prices of the formulations only, unlike the DPCO 1995 which regulated the prices of bulk drugs and formulations.

The ceiling price of the 348 drugs included in the NLEM 2011 would be determined by simple average price of all the brands having market share more than and equal to 1% of the total market turnover of that medicine. The data of prices of drugs will be provided by the market research firm IMS Health (IMS). The data provided by IMS will be prices of drugs at the stockiest level and hence a margin of 16% would be added to that price to determine the ceiling price of the drugs. This new regulation would dent the unscrupulous activities of small pharma companies who sell their drugs at exorbitant prices compared to the other brands of the medicine and lure doctors with gifts and pay huge margins to pharmacies to push their medicines to innocent public mostly in Tier II and Tier III cities.

Other major highlights of the policy are:

The ceiling price determined would also apply to the imported drugs and hence the MNCs will also not be allowed to price their drugs above the ceiling price.

The new policy does not even allow the drugs which do not have much competition, to escape from the price regulation. In order to regulate the prices of these drugs, the overall percentage reduction in the price of same molecule with other dosage and strength will be applied; otherwise the overall percentage reduction in the price of medicines in the same therapeutic category will be applied.

The prices of drugs included under NLEM 2011 can be increased on an annual basis as per the Wholesale Price Index as notified by the Department of Industrial Policy & Promotion. On or after 1st April every year, the companies can revise the prices of drugs upto the limit of the increase in the Wholesale Price Index for the previous year. Also, the companies have to necessarily take a price decrease commensurate to the fall in the WPI index.

The prices of drugs included in DPCO 1995 and no more included in the NLEM 2011 would be frozen for one year and thereafter a maximum increase of 10% per annum is allowed.

The prices of drugs which are not under NLEM 2011 would also be monitored and if the prices of those drugs increase by more than 10% annually, the government would have the power to determine and fix the prices of those drugs also.

Many experts have expressed concern that the new pricing policy will result in fall in production of essential medicines or the pharma companies will circumvent the policy by combining the drug which falls under NLEM 2011 with another drug which does not alter the medication significantly to escape price controls. In order to ensure that this issue does not arise, the Department of Pharmaceuticals will be monitoring the production levels and availability of medicines under NLEM 2011. Also, the manufacturer of a NLEM drug, launches a new drug by combining the NLEM drug with another NLEM drug or a non-NLEM drug, such manufacturers shall have to seek price approval from the Government before launching the new drug.

The revision of NLEM for the purpose of price control is a dynamic process and any drug can be added in NLEM in public interest under Drug Price Control Order on the recommendation of Ministry of Health and Family Welfare.

The Government has excluded patented drugs developed from indigenous R&D activities from price control, in order to encourage innovation and R&D activities in the sector. A drug developed through indigenous R&D and patented under the Indian Patent Act, 1970 would be eligible for exemption from price control for a period of 5 years from the date of commencement of its commercial production in the country.

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