FAQ Comment

Regulating drug prices

Empty syringe in front of out of focus vial of medicine on metal tray.  

What has been the impact of market-based pricing?

The largest share of out-of-pocket expenditure on health is due to medicines (approximately 70%, according to the NSSO). This is a major access barrier to healthcare, especially for the poor. Health experts have criticised the Drug (Prices Control) Order (DPCO), 2013 for doing little to increase the affordability of medicines. Data from the Department of Pharmaceuticals show that the majority of medicines have price reductions of 20% or less.

How are prices regulated?

The DPCO controls the prices of all essential medicines by fixing ceiling prices, limiting the highest prices companies can charge. The National List of Essential Medicines (NLEM) is drawn up to include essential medicines that satisfy the priority health needs of the population. The list is made with considerations of safety, efficacy, disease prevalence and the comparative cost-effectiveness of medicines, and is updated periodically by an expert panel set up for this purpose under the aegis of the Ministry of Health and Family Welfare. This list forms the basis of price controls under the DPCO.

What is the mechanism for price capping?

The NLEM 2015 contains 376 medicines on the basis of which the National Pharmaceutical Pricing Authority (NPPA) has fixed prices of over 800 formulations using the provisions of the DPCO. However, these formulations cover less than 10% of the total pharmaceutical market. The DPCO follows a market-based pricing mechanism. The ceiling price is worked out on the basis of the simple average price of all brands having at least 1% market share of the total market turnover of that medicine.

Have any other methods been used?

Prior to 2013, the DPCO followed a cost-based pricing mechanism that was based on the costs involved in manufacturing a medicine along with reasonable profit margins. Health experts have argued that this policy resulted in comparatively lower prices than the current market-based policy.

Since the implementation of the DPCO, 2013, the NPPA has made certain departures from the market-based pricing mechanism, which was found to be insufficient for ensuring affordability. This has been done through the use of special powers to act in public interest under Paragraph 19 of the DPCO, to regulate the prices of cardiac stents and knee implants. These moves have brought about dramatic price reductions: 85% in the case of stents and 65% in the case of knee implants.

What about cancer drugs?

“The government is planning to cap the trade margins for highly priced drugs for cancer and rare diseases to bring down their prices,” says Malini Aisola, health researcher and co-convenor of the All India Drug Action Network. She explains that this move is in the wake of recent amendments to the DPCO that exempted patented medicines and rare disease drugs from price controls. But Ms. Aisola claims that the trade margin capping will not sufficiently bring down prices. “We urge the government to take serious policy measures to ensure true affordability such as through price controls, implementation of the national rare disease policy and the use of legal flexibilities under patent law,” she says.

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Printable version | Jun 5, 2021 4:53:33 PM | https://www.thehindu.com/opinion/op-ed/regulating-drug-prices/article26390045.ece

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