The National Pharmaceutical Pricing Policy, 2012, recently notified by the government, has linked the permitted annual increase in prices of 348 essential medicines to the wholesale price index (WPI).
Among various other things, the new policy aims to regulate the prices of essential medicines through a market-based mechanism, as against the cost-plus method used so far. The government is to cap the prices of these 348 essential medicines at the simple arithmetic average of drugs with a market share of one per cent and more in the segment concerned.
“The prices of these NLEM-2011 (National List of Essential Medicines) medicines will be allowed an annual increase according to the wholesale price index,” the policy document says.
As a corollary, the companies would also be required to cut these prices if there is a decline in the annual WPI.
WPI-based inflation hovered between 7.4 per cent and eight per cent till October this financial year. This is way above the Reserve Bank of India’s comfort zone of four-five per cent.
While the policy is expected to bring down prices of various expensive drugs, pharma sector analysts say an annual increase in prices based on the WPI is seen as favouring the industry. “It is incrementally positive for the industry,” said Praful Bohra, senior analyst, Nirmal Bang.
According to Nitin Agarwal of IDFC Securities, such provisions in the policy are expected to mainly help multinational drug makers, which have around 20 per cent of the essential drugs in their product portfolio.
“An annual price hike linked to WPI will act as a mitigating factor for such companies, as their revenues would be otherwise under pressure because of various drugs falling under price control,” he said.
The finance ministry had initially objected to an annual price revision based on WPI and had suggested development of a separate index for pharmaceutical products.
For all drugs out of price control, the prices will be determined by market forces, says the policy. However, the government reserves the right to intervene within the next 12 months if prices of non-controlled drugs increase by more than 10 per cent annually. This is also a diversion from the existing mechanism, which does not allow companies to increase prices of non-controlled medicines by more than 10 per cent annually. For any such rise, companies are required to seek permission from the National Pharmaceutical Pricing Authority.
The government is required to inform the Supreme Court about the policy notification tomorrow, when the matter is scheduled for a hearing. The genesis of the policy lies in a 2003 SC order, asking the government to ensure affordability of all essential medicines in the country. Despite being slammed by the apex court numerous times, it took the government about nine years to finalise a revised policy.
