GOVERNMENT MEASURES IN SUBSIDING THE DRUG PRICES IN

INDIA

The price of medicines has been a sensitive subject in our country, where more than 55 million
people are pushed into poverty every year due to out-of-pocket healthcare expenses.

Purchasing medicines accounts for slightly more than half of total out-of-pocket healthcare
expenses. The affordability of medicines is a critical factor in ensuring access to medical care for
all sections of society, particularly the country's poor.

Price controls have become an important tool in the government's arsenal for making drugs more
affordable. According to data by AIOCD-AWACS, around 14 percent of drugs by value, and 25
percent by volume fall under price controls. For the fiscal year ending September 30, 2019,
India's pharmaceutical industry is worth Rs 1.36 trillion.

How are the prices of drugs regulated?

Every few years, the Health Ministry, in consultation with experts, draws up a National List of
Essential Medicines (NLEM). These medicines, which are deemed necessary for the treatment of
common conditions, are automatically subject to price control under the Drug Price Control
Order (DPCO).

Under NLEM 2015, the price of a total 376 drugs and 857 formulations are under price controls.

Furthermore, under Section 19 of the DPCO, 2013, the government has the authority to impose
price controls on any item of medical necessity. This provision was used to regulate the prices of
cardiac stents and knee implants.
The National Pharmaceutical Pricing Authority (NPPA), an independent body of experts in the
Ministry of Chemicals and Fertilizers, enforces these prices and the availability of the medicines
under the NLEM.
What formula is applied?

The DPCO uses a pricing mechanism based on the market. The ceiling price is calculated using
the simple average price of all brands with at least a 1% market share of the total market turnover
of that drug, plus a notional retailer's margin of 16%.

The Department of Industrial Policy and Promotion will allow an annual increase in the ceiling
prices of scheduled medicines based on the Wholesale Price Index. There is no way to save
money.
Prior to 2013, the DPCO used a cost-based pricing mechanism based on the costs of
manufacturing a medicine as well as reasonable profit margins. Health experts have argued that
this policy resulted in comparatively lower prices than the current market-based policy.

Recent Changes

The National Pharmaceutical Pricing Authority (NPPA) has fixed the ceiling price of 93
essential formulations including pain killers and drugs used to treat cancer, rheumatoid arthritis,
heart disease, bacterial infections, pneumonia, tuberculosis, thyroid, epilepsy, and urinary tract
infections.
The move will lower the cost of drugs, and manufacturers who fail to comply will be required to
deposit the overcharged amount with the government.
"All manufacturers of scheduled formulations who sell branded or generic or both versions of
scheduled formulations at a price higher than the ceiling price shall revise the prices of all such
formulations downward not exceeding the ceiling price plus goods and services tax as applicable
if any," according to a government notification.
Drugmakers are required to submit a drug price list to the drug regulator via the Integrated
Pharmaceutical Database Management System (IPDMS) and a copy to the state drug controller
and dealers. For example, the price of Digoxin formulation 0.25 mg, which is used to treat heart
conditions, has been set at 7.14 per tablet, and the price of Pyrazinamide formulation 1000 mg,
which is used to treat tuberculosis, has been set at 9.39 per tablet.
Similarly, the price of a litre of milk has risen by a factor of ten.
"Manufacturers who fail to comply with the ceiling price shall be liable to deposit the
overcharged amount in accordance with the provisions of the Drugs (Prices Control) Order, 2013
and the Essential Commodities Act 1955," the notification stated.
Makers of drug formulations with an MRP lower than the ceiling price must keep the existing
MRP. In addition to this, every retailer and dealer is required to display the price list at their
business site in a manner so as to be easily accessible to anyone.