India and drug pricing : the illusion of closure

A group of ministers (GoM) has put its weight behind a market-based pricing mechanism for 348 essential drugs, a departure from the current practice of pricing a dated list of 74 drugs based on their manufacturing costs.

The GoM decision might suggest that closure to a long-pending issue isn’t far away. But to my mind, its most noteworthy achievement, as of now, is that it lets the government belatedly wave a progress report on drug pricing in front of the Supreme Court after being slapped with a two-week deadline.  Much like an errant child warned of dire consequences by the class teacher for not doing its homework. (For more on the court proceedings see SPICY IP’s post here).

The homework’s finally in, no doubt. But have all the ‘i’s have been dotted and the ‘t’s crossed? Are the answers right and is each step taken to get to them neatly entered? Have the right text books been referred to?

You can see where I’m headed. Here are some questions that can be asked about India’s drug pricing policy review.

1. Will we get to see the homework?

The GoM says it will turn over its recommendations within a week to the Union Cabinet. It is important that these be made public to understand the GoM’s logic in preferring the market-based pricing mechanism and choosing, in particular, to fix a drug’s price at the weighted average price of all brands that own 1 per cent or more of volume market share of that drug.

The market-based pricing methodology has been advocated predominantly by the drug industry represented by associations such as the Indian Pharmaceutical Alliance (IPA) and the Organisation of Pharmaceutical Producers of India (OPPI). They prefer it to cost-based controls for obvious reasons.

In contrast, health activists such as the Jan Swasthya Abhiyan and the All India Drug Action Network have pushed for a continuation of cost-based controls or a variation on the market-based pricing formula that does not give weight to market-leading brands.

The public deserves to understand the independent and reasoned view of the GoM. To be convinced that it has weighed the pros and cons of all approaches and that on balance, the chosen one proved most effective.

It may well be that this formula is not the most effective at lowering prices, just the most practical since it helps to balance consumer and industry interests. In the absence of a robust public sector in drug manufacturing the government cannot pressurise private companies beyond a point. If that be the case, it should be said unequivocally.

Right now, more has been said in media reports about the GoM-backed formula’s ‘win-win’ nature by the drug industry than by the GoM itself. One side’s volubility cannot make up for the other’s relative silence.

2. Which data source is to be used?

Much of the debate surrounding the methodology is justifiably based on data. For instance, health activists used retail price data to suggest that the top brands by market share are usually also the most expensive since share is driven by doctor and chemist push, which can be influenced/bought with promotional spends.

On the other hand, drug industry associations such as the IPA used data to suggest this was not the case, for the most part.

The GoM’s report needs to demonstrate that it independently verified both and state what it found.

It is also relevant to ask whether India will continue to rely on the private data company that the GoM has used for numbers. Currently all calculations rely on the database of market research organisation IMS Health.  A decade ago, when this process began there was just one third-party source of audited retail sales data preferred by industry. Now there are two – the other is backed by the All India Organisation of Chemists & Druggists.  This database has gained currency.

This begs related questions : has the source of data ever been revisited? To what extent does a change in database impact price-fixing? At some point, does the government need to create it’s own database instead of relying on private providers? Is that feasible?

3. How do you keep tabs?

One of the biggest problems with executing the cost-based approach was accessing and updating manufacturing cost data. This will finally be done away with. But how easy is it going to be for the regulator to keep tabs on retail prices of all brands of 348 drugs of varying dosages? Also, companies have escaped price control in the past by combining a price-controlled drug with an ingredient that is not under control. That was when the list was frozen at 74 drugs, now it will have over 300. The pricing regulator, India’s National Pharmaceutical Pricing Authority, needs to step in at some point to tell the public how it plans to implement.

4. Is this enough?

The affordability problem cannot be solved with a formula for pricing 348 drugs. The solution has to go hand-in-hand with greater oversight on drug quality so that the country can move away from using branded generics to vanilla ones (brands will not then be proxies for quality). It has to include price negotiations on under-patent new medicines. It has to include infrastructure for efficient government procurement and distribution of life-saving medicines -old or new. In parallel, it has to curb drug companies’ largesse to doctors and chemists so that those costs aren’t borne by consumers. How much longer before all of this other stuff takes shape?

The GoM recommendations have to be cleared by the Union Cabinet and the Supreme Court where it will meet with opposition from activists.

If you consider, as a starting point, a committee set up in 1999 by the then government, it’s been twelve years since India decided to revisit drug pricing. This GoM was set up by the current government. There have been other committees in between. A decison suggests India is nearing closure.

But that just might be an illusion.

Pic courtesy eking1989’s photostream on Flickr


15 thoughts on “India and drug pricing : the illusion of closure

  1. Hi Gauri, Each point you highlighted here is valid. There are scores of examples of bypassing the DPCO by tweaking drug combinations. Does the new framework guarantee affordability and access to genuine healthcare? As you pointed out, there needs to be more transparency on how the system is to be followed. With all this, I am also not sure where the scheme for free generic drugs is headed…Its easier said than done – or is it only me!
    At the OPPI AGM, pharma secretary Dilsher Kalha spoke about making public a draft policy to determine prices of patented drugs. Why not follow the same principle with this policy too


    1. Vikas , it will not be fair if innovative products prices are averaged with generics prices as the cost of bringing innovative products to the market is far more expensive than cost of bringing generics to market .

      Gauri , this policy from the GOM schould not be seen in isolation . It should be seen with the Govt’s initiative to give medicines free and the Jan Aushadhi scheme selling generics at very low prices . All the three together provide a more comprehensive policy for all sections of the society . The only missing link is Health Insurance .


      1. @ranga, your points are fair but jan aushadhi is languishing and the free drug initiative has yet to get buy in from states. The fact that merely tinkering with price controls has taken 12 yrs does not inspire confidence about how much longer Indians will have to wait for affordable healthcare


  2. Sir, I agree with you on that. But what I actually meant is that the finer points of this new proposed policy need to be made public and openly discussed. As it stands at present, it appears we know the end of the story and missed out on a whole lot of substance.


  3. Hi Gauri/Vikas.

    The GoM members have not openly clarified/explained the rationale to opt for this formula under market-based mechanism. However, during my interactions with some GoM members and DoP officials, they seem to have considered three points before taking the decision. 1) Balancing industry’s growth and public health related to drug pricing. 2) Protect drug export as they believe price in India will affect export realisation in some countries (govt plans to double exports to $25 billion in 2 years) and 3) There are Jan Aushadhi and free generic drug programmes (being launched), under which the poor can get the same medicines free or at a much cheaper price (as Mr Iyer rightly pointed out).

    But, whatever the rationale behind the decision, it is in best interest of all stakeholders to make it public. A mere one line clarification that this policy is good for both industry and public health does not convince anyone, including some GoM members.

    Khomba Singh


    1. Thanks for sharing khomba. Reacting prima facie to your comment, the validity of at least some of these reasons is open to challenge. The export argument is plain ridiculous. Is price control the right policy mechanism to address the exports issue? That needs a diferent set of initiatives. It is also hypocritical when India has rejected the excuse by big pharma cos that differential pricing of their patented drugs in emerging mkts can lead to devd countries asking for similar discounts (or suitcase exports). As for reason three, why control prices in the retail mkt at all if drugs are to be made freely available. If these are their justifications no wonder the drug industry isthe only votary for this gom’s report


  4. Instead of finding the holy grail of price mechanism let the government cover all under health insurance.The insurance companies know how to get the best prices and services from the health care sector,which the bureaucrats can’t do even for another 63 years…


  5. Cost of essential, generic drugs can easily come down by at-least 30% if the government focuses more on ex-pharmacy prices of drugs in comparison to the prices ex-companies. A drug that costs Rs. 1 ex-company may cost Rs.2 at the retain level. All will become good for the patients if the government focuses on regulating the middlemen margins. More than 50% of the health care costs come from medicines and other consumables. An initiative in this direction will do a world of good even for the insurance companies….


    1. @subith, very relevant point..some years ago there was a big brouhaha over drugs that were not promoted to doctors but pushed directly to trade at hefty discounts. This was to take advantage of the absence of doctors in interiors and also to encourage chemists to switch prescriptions in cities. The margins were supposed to be capped but in reality who knows?


  6. This trend of pushing the drugs at hefty discounts is a universal issue across all the markets in India and is not restricted only to the rural market. Tell me which stake holder in the supply chain will buy and dispense a drug without the maximum margins to him or her selves? It is not a question of pushing it anymore. This is the rule if ever a pharma company wants to compete in the non-innovator space where the middle men play a very critical role. Essential and Generic drugs have nothing unique to draw customer attention and pricing has come to play a very critical role in this. The larger mechanism of keeping these generic and essential drugs under price control is not in price control but other controls ….


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