India’s report on patented drug pricing : on unsure ground

4 Mar

Last week saw the release of a draft of the Report of the Committee on Price Negotiation for Patented Drugs. Yet, far from inspiring confidence in India’s ability to get a good deal for its patients, it strikes a note of  pessimism that belies the leverage that a strong generics industry and a vast and growing market puts in the hand of the government. Besides, it makes half-baked observations not rooted sufficiently in numbers and is vague enough to be read to mean different things.

Strictly speaking, the Committee has fulfilled its brief which was “to propose a system.. which may be applied for price negotiations of patented drugs and medical devices before their marketing approval in India .”

The Report arrives at a method of reference pricing calibrated on the basis of gross national income and purchasing power parity. That seems reasonable. History suggests that cost-based pricing especially for imported drugs is not workable simply because companies are opaque and costs cannot be ascertained with any certainty. At the same time, prices cannot be referenced to those of other countries with no thought to disparities in income levels and paying capacity.

Unfortunately, the Report does not stop there.  It then proceeds to get both vague and controversial. “The prices of the patented medicines, even after negotiation, will remain unaffordable to the majority of the population,” it says in an executive summary.

And two, it states that any attempt at negotiating prices with patent owners will come a cropper since the government whose purchases account for just 23 per cent of the country’s total prescription drug expenditure will be negotiating from a position of weakness, not of strength. From there, it is easy for it to move to its next point. That in the absence of any negotiating power, the government can neither fix prices unilaterally nor can it link marketing approval to price negotiations since that might lead patent-owners to keep away from the market.

It therefore recommends what it considers a lasting solution to the government -spend more money and insure more people. In doing so, it nearly oversteps its brief. Nowhere in its terms of reference has the committee been asked to recommend financing mechanisms for healthcare and nor is it equipped to do so.

The end-result  is that the report is neither here nor there.

Half-baked

For starters, consider it’s claim that prices will continue to be high even after negotiations based on reference pricing. This claim seems intuitive rather than based on hard data; apart from two instances of cancer drugs, there is really no data or analysis to suggest that negotiations will not succeed in bringing prices down substantially.

Then, it assumes that the government is not in a bargaining position. Here it does not take into account that one, India is a large and growing market for companies. And two, the fact that bargaining is not done against volumes alone. There are other instruments in the hands of the government including moral suasion, fiscal incentives and disincentives, and as, it has already shown, the threat of issuing compulsory licences to India’s prolific generics industry.

Recall how even the US was able to force Bayer to reduce prices of antibiotic ciprofloxacin during the 2001 anthrax scare using the existence of a Cipla generic as leverage.

Vague

At one point, the Committee appears to be limiting price negotiation to cases of government procurement or insurance.  Here’s a vebatim quote : “The Committee recommended that …the price negotiations be done for the patented medicines for the Government procurement/reimbursement and for Health Insurance Coverage by any other Insurance company.”

It is not clear why it has done so.  The terms of reference do not state that this proposed system is meant only for governments and insurers.  As D G Shah of the Indian Pharmaceutical Alliance points out, that leaves out over 80 per cent of the population that is currently paying out-of-pocket.

But in another place it suggests that the chairman of the National Pharmaceutical Pricing Authority (NPPA), India’s pricing regulator, should head a committee that decides patented drug prices through negotiation and that the NPPA should then enhance its infrastructure to keep tabs on prices suggesting that these are open market prices it is referring to and not just procurement/reimbursement prices.

This Report is a draft prepared after speaking to a variety of stakeholders from industry to activists. It is open to further comments. A final report is still some time away. Hopefully, the final document will be a lot less vague and on surer footing than its predecessor.

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