The draft of the new National Pharmaceutical Policy 2006 is expected to be revised on the basis of the discussions that the Department of Chemicals held with the industry representatives. It has been reported that a new formula to achieve the objectives of the Draft Policy is being worked out for which a 14-member committee has been constituted. It is important to note in this connection that apart from the industry other concerned stakeholders including the Ministries of Health & Family Welfare, Commerce, Industry and Finance and Department of Consumer affairs had reportedly criticised this 2006 Draft Policy. It is important to evaluate the various factors which led to such conclusions regardless of what the outcome of the new Committee's recommendations are likely to be. The most important issue is the one related to the high prices of drugs and its consequence on healthcare costs both to the healthcare providers and patients. The key proposal in this regard is that the prices of generic products would come down as a result of the lower margins acceptable to both the producers and trade. It is not clear as to the other aspects of the new price control policy and how they will affect the stakeholders.
History of drug price control orders
The system of administered price controls on drugs had a checkered history during the last 43 years since the first Drug Price Control Order (DPCO) was legislated in 1963, which was amended in 1979, 1986 and 1995. They all had one common goal of making drugs affordable to all sections, including those living under the Poverty Line. In reality, none of Price Control measures met these objectives even partially. While the very first DPCO covered practically all bulk drugs and their formulations under the span of control, the 1979 Act reduced the number of drugs under price control to 347, the 1986 DPCO to 142 and the 1995 DPCO to 74. Such progressive reduction in the number of drugs in the control basket was an admission that the system of price control of large numbers of drugs was impractical at its best and counterproductive and detrimental to all stakeholders at its worst. It was also a reflection that market forces and competitions are perhaps better alternatives to administered prices. In fact with the emergence of multiple suppliers of the same drug (post-Indian Patents Act 1970), most drugs became available in India at the lowest prices in the World. Several Committees over the years, such as the Sandhu Committee, Mashelkar Committee, Pranob Sen Committee, National Manufacturing Competitiveness Council and The National Commission on Macroeconomics and Health had made recommendations on possible approaches for making life saving drugs available at affordable prices to the masses including through measures other than administered prices. None of them had suggested stricter price control measures by increasing the span of control as an effective measure to make drugs more affordable.
The Pharmaceutical Policy of 2002 further reduced the span of control which resulted in the filing of a public interest litigation claiming that the policy was anti-people. The Karnataka High Court ordered a stay on the implementation of the Policy, which was reversed by the Supreme Court in March 2003. However, the Supreme Court stipulated that "the petitioner (the Central Government) shall consider and formulate appropriate criteria for ensuring essential and life saving drugs not to fall out of price control".
National pharmaceutical policy 2006
Apart from the price control measures which would now undergo substantial changes the Draft Policy recommends the formation of Pharmaceutical Advisory Forum within the National Pharmaceuticals Pricing Authority (NPPA), setting up of Price Monitoring Cells in States funded by the Government of India, establishment of a National Drug Authority (NDA) which will eventually be merged with NPPA to form National Authority on Drugs & Therapeutics (NADT) and strengthening the Drug Regulatory and Patent Offices in the country.
The formulae proposed for fixing equitable prices for bulk drugs and their formulations, include cost plus margins model, negotiated prices, differential prices, reference prices, bulk purchase prices etc. The Maximum Allowed Post Marketing Expenses (MAPE) have been increased to 150 per cent from 100 per cent (DPCO 1995), with an extra 50 per cent for products of R&D intensive companies. Imported drugs would be allowed 50 per cent margin on the landed costs. To avoid a sudden spurt in prices of the current list of 74 drugs (DPCO 1995) their MAPE will remain unchanged for one year. Several exemptions from price control have also been provided for in the Policy. Thus, new patented drugs would be exempted from price control for 10 years post commercialization.
Problems of price control system
Price control measures are generally intended to ensure that consumers are not unfairly cheated on the price front through charging monopolistic and excessive prices, not commensurate with the costs of supply or the benefits accrued. It is imperative that any pricing policy should ensure that the patients should receive their medicines at the lowest possible price and at the same time the producers make adequate returns for his investments and efforts. None of the DPCOs to date has been able to achieve these twin objectives of making drugs available at affordable prices while ensuring profitable growth of the industry. For example, fixing prices at unrealistically low levels with a mark up of 40 per cent for category I (essential drugs) in DPCO 1963 led to companies cutting down on their production and the market starved of life saving drugs. At the same time, the profitability of many industrial units plummeted to all time lows during the 70's, threatening their very survival. Several litigations against companies for realising alleged unintended profits by charging higher than approved prices and disputes over price fixations by the authorities led to the setting up of a Drug Price Equalisation Account (DPEA), an issue which is unresolved even after 2 decades.
Impact of the 1970 Patents Act
As against this with the advent of IPA 1970 and the emergence of multiple suppliers for the same drug in the absence of product patents, market forces led to considerable reduction in prices of drugs, often times even below the prices fixed under the DPCO. Realising the pitfalls of the earlier DPCOs the Government appointed a Committee to suggest ways and means to ensure availability of drugs at affordable prices without continuing the price control regime. The intention was to progressively reduce the number of drugs in the basket of control and ultimately remove the price control system altogether. The 2002 Policy in fact mentions under VI h (1) the intention of the Government to move from 'a control regime to a monitoring regime'.
How to make drugs more affordable?
Prices of all products for which there are no valid patents in India will be unaffected even post-2005. The Indian Patents Act 2005 and Rules 2006 stipulates that drugs emanating from the mailbox applications and were being produced by Indian manufacturers would continue to be produced and marketed by them even after such patents are granted after 2005, but will be subjected to royalty payments. Therefore, those patented drugs will have only marginal price increases. New drugs protected under the product patent regime will be certainly priced high by the patent holders or their licensees. As a general rule, over 80 per cent of products in the market are generic products for which, with multiple suppliers market forces will keep the prices at the lowest denominator. 10 per cent would be patented products for which generic alternatives would be available and should be increasingly used and only the rest 10 per cent would be patent protected, unique and life saving and therefore could command monopolistic prices. Most of the last 10 per cent would be outside the ambit of affordability by the majority of patients in India and are indeed the ones on which attention should be directed.
One possible way of making these drugs more affordable would be evolve a strong and universal health insurance system in the country. The principle here is that while the producers would continue to supply drugs at the lowest possible prices considering all permissible costs including those for R&D and marketing, the healthy and wealthy should pay for the sick and poor patients through taxes and insurance premiums. Just like the Orphan Drugs concept is based on the need for supporting drugs with insufficient markets and for diseases, which affect less than 200,000 patients, the term should be extended and support provided to 'orphan' patients who cannot afford life saving drugs. The same principles should apply also to the drugs for which prices would be deemed to be excessive in view of the monopoly enjoyed through patent protection. Negotiating the prices and fixing them prior to approval of a patent drug by the Drug Control Administration as mandated in the policy, would require amendments to the Drugs and Cosmetics Act, and modifications in Schedule Y. Even then it is unlikely to be a practical solution and ultimately would not yield the intended results.
Supreme Court judgment
Any fear that the Supreme Court's judgment on the PIL submitted on the Pharmaceuticals Policy 2002 can be countered by making a plea that the overall objectives of making essential drugs affordable could be met even without price control mechanism and therefore a fresh directive should be considered by the honourable Court on this matter.
The new proposals
The detailed content of the new proposals for amending the Draft Policy during the meeting of the Ministry with Industry representatives is not yet available. Judging by the media reports, what has been agreed upon, but not officially announced are 1) The mark up on generic versions of drugs will be considerably reduced and so also the trade margins, making them more affordable and 2) the proposed price control on the 354 drugs in the 2003 Essential Drugs List will not be effected and 3) price control will be considered only for those drugs whose MRP is not less than Rs 3 for a single tablet/capsule or other dosage forms. There is also a move to create a fund for meeting the expenses on drugs for people living below the poverty line. Thus, the emphasis has shifted from 'essential drugs' to those needed by those living below the poverty line. It is possible that the 14-member committee set up to recommend amendments to the 2006 Draft Policy may come up with additional proposals.
Pricing of generic products
There are two interpretations of the word generic, "off patent drugs" and drugs labelled under "generic names". Most drug purchases for institutions are as generic products, while in the private market in India, the concept of generic prescriptions and dispensing is nonexistent. As a matter of practice all drugs under branded or generic names are available without prescriptions, thereby eroding the whole concept of OTC drugs as a class. It has been mentioned that from October 2nd the prices of generic products would be considerably lower since the industry as well as trade will accept lower margins. For these drugs, the costs of promotion of the brands as per the current practices would be largely eliminated and the related savings will be transferred to the patients. Generic prescriptions and markets in India are not more than 10 per cent of total market and hence it is not clear as to how much impact this change in the National Pharmaceutical Policy will make on overall drug prices or on their affordability. At the same time if prices are to be controlled even on a selective basis on drugs whose price per unit dosage is above Rs 3, we will be going back to the old system of administered prices on a large basket of products with all its negative connotations.
Thus, it would appear that as of now, the National Pharmaceutical Policy continues to have many highly controversial elements begging for resolution. The prospects of the amended version meeting the primary objective of making drugs affordable to the weaker sections of society do not appear to be bright. While the goals and objectives envisioned in all these efforts are simple and transparent, the approaches to achieve them are still far from clear.
(The author is a senior research scientist and industry observer).