This is a Students’ blog. It is a platform for us, the Students of School of Health Systems Studies (SHSS) to express our ideas; but please note the word “IDEA”. An idea, a product of human mind...there is no guarantee of it being right but that doesn’t mean that we cannot express it! The blog is not a peer-reviewed journal or a sponsored publication. That does mean something…it means that information here is the product of our brain which is under evolution at SHSS and it is UNPROOFED and UNREVISED.

The opinions expressed by the SHSS Student Bloggers and those providing comments are theirs alone, and do not reflect the opinions of the School of Health Systems Studies or any employee thereof. School of Health Systems Studies and Tata Institute of Social Sciences is not responsible for the accuracy of any of the information supplied by the Student Bloggers.

Saturday, December 28, 2013

A Critical Insight into India’s New Drug Pricing Policy

Healthcare costs in India are escalating every day becoming unaffordable for the common man. It was found that drugs contribute to 70% of the out of pocket expenditure for healthcare in India. Several factors contribute to the escalating costs of the drugs absence of proper price regulation in the country being the greatest of all. This leads to inaccessibility of medicine by the common man. Though some states like Tamil Nadu, Kerala and Rajasthan have a proper drug procurement system in place to provide low cost medicines to people, majority still rely on the private pharmacies where the prices are not affordable. Hence, there is an urgent need to control the drug prices in the market to enhance accessibility.
Previous pricing policy – Cost Based Pricing
According to cost based pricing policy (CBP) the ceiling price of a drug was fixed based on the cost of production i.e. cost of raw materials plus cost of conversion plus the maximum allowable post manufacturing expenses (MAPE) of 100% which also includes the profit of manufacturer and various distribution costs. There were some difficulties faced under CBP which could have been avoided by prompt revision of the ceiling prices of bulk drugs.
Present pricing policy – Market Based Pricing
After several hurdles, government of India notified  the new National Pharmaceutical Pricing policy (NPPP) 2012 which is based on the concept of market based pricing. The main objective of the policy as stated in the gazette released is “….to put in place a regulatory framework for pricing of drugs so as to ensure availability of required medicines – “essential medicines” – at reasonable prices even while providing sufficient opportunity for innovation and competition to support the growth of industry, there by meeting the goals of employment and shred economic well-being for all.”
According to this, ceiling price of a drug would be determined by adopting the simple average price of all the brands having market share (on the basis of moving annual turnover) more than and equal to 1% of the total market of that medicine. Now the manufacturers would be free to fix any price below or equal to the ceiling price. This claims to reduce the prices of drugs and make the medicines available and affordable which may not be true in the practical sense.
First of all this policy could not give a proper justification for abandoning cost based pricing when retail prices of consumer goods and services are fixed on the cost of production. Policy justifies itself by saying it is very tedious process to collect data from the manufacturers and to calculate ceiling price every year on the basis of CBP. A simple and transparent mechanism can be put in place for collecting prices of bulk drug/Active Pharmaceutical Ingredient (API) from the excise department where manufacturers file their excise duty returns without resulting in any manipulations from the manufacturers.
The policy forgets to take into consideration other factors influencing the price of drugs. The unethical and illegal promotional/marketing activities are resulting in the bulging costs of the most of the drugs. The amount spent by the company on these marketing practices is borne by the consumer purchasing the medicine and making it unaffordable. Hence, there should be a proper mechanism in place to curb these unethical practices to control the cost of the drugs.
Reliability on the data collected to calculate ceiling price
In the paragraph 4 (ix) of the policy document it is said that “The ceiling price of the drug listed in the National list of essential medicines (NLEM) would be the simple average of prices as calculated on the basis of IMS data…”. To calculate ceiling price, data on the market share by brand, volume and price of the brand is required which is generated by IMS Health (a provider of information related to pharma industry) a private company which cannot be reliable. Policy also does not have any measures to check the robustness and reliability of the data generated by a private information provider. Moreover the data is not accessible in the public domain. So, how a public policy can be made by the data which is neither reliable nor accessible in the public domain. WHO also warned India over the method of obtaining drug pricing data from IMS Health. Previously, ORG-MARG (merged into IMS Health) study on “Trends in the price index of pharmaceutical formulations” was also questioned. It was also said that IMS pricing data is not reliable as it does not take account of discounts and rebates.
Moreover, in India drugs with the biggest volume of sales are often the highest priced ones. In such a situation calculating ceiling price on MBP will only result in increase in the price of the drugs and increase the profits of manufacturers making essential medicines unaffordable.
Inclusion of the drugs
There are more than 800 molecules that are being used in India. But, the policy takes into consideration 348 drugs that are listed in NLEM and leaves the rest of the medicines outside the list. Doctors influenced by the incentives given by drug manufactures also prescribe medicines which are not in the NLEM and not under price control. As there are no regulation on prescribing pattern there need to be a study done on the prescribing pattern and include those drugs which are highly prescribed. For example, salbutamol used in the treatment of bronchial asthma falls into the category. But, there are many other drugs of the same therapeutic category which are being prescribed to treat asthma are not brought into the price control.
In case of non-price controlled drugs, policy states to fix the price of such drugs in case if they increase by more than 10% in a year. Hence, it is evident that it allows the increase of price up to 10% annually. Policy also failed to provide a mechanism by which it will control the price of non-price controlled drugs.
Price control of Fixed Dose Combinations
Now-a-days one can find most of the drugs available in the market are fixed dose combination (FDCs). A doctor’s prescription also reveals the extent of usage of the FDCs by the consumer. Though very few FDCs like iron and folic acid, vitamin D and calcium are brought under price control most of the FDCs are left to the free market. There are also many irrational FDCs available in the market and which are being prescribed.
In paragraph 4 (xvii) of the policy document it is said that “…… If a manufacturer of a NLEM drug with dosages and strengths as specific in NLEM, launches a new drug by combining the NLEM drug or non NLEM drug or by changing the strength and dosages of the same NLEM drug, such manufacturers shall be required to seek price approval from the government before launching the new drug.” But, we do not know how the government is going to ensure the control and under what mechanism it will control the price of such FDCs coming into the market. Hence, there should be a strict regulation on allowing FDCs into the market to control irrational combinations and a proper mechanism should be in place to fix the price of new FDCs.
To conclude a better policy can be framed considering the loop holes of the present policy which is a market based one. When implementing a policy of huge public concern data should be collected from reliable sources. Prescription patterns should be understood to include various other formulations which are not currently under price control. There should be a mechanism in place to curb unethical marketing practices and allowing irrational FDCs to enter the market which increase the cost of medicine making it unaffordable. Hence, in a country like India where most of the healthcare expenditure is out of pocket 70% of which accounts for medicines, there should be a proper mechanism to control the price of drugs to make health care affordable.
By- Pavan Kumar Allani
MHA-Health Administration
2012-2014 Batch
TISS, Mumbai