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D G Shah: Why drug pricing policies can be injurious to health

Stakeholders have failed to collaborate with the pharma industry to ensure universal access and minimum price controls. Instead, they are working in tandem to restore the regime of rigorous restrictions

D G Shah 

D G Shah

India had rigorous price control on medicines for 35 years (1978-2013). The 1978 Policy had 347 drugs and all its formulations - single ingredient and fixed dose combinations - under price control, covering over 90 per cent of the pharmaceutical market. The 1986 policy reduced the number of drugs under price control from 347 to 142 and also offered better norms for the post-manufacturing expenses to attract new investment in the pharmaceutical sector. In 1995, the number of drugs under price control was further reduced to 74, controlling about 50 per cent of the market.

In spite of these changes, price controls, instead of ensuring access to essential medicines, led to non-availability and shortages and the spread of spurious drugs. New investment in production of essential medicines dried up over the years. Consequently, the production and supply of drugs under price control did not keep pace with the growth of the market. Its share shrank to about 18 per cent of the total market in 2012.

The cost-price fixation continued to plague the industry. The "uniform" costs of inputs, irrespective or purity and potency of active materials, squeezed margins of manufacturers of quality medicines. The use of "normative" costs to determine production cost ignored different standards of (GMP) and quality as well as other cost disparities arising from the age of the plant, location of the plant, wages of workers, R&D intensity, and so on. Consequently, all manufacturing units that have better norms and stringent quality standards or engaged in R&D or pursuing exports markets could not recover their full costs of production. This continued up to 2013.

The 35-year period is long enough to realise that excessive controls did not deliver the desired outcomes. A change came with the new pricing policy in 2012. It controlled prices of 652 specified formulations of 348 drugs spanning over 27 therapeutic segments. They were identified by a committee of medical experts with twin objectives of promoting rational use of medicines and standard treatment guidelines. It recognised true costs by doing away with "normative" costs. It also also recognised for the first time divergence in the pharmaceutical sector and sought to maintain production of essential medicines, while retaining the power to regulate the price of any drug, in case of "extraordinary circumstances".

This was a major departure from the past. The intention was to focus on the goal of ensuring access by promoting abundant availability instead of harping on price control per se, which curtailed supply and created aberrations.

However, the new policy failed to carry with it two of its major stakeholders. One, because it lost arbitrary use of discretionary powers of fixing prices in an opaque manner; and the other because it was at a loss to find another emotive cause as powerful as prices of medicines.

The first tried to use powers vested with it for "extraordinary circumstances" to expand the list of essential medicines and the second is striving to restore the old system of "normative" cost for fixing the prices of medicines. Thus, both have started working in tandem to restore the rigours of the old regime that had forgotten the goal for the means. It is unfortunate that they do not accept that a pro-competitive policy framework and abundance of supply are the surest way of controlling prices.

The Tamil Nadu Medical Services Corporation with the support from the pharmaceutical industry has largely been successful in achieving the goal of universal access. It provides free medicines to all in Tamil Nadu for less than Rs 400 crore per year. It now serves about 40 per cent of its population. It has been in operation for over 20 years and has worked hard to win the confidence of doctors as well as patients for the quality of medicines it procures and dispenses free of cost.

Likewise, if only the stakeholders making price control a goal were to make quality an emotive issue and join hands with the pharmaceutical industry to replicate the Tamil Nadu model across the states, the country would have both - universal access to medicines and minimum price control. It would also provide a much-needed boost to the pharmaceutical industry so that India could become the Pharmacy of the World in every sense of the term.



The writer is CEO, Vision Consulting Group and Secretary General, Indian Pharmaceutical Alliance
dgshah@vision-india.com

First Published: Tue, October 28 2014. 21:44 IST
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