Taking advantage of poor knowledge of consumers, malpractices by doctors and weak regulation, drug companies are selling medicines at hugely inflated prices. Helpless patients, rich and poor, are ripped off day in and day out. This is the first part of an exclusive Moneylife investigative series

Did you know that when the compound clopidogrel is used by Zydus Cadila in Noklot, the price is Rs78 for 10 tablets? When Sanofi uses it for Plavix, the price is Rs1,020 - a difference of nearly 1,300%. The cost of risperidone is Rs17 for Rispidon made by Torrent but Rs270 for Risperdal (J&J) - a difference of 1,600%. Did you know that the price of even a simple compound like erythromycin made by two companies can differ by 300%? The more expensive one is made by an unknown manufacturer.

Or that the cost of producing a strip of 10 tablets of progesterone is Rs18 but it sells for Rs180? Or that an enterprising Indian Administrative Service (IAS) officer in Rajasthan managed to bring down medicine costs by 90%, exposing the fat margins that drug companies enjoy with impunity? Did you know that competition, which is supposed to be the best antidote to anomalies in market price, does not work in the drug market? A few weeks ago, insurance companies were compelled to band together and initiate action because galloping healthcare and hospitalisation costs were forcing them into losses.

As industry doyen, Fali Poncha, said at a Moneylife Foundation workshop, medical insurance can work only if the insurer as well the service-provider make some money. But the soaring costs of medicines and hospitalisation (caused mainly by the acute shortage of quality healthcare facilities in India) had turned medical insurance into a loss-making proposition for insurance companies.

The public sector insurers have put in place an alternative - in the form of a preferred provider network (PPN) - which alone will be entitled to the cashless insurance facility. PPN is a network of medical service-providers who agree to standardisation of procedure costs and charges based on hospital location, hospital grade, etc. But the other major expense that needs examination is the cost of medicines.

The issues regarding drug prices are horrific. In a report tabled in Parliament on 4 August 2010, the parliamentary standing committee on health and family welfare has suggested drastic 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 medicines more affordable.

We know that healthcare in India is in a mess. But while the public is somewhat aware of the problems of health insurance (insurers are losing money, thanks to over-billing and exorbitant charges by some hospitals), hardly anything is known about drug price abuse.

According to the parliamentary standing committee on health and family welfare report of 4 August 2010, medicines constitute 40%-80% of insurance claims. On detailed investigation, Moneylife found that there is an enormous difference in the price of the same drug, branded differently by each pharmaceutical company and consumers are completely unaware of it. Doctors and hospitals end up dictating what you pay - they can prescribe an expensive or cheaper drug with the same efficacy. So clearly, there is a good case for insurers demanding price control or parity to reduce claim costs. This is not easy; but it is not impossible either - the urgent need is for customer awareness and the political will to make the healthcare industry healthier.

The exorbitant price you pay!

Moneylife's detailed probe into medicine prices throws up shocking revelations. The same drug is sold at widely varying prices under different brand names. Why does this happen? The National Pharmaceutical Pricing Authority (NPPA), which is a decade old, agrees that overpricing of medicines is a major problem, but it hasn't succeeded in doing much about it. Until June 2010, the NPPA has issued 762 demand notices for a penalty of Rs2,190.48 crore but has realised only Rs199.84 crore - an abysmal 9.1% of the total penalty. The rest of it, almost entirely, is under litigation.

Meanwhile, consumers continue to pay exorbitant prices and pharma companies are getting away with impunity. The violation of the price ceiling is rampant even in the 74 drugs under price control. Of these, 24 drugs are barely used. And, on 50% of the drugs on the list, NPPA has imposed a penalty on one or more manufacturers for overcharging. NPPA's statement of 'Overcharging and Recovery Thereof' on its website lists many of the big pharma companies led by Cipla (Rs1,384 crore) and Ranbaxy (Rs136 crore) which account for 69% of the total overcharge. Cipla itself is the top penalised company with 63% of total overcharge, but has not paid a single rupee to NPPA till now. Cipla's net profit for FY10-11 Q1 rose 6.5% (Rs257.4 crore). The 600-odd firms listed for overcharging include Lyka Labs, Modi Mundi, Okasa, Lupin, Dr Reddy's and Cadila Healthcare.

Let us look at four examples of how price ceilings were violated leading to the penalty.

Shockingly, the same companies overcharge even today.

According to NPPA chairman, SM Jharwal, "We know it takes time to recover dues as the legal battle is a long process. We are now looking at out-of-court settlement with pharma companies as it would save time on recovering dues. We will not reduce the fine at any cost but may look at making the payment process easier. The objective of this exercise is to recover the dues as fast as possible." We are not sure how this helps consumers.

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. Among the examples given to us by Dr Chandra M Gulhati, editor, Monthly Index of Medical Specialities were: 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.

In some cases, companies added another ingredient as an excuse to hike prices exorbitantly without any clinical rationale. Examples include Norflox of Okasa (lactobacillus added to price-controlled norfloxacin) and Doxy-1 of Astalife (lactic acid bacillus added to price-controlled doxycycline). The ceiling price for controlled drug norfloxacin 400mg and doxycycline 100mg is approximately Rs10 for 10 tablets, but the price of branded Norflox and Doxy-1 is approximately Rs48 for 10 tablets. One can get plain norfloxacin 400mg (brand-Norbid; company-Alembic) for Rs10.38, while plain doxycycline 100mg (brand-Microdox; company-Micro Labs Ltd) is available for Rs7.72.

This is an illustrative list of drugs that are sold at hugely inflated prices with no relation to their costs. 

Importantly, nimesulide is banned by the US and many countries, but continues to be openly sold in India. It is especially harmful for children. The retailer's purchasing price of NICIP (branded-generic) manufactured by Cipla is only Rs1.88 for 10 tablets. Cipla is clearly making some profit even at this price, which means that the cost of production cannot be more than Rs1.40. The huge price mark-up is shared by the drug companies and traders - a nexus that ensures there is no action; there are many more examples of this nature.

One chemist at Prabhadevi (Mumbai) explained the racket to us, revealing that not everybody approves of unethical selling. Moneylife invites readers to write in with their experiences, and send us names of ethical pharmacies. It would make sense for buyers to purchase medicine from such ethical pharmacists.

Aggressively advertised, multi-ingredient vitamin and mineral formulations such as Revital, A to Z and Supractiv, etc, are being produced and sold without a mandatory manufacturing licence from drug control authorities. Their producers claim that the products are 'food' and not drugs and, hence, subject only to Prevention of Food Adulteration (PFA) rules!

For producers, there are many benefits to selling medicine as food. Prices of medicines that contain vitamins A, B-1, B-2, C and E are controlled by the NPPA, to prevent profiteering, which they avoid. The obligatory standards for manufacturing infrastructure are also not applicable. This is a bad practice because ordinary people do not realise that excessive intake of vitamins can have serious side-effects which are never disclosed; they get away with extravagant pricing as well. Will the Drug Controller General of India (DCGI) and NPPA protect interests of patients by enforcing laws?

(In the next article in this series, we look at what the government has been doing to regulate drug prices)