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Govt clears pharma policy, caps prices of 348 drugs

The new policy is expected to cover up to 30 percent of the total drugs sold in the country

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The Union Cabinet today endorsed the Group of Ministers' (GoM) recommendations on the National Pharmaceutical Pricing Policy, giving shape to a long pending policy that will have ramification not only on the drug manufacturing industry but also on interests of the common man.

The government did not give out the details of the Cabinet decision on the pharma pricing policy.  According to sources, the Cabinet has imposed a cap on prices of 348 essential medicines at the arithmetic average of prices all drugs in a particular segment with more than one per cent market share, in line with GoM’s new recommendations.

The GoM, headed by Agriculture Minister Sharad Pawar, convened a last minute meeting on Wednesday with Finance Minister P. Chidambaram as special invitee to address concerns raised by the finance ministry on the GoM earlier suggestions.

The proposal was even turned back from the Cabinet Secretariat following the ministry’s objection to the market-based pricing mechanism suggested by the GoM. On Wednesday, GoM made three key changes to its earlier proposal to bring Chidambaram on board and get the policy to Cabinet for an approval. This was significant as the government has a Supreme Court deadline of November 27 hanging over its head, before which it will have to notify the policy.

Earlier, the GoM had recommended a price cap based on weighted average of all drugs, which would have reflected the price of expensive drugs with better market share more than those with a lower market share.

The GoM’s suggestions also included that any company changing the composition of the 348 essential medicines by adding a new ingredient to the formulation would come under price control and would have to seek permission from the pricing authority.

The idea is to prevent companies from circumventing price control by adding new ingredients to essential medicines. The earlier recommendations of the GoM included only 348 formulations under price control, while companies were free to price combinations of these drugs.

Another major recommendation of the GoM is that the price regulator would review prices of drugs periodically instead of five years as was earlier suggested by the ministerial panel.

Sources said the Cabinet has approved the proposed policy without any further changes.

Though the new policy is expected to lower prices of various expensive drugs, there is also immense scope that prices of many low cost drugs would now be relatively higher.

The GoM’s new recommendations have found mixed reception from the industry. While some of the companies are relieved that the government has not accepted finance ministry’s recommendations in favour of the existing cost-plus mechanism for capping prices, which was also in line with a previous SC observation, other feel the simple average would impact the industry’s revenues going forward.

“Half of the industry’s profit is wiped out because of the simple average formula. There are two basic objectives of the policy – access and availability. While the government has achieved access through this policy, I am not sure whether all medicines would be available with this kind of policy in place,” said D.G. Shah, Secretary General, Indian Pharmaceutical Alliance that represents all top domestic pharmaceutical companies including Ranbaxy and Cipla who are seen to be highly impacted.

However, Lupin India Group President  Shakti Chakraborty said, “It is a good thing that the government has chosen to adopt a market based mechanism thus protecting industry interest to a large extent and also ensuring that drugs reach patients in a cost effective manner”.

So far, the government was regulating prices of medicines based on cost plus method taking into account the cost of bulk drugs. Under this mechanism, prices of 74 bulk drugs were capped and any medicine formulation containing one or more of these bulk drugs or ingredient would fall under price control. The companies were required to seek a price approval for any such drug from the National Pharmaceutical Pricing Authority. Besides, for all other medicines, drug makers were allowed to raise their prices by up to 10 per cent annually and for any hike beyond that they were required to seek permission from the regulator.

 However, the new policy is a deviation from the existing one. The new pricing mechanism is market based and the ceiling price will reflect prices determined by various companies for their different brands.

The move has not gone down well with health activitsts and groups advocating for a cost-plus mechanism. In a statement, issued by Jan Swasthya Abhiyan, a patients group, demanded that the government should heed the SC’s opinion and impose price control on all 348 essential drugs and their derivatives, using the existing cost based formula for price fixation.

Now what remains to be seen is whether the Supreme Court accepts the decision of the government bringing an end to a nine year long pending case.

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