The correct prescription 

Amid a slew of conflicting judicial decisions from different High Courts, the legality of e-pharmacies continues to be questioned by various trade associations such as the All India Organisation of Chemists and Druggists (AIOCD). It represents 8.4 lakh pharmacists who run the brick and mortar pharmacies in neighbourhoods across India.

E-pharmacies, which operate through websites or smartphone apps on the Internet, offer medicines for sale at a discount of at least 20% when compared to traditional pharmacists, with the added convenience of home delivery of medicines to one’s doorstep. For scheduled drugs, patients can submit photographs of prescriptions while placing orders. Despite operating in India for at least four years now, the legal status of these e-pharmacies is not clear because the government is yet to notify into law draft rules that it published in 2018.

The fiercest opponents of e-pharmacies are trade associations of existing pharmacists and chemists. They argue that their livelihoods are threatened by venture capital backed e-pharmacies and that jobs of thousands are on the line. Apart from these obvious arguments, these trade associations also spin imaginary tales of how e-pharmacies will open the door to drug abuse and also the sale of sub-standard or counterfeit drugs, thereby threatening public health. There is enough evidence on record to demonstrate how existing pharmacies contribute generously to drug abuse and sale of sub-standard medicine. There is no reason to suspect that e-pharmacies are going to worsen the situation in anyway.

A case of cartelisation

The more prudent way of looking at the entry of e-pharmacies is competition and the resultant effect it will have on lowering the price of medicine for Indian patients. Viewed from this perspective, there is virtually no doubt that e-pharmacies should be allowed to operate because the history of India’s trade associations of pharmacists is one of rampant, unabashed cartelisation that has resulted in an artificial inflation of medicine prices.

In a fully functional, competitive market, pharmacists would compete with each other for business. This competition could happen in the form of discounts or improving operational efficiency. For example, if two retailers buy a medicine from a wholesaler at ₹50 and the maximum retail price of the drug is ₹75, they are free to sell it at ₹70 or ₹65 or even ₹51. The seller with the lower price gets more customers and can make more profits. However, if both sellers enter into an agreement with each other to sell the drug at ₹75 and they also clearly define the geographical area within which they are operating, they both make higher profits but at the cost of the patient who now has to pay higher prices.

This practice of two competitors colluding to fix the sale price and area of operation is called cartelisation, and is illegal under India’s Competition Act. The premise of this law is that a free market is efficient only if all sellers are competing with each other to offer the lowest price to the customer.

Over the last decade, the Competition Commission of India (CCI) has had to deal with several complaints alleging that trade associations of pharmacists are providing platforms for cartelisation where pharmacists are basically rigging the market. In simple terms, this means that pharmacists, who should otherwise be competing with each other to offer lower prices for their customers, prefer to enter into agreements with each other to fix the price at which they will sell medicines to patients. Once all parties are on the same page, there is no reason to compete with each other and reduce prices.

Another barrier

A second, more insidious strategy is the practice of requiring pharmaceutical companies to apply for a no-objection-certificate (NOC) from the regional trade association before they appoint new stockists in a region to sell a particular drug. This has the effect of artificially restricting competition in certain markets because more stockists mean more competition. By creating such artificial, extra-legal barriers to the free trade of medicines within India, these trade associations create huge distortions in the Indian market. It is suspected that these practices continue despite multiple restraining orders by the CCI.

In its recent policy note on “Making markets work for affordable healthcare”, published in October 2018, the CCI noted, “One major factor that contributes to high drug prices in India is the unreasonably high trade margins.” One of the culprits for this phenomenon identified by the CCI was “self-regulation by trade associations [which] also contributes towards high margins as these trade associations control the entire drug distribution system in a manner that mutes competition”.

One of the solutions proposed by the CCI was encouraging more e-pharmacies. As stated by the CCI in its policy note, “Electronic trading of medicines via online platforms, with appropriate regulatory safeguards, can bring in transparency and spur price competition among platforms and among retailers, as has been witnessed in other product segments.”

Where the state has failed, it is possible that venture capitalist backed e-pharmacists will succeed in bringing back competition to the retail drug markets in India. There is no reason for India to continue indulging trade associations that have no taste for competition or fair business practices.

Prashant Reddy T. is a Senior Resident Fellow at the Vidhi Centre for Legal Policy

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Printable version | Aug 15, 2022 9:51:11 am |