Doctors’ body pitches for capping trade margin at 30% for all drugs in India

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Even as the government is still deliberating trade margin rationalisation for all drugs costing Rs 100 and above, a section of doctors has now approached the country’s pharma pricing regulator asking it to fix profit margins for all drugs at a flat 30 percent.

The Association of Doctors for Ethical Healthcare (ADEH), which has prominent healthcare professionals from across the country as its members, has said in its letter to the National Pharmaceutical Pricing Authority (NPPA) that all chemicals labelled as medicines should be included in the list of essential medicines as medicines are not a choice of the patient.

The demand by the doctor’s body comes at a time when the government has indicated that drugs for ailments like chronic kidney disease, some high-end antibiotics, antivirals (anti-infectives) as well as some cancer drugs—that cost more than Rs 100 each—will be brought under trade margin rationalisation  (TMR) first.

The idea is to cap the margins earned by wholesalers and retailers, said a senior government official.

Trade margin refers to the difference between the price at which the manufacturer sells the drug to a wholesaler, who then sells to stockists and retailers, and the maximum retail price (MRP) a consumer pays.

Officials in the government said that though a list for fixing trade margins is still being worked out, it is likely to be around 33-50 per cent for most drugs.

As of now, medicines in India are widely categorised into two classes, scheduled and non-scheduled drugs.

The NPPA, under the department of pharmaceuticals, fixes the ceiling price of scheduled medicines, which are included in the National List of Essential Medicines, as per provisions of the Drugs (Prices Control) Order, 2013.

In the case of non-scheduled medicines, a manufacturer is at liberty to fix the MRP but is not allowed to increase the MRP of such formulations by more than 10 percent a year. In addition, under the trade margin rationalisation approach, the NPPA has also fixed trade margins of non-scheduled formulations of 42 select anti-cancer medicines.

New demand

The ADEH, meanwhile, has now said that as out-of-pocket expenditure on drugs is a major component of healthcare, it is important that the prices of medicines and medical devices are streamlined and exorbitant trade margins are eliminated.

The letter points out that in some cases the same salt is sold at hugely varying prices under different trade names.

“There is exorbitant difference between the basic price of the drug and MRP in the case of generic (branded generics),” says the letter addressed to the NPPA chairman, adding that this is totally unjustified and promotes malpractice.

According to the doctor’s group, the ex-factory price of the drugs should be calculated on the basis of cost involved in its production.

ADEH also mentioned a report by the Committee on High Trade Margins in the Sale of Drugs submitted in December 2015, which had found the profit margin to be up to 5,000 percent in some cases.

“After discussion with various stakeholders, the committee gave recommendations to cap the price of drugs. These recommendations need to be implemented,” wrote the association.

It has said that trade margin should be capped at a maximum of 30 percent from the factory price to the consumer or an alternative formula which takes into account landed or ex-factory cost plus 30 percent trade margin should be opted for to calculate the retail price of a drug which should be inclusive of retail and wholesale margin, logistics and inventory cost.

All medicines must bear the cost price and MRP so as to make the profit margin transparent, ADEH has said. The association added that all branded medicines should be sold with the chemical or pharmacological name only and the name of the company be mentioned on the cover separately, while there should be no trade names.

Dr Gurinder Grewal, a senior ADEH member from Punjab, said that the cap of 30 percent on trade margins was first suggested by the government committee headed by a joint secretary in the Union health ministry, but was never implemented.

“A lot has been said about making drugs affordable in the country but little action materialises on ground,” he said.

When contacted for his response, Viranchi Shah, president of the Indian Drug Manufacturers’ Association, the largest body of generic drugmakers in the country, said that there are a large number of small and medium enterprises who depend on distributors and channel partners to promote and market their products.

“Hence they have to give that extra margins to cover these costs and in the interest of survival of thousands of such small players, putting a blanket cover will not be a good step,” he reasoned.

Shah also said that in case TMR has to be implemented, it should be done in a phased manner and it should be on specific high-value medicines only.