Pharma price controls hurt consumers

The Government’s attempt to keep the prices of essential medicines affordable and curb the extraordinary returns earned by private healthcare providers through price controls has started an inexorable process whose end does not seem in sight. Will these moves eventually be counter-productive?

First came the move to extend the scope of what are considered essential medicines so as to bring a larger number of them under price control. Then came the move to impose a cap on the prices of medical implants — first coronary stents and then knee implants. This led to some foreign manufacturers of implants seeking to withdraw some products from the Indian market. The Government refused such permission for six months and over time the original applicants submitted fresh applications to withdraw their products after six months.

Now the question is, how long can you prevent manufacturers from withdrawing their products? Are they likely to introduce their newest products in India in future when they are globally released?

US pharma manufacturer Johnson & Johnson has taken a $10 million hit in the September quarter on sales of knee implants as a result of price control in India, which it described as an “extreme example” of such action occurring periodically around the world. Also, AdvaMed, a lobby of US medical device manufacturers, has asked the US trade representative to cut duty concessions to Indian imports into the US under the ‘generalised system of preferences’ (GSP) in response to India capping cardiac stents and knee implant prices. Two Indian associations of medical device manufacturers have protested, adding that GSP is a multi-country arrangement and there is a downside to tinkering with it unilaterally.

Meanwhile, the private players are not sitting still. After the initial price controls on implants, the Maharashtra FDA sent a report to the National Pharmaceutical Pricing Authority on overpricing in, not stents, but balloons and guiding catheters, also used for angioplasty. Patients were paying up to five times the imported cost of these devices.

On the drugs front, the Government made it mandatory for doctors to prescribe medicines using generic names. Now the Government is considering limiting the number of brands of a drug a company can manufacture and also ending contract or loan licensing.

What all this does not address is the chemist-manufacturer nexus. Since the whole exercise is to help those who can’t read the doctor’s prescription, the chemist will pass across the counter the product of a company which offers high margins.

Technology at one stage offered a way of getting around the often untrained but always street smart Indian chemist — online pharmacies. But in India, where substandard and spurious drugs abound, the best way to ensure you are served only the genuine stuff is to rely on the chemist you have known for long and trust. Plus, online pharmacies need to be regulated and watched over. The best way to do so, the Government feels, is to get them to upload all their trade transactions onto a central portal. That will make transparent what is being sold at what price and who has manufactured it.

Now, the issue of a level playing field has come up. Online pharmacies are saying we will agree to upload all our trades if the offline pharmacies do the same. Right now, that is where things stand. The lesson is there is no end to the controls a government can impose and business ingenuity in getting around them. In the process, the price fixing bureaucracy will become both gargantuan and slow, and inevitably court cases will follow.

There is no single solution but if price controls and extensive regulatory supervision will not, then the following can be a solution. It acknowledges that there is no getting around the need to have a multilayered and extensive public health service in order to contain private hospitals, clinics and diagnostic centres. But that is not enough. How can the health service access affordable quality medicines and devices? This is where public procurement comes in. A public agency can procure in bulk at a negotiated price and do the job of price control at a fraction of the cost and paperwork of direct price control.

According to an OECD study, operational and governance-related waste can be reduced by transparent and efficient public procurement of pharmaceuticals. The scope for corruption in public procurement can be reduced by seeking out more transparent pricing of medicines and consolidating requirements at the central level through joint initiatives.

The writer is a senior journalist

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