Price Regulation of Essential Medicines

Anurag Bhargava & S. Srinivasan

Source: The Hindu, Open Page, 17 Oct’ 2006

Will the pharmaceutical policy again ignore the predicament of patients, the Indian experience of the free market, and the real costs of drugs?

INDIA HAS the largest number of people, an estimated 649 million, without regular access to essential medicines although it has a large pharmaceutical industry, according to the WHO’s World Medicines Situation Report of 2004. This is because of poor availability of drugs in the public health sector and poor affordability in the private system. India has one of the world’s most privatised health care systems, with patients incurring more than 80 per cent of the expenditure. According to data from the National Sample Survey’s 55th consumer expenditure survey, more than two thirds of outpatients’ expenses goes towards the purchase of drugs. There has been a progressive decline in the number of drugs under price control – from 347 in 1977 to only 74 in 1995. Over the last 12 years no drug has been placed under price control, although many new ones have been introduced. So we have antibiotics that cost a few thousands of rupees a day of treatment, cardiovascular drugs that cost thousands per vial, and cancer drugs that can cost hundreds of thousands a year. Deregulation of drug prices has contributed to increasing costs of healthcare and pushed millions into debt.

Moreover the pharmaceutical policy has deviated significantly from public health priorities. The present list of drugs under price control does not include any vaccines or any drug for anaemia or cancer or even a life-saving medicine like oral rehydration salts. It also excludes most drugs for hypertension, diabetes, coronary artery disease, tuberculosis, malaria, and all the higher antibiotics.

A pharma policy released by the previous government in 2002 would have reduced this list to less than 30 drugs. A Karnataka High Court judgment stayed the implementation of that policy. In 2003, a group of experts evolved the National List of Essential Medicines (354 in all), which could take care of most of the healthcare needs of Indians. The present Government has taken the unusual step of releasing the draft Pharmaceutical Policy 2006 in installments. Part A of the policy, containing issues other than statutory price control, was released in December 2005. In its introduction, it mentioned “price regulation of essential medicines is an important component of this policy.” Part B, which was to deal with price regulation, has still not appeared in the public domain.

After long deliberations on price regulation of drugs over the past three years (involving one committee and one task force), the Minister of Chemicals in July 2006 circulated a draft policy to the Cabinet, which planned to regulate the prices of the 354 essential medicines in the National List. This welcome, and long overdue, correction in the policy, would have greatly improved access to essential medicines. Surprisingly it faced opposition from within the Cabinet. A new joint committee of 14 members, of which 11 represent the industry and three the government, has been constituted to again consider the draft policy and price regulation. How this industry-dominated committee will reflect the public need is anybody’s guess.

The Minister of Chemicals announced on October 2, 2006, measures aimed at reducing prices of certain categories of drugs, by curbing trade margins. These completely ignore the issue of regulation of the inflated retail prices of branded drugs, which comprise the majority of drugs prescribed and sold in the market. The top 300 brands alone sell for more than Rs.18,000 crore annually. On the other hand, they seek to regulate trade margins of “generic generic” medicines, which comprise less than 5 per cent of the market, and those of “branded generic” medicines (a term which is itself a misnomer, and lacks any legal definition). These measures do not specify how many essential medicines’ prices will be reduced.

Price regulation according to the July draft would have allowed a margin of up to 200 per cent of the basic cost of manufacture, which is healthy enough for the profitability of any trade. In fact the policy would curb only profiteering, which is currently rampant. The industry has argued that if price regulation is implemented, units will close down, spurious drugs will increase, exports and R&D will decline, and the country will face drug scarcities. Pharma policies have long provided for drugs developed by indigenous R&D to be excluded from the ambit of price control, but there have been no claimants so far.Medicines are unlike any other consumer goods, because patients procure them under stressful, if not life-threatening, circumstances, on the advice of a third party (the doctor), and with little personal knowledge of their nature. They are such a critical and essential commodity that governments all over the world, even in so-called market economies, regulate their prices. The anarchic retail prices of drugs outside price control provide the clearest evidence of the need for price regulation. Two reputed companies manufacture the same medicine, in the same strength, with a retail price difference of more than 1000 per cent. Aventis charges Rs.95 for a 500mg tablet of the antibiotic levofloxacin, while CIPLA charges only Rs.6.80 for the same tablet. Drug companies charge six times in the case of anti-hypertensive and anti-diabetic drugs, 15 times for psychiatric drugs, and 18 times for anti-cancer drugs, without any intervention by the government. Companies are unable to give a credible explanation how such variations are possible, and yet complain against any regulation of retail prices.

Price regulation implies that the retail price of a drug should bear some logical relation to its manufacturing cost. The real manufacturing cost is often a very small fraction of the retail price. This is revealed by the prices of drugs in competitive tenders, by trade margins that companies offer, and by the huge amounts they spend on drug promotion. The consumers at the retail counter pay many times more than the price at which the drugs are provided to the traders or to the government. They pay heavily for the wasteful, often unethical expenses of drug promotion, and the high profit margins. In quality-conscious bulk procurement processes (for example, those in Delhi and Tamil Nadu), the tender rates for drugs are as low as 2-20 per cent of the market rate. This is unheard of in any other commodity. An example: in Tamil Nadu a company bids to supply a medicine for worms (Albendazole 400 mg tablets), at a mere 35 paise per tablet, while brands of this drug sell for Rs.12.00 in the market.

In this light, the recent offer of the industry to offer drugs to the government at just 50 per cent of the MRP is gratuitous (for procurement prices of the Tamil Nadu Government see . Profit margins for the company and trade margins in pharmaceuticals are often astronomical, and both need to be controlled by regulating the maximum retail price in relation to cost of manufacture. An antibiotic injection like Amikacin made by a reputed company has a retail price of Rs.64, while the retailer can buy it at Rs.13.50. Two years ago the Ministry of Chemicals investigated trade margins in three commonly used drugs – Cetrizine, Nimesulide, and Omeprazole – and found trade margins of over 1000 per cent. According to The Economic Times intelligence group, in 2004 the top 50 pharmaceutical companies alone spent Rs.5340 crore on drug marketing.

Past experiments with drug price deregulation have led to abnormal price increases of essential medicines. In 1995, for example, the price of a preparation for anaemia rose by 177 per cent, while the price of anti-TB drugs rose by nearly 90 per cent. Moreover, when drugs are placed under price control, drug companies begin producing and promoting irrational or higher priced alternatives that are not on the list. The government should pre-empt this by bringing all alternative drugs at least under a scheme of intensive price monitoring.

Price regulation is clearly a national policy matter, and in no way incompatible with TRIPS. Apart from the prices of drugs, the policy needs to address numerous other pending issues like conduct of clinical trials, regulation of new drug approvals, drug quality, drug promotion, availability of unbiased drug information, removal of unsafe and irrational drugs, and utilisation of the flexibilities under TRIPS/WTO to protect public health. If telephone tariffs, insurance premiums, electricity rates, and trading of shares are regulated in India, surely the regulation of drug prices is no less important. The industry is offering a number of complicated suggestions to the government to escape the scrutiny of price regulation. If the government turns back on its commitment to regulate the prices of essential medicines, the implications for public health will be grave.

(Anurag Bhargava, an AIIMS trained physician, is with Jan Swasthya Sahyog, Bilaspur. S. Srinivasan, an IIT/IIM graduate is an expert on drug pricing and the Managing Trustee of Low Cost Standard Therapeutics, Vadodara.)

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