Opinion

Is the shift away from cost-plus drug pricing desirable? - NO

S. Srinivasan | Updated on March 12, 2018 Published on November 23, 2012

capsules-pharma



The Cabinet should have stuck to its three-decade-old policy of cost-plus pricing (CBP), instead of opting for a market-based formula.

Cost-based pricing allows for cost of raw material plus costs of conversion plus a margin of 100 per cent.

Now, under market-based price (MBP) ‘control’, averages will be taken of prices that have no relation to the cost of production. Hence, the resultant ceiling price arrived would still be high.

What is the reasoning given by the government on why CBP should be abandoned?

The retail price determination for telephone-charges, electricity, auto-taxi fare, etc, is decided on costs.

In fact, MBP is never used for any form of price regulation. MBP would result in legitimising high prices, de facto lifting of price control and de-linking ceiling prices from the cost of production.

Any price that has no relationship to the cost of production is absurd and indicates market failure. When the market fails, the logical move of an elected government ought to be to ensure how to make medicines more affordable.

The Government’s MBP motto is, however, aimed at protecting high profit margins of overpriced brands of life-saving medicines. The Government is not addressing the issue of what a legitimate profit margin should be: 100 per cent, 1,000 per cent or 4,000 per cent? High profit margins are used for unethical marketing and promotion — at the patient’s expense. So high prices legitimised by MBP are not only illogical, but unethical as well.

For atorvastatin 10 mg, used in preventing strokes, the market leader price is Rs 110 per 10 tablets whereas the price as per CBP mechanism with 100 per cent margin is Rs 5.60 and the simple average price (of brands more than 1 per cent market share) is around Rs 50 per 10, while the Tamil Nadu Government’s public procurement price is Rs 2.10 for 10 tablets

The market leader will certainly get hit by the simple average price and be forced to reduce but would most likely migrate to another drug of the same class but not in the list of 348 drugs — for example, simvastatin or even the unsafe rosuvastatin.

In the case of amlodipine 5mg — used for high BP — the simple average ceiling price of Rs 25.70 per 10 is greater than the market leader price of Rs 15.60 (calculated using 2008 IMS data) whereas the cost-based price ceiling would be Rs 1.77 per 10 tablets! Profit margins of nearly 1,000 per cent in both cases! Mercedes-like pricing when Nano level pricing would do as well.

A responsible industry would self-correct these irrational practices. We are yet to see this. Nor have we seen meaningful R&D with these super profits.

(The author is with All India Drug Action Network.)

Published on November 23, 2012

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
null
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.