Leisure, Lifestyle & Wellness
Medicine prices: Encouraging profiteering from essential drugs – Part1

While market based pricing can potentially reduce pricing for two-thirds of essential medicines, there are far too many loopholes to reduce your chemist bill. Ironically, the set ceiling price of the remaining one-third of essential medicines is higher than market leader’s price. Can the prices of these drugs actually increase?

According to the new drug pricing policy, the ceiling price of essential medicines is fixed, based on the simple average of the prices of all brands of that drug that have a market Medicine prices: Encouraging profiteering from essential drugs – Part1share of at least 1%. The national list of essential medicines lists 348 bulk drugs, which are sold as 650 formulations. The good news is that for two-third essential medicines, there can be average price reduction of 22% (even though some reports claim reduction by 30%-40%).
 

The bad news is that there are far too many loopholes to really see reduction in your chemist bill. Market-based pricing (MBP) actually sets the ceiling price higher than even the market leader in the remaining one-third of essential medicines. Does it mean the market leader can legitimately raise its price to meet the higher ceiling price and in-effect can make a mockery of the new drug pricing policy?

It may not happen, but there is no penalty in case of violation. According to Para 13(2) of Drug Price Control Order (DPCO), 2013: “All the existing manufacturers of scheduled formulations, selling the branded or generic or both the versions of scheduled formulations at a price lower than the ceiling price (plus local taxes as applicable) so fixed and notified by the Government shall maintain their existing maximum retail price.

 

According to Dr Chandra M Gulhati, editor, Monthly Index of Medical Specialities (MIMS), “There is no penalty for not following government policy on ‘not increasing the prices to ceiling levels’ unlike for those that do not decrease the price to ceiling levels. It is like saying that ‘drive on the left side but even if you don’t we will not take any action.’ There are also practical problems (a) Once the government fixes the MRP, it can not legally force manufacturers to sell the same product below MRP, such an order will be unconstitutional (b) there is no data on prices prevalent in 2012 and (c) it will hurt manufacturers who are at the bottom of the price ladder and making very little profit in case there is price increase in raw material, conversion costs etc. Thus in reality the government will be penalizing honest manufacturers.”
 

For the two-third essential medicines there can be average price reduction of 22%, but DPCO has given leeway of 10% price increase every year. It means that the savings can get wiped out in two years even if the raw material prices do not increase at the same rate. According to S Srinivasan, managing trustee, LOCOST (Low Cost Standard Therapeutics), “WPI (whole-sale price index) may be even more than 10 %. If they had a cost based ceiling price instead of MBP, you could factor the actual increase of raw material and other conversion costs you could have given at the same rate as say the WPI.”

 

NGO All India Drug Action Network has filed PIL (public interest litigation) in SC contending that MBP is never used for any price regulatory purposes and under the new policy simple average ceiling prices are in many cases higher than the market leader price. According to the NGO, “We stick to our stand of reversing to the cost-based pricing mechanism from the newly-adopted market based pricing.

                                           

Mr Srinivasan, says, “Price control for all drugs (scheduled and unscheduled) needs to be strengthened by a grievance mechanism for the consumers to allow complains about lack of access, overpricing of medicines or any unethical marketing practices in the trade. At present in the DPCO 2013 under para 31, the ’aggrieved person(s)’ appear to be only manufacturers. There is no room for consumer grievances on unreasonable prices.”        

DPCO itself covers only 14%-17% of the Rs75,000 crore pharma market. There are some wrong estimates given about it covering two-third of pharma market.

In the second part of the article, we will look at the escape routes that pharmaceutical industry can exploit to ensure there is minimum dent in their profitability.

 

You may also want to read…

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New drug pricing policy may increase prices of essential medicines

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Why shift public debt management from RBI to GoI?

Questions of autonomy apart, time is not yet opportune to experiment with new institutions for debt management when there is no dispute over the expertise developed by the RBI. When efforts are on to ensure financial stability, let us not destabilise existing institutional framework merely in the name of following examples abroad

A media report says, “The finance ministry is also expecting a more cordial relationship with Rajan on other issues such as setting up of a Debt Management Office (DMO) in the ministry”. If the finance minister (FM) is able to exert sufficient pressure fast enough, to be more specific, before Dr Raghuram Rajan, governor of the Reserve Bank of India (RBI), is able to comprehend the history and context of public debt management in India, one will not be surprised to find the present team in RBI managing public debt getting government of India (GoI) label and getting rechristened as DMO, which is part of the finance ministry.

 

There is no irrationality in the government taking over and managing public debt on its own when the fiscal policy management has matured. However, the haste with which the finance ministry is trying to go through the process is unwarranted. Such a move at this juncture will destabilise one more arm of the government as the ministry is already burdened with several other preoccupations and compulsions arising from loss of credibility, compulsions of coalition politics and a host of other relationship issues with regulators and financial institutions including banks.

 

It is in the interest of country’s financial stability, which is the basis for economic development, not to disturb the present arrangement, at least until the government is in a position to take up the comprehensive review of the monetary system envisaged in the preamble of the RBI Act. The desperation with which FM pleads with public sector units (PSUs) for higher dividends to make up for the shortfalls in fiscal planning is an indication; one can imagine what can happen to government borrowing dependent only on the ‘ownership rights’ of a coalition government which is pulled and pushed by weak partners.

 

But who will listen? The present move from the political leadership is to usurp the power to borrow, from an institution which is still left with some semblance of integrity and credibility.

 

Unlike the government’s experiences in disinvestment management, or several flip-flops in resources management in general, RBI has been managing smoothly the public debt of central government under Section 21(2) and that of state governments by agreement as provided for under Section 21A of the RBI Act, 1934 for several decades. It is in the interest of the country’s financial stability which is the basis for economic development, not to disturb the present arrangement at least until the government is in a position to take up the comprehensive review of the monetary system envisaged in the preamble of the RBI Act.

 

At one stage, it was alleged that the human resources and manpower issues were the ground on which the RBI opposed the shifting of debt management to the finance ministry. It was common knowledge that even if the work is transferred to them, the finance ministry will have to initially depend on in-house expertise developed in RBI over decades of effort. Having said that, there is no denying the fact that trade unions and finance ministry have focused on HR-related issues.

 

As government under the existing disposition has enough authority to ‘direct’ RBI in an eventuality, there is no need to hurry through this piece of legislation at a time when more attention should be paid to clear the mess which is already there on the drawing board of parliament.

 

Like personal borrowings, if well managed and well-balanced between consumption and asset creation purposes, public debt will serve developing countries like India well. Presently we borrow for whatever purpose credit is forthcoming and spend tax payers’ money and windfall gains from sources like spectrum auction, sale of mining rights etc and divestment of holdings in public sector companies without any regard to the sources of funds or respect for national priorities. We borrow amounts as small as $300 million from abroad to fund microfinance when individuals in India can afford building monuments and houses worth much more than that and thousands of crores of rupees flow down the drain in celebrations.  National level financial institutions talk about lending to small borrowers at interest rates as high as 25% to 30% per annum while banks pay interest on deposits at 3.5% to 7.5% a year. The gravity of the situation is compounded by the unacceptably high levels of corrupt practices. Someone should initiate a comprehensive study of sources and uses of public funds in India. Better still, if the study could cover funds raised from public by banks and corporates also.

 

On separation of the debt management office from the central bank, the consistent RBI position has been that the central bank would be in a better position to hold the responsibility of debt management. In the present scenario, when RBI and other regulators have to reiterate day-in and day-out that they enjoy statutory autonomy, one can only think of the unenviable position of a DMO ‘independently’ functioning directly under FM’s control. Questions of autonomy apart, time is not yet opportune to experiment with new institutions for debt management when expertise already developed by RBI in this work area is not in dispute. When efforts are on to ensure financial stability, let us not destabilise existing institutional framework in the financial sector, merely in the name of following examples abroad.

 

It is common knowledge that RBI would be in a better position to carry on the responsibility of debt management for which it has developed expertise over time. The position of a DMO ‘independently’ functioning directly under FM’s control can become embarrassing. Time is not yet opportune to experiment with new institutions for debt management when expertise already developed by RBI in this work area is not in dispute. When efforts are on to ensure financial stability, let us not destabilise existing institutional framework in the financial sector, merely in the name of following examples abroad.

 

Unlike the recent experiences in disinvestment management by government, RBI has been managing smoothly the public debt of central government under Section 21(2) and that of state governments by agreement as provided for under Section 21A of the RBI Act, 1934 for several decades. It is in the interest of country’s financial stability which is the basis for economic development, not to disturb the present arrangement at least until the government is in a position to take up the comprehensive review of the monetary system envisaged in the preamble of the RBI Act.

 

To read more articles by MG Warrier, please click here.

 

(MG Warrier is former general manager of Reserve Bank of India.)

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COMMENTS

Prabal Sen

4 years ago

I have gone through Shri M.G Warrier's well-researched article on Govt's attempt to amputate Public Debt management arm of RBI and create a similar facility under the direct supervision of Finance Ministry. I believe such a Wing or Division already exists within the FinMin, albeit non-functional, as some of the well-trained and experienced officers of RBI in this field were drafted a few years back to FinMin to start up this activity. However, this attempt or effort on the part of the Govt. reminds me of a crude adage which he speaks of a country where the Police and the Thief interchange their positions in Day & Night, respectively. Prabal Sen

REPLY

MG Warrier

In Reply to Prabal Sen 4 years ago

Thanks. Actually this article only opens the debate. Media and even ‘stakeholders’ are reluctant to come out with views on subjects like this for fear of being removed from the good books of ‘powers’ they respect. Moneylife and a couple of journals in print media are exceptions. But their outreach is limited. Coming back to the issue, management of public debt has dimensions like:
i) Captive funds being made available to Government as investment in G-Secs for quid pro quo.
ii) The present credibility and position as a regulator which RBI is able to stake to make investors listen.
iii) Once the work is transferred to GOI, there will be clamour for ‘market-related’ rates and commercialisation of the entire activity and perhaps for more avenues for deployment of SLR funds.
These and several other related aspects are perhaps separate subjects for study by experts. Perhaps, readers of Moneylife like Prabal Sen who are familiar with the subject should express their views in the media. GOI may not listen, but we can have the satisfaction that we have recorded what we thought was right!

Health care delays squeeze patients in state high-risk pools

Many state and federal insurance pools covering patients with pre-existing conditions are set to close 31st December, but it’s an open question whether patients will be able to find policies on Healthcare.gov in time

“This is what keeps me up at night,” Tanya Case told me earlier this week.
 

Case is executive director of the Oklahoma Temporary High Risk Pool, funded by the federal government to sell insurance to people denied coverage by private health insurers. Her worry is about some 300,000 people in her program and others like it who now must quickly find health insurance under the Affordable Care Act.
 

Many of the programs are set to close by law on Dec. 31.
 

By then consumers are supposed to be able to enroll in new plans that can’t discriminate against them based on their health status.
 

But as problems continue to bog down the federal health insurance marketplace, Healthcare.gov, it’s an open question whether people in the risk pools can get a policy in time.
 

“They are very frightened because many of them are undergoing chemotherapy or they’re on high-dollar drugs, and they need to make certain that they have coverage effective Jan. 1,” said Case, who is also chairwoman of the National Association of State Comprehensive Health Insurance Plans, which represents plans in 35 states.
 

“One lady expressed to me, ‘I’m in the middle of chemotherapy, and then I have to deal with this on top of everything else and quite frankly, I’m scared to death.’ That’s what she told me, and you hear that or a version of that quite frequently,” Case said.
 

People like this were supposed to among the biggest winners under the Affordable Care Act because insurers can no longer discriminate based on pre-existing conditions. As a result, the cost for many is expected to go down substantially.
 

Advocates say they still hope that will happen despite the current glitches.
 

“We’re all in this tough spot right now of guessing whether people will reasonably be able to get through” to purchase insurance on Healthcare.gov, said Stacey Pogue, senior policy analyst for the Center for Public Policy Priorities in Austin, Texas.
 

The concern is particularly acute in the 36 states that are relying on Healthcare.gov to process insurance enrollments. The other states and the District of Columbia are running their own marketplaces.
 

A spokesperson for the Centers for Medicare and Medicaid Services said the agency believes that there is enough time for individuals in the high-risk pools to sign up by Dec. 15 for coverage that begins Jan. 1.
 

Federal officials have pledged that Healthcare.gov will be fixed by the end of November. But even if they are true to their word, Pogue said, that would only give consumers two weeks to choose a plan and enroll.
 

“I just don’t know yet whether it’s reasonable,” Pogue said.
 

Texas is one of 14 states that plan to close its high-risk pool by Jan. 1, according to Case’s group. Texas gives its insurance commissioner a bit of discretion to certify that insurance options are “reasonably available” before the state plan shuts down, Pogue said.
 

A federal program set up under the Affordable Care Act that serves much the same purpose (and funds Oklahoma’s program) will similarly close then. Last week, Indiana became the first state to delay its program’s closure, giving its 6,800 participants another month to find new plans. “The state of Indiana will ensure that these Hoosiers, who are facing significant health care challenges, maintain their health coverage until the problems with the federal marketplace are resolved,” Republican Gov. Mike Pence said in a statement.
 

Other states are considering similar moves, Case said.
 

Although some consumers have been successful signing up for new coverage, she said, “I would say that the majority have not been.”
 

In California, officials are feeling good about the transition. “There are no barriers I am aware of with people from California’s high-risk pool or anyone with pre-existing conditions getting covered for January,” said Ken Wood, a senior adviser for Covered California, the state’s insurance marketplace. “Based on the types of calls our service center has received, these individuals were reaching out the first week of October to understand their options and beginning to move through the enrollment process.”
 

Case said she and her colleagues in other states are encouraging consumers to shop around by calling different insurance companies — even if they cannot yet enroll on the marketplace website. They can use an online calculator to determine their eligibility for premium subsidies.
 

The program Case runs will shut Dec. 31 because it is funded by the federal government. But Oklahoma runs a second program that isn’t set to close right away, she said.
 



A map of states with high-risk pools for those with pre-existing conditions that deem them medically uninsurable. Similar federally-funded plans under the Affordable Care Act may not be shown here. (Source: National Association of State Comprehensive Insurance Plans)

 

Courtesy: ProPublica.org

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