A Supreme Court bench headed by judge G.S. Singhvi made a critical observation on the drug pricing mechanism proposed in the new pharmaceutical pricing policy approved by the Group of Ministers on September 27. The Court was not happy with the proposal to have a drug price fixation formula on the basis of the weighted average price (WAP) of brands with more than 1 per cent market share in each therapeutic segment. The GoM’s recommendation to expand the span of price control to 348 drugs from the existing 74 is yet to be approved by the Union cabinet. The Supreme Court’s intervention, in this juncture, giving a time of a week to implement the new drug pricing policy under the present price cap regime based on a product’s manufacturing costs cannot be ignored by the cabinet. The Court appears to be quite firm in its observation as it feels that the new pricing formula suggested by the GoM could lead to an increase in prices of life-saving drugs. Under the existing 1995 Drug Price Control Order, although only 74 drugs and their formulations are control, the companies were allowed to raise prices up to 10 per cent on all other drugs marketed in the country every year. And the companies have been jacking up the formulation prices of more than 500 drugs currently outside price control even when their costs remained static or dropped. That kind of drug pricing system along with no control on patented drugs has been causing a steady rise in prices of most of the essential drugs in the country.
For the price controlled products, the regulatory authorities usually follow the cost plus mechanism for fixing prices as they are falling under the category of essential commodities. The cost plus mechanism enables the price fixing authority to pass on the benefits of cost reduction in various inputs going into the manufacture of final products. Because of intense competition among the manufacturers of several pharmaceutical ingredients, prices have been falling in the international market for the last many years. To some extend, National Pharmaceutical Pricing Authority has been able to cut prices of at least limited number of price controlled products in the past because of cost plus formula. The only objection to this practice from the pharmaceutical companies has been the delay on the part of NPPA in fixing and revising the formulation prices. Industry’s demand now to have price fixation on the basis of weighted average price is not just the delay in getting prices fixed or revised from NPPA. Average pricing of brands with more than 1 per cent of market share in each therapeutic segment can actually help a large number of companies to push up their prices from their current levels. This is because of the fact that highly expensive brands in each therapeutic category are only a few. And a majority of formulations marketed in the country are fixed dose combinations containing more than one active ingredients. Combinations are not coming under price control in the new policy. Considering these factors, it is only proper for the Centre to continue with the existing system of cost plus pricing in pharmaceutical industry.