Decision on drug pricing likely today

The Group of Ministers (GoM), on the proposed pharma pricing policy, will meet tomorrow and is expected to take a final call before it sends its recommendations to the Cabinet and the Supreme Court. The court has already given an ultimatum to the government, asking it not to delay the policy any more.

In its last hearing, on September 11, the SC had slammed the government, saying, if it does not take a decision by the next hearing it will pass an interim order. After that, the ministerial panel, headed by Agriculture Minister Sharad Pawar, had met on September 24, and broadly decided to bring in 348 essential medicines under the purview of price control. It also deliberated on a pricing mechanism based on weighted average of all medicines with a minimum of five per cent market share, as suggested by the commerce ministry. However, it is yet to finalise the formula.

Meanwhile, the matter is also scheduled to come for an hearing at SC tomoroow itself.

Officials, in know of developments, say that the ministerial panel is likely to finalise the pricing formula in its Thursday meeting, but may seek some more time from SC to finalise and draft its recommendations. This would be the fifth meeting of this GoM.

Industry officials say prices of medicines are expected to drop significantly in the near future if the government decides to adopt the formula, based on weighted average and brings in 348 medicines under price control. According to a sample study conducted by Indian Pharmaceutical Alliance, prices of essential drugs are likely to fall by an average of 20 per cent.

The range of price reduction may vary from 24 per cent to even 95 per cent in some cases, the study, conducted on some commonly used brands of pain management, allergies, cardiovascular disorders and blood thinners etc, shows. Besides, with the new policy in place, around 30 per cent of the market is expected to come under direct purview of price control as against 18 per cent currently. This would also mean around 10-12 per cent of revenue loss for the industry on essential medicines, the study says.

The domestic pharma market is estimated to be at around Rs 65,000 crore annually.

Experts point out that if the government decides to finalise this proposal, drugs, mainly insulins, imported by multinational companies may have to take a huge hit. As per the new proposed policy, the ceiling price will be applicable on imported drugs as well. “There will be no separate determination of ceiling prices for imported drugs falling under the span of control,” the draft NPPP says. Under the current cost-plus mechanism, used for price regulation of medicines, prices of imported drugs are capped based on their landed cost declared by the company. Hence, imported drugs get an advantage over the indigenously manufactured ones because the regulator does not have the wherewithal to cross check the landed cost.

However, according to IPA director general DG Shah, though the industry will be impacted due to price reductions, the weighted average mechanism is still better than the cost-plus formula.

“If the cost-based mechanism is adopted for 348 medicines, the industry will have to suffer a revenue loss of more than 50 per cent,” Shah said. Currently, the government controls prices of only 74 bulk drugs and formulations containing one or more of these bulk drugs through cost-plus-profit mechanism. For all other medicines, companies are allowed to hike prices up to 10 per cent annually and for any increase beyond that they are required to seek approval of the National Pharmaceutical Pricing Authority (NPPA), the pricing regulator in the sector.