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)