A cut that heals?

Price caps on drugs should be weighed carefully

Last week, the National Pharmaceutical Pricing Authority (NPPA) imposed a trade margin cap on nine cancer drugs, which is expected to lead to an MRP reduction of up to 87 per cent in some cases. The new list is in continuation with the government’s efforts to curb what it calls profiteering on these vital drugs. In March this year, the NPPA capped the prices of 390 non-scheduled cancer drugs. Justifying the move, the government has argued that the average out-of-pocket expenditure for cancer patients is 2.5 times that for other diseases. It has also been argued that this move will benefit 2.2 million cancer patients in the country and will result in annual savings of around Rs 800 crore to Indian consumers. For instance, according to reports, the latest cuts will drastically reduce the maximum retail price of chemotherapy injection pemetrexed (500 mg) from Rs 22,000 to Rs 2,800. Similarly, a 100-mg injection will now cost Rs 800 instead of Rs 7,700. The list of price-controlled medicines has been expanding for a few years. The Drug Price Control Order 2013 widened the list of such medicines to about 350 drugs and another 650 formulations, from less than 100 earlier.

The government and the drug regulator can perhaps take heart from a recent study by Bhanu Duggal, head of Cardiology, All India Institute of Medical Sciences (AIIMS). In reference to the capping of stent prices by the Maharashtra government in 2013, the study found that price caps drastically improved the affordability and access of stent among patients. According to the study, the number of patients undergoing heart procedures with stents rose by 43 per cent after the prices were slashed. Another surprising finding was that, contrary to the apprehensions that the use of drug-eluting stents, which are more sophisticated and manufactured by foreign companies, would go down, their use went up from just about 40 per cent to over 70 per cent within a year of the price cap coming into effect.

While this is a good outcome, the fact is that price caps should not be enforced arbitrarily. For example, in February 2017, the NPPA had, in a widely debated move, cut prices of coronary stents from Rs 45,000 for bare metal stents to Rs 7,400 and from upwards of Rs 1,20,000 for drug-eluting ones to just around Rs 30,000. In the immediate aftermath of the move, anecdotal evidence suggested two ways in which the market coped with price cuts. One, the hospitals tried to recoup the margin by charging extra under some other head in the overall bill. The other was reflected in the desire of the stent manufacturers wanting to pull out their best products from the Indian market. As a general rule, it is a bad idea for governments and regulators to use price caps as a way to resolve any public policy issue — be it costlier flight tickets or pricey medicines. That’s because more often than not price caps actually end up hurting the very people that they are intended to benefit. It is nobody’s case that windfall gains should be allowed, but it is equally true that unless weighed carefully, price caps can take away drug producers’ room to innovate and produce more.