New Pharmaceutical Policy A savage attack on healthcare and a licence to profiteer

The new Pharmaceutical Policy 2002 cleared by the Cabinet is a savage attack on healthcare in the country. Though it has been termed as a "Pharmaceutical Policy", the new changes are only aimed at allowing a rise in drug prices. This has been done at the behest of pharmaceutical companies, who have been given further license to profiteer at the expense of the sick and the ailing. All other elements in the Policy are mere window dressing to justify the price hike.

It may be recalled that in 1995 the number of Drugs under price control had been slashed from 166 to 74. This had led to an immediate spiral in drug prices. The new policy has further reduced the number of drugs under Price Control to just 38.

Myth of Low Prices

There is a prevailing myth that drug prices in India are the lowest in the world. This is at best a partial truth. Drugs that are still Patent protected are much cheaper in India due to India''s earlier Patent Act. It should be obvious that we would lose this advantage after amendment of the Indian Patent Act of 1970. But off-Patent Drugs (which anyway account for 80-85% of current sales in the country) are not necessarily cheaper in India. In fact, generally, drug prices for these drugs are higher in India than those in Sri Lanka and Bangladesh. In fact as Table 1 shows, prices of some top selling drugs are higher in India than those in Canada and the U.K.

The above raises the important fundamental issues that the benefits of the advantage that the Indian Pharmaceutical Industry enjoys over all other Third World Nations, in terms of the availability of indigenous technology and a large domestic market, have not been passed on to the consumers.

Single units - tab/cap/vial - has been taken for all drugs. Prices are in Indian Rupees. Conversion rateis $1=42.52, 1 Canadian dollar = Rs25, 1 Pound = Rs 70.

Source: British Columbia Children''s Hospital Formulary, British National Formulary, No.35, March 1998, MIMS India, March 1998

Decontrol leads to price rise

In the New Policy, in one sweep, the volume of pharmaceuticals under price control has been reduced from an estimated 40% to below 25% of the total drug market. There has been no attempt to provide even the semblance of justification for the decontrol of drug prices. Earlier studies have clearly shown that prices of drugs start rising as soon as controls are removed. This was evident in 1995-96, after the last round of price decontrol effected through the Drug Price Control Order (DPCO) 1995. Further, in almost all segments, the brand leader for a particular drug (i.e. the Brand with the highest turnover) is usually one of the most expensive (in some cases twice as expensive!). This flies in the face of the argument that market forces and competition stabilises drug prices. If a more expensive brand sells more in the market than cheaper alternatives, it should be evident that the price of a drug does not determine its volume of sales.

This is so because market mechanisms are notoriously ineffective in stabilising prices of drugs, as there is no direct interaction between the consumer and the drug market. Companies are able to sell over-priced drugs through aggressive promotional strategies aimed at doctors and by providing lucrative margins to chemists. The Government''s claim, hence, that market forces shall prevent price increase is fraudulent. It is even more surprising that pharmaceutical companies have been provided this windfall when even a lay observer is aware that pharma stocks have been some of the most robust in the stock market.

Market mechanisms do not stabilise prices

It is precisely because of this phenomenon that practically all countries in the world have mechanisms to control drug prices. Controls on Drug Prices are exercised in many Market Economy countries. In spite of strong Patent Protection, there are effective measures in place that allow regulation f Drug Prices. In Australia since 1993, new drugs with no advantage over existing products are offered at the same price. Where clinical trials show superiority, incremental cost effectiveness is assessed to determine whether a product represents value for money at the price sought.

In Britain, there exists the pharmaceutical price regulation scheme - a voluntary agreement between Britain''s Department of Health and the Association of the British Pharmaceutical Industry in which companies negotiate profit rates from sales of drugs to the National Health Scheme.

Globally, drug companies are being forced to reduce the cost of medicines. Pressure is being mounted by Health Insurance Cos., Health Management Organisations (HMOs) and Governments (in countries like U.K. and Canada where the State provides Health Insurance cover) all over Europe and North America. These pressures have become stronger in recent years with the realisation that spiraling Drug costs are making Health insurance cover (whether state funded or privately managed) unsustainable. In all these countries there is a major move to insist on generic prescription in most cases, thus opening up a huge generics market. Large TNCs are forced to compete on more or less equal terms with a large number of lesser known companies, and also sell drugs at relatively cheaper rates. In the U.S., for example, from 1995 through 1997, generic drug prices showed a double-digit rate of decrease. In the U.S. this shift was facilitated by the Hatch-Waxman Act, which made the approval process of generic drugs much easier. Since 1984 this has resulted in a dramatic increase in competition from generic drugs, leading to an estimated saving 0f $8-$10 billion in 1994 alone.

Thus, it needs to be understood that market mechanisms alone cannot be expected to stabilise prices. Various other interventions are needed to manipulate the market, in order to guard against monopolies emerging.

Red Herring of R&D

The new policy has attempted to justify the price decontrol with the plea that this shall boost R&D expenditure in the pharmaceutical sector. When concerns (legitimate in our view) were raised that amendment of the Indian Patents Act would result in rise in Drug Prices, the Ministry of Chemicals and Fertilisers had consistently claimed that any rise in prices would be kept in check through mechanisms in the DPCO. It is extremely surprising that now that we are moving towards a Product Patent regime (the amendment to the patents Act ispresently pending in Parliament), there should be talk of diluting Price Controls. Price Controls have already been diluted in the past decade and only 40% of the turnover of the Industry was under Price Control prior to the new policy. Any further dilution would mean virtual abandonment of Price Controls. If the Govt. is to consider this, under the garb of encouraging R&D, it will only substantiate earlier fears that a change in the Patents Act can only lead to a spiraling rise in prices of drugs.

Present investments on R&D in the Drug Industry are less than 2% of sales. The dubious logic that price controls have led to this situation has been put forward. In the past decade span of price controls has come down from in excess of 60% of the Industry''s turnover to around 30%. If reduction in price controls is to spur R&D activity, why has there been no rise in R&D expenditure in the past decade? It may be recalled that the 1995 policy had a provision for keeping all drugs developed by indigenous R&D outside price controls for ten years. This too does not seem to have spurred any significant R&D activity in the Industry. The issue of Price Controls has nothing to do with infrastructure development for R&D, and the two issues need to be dealt separately. It appears as though the issue of R&D is being used as a "red herring" by drug companies to lobby for price decontrol and thereby license to profiteer.

Millions "Costed Out"

Pharmaceuticals have another unique characteristic -- those who need drugs most are the least likely to be able to pay for them. Thus even a small increase in prices results in the "costing out" from the market of a large number of people. In a country where half a million people die of Tuberculosis - a disease that can be treated by over a dozen drugs - because drugs are unaffordable, such a license to profiteer is inhuman.

The imminent rise in drug prices comes at a particularly unfortunate juncture. The public health delivery system is in shambles and large parts of it are being dismantled or privatised. Drug supplies at public health facilities are at an all time low. This has already forced poor consumers to pay for medicines even if they are being treated in public facilities.

Any further price rise can only push such patients to the brink of penury. It is significant in this context that the Pharmaceutical Policy is announced by the Ministry of Chemicals and Fertilizers. Does the Ministry of Health believe that Drugs are mere industrial products?

Not a Pharmaceutical Policy

Finally, it is a moot point whether the recent policy that has been cleared by the Cabinet Committee on Economic Affairs can be called a Pharmaceutical Policy. A Pharmaceutical* Policy has to start with the premise that Drugs are not like any other industrial products or consumer goods. Unlike say, washing machines or cars, availability of affordable drugs may make the difference between life and death for millions of people. A pharmaceuticalpolicy, thus, has to address the issues of quality, indigenous manufacture, availability of essential drugs, review of existing irrational and hazardous drugs, and affordability of drugs that are available. The new policy does not address any of these. An estimated 50% of drugs in the market are irrational, or hazardous, or sub-standard.

De-industrialisation has increased in the drug industry at a frightening pace and many companies are dependant on imported bulk drugs. Imports of finished formulations have increased by 420 per cent in the past year! Clearly the new "policy" is only a ploy to allow profiteering at the expense of people''s health. The timing of the new policy is also significant - it has been announced when the country''s Parliament is not in session. It appears to be a deliberate, all too familiar attempt, to bypass democratic processes in the country. It is hoped that the unjustified attack on people''s right of access to affordable medicines will be debated in full in the coming session of Parliament.

About the author:

--- The author is with Delhi Science Forum