The market based pricing (MBP) being mooted by the Department of Pharmaceuticals (DoP) in the proposed pharma policy may check the possible manipulations by the pharma companies to circumvent price control under the existing system of cost based pricing (CBP).

Under the CBP, the prices of drugs have to be calculated in detail every year which requires a complex variety of data. For this, the manufacturers are required to provide their pricing data in an extremely detailed manner which is intrusive and so highly resisted by the individual manufacturers resulting in possible manipulation and time delay of provision of the base costing data. This also makes it difficult to properly check the data provided by individual manufacturers in a timely and adequate manner. Additionally the data can vary in terms of production cost depending on technologies used for production, according to the DoP.

“Under Marked Based Pricing, the pricing would be based on widely available information in the public domain as against individual manufacturer level production costing data and will result in more transparent and fair pricing.  Under CBP, as the controlled prices of formulations of a particular API are determined on a “lowest common denominator” basis, they tend to be clustered within a narrow band. This allows virtually no space for a new entrant to come in at an uncovered price point. As a result, production activity and competition in the product segment tend to stagnate. This is neither good to the consumer-patient nor for industry growth,” says the draft policy.

Besides, the principles of market-driven economy are also being used for the pharma sector through the policy. “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 market forces. Administered prices exist in a few areas, such as pricing of petroleum products and procurement prices of food-grains but these are closely connected with a regime of subsidies paid by the Government,” the policy says.

According to the new draft, the formulation will be priced only by fixing a ceiling pricing. “Manufacturers would be free to fix any price for their products equal to or below the CP. The CP’s would be fixed on the dosage basis, such as per tablet/capsule/standard injection volume and not on pack basis. It will be fixed on the basis of readily monitorable Market Based Data (MBD). To begin with, the basis for this readily monitorable market data would be the data available with the pharmaceuticals market data specializing company – IMS Health (IMS),” it says.