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Expansion of the drug price control cap: New norms

Dhruvika Chawalla, Institute of Chemical Technology


The growing outcry for including all essential medicines under the Drug Price Control Order (DPCO) got a vital boost recently with the new norms including 652 medicines spanning over 27 classes under the DPCO authorities. The DPCO 2013 has come into effect around July 1st i.e. 45 days from the date of issue of the order. The steep increase from 74 to 652 bulk drugs and their formulations will alter the ways in which the government regulates prices in the 72,000-crore domestic market and substantially increasing the number of drugs under the price cap umbrella.

The 2013 DPCO, a government order under section 3, authorizes the National Pharmaceutical Pricing Authority (NPPA) to regulate the prices of products included on India's 2011 National List of Essential Medicines (NELM). The current method of fixing prices on a cost-plus basis will be replaced by market price-linked cap for each drug wherein the ceiling prices of products will be set at a simple average of all brands with a market share of at least 1%. The margin of profit earned by the retailer would be 16% out of the total cost fixed. The prices prevailing in May, 2012 will be taken as the reference point for calculating the caps. The prices of drugs which are higher than the new fixed rate will have to be cut and those priced below the rate cannot be raised to the that level, ensuring reduction in the costs of drugs.  

Over half of the 270 drugs that have been examined by the Indian Pharmaceutical Alliance, a price reduction by about 20% has been estimated, states the economic times. They also claim certain HIV/AIDS combination drugs to be 70% cheaper and the maximum price reduction of 88% in case of alprazolam, a psychotherapeutic drug, and clopidogrel tablet, a cardiovascular drug. An incentive to the domestic R&D has been provided by allowing locally discovered and developed drugs to skip price control for five years. New drugs developed using native R&D and patented under Indian law can seek exemption from price control. In order to avoid sudden stoppage of production at any time, the government requires manufacturers to inform it each quarter about the levels of essential and bulk drugs that it has been producing. Also, manufacturers cannot stop the production of the drugs without a public notice and need to intimate the government six months prior and the government may, in public interest, direct the manufacturer to produce and import for not more than a year. A 10% increase per year for non-essential medicines has also been notified.

However, critics argue that the manufacturing cost based method is effective in case of companies having the monopoly. The current to-be-implemented control policy, though affordable, will have an adverse impact on multinationals like GlaxoSmithKline and domestic drug makers like Cipla to a great extent forcing them to take a relook at their business models.

Mr. Amit Hota, Head of Department of a unit at Cipla, Patalganga says, "In order to achieve price parity and adhering to this market based mechanism, cost-cutting would have to be undertaken wherein the raw-material and process-related charges, without affecting the utility and labour costs, will have to be brought down after the stability of the product is validated. However, in situations wherein significant losses are being incurred, an obvious shift from these essential drugs to others would be made."

Some industrialists also contend that the ceiling price calculation should have been based on a weighted average of prices instead of the simple average formula as currently proposed as the simple average formula fails to provide a level playing field between different companies. Out of the 74 essential drugs that are under DPCO, nearly half are out of production due to unfeasibility to the manufacturers. A recent example being that of thiamine or vitamin B1 injectables, important in treating alcoholic addiction, costs just Rs.10 or more due to price control and is available in really short supply since a month as it’s no longer profitable for pharmaceutical firms to manufacture it (Times of India, June 9, 2013).

It seems like a win-win situation for consumers, leaving the manufacturers at sixes and sevens. Moreover, the key factor should be effective enforcement of the order. Past record of enforcement paints a sorry picture with blatant disregard and open violations of the DPCO provisions.

Dhruvika Chawalla

DC is an undergraduate student at the Department of Pharmaceutical Sciences, Institute of Chemical Technology, Mumbai. She is an avid learner, enthusiastic participator, with an inclination towards the pharmaceutical sciences and its economics.

 

References:

-http://articles.economictimes.indiatimes.com/2013-05-17/news/39336744_1_essential-drugs-price-control-indian-pharmaceutical-alliance

-http://pharmabiz.com/NewsDetails.aspx?aid=70727&sid=1

-http://www.pharmatimes.com/Article/13-05-17/Indian_essential_drug_prices_to_fall_up_to_80.aspx

-http://pharmaceuticals.gov.in/DPCO2013.pdf

-http://spicyipindia.blogspot.in/2013/05/drug-price-control-order-dpco-2013.html

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