Drug pricing norms: Cost or MRP based?
As the second largest exporter of bulk drugs and largest formulation exporter, the Indian pharmaceutical industry has made its mark in the global pharma industry. But while exports are flourishing, domestic growth is threatened by adverse policy issues, especially on the pricing front. Industry associations have presented their perspectives to the specially convened Group of Ministers and share the same with Usha Sharma
‘The GoM needs to take a view keeping in mind the need to ensure balance between affordability and availability and immediate versus long-term implications’
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| D G Shah |
– D G Shah, Secretary General, Indian Pharmaceutical Alliance
The Group of Ministers (GoM) is examining two key issues, namely, span of control and method of price fixation for medicines brought under price control.
Span of control
The Ministry of Health and Family Welfare (MoH&FW) carefully evaluated its list of medicines to meet priority health needs of people and make them available at all time. The evaluation included standard treatment guidelines, rational use of drugs, etc. It then recommended that all products/strengths specified in the National List of Essential Medicines (NLEM) 2011 be brought under price control. This would result in bringing about 30 per cent of the Indian Pharmaceutical Market (IPM) under price control. The Department of Pharmaceuticals (DoP), unmindful of the MoHF&W evaluation, decided to enlarge the list of drugs under price control several folds. This would increase number of bulk drugs from 348 to 1,502 and formulations from 654 to 7,095. It would result in bringing about 75 per cent of the IPM under price control.
Method of price fixation
The DoP has proposed market-based pricing (MBP) system as recommended by Pronob Sen Committee. The MBP brings transparency and objectivity. It also rewards innovation, promotes efficiency and sustains availability. On the other hand, the MoH&FW favours continuation of the existing ‘normative cost-based pricing’ (CBP) system. The pharma industry has in one voice opposed the MoH&FW proposal for several valid reasons; namely, it is intrusive and discretionary, lacks transparency, disregards actual cost and discourages innovation and efficiency. The industry is piqued at the suggestion of continuing an archaic system of license raj — a system that disregards variations in the GMP standards, quality norms, age, size and location of the plant, etc. and treats them at par by granting uniform manufacturing cost.
The GoM has to take a view keeping in mind the need to ensure balance between affordability and availability and immediate versus long-term implications. The GoM is fully conscious that in its pursuit for reducing the medicine prices, it must not sacrifice safety, efficacy and quality of drugs and growth of India’s one industry that has presence in more countries than all others put together.
‘Government also has a responsibility to formulate a policy that benefits the patients and also balances it with the viability of the industry’
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| Dr. Ajit Dangi |
– Dr Ajit Dangi, President & CEO, Danssen Consulting
The Indian pharma industry has made a phenomenal progress in the past few years. It has crossed $21 billion in sales in 2011, domestic and export combined, both growing at double digits. With highest number of ANDAs, DMFs and US FDA approved manufacturing facilities in the world outside the US, it is recognised the world over as a reliable source of quality medicines at affordable prices. This remarkable progress was achieved due to several factors, price liberalisation is one of them. Reducing the span of price control from 370 to 74 drugs in a phased manner over the past three decades, has undoubtedly helped the industry to improve its declining profitability and invest in much needed upgradation of manufacturing facilities, market development, innovation and research and making global footprints. The pharma sector’s scenario in the country has however undergone a sea change following the enactment of product patent law in 2005 and industry is now moving from imitation to innovation.
Ranbaxy, for instance, has just announced its anti-malarial drug discovered for the first time in India. Many more new drugs are awaiting completion of clinical trials. However, like most half baked government policies, National Pharmaceutical Pricing Policy (NPPA) 2011 does not take into consideration the new realities and will hardly have any positive impact on access to medicines and healthcare of the nation. What we need is a comprehensive healthcare policy and not a piecemeal approach. No wonder one more GoM is having a re-look at the NPP 2011, which is languishing for over six years.
Following are some of the factors we need to consider before embarking on drug price control
1. Supreme Court Judgement – It is often justified that the NPP 2011 is the result of the supreme court judgement which urged the government to consider appropriate criteria to ensure that essential and life saving drugs do not fall outside the purview of price control. While the Supreme Court judgement needs to be honoured, the Government also has a responsibility to formulate a policy that benefits the patients and also balances it with the viability of the industry. There is a mistaken belief that currently only 74 drugs are under price control. The fact is, the drugs which are not under price control have a cap of 10 per cent price increase per year. Isn’t this a hundred per cent price control? Is 10 per cent cap justified when inflation is hovering around double digits?
2. Access to medicines – The key challenge we have today before us is access to medicines and not their prices. Not only drugs produced in India are priced lower than BRICS countries but our prices are lower than even neighbouring countries like Pakistan, Bangladesh and Sri Lanka. According to WHO and many internal reports, access to medicines in India is less than 40 per cent, one of the lowest among the developing countries. This low access is not because of non availability or high prices of medicines but because of poor health infrastructure where there are no or poor diagnostic facilities, doctors, hospitals, pharmacies etc. in the interior. Focusing on prices alone will not solve the access issue. Over 80 per cent of Healthcare cost falls outside the purview of price control. For instance, pathological and other diagnostic tests, doctors` fees, hospital stay, etc. are outside the purview of price control.
3. Transaction costs – One way of reducing the prices of medicines is to reduce the transaction costs which amount to about 40 per cent, one of the highest in the world. This includes taxes like VAT, customs and excise duties, local taxes such as octroi, as well as distributors` and retailers` margins etc.
4. Health insurance – Over 80 per cent of our population pays from its own pocket for medicines and there lies the rub. We need to expand the health insurance sector by attracting foreign capital and expertise and promoting our own insurance schemes like Rashtriya Swasthya Beema Yojana. It will be difficult to attract foreign capital in insurance unless equity participation is increased from present 26 per cent to at least 49 per cent, a proposal awaiting for a long time.
5. Prevention better than cure — A developing country like India should deploy its limited resources to prevention rather than cure. This includes vaccination, immunisation , sanitation , hygiene , clean drinking water, cessation of bad habits such as tobacco chewing / smoking , safe sex habits , nutrition, exercise , environmental pollution and behavioural changes through awareness building. India has successfully eradicated polio from its soil due to abundant availability of oral polio vaccine and building awareness through active promotion.
6. Impact on exports – India’s pharmaceutical export is showing healthy growth of over 20 per cent per year. Very low prices in domestic market can impact export prices as foreign importers are reluctant to pay premium prices for importing Indian medicines when they see the same formulation being sold at significantly lower price in India. Many countries follow reference pricing system, which will result in comparing Indian domestic prices with those for exports. Low domestic prices often results in parallel imports/ smuggling to neighbouring countries like Pakistan, Bangladesh , Sri Lanka etc. affecting genuine exports.
7. Healthcare budget – India’s defence budget for 2011-12 is Rs 1,64,415 crore, which perhaps is justified given our ‘friendly’ neighbourhood. However, this does not justify spending meagre Rs 26,780 crore per year on healthcare which is less than one per cent of our GDP (bailout package announced recently for Air India, is Rs 30,000 crore with almost zero prospect of getting this tax payer`s money back from the borrower). Most developed countries spend over 12 – 14 per cent of their GDP on healthcare. India needs to increase its healthcare budget to at least to 4-5 per cent of GDP to make any meaningful impact on the healthcare. In spite of deficiencies in execution of several government policies and delivery mechanism , several heath indicators , like child mortality, life expectancy, birth rate etc. are showing improvement, largely because of abundant availability of good quality drugs at affordable prices. The Indian pharma Industry needs to be commended for this contribution and not penalised by inflicting illogical price controls on its produce. Pharmaceutical business is increasingly becoming complex and knowledge intensive. It requires significant investment for compliance with cGMP, quality and safety, R&D for discovering new drugs , technology upgradation , continuous medical education, IPR etc.
Unfortunately, the policy makers who propound such policies have very little domain knowledge and have never seen inside of a modern pharmaceutical manufacturing facility or an R&D centre to appreciate the nuances of pharma business, resulting in irrational price controls. Hence, rather than focusing only on controlling prices of drugs, a holistic approach is required taking in to consideration factors mentioned above. If the Government is serious about poor people getting good quality, affordable drugs, it should expand the net work of Jan Aushadhi Stores and bring more people in to the health insurance cover rather than ruminating ad nauseam on whether cost based or market based policies will help the common man. Price control for medicines is a remedy worse than the disease.
Above all these are industry view points but still there are no positive hints from the Government. As last meeting was concluded on May 18 and there is no date fixed for the next level meeting it is presumed this delay is due to the current political scenario which is coinciding with emerging in connection with the presidential election which is keeping every minister busy including Agriculture Minister Sharad Pawar, who is heading the GoM.
As we all know that the Parliament is not in session, the members of the panel are also not around in the Capital. It makes difficult to get the dates from the members to proceed to the next level. To make issue on its high importance industry stakeholders needs to keep their ear and eyes open for the mutual benefits of patients and drug manufacturers.
‘Walking the talk for the benefit of the patient’
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| Ranjit Shahani |
– Ranjit Shahani, President OPPI, and Vice Chairman & Mng. Director, Novartis India
Competition is the best leveller of prices rather than control. You can see this in every industry where government has allowed market forces to play a role. Based on this fact, we believe, the government should assume the role of a monitoring agency rather than a controlling agency for the benefit of all. There has been a long standing debate among various stakeholders on ‘cost- based pricing’, which the government is following even today. Unfortunately, even four decades after the inception of ‘cost-based pricing’ system, the issue of ‘affordability’ of medicines has still remained unresolved. This is mainly because the ‘cost-based pricing’ system lacks transparency. As a result, history reveals that following Drug Price Control Order (DPCO) 1995, manufacturing of 26 out of 74 molecules was actually discontinued in India. Who was the most impacted at the end of it all – no one else but the patient. Industry lauds the support of the Government towards putting the Indian pharmaceutical industry on the global map. India is now recognised as a reliable source of quality medicines at affordable prices. A cost-based approach to drug price control will actually serve as a deterrent and negatively impact the pharma industry as importing countries check prices in the country of origin. Further, such an approach requires complex calculations and does not provide any incentive for R&D.
The pharma industry currently outperforms Gross Domestic Product (GDP) growth by nearly two times and a cost-based pricing approach for pharma will serve to significantly reduce not only its attractiveness as an industry but also its competitiveness globally and locally, and the ability to help achieve the healthcare objectives of the nation.
A cost-based pricing approach will compel the pharma industry to focus on the minimum acceptable standards as opposed to making a constant effort to improve its product offering so as to better patient outcome. Past experience with price controls will support this view. It is important therefore to adopt a policy that encourages innovation while ensuring that medicines on the National List of Essential Medicines (NLEM) 2011 remain within the reach of the patient.
Market-based price control will on the other hand actually improve access, availability and affordability. It will lead to greater transparency and hence widen the span of coverage. Medicines priced ` 3 or less per unit should be exempt as their price is already very low and a price increase not exceeding 10 per cent or as per WPI, whichever is more, should be allowed once a year.
OPPI is of the firm belief that this approach will also encourage growth and investment and be to the long-term benefit of both the patient and industry.
It is important for all stakeholders to remain focused on the real problems afflicting healthcare in India such as improving and providing health infrastructure and creating an ecosystem that encourages and supports innovation. Medicine costs in India are already among the lowest in the world and even here, it is the transaction costs that push up the total cost of a drug. Industry has been repeatedly urging the Government to take notice of this and play its legitimate role in reducing these costs to help bring medicine costs even lower. India certainly needs to raise its spend on healthcare – even neighbouring Pakistan spends far more! We as industry have expressed our willingness to look at public private partnerships (PPP) in the area of healthcare. It is now up to the Government to take up our offer so that we can work together for the benefit of the patient. It is time we realised that the world has changed; India has changed and we must stand up for our rights and responsibilities.
We owe it to our people. Industry is willing to walk the talk. Controls will bring compliance but not commitment and healthcare is all about commitment which is core to our purpose of healthcare for all!
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