Background

Direct control of drug prices is unavoidable in India because the option of indirect
control at the time of procurement by public health agencies and insurers is not yet
available, as in Europe and the U.S. Citizens in developed countries are
insulated from the vagaries of market pricing: they either do not pay at
the point of treatment or get a cash reimbursement.

National Pharmaceutical Pricing Authority

The NPPA was established under Ministry of Chemicals and Fertilisers as a

special vehicle to fix/revise the prices of controlled bulk drugs and
formulations and to enforce their prices and ensure their availability under
the Drugs (Prices Control) Order, 1995. Interestingly, it is also tasked with
recovering amounts overcharged by manufacturers for the controlled drugs
from consumers and monitoring the prices of decontrolled drugs to keep
them at reasonable levels.
The task of the authority is to work on the NLEM, which is fixed by the
Ministry of Health and Family Welfare in consultation with experts.

National Pharmaceutical Policy, 2012

The National Pharmaceutical Pricing Policy-2012 has been notified on 07.12.2012.

The objective of National Pharmaceutical Pricing Policy-2012 is to put in place a

regulatory framework for pricing of drugs so as to ensure availability of required
medicines essential medicines at reasonable prices even while providing
sufficient opportunity for innovation and competition to support the growth of
industry, thereby meeting the goals of employment and shared economic well-being
for all.

Three key principles of the policy are:

The regulation of prices of drugs is on the basis of essentiality of drugs as

specified under National List of Essential Medicines (NLEM)-2011. (earlier it
was market share/economic criteria)
The regulation of prices of drugs is on the basis of regulating the prices of
formulations only (earlier it both bulk drugs and formulations were
regulated).
The regulation of prices of drugs is on the basis of fixing the ceiling price of
formulations through Market Based Pricing (MBP) {simple average of all
the brands with market share 1%}. (earlier it was cost plus)

NLEM-2011 contains 318 drugs (614 formulations) of specified strengths and dosage
forms, spread over 27 therapeutic categories and satisfy the priority healthcare
needs of majority of the population of the country.
Other salient features are:

Span of price control would be as per strength and doses mentioned in NLEM
2011
Prices would be linked to WPI and would be revised annually
Non-price control drugs: Formulations not under regulation too would be
monitored and corrective steps would be taken in case the annual increase is
more than 10%
To promote innovation and R&D few drugs will be kept out of price control
Jan Aushadhi Stores schemes would be strenghtened
All the manufacturers/importers manufacturing/importing the medicines as
specified under NLEM-2011 shall be under the purview of price control. Such
medicines shall have an MRP equal to or lower than the ceiling price (plus
local taxes as applicable) as notified by the Government for respective
medicines.

New Drug (Prices Control) Order (DPCO 2013) has been released by
National Pharmaceutical Pricing Authority (NPPA).

DPCO 2013 was passed in May, 2013 to implement National

Pharmaceutical Policy, 2012

Features:

It essentially contains formula on fixing margin of retailer, maximum retail

price etc. based on the principles of NPP, 2012
Aims to bring 348 essential drugs (resulting in 614 formulations, or 25% of
60,000 cr. domestic pharma market) under price control. Earlier National
Pharmaceutical Pricing authority (NPPA) controlled price of 74 drugs.
Enlarge the scope of price regulation by over eight times the current
volume
Company must give six months notice before stopping manufacturing of a
particular drug
NPPA will have the authority and responsibility to revise the prices
(upward and downward)

Shortcoming

Need

Every country imposes price controls on medicines, including the most

liberalised market economies. Although the design and pattern of price
controls may vary, they are an important public policy tool to make drugs
affordable.
 Medicine price controls are critical because unlike other commodities,
consumers (patients) do not exercise choice in the market when buying
drugs, but are guided by the doctors or dispensers, whose primary objective
may not be guided by the factor of affordability for patients.
According to the World Health Organisation, over 65 per cent Indians do not
have regular access to essential medicines.
Every year, people spend huge amounts of money on medicines. Medicines
account for 71 per cent of the total out-of-pocket expenses.

Positive Impact:

The prices of almost half the essential medicines will be reduced by 5-80 per
cent and the other half by 5 per cent.
Today, the span of price difference for the same product sold by different
companies is 20 times in some cases. With the ceiling price, the differential
could come down to 5-7 times

Criticisms:

price controls are an inefficient tool that distorts resource allocation,

squeezes revenue, reduces profit, and breeds corruption
these 348 drugs constitute, by value, not more than 20 per cent of the Rs.
72,762-crore worth of medicines sold in India
At least 60 per cent of top-selling 300 medicines are not in the National
List of Essential Medicines (NLEM).
It might lead to manufacturers attempting to evade price control by
moving on to drugs not included in the NLEM, and making non-standard
dosages.
It has left out Fixed Dose Combinations (FDCs) of drugs involving one or
more essential drugs. By simply combining one essential medicine with
another non-essential drug, a manufacturer can wriggle out of the ceiling
price.
Can distort the drug prices upward. Alternate option in form of cost based
pricing policy must be adopted rather than market based pricing. The drug
price control mechanism until now is based on cost-plus based (CPB)
pricing. Under this arrangement, as per DPCO 1995, a 100 per cent mark-
up is allowed over and above the ex-factory price, to allow for post-
manufacturing expenses including packaging cost, margins of
wholesalers, retailers and so on. The new drug price order of 2013,
adopting sleight of hand, takes away the advantage available to the
patient because it moves away from CPB to MBP (Market-Based Pricing).
Under the MBP, prices of essential medicines would be determined based
on average price of various brands of a medicine with one (or more) per
cent market share.
 The system of cost-based pricing with provision to add post-manufacturing
expenses can be built upon, since ingredient and other costs are
transparent under declarations made by producers for taxation purposes.
But lack of incentives will deter entry of new players into the market
affecting innovation, competition etc.
domestic price reductions alone will result in about Rs 3,000 crore loss in
sales to the domestic industry where the players have contributed 95 per
cent of increase in gross fixed assets and 77 per cent of R&D expenditure
in the industry in the last 15 years
With an enlarged span of control, the domestic manufacturers can shift
investment outside India as they have facilities all over the globe.
What is more, the prices of patented drugs are to be determined
separately by a special committee constituted for the purpose, with no
clear guidelines enunciated.

The Centre must also plug loop-holes that help manufacturers evade price controls
by producing combinations of essential and other medications. A panel of
professionals to examine all medicines consumed in the country must be
constituted, to pre-pare a more exhaustive and relevant list of essential drugs.