The chemicals and fertilizers ministry has proposed a new drug pricing policy to bring nearly Rs 29,000 crore worth of medicines sold in the domestic market under direct price control. The move will have a major impact on the domestic drug industry, as the percentage of drugs under price control in the proposed National Pharmaceutical Pricing Policy 2011 will rise to about 60 per cent of the Rs 48,200 crore domestic pharmaceutical market. The current reach of price control on drugs sold in India is in the range of 20-30 per cent.
The increase has been caused by the ministry’s decision to move away from the existing economic/market share principle-based criterion of price fixation to “essentiality-based” price control. The change was warranted by an eight-year-old Supreme Court directive to the central government to formulate a price control mechanism covering all essential drugs.
Indian Pharmaceutical Alliance (IPA), the select club of top domestic drug makers such as Ranbaxy, Dr Reddy’s, Sun Pharma and others, expressed strong reservations over the proposed policy.
“The extension of price control to combinations has not only enlarged the span of control significantly, but has also introduced an element of subjectivity in policy-making,” IPA secretary general D G Shah said in an emailed response.
The proposed policy aims at bringing all medicines under the National List of Essential Medicines (NLEM) of the health ministry under price control. While the existing policy covers 74 bulk drugs (raw materials) and their formulations (final medicine) under price control, the proposed one will include 663 types of specific formulations mentioned in the NLEM.
“A committee of public health experts nominated by the health ministry had prepared a list of essential medicines, keeping in view various parameters such as cost of treatment, usage, need, etc. The proposed policy has violated the integrity of the NLEM by going beyond it. The policy should have stayed with the specified strengths and specified dosage forms and encouraged the industry to behave. Not doing so has brought an element of arbitrariness in the selection of drugs for price control,” Shah said.
IPA also said the draft policy completely ignored the impact of all-pervasive price control in the domestic market on export realisations of domestic companies. “This could be a serious setback to companies exploring global opportunities and wanting to make India a hub for exports,” it stated.
However, the ministry feels the impact may not be severe, as the price reduction could be less than five per cent for 52 per cent NLEM drugs. In the case of 32 per cent NLEM drugs, the price cut for the highest brand could be 20 per cent.
The ministry has attempted to minimise damage by putting an end to the current practice of cost-based price fixation of each drug. Instead, the government will declare only the upper price limit for medicines, providing room for competition.
The ministry also proposes to freeze for two years the prices of drugs currently under price control. The ceiling prices will be allowed to be revised annually considering the changes in the Wholesale Price Index for manufactured goods. While the existing policy allows an annual price increase of 10 per cent for all medicines not under price control, the new policy will allow a 15 per cent annual hike for such drugs.
The basis of the draft policy are the recommendations of a task force headed by Planning Commission advisor Pronab Sen in 2005. The committee had looked into the issue of price control and the non-price control measures needed to be adopted to make life-saving drugs affordable.
Alok Saxena, joint MD, Elder Pharma, said, “I don’t believe that government will take a quick or drastic step over price control. It is ready to consider the pros and cons. Also, there is ambiguity and no clear picture is availbale yet.”
The ministry has invited public comments on the draft policy by November-end.
Shakti Chakraborty, group president, India region formulations, Lupin, said, “It would be too early to comment on the proposed policy as we are yet to ascertain the nature of drugs and therapy segments covered under the policy. But, the government must ensure the policy does not lead to a shortage of essential drugs.”