In Depth | Spadework begins for affordable medicines in India

The project, GNLU director S Shanthakumar told Moneycontrol, will study the regulatory policy framework on drug pricing and its operational implementation in at least 10 countries to identify best practices and lessons learnt from these countries and regions.

The project will also examine other policy aspects that affect the availability and affordability of medicines in these countries, according to Shanthakumar.

The nine countries and one bloc that will feature in the study are Sri Lanka, Bangladesh, China, the European Union, the UK, Australia, the US, Brazil, South Africa and Thailand.

The development comes amid growing concerns about the role of drug prices in out-of-pocket healthcare expenditure in the country which often has a catastrophic effect for many.

Medicines are the biggest component of personal spending on healthcare in India, a recent report by researchers associated with Harvard University, NITI Aayog and the Indian Institute of Population Sciences had found.

Current drug price control in India  

The NPPA, under the Department of Pharmaceuticals, fixes the ceiling price of scheduled medicines as per provisions of the Drugs (Prices Control) Order, 2013. Scheduled drugs are those that are included in the National List of Essential Medicines and are procured by the government for various health programmes and mostly provided in government hospitals free of cost.

These medicines are used to treat common conditions such as fever, infections, heart disease, hypertension, skin diseases and anaemia, among others.

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So far, NPPA has set price caps for 886 scheduled formulations and four scheduled medical devices, and fixed retail prices of 1,817 new drugs. In addition, it has fixed the ceiling price of orthopaedic knee implants under Para 19 of DPCO, 2013, in public interest.

In the case of non-scheduled medicines, a manufacturer is at liberty to fix the maximum retail price (MRP) launched by it but is not allowed to increase the MRP of such formulations by more than 10 percent a year.

According to the government, under the trade margin rationalisation approach, the NPPA has also fixed trade margins of non-scheduled formulations of 42 select anti-cancer medicines.

Recently, during the COVID-19 pandemic, the authority also regulated the prices of several other medical devices such as oxygen concentrators, pulse oximeter, blood pressure monitoring machine, nebuliser, digital thermometer and glucometer.

Exorbitant sales margins?

While the pharmaceutical industry in India has over 20,000 companies, making it the third largest market in the world in terms of volume, the country's high reliance on the private sector means that more than half its population lacks access to necessary pharmaceuticals at government facilities.

This is a fact even pharma companies agree with.

Despite the widespread belief that drug costs in India are comparatively inexpensive, studies have shown that the country's prescription drugs are excessively priced, pointed out Nikhil K Masurkar, executive director, Entod Pharmaceuticals.

He added that sales margins are extraordinarily large for the same generic class of drugs, frequently reaching from 1,000 percent to 4,000 percent.

“With the study from different countries we might be able to process the pricing at a fair cost for both the pharma industry and consumers,” said Masurkar.

“There can be lesser issues regarding social security such as during the pandemic as most of the COVID-19 drugs were…unaffordable for a lot of people,” he added. “On the other hand, many unauthorised activities were also noticed related to drugs. With a combined pricing study of various countries, we may reach a high level as far as growth and security are concerned.”

‘Take people’s purchasing power into account’

Pharma analyst Salil Kallianpur underlined that cross-national price comparison is a method used by various pharmaceutical companies and governments to set an average price level for different medications and added that this involves a comparison being done among diverse product samples.

“In determining drug prices, the country’s GDP and the population’s purchasing power also need to be taken into account,” said Kallianpur, adding that comparing countries that are more like India, such as its immediate neighbours, makes more sense. These nations have a common historical heritage and share many cultural and economic characteristics and score low on health insurance and infrastructure.

Like Masurkar, Kallianpur, too, said that in these countries, a restricted range of state-procured medications are provided in public sector hospitals. He also said that although patients can access essential medicines in the public sector, either free of charge or with a modest co-payment, they have to pay for drugs from the private sector out of their own pocket.

Chinu Srinivasan, a drug and pharma expert with All India Drug Action Network, an umbrella body of non-governmental organisations in the health sector, too, said that public health facilities are mostly poorly stocked with medicines, pushing people to buy these from private retail pharmacies.

“If there are no suitable price control policies, medicine expenditure alone will continue to burn a big hole in the pockets of the people,” he said.

A balanced approach?

Antony Prashant, partner with Deloitte India, said that the industry has always been concerned about the impact of price caps and limits on price hikes for scheduled drugs.

When there is significant increase in input costs, the product may become less viable for the manufacturer, and eventually force the company to reduce supply or end production altogether, he said. This, as per Prashant, impacts the end patient as availability becomes an issue, at the cost of affordability.

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The other aspect to be considered is whether price caps are really benefiting the required target population given that more than 60 percent of healthcare costs are still borne by patients and drugs are a major part of it, even with the price caps. “Irrespective of income groups, today, all benefit from the price caps,” said Prashant.

“Therefore, the question is whether a uniform pricing policy is required or a tiered pricing structure is needed given the various income groups or should it be planned such that the lower income groups have better access and affordability through innovative sourcing and distribution models,” he said. “These dimensions are expected to be addressed based on the study that the NPPA is planning.”

Answers to complicated questions?

As the NPPA is not limiting the study to drug prices but also the factors that affect it, experts believe that it may be interesting to observe the outcome of the study on some topics that have long escaped simple answers.

These include, according to Kallianpur, what the impact of compulsory licensing regime is on the competitiveness, growth and sustenance of the Indian pharmaceutical industry and how changes in the global market (especially price pressure and erosion in the US) affected India’s pharmaceutical exports and industry.

“Another lookout of the project may be the impact of Indian pricing policy coupled with demonetisation and goods and services tax,” he said.