Drug price controls growing popular?

Bloomberg reports that Germany will soon levy over $2bn worth of price cuts on drug makers launching new products. Germany is the world’s third biggest pharma market after the US and Japan, it points out. “The law, backed by the lower house today, gives companies a one-year window to negotiate prices with insurers after introducing new drugs…If no agreement is reached, the Health Ministry would set a maximum price, and the drugs would undergo a cost-benefit analysis by a semi-state agency,” it says. You can read the story here.

Germany’s move is just the latest attempt by governments in Europe to control spiralling drug costs.  UK is attempting a new ‘value-based pricing’ system “in which fees are negotiated with companies on the basis of a scientific assessment of the drug’s clinical value”, reports Nature. Italy recently cut prices of generic drugs.

In India, price control has been a fact of life for the pharma industry. Over time the number of drugs under control has been pared. As a result only 74 drugs are under control and the rest are free.  However, the government has the right to intervene and fix prices of ‘out-of-control’ products if they escalate beyond a point (more than 10 per cent a year).

The drug industry has from time to time proposed a move towards price monitoring rather than controls but that has not gained traction yet.  It also believes that the ‘cost-plus ‘ mechanism that is used to control prices (where government fixes a margin over the costs incurred to produce a drug) is flawed.

However, over time the industry has learned to live with the system, even beat it. Some companies have circumvented drug price rules within the limits of the law and sometimes outside it spawing a spate of lawsuits between the government and companies that have dragged on for years. In the meantime, the government’s price control system has worked inconsistently –  medicines for cancer and rare diseases are still prohibitively expensive. And since most are imported, it is difficult to ascertain their production costs and fix prices. In recent months, there has been talk of the government regulating prices of cancer drugs.

Germany’s move to control drug prices weakens the industry’s case against controls further.  It is also a move that should be watched carefully by the Indian government which is now trying to figure out how to negotiate the prices of patented products that will have no generic competition; a 2005 law allows patents on drug products instead of just the process of making them.  As European countries experiment with different methods, there’s lots for India to learn and choose from.


4 thoughts on “Drug price controls growing popular?

  1. Hi,
    Thanks for comprehensive review, having closely monitored Indian Pharma Industry dont you feel that competition within India amon all generic player is so fierce that the prices are already under control, what more is required to testify that our pricing of drugs is least in the world (even less than Pakistan)and per capita annual consumption is meagre approx Rs 400. We are 4rth ranked pharma market in World in terms of Volume consumption as compared to some 6 bn USD odd value terms. What more is expected out of the Industry. In our healthcare system is the need to monitor the Healthcare cost from the perspective of Hospital Fee/Doctors fee/Opration-Inpatient expenses, which none of us have any control on. May I request you to evaluate ratios of Govt expenses gloabally on Medicines vs Hospitalisation cost to Govt world over


    1. Atul, I agree that competition has worked to push down prices. But like I pointed out in my post, there are still some areas where the price of treatment is unaffordable to a vast majority – for instance, rare diseases, critical care and cancer care. To a person suffering from leukemia or breast cancer, the statistic that Indian drug prices are in general the lowest in the world means little because given the cost of the chemotherapy drugs he or she either has to go without treatment or get pushed into penury to buy it. Your point about hospital expenses is valid though it is not directly related to the subject of my post. In any case, I am not suggesting that drugs are the only healthcare expense incurred by consumers. On another note, tks for sharing your thoughts.


      1. Hi

        Thanks for attending to my note, the point raised by you, regarding rare disease is valid with a condition that the products which are new under go a phased cycle of cost rationalisation over a period of time, with demands increasing the cost definetly goes down, nowhere else gloabally has anyone been able to appreciate the economies of scale as was done by Indian pharma manufacturer which actually has let Chinese start working on and the whole outcome is now relecting globally in the form of Generics. Hence we must expect that if not brought under price control I am sure that competition will definetly take care of the prices of anti cancer drugs in near future.

        My point regarding the emergence of generics over a period of 2 decades has demonstrated that price reduction and genericisation of drugs can eventually lead to a new market which now is approx 100 bn USD and most of innovator companies are adopting it as a strategy of growth.

        Healthcare expenses has to be seen in wholesome, hence in may not be relevant in the current context but for sure cannot be ignored


        Best Regards


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