Draft pharma pricing policy, a bitter pill to swallow

The Draft National Pharmaceutical Pricing Policy (NPPP) 2011 is almost like a bitter pill which is difficult to swallow.

At present, 74 drugs are in ‘too-tight’ price control, and the rest are left without any price controls. This has resulted in a large number of important and essential drugs not being available, or manufactured by only one or two or companies. Companies feel it is not at all lucrative to market them. Instead, they  have shifted to manufacturing or promoting irrational, costly drugs and formulations, which are out of the ambit of price control. Many such products have many manufacturers( even 25 and more at times). This situation thus gives  patients a dual  blow: Essential drugs are either not available or not prescribed  and others, if available, are at higher costs.

Problems in the present draft
The prices of drugs which are both in the National List of Essential Medicines (NLEM) as well as under present price control list, are very low, in fact too low for the companies to be really comfortable. Since, already the prices are in tight control, based on the proposed MBP (Market Based Price) method of price control, they will continue to stagnate  as the  companies do  not have any  incentive to market them.

The removal of control over bulk drugs pricing  can be dangerous and can lead to cartelization. If the proposed decontrol for drugs with a ceiling price of Rs. 3 is put into practice, the prices of many drugs will not fall. On the contrary  prices of many will rise even up to 10 times. This will be unreasonable, and therefore, the concept of Rs. 3 ceiling is not correct.

The draft NPPP 2011 argues that non-essential drugs should not be under a controlled regime and their prices should be fixed by market forces. The  Indian economy is today largely market-driven and, particularly in the area of pricing of manufactured products,  prices are determined by market conditions and forces. It also argues that in the proposed new policy, where ceiling prices will be fixed, there would be ample space for manufacturers to position themselves in an appropriate price band below the ceiling price thereby also retain competition in the market. However, an analysis of various market brands which are not under price control proves that prices of drugs are not necessarily market driven , but are  presently high and often exorbitant.

 In the draft policy, Cost Based Pricing control has been removed and replaced by MBP of top three brands, based on WAP (Weighted Average Price), based on MAT (Moving Annual Turnover). Using the new proposed method of price control (MBP and WAP) is not expected to come down much (only 0 – 5% for 50% of drugs).  Reductions of up to 20% will still continue to pinch the patient.   Therefore, it is wrong  to calculate MBP of top three brands.

Although  the Supreme Court has said that all essential drugs should be under  price control or reasonably priced, it  does not mean that the others should be out of price control or unreasonably priced.

Suggestions to improve proposed draft
Even those drugs and Fixed Dose Combinations (FDCs) not in the NLEM should be in price control. This means that all drugs and FDCs should be under ‘reasonable’ price control. In fact, production and marketing of irrational, clinically unproven,  hazardous drugs and FDCs should be discouraged by keeping them under tighter price control. Bulk drugs should also be in under  ‘reasonable’ price control.

Cost of manufacturing should be used as a criterion for formulation pricing/control. This can help to set the ‘reasonable price’ controls, depending on Cost of Production (COP). The present Maximum Allowable Post-manufacturing Expenses (MAPE) of 100 is not sufficient for some drugs,  especially low cost drugs  to motivate  companies to market them.

MAPE may be varied. For  example  MAPE can be 250 for COP < 15 paise, MAPE = 200 for COP 15 – 40 paise, MAPE = 150 for COP  41 – 200 paise, MAPE = 100 for COP > Rs. 10, and so on.

MAPE can be variable  depending on cost of production, so as not to hurt the patient too much, and to give sufficient profits to the manufacturer. This will enable the industry to grow, invest in R&D and also ensure that all essential medicines are available at reasonable costs.

The apprehensions of the draft NPPP 2011 of problems on  cost - based pricing can be overcome by giving sufficient MAPE to cover up  minor fluctuations. One can learn a lot from the previous experiences of National Pharmaceutical Pricing Authority (NPPA) in pricing. There is also a need to employ technical persons like industrial pharmacists who have sufficient exposure in purchasing, manufacturing, administrative tasks.  Important  posts in the NPPA should be occupied by pharmacists who have  technical expertise in the pharmaceutical field.

The draft policy does not mention about dietary supplements, cosmetics, derma and Ayush products which  have become an important portfolio of manufacturers, but are not under  price control. These  are exorbitantly priced and aggressively  promoted to doctors. The clinical efficacy and safety profile of most of these products are not proven, (unlike as that of drugs).

Large amounts are spent in advertising these products to lure the public. Doctors are also convinced into prescribing them. They eat into  valuable resources of public  as well as of governments. They are thus not only a ‘waste’ of resources but also add to the adverse drug reaction burden. Therefore, prices of these products should also be monitored and exorbitant pricing must not be allowed. Consumers must be provided with proper information regarding such products.

Options of exorbitant schemes
Companies often offer  exorbitant schemes, thus proving that the cost of production is very low, while the Maximum Retail Price (MRP) and profit margins to those in the manufacture/distribution is very high. For instance, Sildenafil is available at a scheme to the retailer. The scheme is ‘1 + 4 Free’ (Not 4 + 1 Free). High costs of anti - cancer drugs provide huge profits to those in the distribution chain. All these aspects should be reviewed and products should be reasonably priced.

For those formulations in the NLEM which would incur extra costs in manufacture  like controlled release preparations, additional MAPE or leverage for ceiling price may be considered on a case-to-case basis.

Additional or special incentives like tax sops and  incentives  should be given  to companies who market drugs from the NLEM, depending on the number of drugs and volume of manufacture. This should be calculated from the percentage of NLEM drugs from the total drugs manufactured in terms of volume and price.

Branded generics and generics should also be under price control. It would be absurd to have generics priced higher than branded formulations.

In public health centres, it should be mandatory to stock, prescribe and dispense drugs only from the NLEM (with few additions, if at all required, but only through a proper hospital formulary process). Prescription audits should be mandatory and each hospital should have an active pharmacy and therapeutics committee.