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

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    COMMENTS

    Nihar Mody

    6 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

    6 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.

    SEBI rejects five consent pleas filed for settlement of charges

    SEBI rejected consent pleas of G Ramakrishnan, the former independent director of Pyramid Saimira Theatre, Khandwala Securities, IQMS Software, Genesis Developers & Holdings and one Kailash S Choudhari, that were seeking settlement of charges

    Market regulator Securities and Exchange Board of India (SEBI) has rejected filve consent applications, including that of G Ramakrishnan, the former independent director of Pyramid Saimira Theatre. All the applicants were seeking settlement of proceedings regarding alleged violations of SEBI norms.

     

    Ramakrishnan has been charged with violation of SEBI’s ‘Prohibition of Fraudulent and Unfair Trade Practices’ regulations.

     

    With this, the total number of rejected applications for settlement by the SEBI has touched 228, ever since the revised rules for consent framework came into effect on 25 May 2012.

     

    In its latest update, for 22nd October to 25 November 2013, SEBI has also rejected consent pleas of Khandwala Securities, IQMS Software, Genesis Developers & Holdings and one Kailash S Choudhari.

     

    While Khandwala Securities is charged with fraudulent trading activities and violation of stock broker norms in matter of Shree Rama Multi Tec, IQMS Software has been accused of violating SEBI’s guidelines on ‘Disclosure and Investor Protection’

     

    Besides, Genesis Developers & Holdings and Kailash S Choudhari are facing proceedings for violations of takeover norms.

     

    The market regulator said that the five applications have been rejected “as they are not found to be in consonance” with it norms on consent mechanism which were issued in May, 2012. “The pending proceedings in these cases will continue in accordance with law,” it added.

     

    In May last year, SEBI had tightened its regulations for settlement through consent framework, while the regulator has been making public the names of the rejected applications since January this year.

     

    Under SEBI’s consent mechanism, firms and individuals can seek to settle the cases with the market regulator after the payment of certain charges, without admission or denial of any wrongdoings.

  • User

    RBI says banks free to adopt either EMV or Aadhaar authentication

    Contrary to media reports that said Reserve Bank has directed banks to adopt Aadhaar, the RBI has advised banks to chose either EMV chip and PIN or Aadhaar’s biometric validation as additional factor for authentication and securing the card present payment infrastructure

    The Reserve Bank of India (RBI) has said that banks are free to adopt either Euro pay MasterCard Visa (EMV) chip and Pin technology or Aadhaar acceptance as additional factor of authentication for securing the card present payment infrastructure. However, several mainstream media reported that RBI has asked banks to adopt Aadhaar authentication only.

     

    In a notification, the central bank said, "In respect of cards, not specifically mandated by the Reserve Bank to adopt EMV norms, banks may take a decision whether they should adopt Aadhaar as additional factor of authentication or move to EMV Chip and Pin technology for securing the card present payment infrastructure."

     

    However, the RBI has advised banks to keep their new card present infrastructure enabled to use both EMV chip and PIN and Aadhaar (biometric validation) acceptance. It may be noted that EMV cards are 'smart' cards that have an embedded chip while PIN authentication involves the card-holder to punch in a secret code on the card-swiping machine, for each transaction.

     

    Interestingly, about 90% of the existing point of sales (POS) terminals in the country, managed by 21 acquirers (among them Axis Bank, HDFC Bank and ICICI Bank), can accept EMV chip cards and PIN.

     

    According to a report by a "Working Group on Securing Card Present Transactions" of the RBI, there is a need to put in place a series of measures to strengthen the payments infrastructure and ecosystem in the country. Inferences drawn from case studies clearly indicate the need to have a much stronger authentication mechanism and reiterate the need for a second factor (2FA) for card present transactions.

     

    "In the absence of 2FA for POS transactions there is a possibility of the fraud losses increasing by more than 200% in a single year, in the event of a sharp increase in fraud incidents in the country. There is also a possibility of POS FTS (fraud-to-sales ratio) increasing by around 200 basis points in one year under adverse conditions," the report said.

     

    The report discusses new systems like EMV chip cards with PIN that has been adopted by many countries and enhancing the current magnetic strip devices (MSDs) card system with help from biometric identification.

     

    "Aadhaar (issued by the Unique Identification Authority of India - UIDAI) authentication using biometrics, provides a strong 'Who you are' factor of authentication. This can be combined with a second 'What you have' or 'What you know' factor to achieve strong customer identification at the point of sale."

     

    While the option to use biometrics from the UIDAI database looks good, in practice, due to insufficient feasibility tests, it may not be a viable option. "The working committee considered biometric, or UID, as the second factor in one of the solution sets; however, the decision to adopt this would depend on various factors like the number of UIDs issued to the population which transacts through cards, the error rates, authentication network capability to handle transaction volumes, network capability to handle enhanced transaction size and acquiring infrastructure," the report said.

     

    Moreover, biometric (fingerprint) identification is not foolproof. Especially, in some merchant categories like fuel stations and restaurants, there are execution challenges in adopting PIN or biometric as an additional factor of authentication. In addition, it is well known that finger prints and irises can be faked, and one way to fix that problem could be to use finger-print readers that detect live finger prints, and iris readers that detect live irises.

     

    According to JT D'Souza, who analysed the pilot study conducted by the UIDAI, given the well-known lacunae in our infrastructure and massive demographics, biometrics as an ID will be a guaranteed failure and result in denial of service. He said, "The sum of false acceptance rate and false rejection rate (EER) reveals only part of the problem, which is rejection or acceptance within a short duration of enrolment. The bigger problem is ageing, including health and environment factors, which causes sufficient change to make biometrics completely unusable and requires very frequent re-enrolment."

     

    According to a report in the Economic Times, the UIDAI is pushing for biometric authentication for credit card and ATM transactions, but bankers are reluctant to make changes since technology costs are high. Bankers argue that upgrading every ATM and PoS terminal at thousands of merchant outlets will not come cheap, besides travails and risks of a new technology, says the report.

     

    But aren’t we forgetting something here? ATM with biometrics is not a new idea. It has been tried and discarded as a failure when the ATMs did not authenticate the biometrics of many underprivileged persons (during the pilot launch) and left them without access to their own funds, especially when banks were closed.

     

    The drumbeat for biometric ATMs began in 2005. On 1 December 2006, Citibank had issued a global release about the launch of its biometric ATM with multi-language voice instruction capability.  It had tied up with a NGO called Swadhar FinAccess and a microfinance firm for Citibank Pragati for (no frills) accounts. The experiment ended in a whimper.

     

    In 2007, Andhra Bank had launched biometric ATMs and wanted to make the mobile, to cater to the burgeoning microfinance business. Canara Bank set up its first biometric-based ATM at Dharavi, in Mumbai in 2008 with much fanfare.

     

    The ground reality turned out to be completely different. According to information provided by several non-government organisations (NGOs) spreading financial literacy in that area, the biometric ATMs in Dharavi failed from day one. The reason? Working class there, especially housemaids and other labours do not have fingerprints without which they could not operate the ATM!

     

    Not having fingerprints is just one of the issues with the biometric-based ATMs. The more serious issue is the danger it may pose to the user as thieves may stalk and assault the person to gain access. If the item is secured with a biometric device, the damage to the owner could be irreversible, and potentially cost more than the secured property. For example, in 2005, Malaysian car thieves cut off the finger of a Mercedes-Benz S-Class owner when attempting to steal his car.

     

    In addition, the biometric-based passwords are irreversible. That means it cannot be re-issued in case of loss or theft. If a token or a password is lost or stolen, it can be cancelled and replaced by a newer version. This is not naturally available in biometrics. If someone's face or fingerprint is compromised from a database, it cannot be cancelled or reissued.

     

    Another problem associated with the biometric-based ATM is its cost, both installation and operations. The biometric-based ATMs, as proposed by the Reserve Bank of India (RBI) that would facilitate use to Aadhaar data, are more costly than the regular card-based ATMs. While consumers are increasingly complaining about reasonableness of bank charges, the banks themselves are lobbying hard with the RBI, claiming that high cost of technology is making each transaction very expensive.

     

    Therefore, while on paper the use of biometrics as 2FA may sound feasible, its uses would be limited at specific locations. In this situation, EMV chip cards and PIN look like the future proof system, despite the higher costs, for card-based transactions. Nevertheless, this may not be the last in payment transaction systems.

     

    EMV Implementation

    In many countries of the world, debit card and/or credit card payment networks have implemented liability shifts. Normally, the card issuer is liable for fraudulent transactions. However, after a liability shift is implemented, if the ATM or merchant's point of sale (PoS) terminal does not support EMV, then the ATM owner or merchant will be liable for the fraudulent transaction.

     

    According to Wikipedia, MasterCard's liability shift between countries within Asia-Pacific region took place on 1 January 2006, whereas Visa's liability shift for PoS took place on 1 October 2010. For ATMs, Visa's liability shift date is 1 October 2015, except in China, India, Japan, and Thailand, where the liability shift will be 1 October 2017.

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    COMMENTS

    Yerram Raju Behara

    6 years ago

    On November 28, 2012 I have commented in my blog with specific reference to Direct Benefit transfers as 'game changers' as follows:"Adding to this the Banks are intermediaries in the whole effort. Several banks have everyday new issues with Banking Correspondents and there are leakages that they are grappling with to resolve. Not all financial inclusion accounts even in the designated villages were opened with Aadhar ID as base of KYC. Now they will ask each account holder to give fresh KYC form with Aadhar card fascimile. Aadhar will have discrepancies with those that are already having accounts. The Banks confirmed that they have followed the KYC and the auditors/Inspectors have confirmed.Some are already receiving their MNREGA wages or pensions through this KYC. Now which would they count for accepting credits? Unless the Aadhar card ID is fully integrated with the Bank accounts and the persons holding accounts under Financial Inclusion eligible to receive the 29 categories of subsidies confirm, the whole process would be in a limbo and these cannot certainly be resolved in these inaugural villages of fifty one. God save the poor - any way he is still saving them!




    Game changer:

    Yes; it is a game changer for the politician eager to grab votes from the poor in some fashion or the other. The game changes but the poor would for sure remain poor for the politician will have the untainted access to the purse of the poor in a straight cash deal."
    The Banks are on a high frequency change. Technology introduction for new initiatives is costly and as happened thus far the customer will be loaded with such costs in a number of ways. The fundamental question is: will the customer gain in the faster? If he does gain, which class he belongs to. Every experiment in this country is at the cost of the poor. It is not MPs'/MLAs' remunerations of sorts that are linked to AADHAR for it is no surprise some of them don't even have the Aadhar! The contractors do not get their payments linked to Aadhar! But the wages of the poor, the pensions and all other benefits to the poor are through this instrument tested myopically are linked. Now the EMVs.
    Banks are given the choice; fine. Most banks are system driven and customer centric initiatives with larger numbers to access are perhaps still waiting in the corridors!!

    MG Warrier

    6 years ago

    Economic Times report on the subject today carried the headline “Aadhaar Link Mandatory for Card deals Now” (November 27). I have responded asunder:
    On the basis of the recommendations of a Working Group which had examined the issues including those relating to security features in card payment system, RBI has advised banks that:
    • In respect of cards, not specifically mandated by the Reserve Bank to adopt EMV norms, banks may take a decision whether they should adopt Aadhaar as additional factor of authentication or move to EMV Chip and Pin technology for securing the card present payment infrastructure.
    • All new card present infrastructure has to be enabled for both EMV chip and PIN and Aadhaar (biometric validation) acceptance.
    As banks have been given the option to decide whether they should adopt Aadhaar as additional factor of authentication, ET headline for the report is misleading.
    Further, as AADHAAR is slipping from one confusion to the next one fast since the idea was conceived, latest one being the controversy about biometric security featires of Aadhaar being examined by the Apex Court, will it not be prudent to wait till Aadhaar itself stabilises before going ahead with making it mandatory for various purposes?
    M G WARRIER, Mumbai

    Hemant K Chitale

    6 years ago

    A sensible article unlike the utopian "thin air" thinking of UIDAI and RBI.

    Hemant K Chitale

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