A way to evade drug price control

Which is better? A market-based price regulation policy, or a cost-plus policy? At present, the 1994 drug policy that is in force has 74 bulk drugs and their formulations under price control. While this list of 74 drugs contains some useful, and otherwise mostly obsolete, drugs, most of the commonly used and important medicines are left out.

For example, medicines for HIV/AIDS, cancer, hypertension, coronary artery disease, multidrug resistant tuberculosis, diabetes, iron deficiency anaemia, ORS, tetanus, filariasis, vaccines (new) for rabies, hepatitis B, sera for use in tetanus, diphtheria, Rh isoimmunisation, anti-convulsants and anti-epileptics, snake bite, suspected rabid dog bite/rabies, etc, are out of the price control basket.

Useful drugs and essential medicines are left out because of an assumption — when a particular medicine is made by a certain number of manufacturers with a certain market share (called ‘market-based’ criteria), that in itself would ensure price control through competition.

However, the experience is otherwise. More players does not imply better competition and it has meant a range of prices, varying up to 10-40 times. In many important cases, the market leaders — that is, those who dominate the market — are highly priced. This is the peculiar nature of the pharma market in India.

Wrong approach

The Government it appears has now decided to put the house in order, but only apparently so. All 348 medicines in the NLEM (National List of Essential Medicines) 2011 will now be under price regulation, so say media reports. But the ceiling price (the maximum price beyond which the medicine cannot be sold) will still be determined by market share criteria.

For example — as in one of the formulas being proposed — the ceiling price will be, say, the weighted average of prices of all brands of a drug having more than 5 per cent market share. This will unfortunately make the ceiling price high.

For example, atorvastatin 10 mg tablets (brand Atorva, Storvas), something you have to take daily to prevent strokes and lower cholesterol, are sold from Rs 9 per strip of 10 tabs to Rs 90 per strip of 10 (the price leader), even as the price of the public procurement agency, Tamil Nadu Medical Services Corporation Ltd (TNMSC), is Rs 2.13 per 10 for the current year.

In this case, the market share of the top two brands of this drug is more than 80 per cent.

The ceiling price would, therefore, be around Rs 70-80 per 10 tablets.

And that is still a high price when the bare cost after manufacture is around Rs 2 per 10 tablets if you go by the TNMSC procurement price. The same would be true for most medicines, with few exceptions, in the NLEM list of the 348 medicines.

Escaping Regulation

Normally, the way manufacturers get out of the price control basket is by adding another ingredient not in the price control list. In this case, the manufacturer can (and will!) get out of the price control by making atorvastatin plus ramipril.

Ramipril is from the same anti-hypertensive chemical family as enalapril (brand Envas), lisinopril (brand Linvas), etc. Enalapril is in NLEM 2011 but the other ‘prils’ are not. Chances of migration are very high and soon enalapril will be less favoured by medical representatives as they would have been told to sing praises of ramipril and lisinopril, which would not be in price control because they are not in the NLEM 2011.

In the case of atorvastastin, other ‘statins’ such as rosuvastatin, simvastatin fluvastatin, lovastatin, pitavastatin, pravastatin, etc, and their brands will be marketed more because the latter are not in NLEM 2011.

What is the way out? We need to have the same price ceiling for all ‘prils’ and ‘statins’ and members of the same therapeutic class, unless the manufacturer can prove one is superior to the others in the same family and is costlier to make. To avoid combination with a drug not in NLEM 2011, it would be good to have the same price ceiling for the combination as the one under price control.

That is, paracetamol is under price regulation because it is in the NLEM 2011 but paracetamol plus caffeine is not in NLEM 2011 and, if made, should have the same price ceiling as paracetamol. In only a few cases — very few — would the combination be justified, and the government can give a special exemption or specify the price ceiling for the combination.

Flawed Mechanism

Notwithstanding these escape hatches, the market-based mechanism is a flawed one at all times. And in this case the Government’s own Ministry of Health also thinks so. The MOH has been advocating cost-plus pricing — that is cost of raw materials plus packing material plus manufacturing and packing cost plus a margin of 100 per cent.

As we can see from the example above, the margin in atorvastatin is likely to be of the order of 3,000-4,500 per cent (divide Rs 90 the price leader by Rs 2 or Rs 3, the price of the lowest priced public procurement prices). And even with market-share formula, this margin may at best come down to 3,000 per cent.

It appears a cost plus policy of 100 or even a 150 per cent margin to account for inflation, seems a better bargain than a market-share-based mechanism that legitimises these appalling four-figure margins.

The decision of which medicine to buy is generally made by doctors and drug companies. Consumers and their families often have to make these purchase decisions under distress, and therefore there is no “choice” in the “free market.”

Add to it distortions by pharma companies in the guise of unethical marketing, the pharma market is nowhere near the free market ideal.

There is no mandatory code of marketing and no punishments for unethical marketing of drugs.

Market-based price regulation in an atmosphere of such asymmetry between buyer and seller — and therefore a situation of market failure — will add a liberal dose of salt to the existing wounds of the sick and the afflicted.

A meaningful price regulation policy, even if it were cost-plus policy, would need to close the above routes of ‘escaping’ price regulation and also think of weeding out all kinds of unscientific and irrational combinations in the market — combinations not recommended or mentioned in any standard pharmacology textbook nor, of course, in the NLEM 2011.

The Scheme “Free Medicines for All” that is meant to provide essential medicines free of cost to all those who visit public health facilities is yet to take off and is a solution only when we have ‘universal access to healthcare’ like, say, in the British National Health Service.

In Tamil Nadu, which has had the policy of “free medicines for all” from 1995, not more than 40 per cent of patients visit the public health facilities.

Hence, along with “free medicines for all”, it is quite necessary to control the prices of medicines in the open market. Otherwise, the current situation will not change substantially, and the patient will continue to bleed.

(The author is with LOCOST, Vadodara, and Medico Friend Circle.)

COMMENT NOW