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Explainer I How the drug price regulator’s order raising the cap on prices of essential medicines by 10.7% may hit you 

Activists point that as the current drug pricing regime does not cover essential drugs in all their strengths and presentation, patients lose out on many counts

March 28, 2022 / 03:44 PM IST

India’s apex drug pricing regulator last week announced a 10.7 percent change in the prices of essential drugs. The ceiling on the prices of more than 800 drugs under price control will see a sharp increase beginning April 1.

This is the steepest hike in the prices of medicines under the Drug (Price Control) Order, 2013, allowed by the National Pharmaceutical Pricing Authority. It is set to directly raise the prices of a large number of medicines and a few medical devices such as coronary stents and knee implants.

The 2013 DPCO governs the prices of 886 drugs and devices in the National List of Essential Medicines, which includes basic medicines such as paracetamol, common antibiotics such as azithromycin and doxycycline, as well as drugs for hypertension, diabetes and COVID-19 among others.

These medicines make up about 18 percent of the total domestic pharma retail market of around Rs 1.5 trillion. Last year, the NPPA had raised prices by nearly 5 percent.

‘Expected given the rate of wholesale inflation

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Industry and trade experts say that going by the rate of wholesale inflation since January last year, the rise in the ceiling prices of drugs in the NELM, also known as scheduled drugs, was expected.

Also read I Exclusive I Indians spend Rs 35,820 crore a year on minor ailments, finds novel survey by pharma body

“The rates of raw material and production cost for medicines has gone up steeply over the last year and the hikes being allowed was overdue,” said Rajeev Singhal, general secretary of the All India Organisation of Chemists and Druggists.

He added that the rise in the prices, however, is unlikely to have an impact on the sales of the essential drugs as they are a necessity for consumers and also used widely in several government programmes and hospitals.

Market-based pricing

“Based on the Wholesale Price Index (WPI) data provided by the Office of the Economic Advisor, Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, the annual change in the WPI works out as 10.7 % during the calendar year 2021 over the corresponding period in 2020,” said the NPPA order issued on March 25.

The order is expected to be notified anytime now.

DPCO, 2013 is a market-based pricing regime unlike the Drug Price Control Order, 1995, which was based on costs.

Under the DPCO, 2013 pricing regime, ceiling prices of essential medicines are decided by taking the simple average prices of brands with more than 1 percent market share with a mark-up of 16 percent retailer commission also taken into account.

This, according to those batting for patient rights, means that pricing of essential drugs is also determined by inflation in the prices of commodities that are not directly linked with medicine production.

‘Fundamentally flawed policy’

Chinu Srinivasan of the All India Drug Action Network stated that the simple average pricing methodology of DPCO, 2013 legitimises irrationally high selling prices to consumers of essential medicines, especially of those drugs that were not under price regulation before 2013.

Also read I Retail prices of common medicines set to rise by a steep 11%

“Using WPI as a price index does not – where necessary – reflect the high increase in the cost of inputs. By giving unviable ceiling prices, it discourages the production of essential medicines,” he said.

By “unviable” ceiling prices, he means that sometimes the rise does not take into account the price rise in the input cost required to produce a certain medicine.

The whole system needs an overhaul and the answer is not deregulation, said Srinivasan, but a prior cost-based pricing regime with modifications.

Citing the example of paracetamol 500 mg, whose production cost has increased by 84 percent in a year, Srinivasan said that as the ceiling price is being allowed to rise by only 11 percent.

“As manufacturing medicines like this becomes less profitable, pharma companies are pushed to come up with versions of the medicines that are not covered under the NELM, such as different strengths of medicines or fixed-dose combinations. The loser ultimately is the patient,” he said.



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