DPCO 2013 loopholes: OPPI view and Moneylife’s counterview – Part 1

While market-based pricing can potentially reduce the price for two-thirds of essential medicines, there are far too many loopholes. OPPI has taken an exception to Moneylife DPCO 2013 loopholes article. Here are OPPI views, along with our counterviews

According to the Drug Prices Control Order (DPCO) 2013, 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 share of at least 1%. The national list of essential medicines lists 348 bulk drugs, which are sold as 650 formulations. The DPCO itself covers only 14 %-17% of the Rs75,000 crore pharma market, which means only a small subset of the market will be impacted. 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.

 

Organisation of Pharmaceutical Producers of India (OPPI) had written to Moneylife stating that the article (Read - Medicine prices: DPCO loopholes will deny cheaper essential drugs–Part2)  was incorrect or ill-informed; therefore misleading.
 

Here are the different points raised in OPPI email
 

DPCO 2013 ceiling price of one-third essential medicines is higher than market leader’s price. This will legitimately allow market leaders to increase their prices.
 

OPPI view - Under DPCO 2013, automatic price revision based on wholesale price index (WPI) is restricted to the ceiling prices notified by the government for scheduled formulations. As per DPCO 2013, annual increase in retail prices of scheduled formulations on the basis of WPI though permissible is not automatic. Under new DPCO 2013, market leaders who have a lower price than ceiling prices cannot increase their prices. They can only apply for an increase at WPI year-on-year as is for all other brands.

 

Moneylife counterview - We never said that DPCO 2013 will legitimately allow market leaders to increase their prices. (Read - Medicine prices: Encouraging profiteering from essential drugs – Part1). We said “It (price increase) may not happen, but there is no penalty in case of violation of Para 13(2) of Drug Price Control Order (DPCO)”
 

DPCO 2013 Para 13 (2) is impractical if not unconstitutional - you cannot have multiple ceiling prices. It is in contradiction of Para 14 which follows - Para 14 (2) says inter alia "....no manufacturer shall sell the scheduled formulations at a price higher than the ceiling price (plus local taxes as applicable) so fixed and notified by the government." - this provision of Para 14 (2) refers to the ceiling price of Para 14 only - there is no mention of the 'ceiling price' of  Para 13 (2) in the definition in Para 2 (d) nor is the same  referred to in Para 14(2).
 

 Especially in the context of the government automatically not increasing ceiling prices when raw material prices increase as they have  in the recent months because of the falling rupee, it is unsustainable for companies except MNCs with deep pockets to survive - therefore violation of Art 14. It is difficult for the government to monitor any suo moto increase of the numerous branded drugs much below the ceiling price, except may be for the well known brands. This may be a recipe to wipe out indigenous industry and smaller players even as companies are being taken over by foreign players.
 

Once the government fixes the MRP, it cannot legally force manufacturers to sell the same product below MRP, such an order will be unconstitutional

 

OPPI view - The government can always revisit the MRPs as medicines fall under Essential Commodities Act, 1955.


Moneylife counterview - That is in theory. Government record of revisiting prices under DPCO 1995 has been very poor. They have not revisited in time the prices of many items in a list of 74. How will they do this for 348 items and 600+ dosages?

DPCO 2013 due to its fixed ceiling prices 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.
 

OPPI view - Any increase in raw material prices will have equal impact on all manufacturers irrespective of their size.


Moneylife counterview – We disagree. Those who are already priced their formulations at a high price will lose less in percentage terms. It will wipe out the lower priced product's profitability earlier than that of the higher priced version - generally that is. But eventually if the government does not act in time (the key phrase is in time) there will be shortages in the market. No government can force (as per some provisions of the DPCO 2013) to make a product when it is unviable. All this does not apply to big players with deep pockets and long sustaining power.
 

There is no data on prices prevalent in 2012

 

OPPI view - Probably data is not available with Monthly Index of Medical Specialities (MIMS) but is available with IMS and All Indian Origin Chemists & Distributors (AIOCD).


Moneylife counterview - The position as of November 1 is given below and the government has not as yet contracted to source from AIOCD. There are lot of differences in data of IMS and AIOCD.

 

No. of formulations for which no data is available through IMS

140

No. of formulations for which sales value (May 2012, MAT) is zero

11

No. of formulations for which prices have been calculated

216

No. of formulations where DPCO 2013 para. 6 would be applied

255

  

In the second article we will give the remaining OPPI view points and Moneylife counterviews

 

Read - Drug Abuse

Comments
Nihar Mody
9 years ago
Ref: OPPI view - Any increase in raw material prices will have equal impact on all manufacturers irrespective of their size.>>>> It is my own experience in plstics that the sole manufacturer Reliance passes own substantial discounts (As much as 10-12%) to large customers in the name of quantity discounts, thus putting small manufacturers at a great disadvantage. The same could be true for drug raw materials also.

nagesh kini
9 years ago
I happened to be one of the Auditors to certify the costs when the DPCO was first introduced long long ago in the 1970s when MNCs reigned supreme.No doubt the GOI has been tweaking it from time to time - the present one has incorporated many changes partly under pressure from the pharma lobby and from consumer interests.
Given the technological advances and data availability there is no reason why its coverage is restructed to a mere 14-15% and not 100% of the entire industry.
It is a fraud on the Indian patients who have to pay through their noses to obtain life saving drugs.
Recently, Dr. Hamid of Cipla screened a documentary on drugs profiteering. This has to put in the public domain
The GOI has to be called upon to review the exorbitant prices of many drugs.
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