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