19 May 2008 Business pharma: price control

Hijack At Pill Point

The government is cracking down on drug firms to down medicine prices
Hijack At Pill Point
Hijack At Pill Point
outlookindia.com
-0001-11-30T00:00:00+0553
Every 10 days, he shells out Rs 99 for anti-diabetic drugs; a year ago, he paid Rs 89. "The Rs 10 hike didn't really bother me—I hardly noticed it. But I can ask my doctor to prescribe a cheaper brand if the cost starts to pinch," says Nischal.

It's the sort of pill that seems neutral at first, and then you notice the bitter aftertaste. Arguing that sustained medical care using even common drugs has become prohibitively expensive, and attributing this to profiteering by an 'uncompetitive' industry, the government has launched an all-out war to force down prices. While industry is resisting at the trenches—and some in the courts—there is also dissension within the government on how far it should go in its regulatory zeal. To complicate matters, consumers are feeling the heat from rising prices. They do have cheaper options. That is, if doctors prescribe them.

Thus far, the government has fixed the price of over 1,000 medicines and sealed legal loopholes that let companies evade price controls. More action is in the pipeline. The Union ministry of chemicals and fertilisers, which oversees the pharma industry, is pushing hard for a new drug policy. An empowered Group of Ministers (GoM) led by agriculture minister Sharad Pawar has been examining this issue since 2007. The new policy, says minister for chemicals and fertilisers Ram Vilas Paswan, will expand the list of drugs whose mrp can be fixed by the National Pharmaceutical Pricing Authority (NPPA) from 74 to 540. As Paswan told Outlook, "There is a proposal to bring (more) essential drugs under (price) control...but unfortunately, it has been referred to the GoM."

The government also wants to fix wholesale trade margins in the industry at 15 per cent and retailer margins at 35 per cent. As things stand, only 20-25 per cent of the Rs 35,000-crore domestic drug market faces direct price control. The rest comes under a system of price monitoring—which gives companies leeway to raise prices by up to 10 per cent a year; down from 20 per cent till last year. Paswan's new policy now wants to extend price controls to up to 60 per cent of the drug market.

Not surprisingly, the industry is up in arms against most proposals. Chafing at an "overzealous" regulator, pharmaceuticals say the steps will slow down investment and job creation. "It's a crisis," says Harinder S. Sikka, director, corporate affairs, Nicholas Piramal. "The price at which NPPA wants us to supply drugs is too low. In the interest of the pharmaceuticals, the government must halt the exercise of fixing such prices," he says.

That's easier said than done, of course. For a regime that sailed to power on the equity plank, affordability of medicines is key, particularly when 80 per cent of medical expenses are not covered by any kind of insurance. Over the last six months, price of drugs for diabetes, cholesterol, thyroid, asthma, vitamin supplements and so on have risen (see box). Tapan Ray, director general, Organisation of Pharmaceutical Producers of India (oppi), however, contests this: "Of the over 54,000 drug packs NPPA has examined, in only about 0.5 per cent of cases has it detected overpricing."

A senior NPPA official warns prices will be monitored very closely in the coming days. "The real problem in India is that doctors rarely prescribe the generic medicines that tend to be less expensive," he admits. What escapes attention, however, is that less expensive branded as well as some generic alternatives for these drugs are available. For instance, a 15-pill strip of Cipla's Amlopres-AT is priced at Rs 58.50, whereas the same medicine is available for Rs 12—Antas' Espin 80. Says Ranbaxy Laboratory executive director Ramesh L. Adige, "In India, it is well known that a variety of drugs are available at different price points that suit different pockets."

The argument hits squarely at the heart of the government's price control measures. Key among them is a one-size-fits-all system that says manufacturers may add up to 100 per cent of a pill's manufacturing cost to the retail price; to suitably account for expenses on marketing, promotion or other items. But the Indian Pharmaceutical Alliance (IPA), an industry association, argued in a recent submission to the government that such cost-based systems disregard standards of manufacture as well as r&d and export market development costs. The government is looking at relaxing this figure to 150 per cent in some cases, but the industry questions the logic itself.

India's largest drug company Ranbaxy, for instance, spends Rs 500 crore a year on r&d. But even that is not enough, says chairman Malvinder M. Singh, "Our r&d spend is less than what many global firms do. If India is to develop its own repertoire of new drugs and chemicals, r&d expenses will have to go up. We must exit the mentality of price control and allow reinvestment of profits into research." Besides, there are close to 20,000 manufacturers ranging from garage startups to multi-billion dollar conglomerates in India, whose manufacturing costs swing wildly. It may not be fair to impose a single price structure for all firms, he adds.

Desperate for some relief, the industry is now promising to partner with the government on healthcare missions. None of their suggestions (including help with setting up drug banks for below poverty line families) has been accepted—or rejected outright—by the government. Says Alok Mukhopadhyay, CEO, Voluntary Health Association of India, a national network of health sector NGOs, "The government need not interfere in fixing the price of every drug. Let prices of some vitamin supplements rise. But it must identify essential drugs clearly and fix suitable prices."

In the meantime, the empowered GoM has accused NPPA of making unfair and "misleading" presentations. The minutes of the GoM's last meeting on April 30 note that the NPPA, while building a case for price control, forgot to mention that for each overpriced drug, cheaper alternatives were commonly available. Science and technology minister Kapil Sibal and health minister Anbumani Ramadoss have also opposed Paswan's schemes at the GoM and a turf war between the ministry of health and Paswan's department has broken out.

This battle highlights a key problem: unless doctors actually prescribe generic drugs, which tend to cost less, consumers will not benefit. At present, except in some states, doctors are not required to do so. This must change. Moreover, medicines only account for about 15 per cent of healthcare costs—the government has to build the social infrastructure to provide healthcare to millions. A regime of constricting price controls for drug companies is clearly not the solution.

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