Insights into Editorial: Drug pricing: a bitter pill to swallow
27 February 2016
The government, in November 2015, formed an inter-ministerial committee to review the Drug Price Control Order (DPCO) 2013, following the Supreme Court verdict that termed the drug pricing policy as irrational and unreasonable.
Why government’s intervention in health sector is necessary?
With a minimum wage of Rs.250/day for a government worker in India, it is difficult for him to undergo treatment for a chronic disease like multi-drug-resistant tuberculosis with drug combinations, which works out to roughly Rs.1.2-Rs.1.5 lakh. Such expenditure amounts to nearly 4-6 years of his savings. Even managing a disease like diabetes can erode much of his monthly income.
- Health care in India remains heavily skewed against the poor. Out-of-pocket expenses can comprise up to 80% of all health financing, with 70% of health spending on outpatient treatment devoted primarily to purchasing medicines.
- Access to affordable medicines remains a significant concern; Delhi, at best, offers just 48.8% availability.
- A survey conducted by all India Drug Action Network or AIDAN, found that unskilled workers in the country need to work an hour (it’s 10 minutes in the United Kingdom) to afford basic paracetamol.
- While overall health care spending has held relatively steady in recent years in India, the cost of drugs has outstripped inflation — sometimes by a long shot.
- Skyrocketing costs for cancer drugs have also triggered a backlash.
- With Voluntary Licence agreements being signed between Gilead Science and 11 Indian generic drug makers, pricing concerns about critical drugs have arisen.
- The recent decision to remove customs duty exemption on the imports of nearly 70 drugs could also have a significant economic impact. With such drug treatments lasting for at least a year, critical illness is now a gold mine.
Drug pricing regime in India:
India’s drug pricing regime has evolved over the years. While the Drugs Order (Display of Prices) 1962 froze medicine pricing, the landmark Hathi Committee Report (1975) led to the Drug Policy (1978) which set up a National Drug Authority and selective price control on medicines.
- The Drug Price Control Order (DPCO), 2013, brought 348 drugs into India’s National List of Essential Medicines (NLEM) 2011, with significant exclusions made for formulation and presentation.
Loopholes in India’s drug pricing regime:
- While 358 formulations of paracetamol are under price control, over 2,714 combinations (80% of market share) are not.
- Despite price controls, the Drug (Prices Control) Order, 2013 covers only 18% of the domestic market (55% is excluded combinations of National List of Essential Medicines (NLEM) drugs, with little impact.
- Besides, as highlighted by the Supreme Court, India’s current drug pricing policies have tended to fix the maximum price of a medicine above the retail price of the market volume leader.
- Also, India’s pharmaceutical industry suffers from a significant lack of competition. Given significant information asymmetry, customers often buy the priciest product to alleviate an immediate need.
What needs to be done?
- Ensure affordability. This can be achieved by effective price controls.
- Encourage a centralised procurement system, as utilised by Tamil Nadu, for purchasing drugs.
- Unethical and unfair drug selling practices, such as holiday trip offers and fancy gifts, used to influence doctors and key bureaucrats, need to be curbed.
- The NLEM should be revised every 2-3 years, with price regulation based on the therapy considered, instead of a focus on formulation.
- VAT abolishment on essential medicines can also be considered.
What can the government do?
- Create an accessible and affordable health-care system that offers scale, multi-generational permanence. This should be supported by sustainable financing mechanisms to ensure affordability.
- Along with debt financing, policy interventions like cheaper loans and tax breaks on interest payments could be tried to generate fund flow.
- Easing the Reserve Bank of India’s rules on external commercial borrowings by health-care projects can help access cheaper funds from a larger credit source.
- Insurance also can help as well. The government’s push for low cost in-patient insurance, while encouraging, should also incorporate out-patient expenses.
- Low-cost diagnostic capabilities, generic drug stores and low-frills hospitals that provide affordable care can be considered.
Medicines remain overpriced and unaffordable in India. While the National Pharmaceutical Pricing Authority struck down its notification on ceiling prices for 50 non-scheduled medicines in 108 formulation/dosages, the public interest in ensuring affordable access remains. In a country mired in poverty, medical debt remains the second biggest factor for keeping millions back into poverty. With little to no availability of basic health insurance, and a preference for private practitioners, drugs engender poverty. With innovative policymaking, the troika of quality, affordability and access can be achieved. Thus, India’s drug pricing regime remains ripe for change.