NPPA undermined

Govt decides to have bureaucracy set drug prices

Last Monday, the Union government made an announcement that further set back regulatory autonomy in India. It was announced that a committee housed in the government think tank NITI (National Institution for Transforming India) Aayog would “recommend” the medicines that would be brought under the government’s price-control schemes. This committee would be composed essentially of senior bureaucrats. This determination is currently the job of the National Pharmaceutical Pricing Authority, or NPPA. The NPPA regulates the prices not just of medicines that are on the National List of Essential Medicines, or NLEM, but also of other health products such as stents. Recently, for example, the price of stents was controlled — which the government has seized on as an example of its own pro-poor policy. There has also been a change in how and which drugs are declared “essential” and thus brought on to the NLEM, which automatically places them under price control. Now, the NITI Aayog committee will have the powers to determine exactly which medicines will have their prices controlled. The power to set price caps on other drugs has also been taken away from the NPPA and given to the committee under the NITI Aayog.

There are two basic points that need to be made in this context. The first is that much is wrong with the existing approach of price control and drug regulation, which does not fully and properly take into account the entire system of incentives for doctors, patients, hospitals and producers. The stent price control, for example, may not have changed the overall price to patients; after all, hospitals can simply move the costs to other, less tangible parts of the process. In the process, the best-quality stents would not be used. Thus, there was clearly a lack of application of mind in how the regulatory structure was constructed. That even non-essential drugs should have a price cap, or have their price increases limited to 10 per cent a year, made little sense. In the period after the NLEM was created and a drug price control order was issued in 2013, the NPPA certainly indulged in some over-reach. But that was brought under control by the courts.
 

Restrictive regulatory policies of this manner always give rise to a demand for more and more arbitrary control. And thus the second point that is relevant here is that it is not good news that bureaucrats have seized control from a rules-bound regulator, and furthermore given themselves arbitrary power to determine which medicine is sold at which price. Such mechanisms always breed lobbying, even if that is not the immediate intention. Independent regulators who make transparent decisions are the best antidote to such arbitrariness. Unfortunately, however, the bureaucrats who have been given a free run by the current government do not believe in such things as independent regulators. Thus, for many independent bodies, the freedom to act has been taken away. The NPPA is just the latest in a long list. The lessons of the licence raj have truly been forgotten.