While controlling drug prices could trigger a series of unfavourable consequences, market-based pricing could create win-win outcomes for patients and pharma companies
Much has been said on the issue of pharmaceutical drug pricing, all in the name of benefitting patients and improving access to healthcare. Some voices have spoken in favour of cost-based pricing. And the healthcare authorities are all in favour of price controls on 348 essential drugs. But does cost-based pricing or price control actually help consumers by ensuring lower prices? The experience of many nations indicates the contrary.
Price controls in no way ensure lower prices. India already produces some of the world’s lowest priced, most affordable medicines because labour costs are up to 55 per cent cheaper than the developed world. Given this scenario, it makes little sense to push prices further down. With more than 20,000 registered and unregistered manufacturers and 30,000-plus brands struggling for shelf space, India’s pharma market is overcrowded and hypercompetitive. With a range of generics and branded drugs, the intense pressure ensures most drugs are competitively priced in order to survive and sell in the market.
In this ultra-competitive environment, any additional pressure on manufacturers to lower prices further could prove counterproductive. For instance, the availability of many drugs could be affected. Although the Drug Price Control Order (DPCO) was instituted to facilitate availability and accessibility of drugs, because it made market conditions so difficult for globally-available medicines that were affordable, many of these were gradually withdrawn from the market. This happened because prices were pegged to such levels that companies simply couldn’t supply at those rates. Lack of minimum margins in price-controlled drugs forces drug-makers, stores and suppliers to switch to non-price-controlled medicines.
This fact is substantiated by IMS Health data, which reveals that DPCO molecules in the market went down to 15 per cent in 2011 from 26 per cent in 2004 due to price caps. The volume share of DPCO molecules also fell to 35 per cent from 40 per cent during the same period, while the average number of drug-makers and the total number of new launches per molecule also declined for scheduled molecules under the DPCO. Drug price caps can prove counterproductive because dwindling competition only leaves the field open for higher prices.
What particularly hurts patient welfare is the non-availability of drugs in a price-controlled regime. In this context, the Philippines serve as a classic case study of why to avoid price controls. After the Philippines opted for price controls, many drug stores discontinued stocking certain price-controlled medicines because the usual margins were no longer available, making the sale of such drugs unviable. Problems were compounded by the fact that these stores no longer received rebates from drug-makers that were previously given to ensure low prices.
This led to the strange situation of so-called cheap drugs no longer being available, even in rural areas. There was also a decline in new molecules being introduced into the market. Patients were therefore deprived of the best new drugs. In the case of mutant disease strains, new cures were no longer available, despite being sold in other overseas markets. Patients solely dependent on specific drugs now had only one option — to purchase these from foreign markets even though the costs were prohibitive due to exchange rate markups and other issues.
And ironically, while the price control measures hurt poor patients, they ended up benefitting well-off ones. This was because the discounted drug prices were a boon for well-to-do patients, who could purchase the drugs even without discounts. But for the really poor patients, the medicines were beyond reach even after discounts.
China’s experience with price controls has also been along similar lines, where drug-makers, pharmacies and hospitals curbed sales of price-controlled medicines because their earnings were impacted. As a consequence, Chinese patients also suffered due to a scarcity of such medicines.
Going by these experiences — and the fact that India’s pharmaceutical market has a plethora of drug-makers and drug brands — it is best to leave pricing issues to the market and to competition. Both these factors will ensure that no manufacturer prices drugs arbitrarily or exorbitantly because this would cause the drug in question to price itself out of the market. Besides, it’s best for consumers to decide whether to buy a higher-priced branded product or a lower-priced generic medicine.
Moreover, since India has many endemic diseases — diarrhoea, dengue, malaria, chikungunya, hepatitis, typhoid, tuberculosis, Japanese encephalitis, filariasis and rabies, to name a few — that are still without an effective cure, it’s essential to promote innovative drugs so that manufacturers are encouraged to discover cures for diseases prevalent in the Indian sub-continent. Needless to add, price controls would discourage research in new drugs because manufacturers would be sceptical about recovering their investments in a price-controlled country.
In many other ways, the Indian pharma market is already one of the most regulated markets in the world. It is this factor that ensures an array of generics and branded drugs are available at affordable rates. But further regulation via price controls would disturb this delicate balance and lead to the unfavourable outcomes mentioned earlier.
Given these factors, it’s best to decontrol drug prices and ensure drug-makers are free to produce a slew of innovative and generic medicines, marketed at multiple price points so that patients and physicians are not deprived of deciding upon the treatment regimen that suits them best.
The writer is president of the All India Organisation of Chemists and Druggists
