Taking advantage of poor knowledge of consumers, malpractices by doctors and weak regulation, drug companies are selling medicines at hugely inflated prices. We look at the rumblings in Parliament over the exorbitant pricing of drugs, and the recommendations of the standing committee. This is the third part of an exclusive Moneylife investigative series
The parliamentary standing committee on health and family welfare has, on 4 August 2010, suggested a series of measures like increasing the number of drugs under price control, a blanket cap on profit margins of all medicines and promoting the use of generic drugs to make drugs more affordable and accessible to the common man.
The measures seek to check rising drug prices but have already triggered lobbying by the pharmaceutical industry. Will it lead to the usual compromise behind closed doors?
The committee expressed shock at the irrefutable evidence of a strong link between high prices of medicines and poverty and says it is convinced that there is no alternative but to include more essential and life-saving drugs under price regulation. According to industry sources, "It is a long battle and a lot will depend on the lobbying power and clout of the pharma industry, which is bound to pull out every stop to prevent an expansion of the price-control list."
One suggestion to the committee was to cap the profit margin of all medicines irrespective of whether they are under DPCO or not. If the retail price is fixed by the NPPA based on a fair, transparent system keeping interests of all stakeholders in mind, nearly all issues on pricing would get resolved, say its proponents. They point out that this is already in vogue - for example, in fixing electricity rates, bus and taxi-fares, etc. But, as we know, this process too is not free from political pressure and the influence of lobbyists.
Given that more than 80% of the population is dependent on private medical care and nearly 450 million people live below the poverty line, the most effective and direct approach would be to put a blanket cap on profit margins of all medicines across the board, according to the committee. Medicines are among the very few items where the decision to buy is not taken by the purchaser but by a third party, namely, a doctor. Therefore, if prescribers and producers join hands and take advantage of a patient's helplessness, only the state can stop them.
The report also pointed out that since the NPPA had no jurisdiction over the pricing of patented medicines, they were being sold at exorbitant prices, many of them by importers. All categories of medicines, whether imported or manufactured, are required to comply with the standards specified in the Drugs and Cosmetics Rules. Therefore, a generic medicine is equivalent to the branded product, meeting the same standards of quality, noted the report. It asked the government to make efforts to give wide publicity to this fact, so that the apprehensions of the general public, fuelled and fanned by interested quarters about generic drugs not being of good quality, could be dispelled.
Theoretically, Indian pharma companies launching copycat products should have driven prices down. But this traditional strength (much derided by the West) is almost gone now. Structural changes in the industry have ensured that there are few large Indian pharma companies making generic versions of off-patent drugs and driving prices down. Some 61 drugs, worth over $80 billion, will go off patent in the US between 2011 and 2013. However, Indian pharma companies are in an exit mode. Piramal Healthcare was just sold to Abbott Labs of the US. Ranbaxy was bought over by Daiichi Sankyo of Japan. Controlling shares of smaller outfits, like Shantha Biotech and Dabur Pharma, have also been sold to foreigners. Even Dr Reddy's may be selling out. Far from Indian companies delivering cheaper drugs, MNCs are gaining market supremacy and essential medicines are bound to become costlier. This is in complete contrast to China where the drug industry is almost completely controlled by Chinese drug giants. India's drug retail market grew 19.6% in the first six months of the year, headed by new leader - US company Abbott Labs, as foreign drug-makers strengthen their dominance in seven out of the top 10 brands. MNCs have taken three slots among the country's top-five drug-makers.
One of the ideas being discussed is to make it mandatory for all doctors to write all prescriptions only in generic names. The Union health ministry had recently issued directions to doctors in the Central Government-run hospitals to prescribe only generic drugs as far as possible and not branded drugs. The Rajasthan and Delhi governments too issued a similar directive.
But there are major issues in implementing this. Even if the doctor prescribes a drug by its generic name, the chemist will be free to dispense any equivalent. Thus, the power will shift from doctors to the chemists. The pharma companies would unethically start wooing the chemists instead of doctors. This will be worse than the current situation. If the patient does not get any relief, doctors will blame the chemists. Moreover, while the doctor has some interest in the continued patronage from the patients, chemists could not care less. For them, profits will be the only criterion for selling medicines.
Apart from all these measures, regulating and penalising pharma companies caught bribing doctors has to happen frequently and demonstrably. The ban on doctors accepting gifts and hospitality from the pharmaceutical industry is relegated to the backburner with the new panel that replaced the Medical Council of India (MCI) seeming to go easy on its implementation. Ever since the ban was enforced at the beginning of the year, the MCI has received numerous complaints of doctors being wined and dined by various pharma companies. So far, little or no action has been taken on these complaints. The newly-appointed panel has been busy with the problem of irregularities in medical colleges and medical education.
MCI has no jurisdiction over companies. Pharma firms can be penalised through DCGI or the income-tax department. The Parliamentary committee pointed out that the legal framework to put a cap on profiteering from medicines was available with the government under the Essential Services Maintenance Act (ESMA). In the original DPCO, there was a proposal for a cap on overall profitability of drug manufacturers to discourage them from shifting from price-controlled (less profitable) to decontrolled (hugely profitable) medicines. The proposal was never implemented.
In an interesting experiment, the All India Organisation of Chemists and Druggists (AICOD) decided to bring private-label generics to the market. In the first stage of an ambitious plan, AIOCD started distribution in 15 states with 100 products introducing these private-label generic products under the name JAVA. One hitch is that AIOCD has to buy products from manufacturers and then pass them on to retailers, making it a middleman. Also, only few molecules are available for OTC sale in India; the number cannot increase without drastic regulatory change.
S Srinivasan, managing trustee, LOCOST, Vadodara says, "The AIOCD move is, indeed, interesting. I would watch their sale prices. It would be a let-down if they sell irrational formulations or useless, harmless, and sometimes harmful, OTC products. Also, will they put pressure on 550 thousand members to sell and at what margins? What will be their unique selling proposition (USP)? Our experience shows that the common man, unfortunately, does not think low drug price is good, let alone better. So, AIOCD's stated aims seem noble and worthy of support at this point of time." LOCOST (Low Cost Standard Therapeutics) is a non-profit organisation that makes essential medicines and sells at affordable prices. According to a well-known pharmacist, "The prices may not be much lower than those of branded drugs and, hence, retailers will push JAVA products to gain more profits."
Another issue is with foreign medicines sold at exorbitant prices in India. Plavix, a product of Sanofi Aventis, is manufactured in France and sold in India at an exorbitant price of over Rs1,020 for 10 tablets. The Indian equivalent generic, known as Clopidogrel, is available for as low as Rs40 for 10 tablets and even the higher-end product costs just Rs112 for 10 tabs. Why permit the import of drugs that are locally made? Many underdeveloped countries ban the import of products, once they are manufactured locally. Many would argue that people must be allowed to choose what they want; but, when it comes to medicines, people always go by what the doctor prescribes or says is the best.
Moneylife contacted many pharma companies, but did not get any proper response to the irrational pricing of branded drugs except from Sanofi-Aventis. They had nothing substantive to say about the issues we discussed. The media routinely exposes the pharmaceutical industry's malpractices, but the more we delved into this subject, it became apparent that it was murkier. Fortunately, there are several people within the industry who want to help break the vicious circle of weak drug price control, irrational pricing by pharmaceutical companies, the nexus between some private hospitals/doctors and rising costs of healthcare in India.
(In the fourth and concluding part of this series, we look at what a few good men have been doing to change this sorry state of affairs)
Mumbai: Cairn India Ltd, the energy firm that London-listed Vedanta Resources is seeking to buy, today said the giant Mangala oilfield in Rajasthan can produce 150,000 barrels per day (bpd), 20% more than the previously approved peak production, reports PTI.
Mangala is the first of the 25 oil and gas discoveries Cairn has made in the prolific Rajasthan block. The largest oil find in the country in more than two decades has an approved plateau production of 125,000 bpd (6.25 million tonnes) and, together with the Bhagyam and Aishwariya fields in the block, is slated to produce 175,000 bpd (8.25 million tonnes).
Today, the Mangala field in Rajasthan produces 125,000 barrels of oil per day with the ability to go above that level from the Mangala field alone, Cairn India chairman Bill Gammell told company shareholders here today.
Mr Gammell, who is also the chief executive of UK's Cairn Energy Plc, which holds a 62.38% stake in Cairn India, said the production can be quickly ramped up to 150,000 bpd (7.5 million tonnes).
"The results from the ongoing development drilling campaign in the Mangala field confirm the excellent reservoir quality of the Fatehgarh Formation to support an increase in the production potential to 150,000 bpd, subject to government of India approvals," he said.
"The current estimate of the resource base in Rajasthan provides a basis for our vision to produce at least 240,000 bpd (12 million tonnes a year) from the block, subject to regulatory approvals and additional investments," he said.
The output would be equivalent to what state-owned Oil and Natural Gas Corporation's prime Mumbai High field in the Western Offshore produces.
Cairn has commissioned three plants that can process 125,000 bpd of crude oil pumped out from wells in the Rajasthan block before dispatching them to refiners. A 590km-long crude oil pipeline from Barmer to Salaya, in Gujarat, carries the Mangala crude to Reliance Industries (RIL), Essar Oil and Indian Oil Corporation (IOC) for processing.
The Mangala field in the Thar desert of Rajasthan was discovered in January, 2004, and put to production in late August last year.
Mr Gammell said Vedanta Resources has made an offer to buy a 40% to 51% stake in Cairn India from Cairn Energy Plc for up to $8.48 billion.
"As of now, the proposed transaction has not been closed and is subject to consents and approvals in India and in the United Kingdom," he said.
Cairn India's "vision is to take the production in Rajasthan to at least 240,000 bpd, subject to further investment and approvals," Mr Gammell said. "I would say, therefore, that this is an exciting and transformational time for your company.
New Delhi: Reliance Industries (RIL) is ostensibly seeking a 25% increase in the price of natural gas it produces from the eastern offshore Krishna-Godavari (KG) basin after it wrote to the oil ministry saying it has customers willing to pay more than the government-approved price, reports PTI.
RIL senior vice-president (commercial) B Ganguly on 6th September wrote to oil secretary S Sundareshan saying that it has received proposals from GMR Energy and Welspun Maxsteel for purchase of additional KG-D6 gas at prices between $4.75 and $5.25 per million British thermal units (mmBtu), a senior government official said.
The price the two customers Andhra Pradesh-based are willing to pay is more than the $4.205 per mmBtu price approved by the government for a five-year period ending 31 March, 2014.
Though the letter did not explicitly seek a revision in prices, Mr Ganguly cited provisions in the Production Sharing Contract (PSC) that RIL has signed with the government to say that a higher price would be beneficial to the government and the company.
The company did not make any suggestion for a revision in rates, but referred the proposals received to the ministry for advice and action.
RIL's spokesperson could not be reached for comments.
Industry analysts said the RIL proposal may not go down well with the government, as the company can, hypothetically speaking, get a letter from some other customer in dire need of fuel tomorrow to seek an even higher price.
Furthermore, the company has all along in the legal battle with the Anil Ambani Group — which was seeking gas as per a family agreement at rates lower than the government-approved price — stated that RIL was a mere contractor and the government alone had the powers to approve a price and fix users of the gas.
The position taken by RIL and also by the government was upheld by the Supreme Court recently and so for the company to now say it wants to sell gas to customers willing to pay a higher price was in violation of the Gas Utilisation Policy, which gives the government sole authority to identify customers and allocate volumes to them.
The analysts said RIL has been saying that it cannot sustain output beyond the current level of 60 million standard cubic metres a day (mmscmd) and has been resisting signing new contracts at the government-approved price. But it is now seeking to sell gas to GMR/Welspun that are offering to pay a higher rate.
Mr Ganguly, in the letter, stated that RIL had "received an offer dated 21st August from GMR Energy Ltd requesting additional gas supply of 11,000 mmBtu per day for their barge-mounted power plant at Kakinada. The company has requested for this additional supply for a period of one year commencing September, 2010."
GMR offered a $5.25 per mmBtu price for KG-D6 gas.
"We have also received a letter from Welspun Maxsteel for purchase of additional KG-D6 gas for their sponge iron plant at Salav at price of $4.75 per mmBtu," he wrote.
Mr Ganguly then went on to cite Article 21.6.1 of the PSC that states, "The contractor shall endeavour to sell all natural gas produced and saved from the contract area at arms-length price to the benefits to parties to the contract (i.e. the company and the government)."
"The contractor (RIL) is currently selling all gas produced from KG-D6 at the government-approved price formula.
The offer of GMR Energy Ltd/Welspun is to purchase the additional gas for their plants at higher than the government-approved price."
"Under the terms of the price approval letter dated 10th October, 2008, issued to us by minister of petroleum and natural gas, if the contractor sells gas at a price higher than the approved price, such higher price shall be used for valuation" for the purpose of paying royalty and profit petroleum to the government.
"Under the PSC between us and government, any higher realisable gas price leads to quicker cost recovery, increasing profit gas for all the parties, including the government, and a higher royalty accrual to the government," he wrote.
"Having received this offer, in view of the provisions of Article 21.6.1 of the PSC, we bring to your notice these offers of purchase for your views as a party to the PSC on how to proceed in terms of the provisions of the PSC," he added.