To cap, or not to cap

Government flip-flop on medicine prices

The National Pharmaceutical Pricing Authority, or the NPPA, has withdrawn guidelines it had issued in May regarding fixing the prices of drugs not covered in the 2011 National List of Essential Medicines. The Drug (Prices Control) Order of 2013 allows the NPPA, if it considers it necessary in the public interest, to cap the prices of such non-essential drugs. The NPPA, according to these guidelines, would identify cases where the price difference between the various brands of the same formulation was 25 per cent or more and then prescribe new prices. Based on this study, it cut the prices of 108 drugs in the therapeutic segments of diabetes and cardiovascular by up to 35 per cent in July. And it promised to extend the caps to other areas. The industry was quick to cry foul. It said this had brought 58 per cent of cardiovascular medicine and 21 per cent of diabetes medicine under price control, and it would reduce its annual turnover by Rs 550 crore. Its objection was that the 2013 Order gave the NPPA the power to fix the prices of non-essential medicine only under extraordinary circumstances, and inter-brand price differences didn't qualify as such. Many companies went to court. The department of pharmaceuticals, under the ministry of chemicals and fertilisers, had sought the opinion of the law ministry on the matter. This recent action, it appears, has resulted from the law ministry's advice.

But it would be wrong to assume that non-essential medicines are now decontrolled. For one, the NPPA's power to regulate their prices under "extraordinary circumstances" remains intact. Two, the July list of price caps has not been withdrawn; in that sense, the companies that had been impacted by it have got no relief. But the withdrawal of the May guidelines means that the NPPA cannot announce new price caps on the basis of inter-brand price differences. It is known that the NPPA was contemplating further price caps in categories, such as cancer, HIV/AIDS, tuberculosis, malaria, asthma and so on. Companies that make these medicines can let out a sigh of relief, at least for the time being.

Drug prices are a complex issue. Many Indians cannot afford expensive medicine, thanks to patchy health insurance coverage and poor public healthcare. On the other hand, intervention in prices can lead to perverse incentives for companies. In principle, price controls are prescribed only when there is evidence of extraordinary profits. That may not be the case with India's drug makers; in many segments, the marketplace is reasonably competitive. Any price-control order should only follow a transparent estimation by experts of the lack of fragmentation in the segment, or of collusion, or of outsize profits. Ideally, the government should buy medicine from the drug companies - at an advantageous cost, pushed down by its considerable bargaining power - and then supply it at affordable prices to the needy. This has been tried with decent success in Tamil Nadu and can be extended to other states.