Price hike, at last

Govt should not control drug prices

Last week, the government used the Drug Price Control Order, 2013, to increase the price ceiling for 21 formulations or medicines by as much as 50 per cent to ensure their availability in the market. This is a welcome move because lower prices would have further limited the availability of these drugs, some of which include those used for malaria, leprosy and allergy. The decision by the regulatory authority — usually known to reduce prices of essential drugs — was prompted by repeated petitions by the pharmaceutical industry, which pointed out that the increasing cost of imports had made the production of some of these drugs unviable. Prices of bulk drugs and active pharmaceutical ingredients have, in fact, gone up by up to 88 per cent, and are largely imported.

But the bureaucratic process that led to the decision is disturbing. As reported by this newspaper, the National Pharmaceutical Pricing Authority (NPPA) was getting applications for price revision for about two years. The NPPA looked at some of the applications only in January. A committee was constituted in March to look into a set of formulations that could be considered for increasing prices. Subsequent meetings at various levels eventually led to the decision, which allowed a one-time increase in prices. There was a risk that the non-viability of prices would affect the availability of drugs and force the public to look for other expensive options.

This raises a basic question: Should the government control prices? The motivation for controlling drug prices is not very difficult to understand. Unlike some of the developed countries, where most of the population has insurance coverage or medical facilities are provided by the state, medical expenses in India are borne by citizens, largely through out-of-pocket expenses. Therefore, the state intervenes by keeping prices of some drugs in check to contain such spending. However, the unintended consequence is that it affects the supply of drugs and can potentially make citizens worse off. The risk of non-availability was an important reason for raising prices. Although all pharmaceutical companies may not stop producing drugs with price control, they may limit the supply. Further, the government usually dithers on price hike because of political considerations so that it is not accused of favouring private companies.

Thus, the government should stay away from dictating prices and allow the market to function. Competition in the marketplace will ensure that no company is able to make supernormal profits in basic and essential drugs. Since the state has limited capacity, it should focus on regulation, and ensure that the quality of drugs supplied in the market is not compromised at any point. For instance, the deputy drug controller at the Central Drugs Standard Control Organisation was arrested earlier this year by the Central Bureau of Investigation on corruption charges. This highlights the need to strengthen the system, which gives all companies a fair chance to compete. On the other hand, the government would do well to address the gaps in providing health care services, including at the primary level, which would reduce out-of-pocket expenses for the poor. Controlling drug prices is unlikely to solve India’s health care problem.