The draft National Pharmaceuticals Pricing Policy (NPPP-2011) declares that all 348 essential medicines (as per the new National List of Essential Medicines, NLEM 2011) will be under price regulation. The shift in focus from market share to whether medicines are essential is to be welcomed. However, the policy still leaves scope for non-essential and irrational medicines to be made. It also has made calculating ceiling prices of the many medicines not in NLEM a tedious, if not impossible, exercise.

In addition to the NLEM 2011, top selling 300 medicines of the IMS could have been covered. The draft policy delinks the ceiling prices of formulations from the price of bulk medicines. Indeed, the arguments given in the draft policy for removing price control of bulk medicines do not make sense. The government should have kept the option of price control on bulk medicines in the event of cartelisation or abnormal increases in price of bulk medicines.

The latter may result in the scarcity of a particular essential medicine formulation unless it is already overpriced relative to the cost of the bulk medicine used. Worse, this may result in the bulk medicine or the formulation not being made within the country.

Secondly, using the WPI (Wholesale Price Index) to revise prices is not a good idea. It adds an inflationary element to the ceiling price automatically every year. The WPI (100 for base year 2004-05) for 2010-11 is 143.3. Most medicine prices have not really increased 43 per cent during the period. It would have made sense to have the ceiling price of a medicine formulation tied directly to the related bulk medicine price increase during the year.

RELIANCE ON MARKET

The arguments for totally relying on market-based pricing (MBP) of formulations apparently do not recognise the fact that there exists a wide range of prices in the market of the same formulation and that prescribers, and therefore patients, tend to place more value on the costlier brands of the same formulation. In medicines, unlike say soaps or cars, the brand leader is also the price leader. The proposals of market-based pricing, therefore, legitimise higher prices. The key para in the draft policy is para 4.7: “The Ceiling Price would be fixed on the basis of Weighted Average Price (WAP) of the top three brands by value (MAT value) of a single ingredient formulation medicine from the NLEM on per standard dosage basis.”

The WAP idea means that it will end up legitimising high prices, especially if the top three brands are overpriced: top selling brands — with a few exceptions — would be the costliest.

That is the norm of the medicines sector, thanks to asymmetry between consumer and prescriber/manufacturer. It means that that regardless of overpricing and profiteering, if the market “accepts” it, the price is ok. Never mind if the patient may get poorer in the process. It also legitimises the mistaken notion that higher priced medicines are of better quality. In our case, for example, albendazole selling above Rs 12-13 per tablet (price of current market leaders) would seem fine.

Ceiling prices need to have a clear relationship with the cost of the raw material at least. The WAP formula has, in effect, no relation with the cost of raw material, let alone the cost of other inputs. The MRP to raw material ratio is about 3000-5000 per cent in quite a few essential medicines. Should a government legitimise such super profits? Most retail pharmacies do not keep cheaper versions because of lesser margins; eventually all lower-priced brands will move towards the higher ceiling price even as ‘premium' prices, including that of overpriced imported medicines such as Novartis' Glivec, will take a hit with the WAP formula.

MEDICINES OUTSIDE NLEM

The draft policy gives a formula to discourage non-standard dosages. The same thinking could have been applied to discourage irrational and unscientific medicines outside the NLEM. One can discourage irrational combinations, and attempts to circumvent the ceiling price, by taking the cue from the Pronab Sen Task force Report — from which many of the recommendations have been taken anyway — which says, “For formulations containing a combination of a medicine in the NLEM and any other medicine, the ceiling price applicable to the essential medicine would be made applicable.” Sales tax and excise duty could be higher for medicines outside NLEM 2011 and zero for NLEM medicines. The draft policy could also take another recommendation from the Pronab Sen Committee: debrand, that is remove brand names, to ensure true competition among generics.

The draft policy lists certain exemptions which, again, are inexplicable: all medicines costing less than Rs 3 per unit are to be exempt. This again legitimises overpricing of medicines which cost 10-20 paise, and begs them to be priced near Rs 3. An example is cetrizine, which costs less than 15 paise per tablet to make, but the brand leaders are available near Rs 3. Why should this be condoned? Should much-needed iron plus folic acid tablets, which cost less than 10 paise per tablet to produce, be given leeway to sell at or near Rs 3? Most retailers will give only a strip of 10, even when one needs a couple of tablets only.

THE ALTERNATIVE

So, what is a better pricing policy? That will be one that brings down the prices of overpriced medicines; that has some linkage to the actual cost of production, and therefore to the cost of the raw material; and does not legitimise overpricing of medicines. Nominally reducing the price of the top-selling brand is tokenism.

A good starting point would be to take as reference price the prices of well-run public procurement systems and take a multiple, say 4 to 6, of the reference price as the ceiling price. The present WAP procedure will make the ceiling price 20 to 70 times the public procurement price — which is a little rich.

The draft policy gives the impression of a policy cobbled to satisfy perfunctorily the Supreme Court Orders of March 2003 and October 2011, one that will leave major players mostly unaffected. A policy with some bark and a little bite.

(The author is associated with the All-India Drug Action Network and LOCOST, Vadodara. blfeedback@thehindu.co.in)

(This article was published on November 8, 2011)
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