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While market based pricing can potentially reduce rates for two-third essential medicines, there are far too many loopholes in the move. Pharma companies have exploited such escape routes in the past
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.
According to Dr Chandra M Gulhati, editor, Monthly Index of Medical Specialities (MIMS), “Major lacuna with DPCO 2013 are (a) Fixed Dose Combinations (FDCs) out of price control, (b) increase of roughly 10% on 1st April year after year, (c) patented drugs not covered which will lead to domestic manufacturers suffering and MNCs benefitting. There are about 900 total medicines. The price regulation will cover 348 drugs. There will be lots of opportunity to shift from regulated to unregulated drugs. Combinations of two drugs (within 348) will be out of price control. An estimated half of all dosage forms will be out of price control on this account. The policy and its instrument, the DPCO 2013, are shockingly silent on these escape routes.”
According to S Srinivasan, managing trustee, LOCOST (Low Cost Standard Therapeutics), “Experience shows that manufacturers producing medicines under price control, in this case the drugs in National List of Essential Medicines (NLEM) 2011, are likely to stop making them and migrate to other medicines of the same chemical class as these other equivalent drugs are not in the NLEM 2011 and therefore, out of the purview of DPCO 2013. The other route to escape price control is by making a FDC of the drug under price control, or, by manufacturing non-standard strengths of the same drug (like 650 mg instead of 500 mg paracetamol). Since these strengths are not mentioned in the scheduled list of DPCO 2013, they will not fall under the price control radar.”
Dr Gulhati, says, “Since ordinary customers do not understand drugs and their composition and combinations, it is a breeding ground for unethical practices and mis-selling by pharma manufacturers. There are many ways in which this happens. Companies evade the price ceiling by the simple trick of adding or changing one or more ingredients in a price-controlled drug.”
Some of the examples of such manipulation, already done in the past, are as follows - Aciloc-RD of J Chemicals (where the price-controlled ranitidine was replaced with omeprazole); Cetrizet-D of Sun Pharmaceutical (price-controlled pseudoephedrine replaced with phenylepherine), Normet of Emcure (price-controlled norfloxacin replaced with ofloxacin) and Brakke Suspension of Franco-Indian Pharmaceuticals (price-controlled ciprofloxacin replaced with ofloxacin). The brand name was never changed in the above-mentioned cases.
Mr Srinivasan, says, “The remedy to prevent such ‘migration’ is to put all chemical analogues (the ‘me-toos’ and/or iso-mers) of the medicines included in NLEM under price ceiling. Thus not only enal-april but all other angio-converting-enzyme (ACE) inhibitors, not only ator-vastatin but all other statins, most if not all anti-diabetics, et al, would need to be under price ceiling. Otherwise the purpose of the DPCO 2013 stands defeated.”
All India Drug Action Network and other NGOs want all combination drugs, patented drugs, life saving drugs and molecules in the same therapeutic class under price control.
Para 32 of the DPCO 2013 lists cases eligible for exemption from price regulation for five years: drugs that have a product/process patent in India and “new drugs” as per Rule 122E of the Drugs and Cosmetics Rules, 1945 with the proviso that such drugs be developed through indigenous research and development (R&D).
According to Mr Srinivasan, “This clause, apparently good intentioned, is likely to boomerang for the following reasons - It is doubtful whether many of the pharma-related patents, awarded post-2005, really deserve their patents. The frequency of frivolous plus undeserved patents may increase because the related medicines would be exempt from price regulation. The other provision for exemption for new indications and new dosages and new delivery systems (under Rule 122E) would only increase frivolous claims for new indications/new non-standard dosages and/or result in existing simple tablets, for example, being put unnecessarily in a sustained release form – which will then be a “new drug” under 122E and therefore price control exempt. Hence, there is a need to have a good system to assess such claims by manufacturers.”
In the third part of the article, we will look at the grey areas about what constitutes “essential drugs” and “unessential drugs”.
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 share 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.
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