Profit vs people

Sushmi Dey on whether the latest move to control drug prices is right

Pricing of medicines is a very sensitive issue, especially in a country like India where the burden of disease is huge and affordability is a major concern. The latest move by the National Pharmaceutical Pricing Authority (NPPA) has once again triggered the debate on whether it is right for the government to curb profits of the industry for the sake of common man.

In December 2012, when the Cabinet approved the National Pharmaceutical Pricing Policy (NPPP) with a market driven formula to cap prices of 348 essential medicines, the drug manufacturing industry must have thought the worst was over and probably that much was in its favour. Little would it have realized that in a country with a population of 1.22 billion, of which 30 per cent are poor, drug pricing can never cease to be an agenda for the political class, the government and hence for the policy makers.

The Indian pharmaceutical industry, known for its skills to manufacture low cost quality medicines, lobbied and advocated their case with policy makers, political bigwigs as well as in the Supreme Court for nearly 10 years. As a result, in 2012 the United Progressive Alliance-led government cleared a drug pricing policy which, though it expanded the purview of price control from 74 bulk drugs to 348 formulations, was still a move much in favour of the industry. This is because of three primary reasons. One, the government moved from a cost-plus formula to a market-driven formula for fixing the ceiling price of these drugs at an average of all drugs in a particular segment with a minimum of one per cent market share. Second, though in the earlier system the number of bulk drugs were 74, all those formulations containing these 74 bulk drugs or ingredients qualified for price control. Last but not the least, the new policy brought under price control only single ingredient formulations and no combinations, allowing companies a huge leeway to sell combination medicines at self-determined prices.
 
However, now the drug regulator's attempt to spread its wings beyond 348 medicines and identifying eight therapeutic areas namely cancer, asthma, tuberculosis, malaria, cardiovascular, diabetes, HIV as well as vaccines seems to be defying the consensus built in NPPP.

The pricing authority, using Para 19 of the Drugs Price Control Order 2013, has argued the latest move is in public interest because these diseases are widespread across the country and there exist a huge inter-brand price gap indicating towards failure of market mechanism.

However, while taking this radical step, NPPA may have failed to acknowledge two key arguments which it may have to confront going forward.

One, the rarely used Para 19 can be invoked only by the government in case of "extraordinary circumstances". Now, it is contentious to bring under price control eight therapeutic categories based on the high incidence of those diseases.

Also, though a populist measure, it may be seen as an unfair and harsh move against the industry, which needs funds mainly for research and development of new drugs.

Though drug price regulation is essential in an economy like ours, over regulation can kill a growing industry. Hence, it is probably advisable for the regulator to limit itself within the purview of the existing policy unless there is a pressing need to utilize its exceptional power. This will also save it from sending undesired signals of uncertainty to investors.

It is also imperative to mention here that medicine prices are probably the lowest in India.

Moreover, it is also the government's responsibility to support its industry which not only acts as a lifeline for its patients, but is also the third largest export revenue generator.