Last Friday, Ram Vilas Paswan, the Union minister for chemicals and fertilisers, has told the Parliament that the total amount due from 249 pharma companies for overcharging various drugs is Rs 694.07 crore. National Pharmaceutical Pricing Authority has been trying to recover this amount from the pharmaceutical industry for the last ten years. Of this, a sum of Rs 99.16 crore has been recovered by NPPA up to March 2006. A senior official from the Paswan's ministry also said that a tribunal would be set up soon for speedy realisation of this huge amount as the whole exercise is riddled with litigations in various courts. NPPA has been pursuing recovery of overcharging of price-controlled drugs by the pharma companies ever since the current DPCO was notified in 1995. Of the total number of notices issued by NPPA for recovery of different amounts over the years, nearly 50 cases of overcharging are involving major companies like Ranbaxy, Cipla, Dr Reddy's, Cadila Pharmaceuticals, Nicholas Piramal, Sun Pharma, Wockhardt, Glaxo India and others. Many of the small pharma companies cleared their dues instead of fighting in the courts. In the case of Cipla alone, the amount to be recovered is estimated at Rs 359.58 crore for overcharging formulations of salbutamol, cloxacillin, ciprofloxacin, norfloxacin, etc. Cipla was served notice to deposit an amount of Rs 100 crore in September 2003 but nothing much has been realized yet. Ranbaxy had paid an amount of Rs 23.47 crore out of a total outstanding amount of over Rs 50 crore. Dr Reddy's has paid an amount of Rs 11.43 lakh towards its dues recently. Both these partial payments were for overcharging of ciprofloxacin formulations and these payments were received only on account of court directives. The Supreme Court order in August 2003 had directed all drug companies to first deposit 50 per cent of the overcharged amounts as calculated by NPPA before contesting in courts.

A fundamental issue in drug pricing is to realistically determine costing of a formulation and the margins to be allowed to the manufacturer and trade. The standard principle followed in drug pricing is the cost plus formula. What should be the margins of manufacturers and trade could be probably settled without much of an argument. But the point of dispute in drug pricing in India has been always on costing of drugs. Here, the government has to see how actual is the manufacturing costs claimed by drug manufacturers. It is extremely difficult for the government to verify each and every cost claimed by the companies. But, one thing is sure. The prices of several inputs, going into the manufacture of drug formulations, have been declining for some years now. At the same time, some companies are also incurring certain additional costs like better quality packaging materials, holograms, etc. for the products safety and to guard their products from counterfeits. These new costs involved in ensuring safety of drugs have to be allowed by the government in public interest. What is needed, therefore, is a proper assessment of the manufacturing costs of drugs before fixing drug prices. Now defunct Bureau of Industrial Costing and Prices (BICP) has been doing that work for drug industry for several years. There was a proposal to appoint an independent agency for deciding conversion, packaging and other costs involved in drug costing some time back. If government acts upon this proposal before finalising part B of the new policy, it could save a lot of time and money of all in settling price disputes in future.