While market based pricing can potentially reduce pricing for two-thirds of essential medicines, there are far too many loopholes to reduce your chemist bill. Ironically, the set ceiling price of the remaining one-third of essential medicines is higher than market leader’s price. Can the prices of these drugs actually increase?
According to the new drug pricing policy, the ceiling price of essential medicines is fixed, based on the simple average of the prices of all brands of that drug that have a market 
share of at least 1%. The national list of essential medicines lists 348 bulk drugs, which are sold as 650 formulations. The good news is that for two-third essential medicines, there can be average price reduction of 22% (even though some reports claim reduction by 30%-40%).
The bad news is that there are far too many loopholes to really see reduction in your chemist bill. Market-based pricing (MBP) actually sets the ceiling price higher than even the market leader in the remaining one-third of essential medicines. Does it mean the market leader can legitimately raise its price to meet the higher ceiling price and in-effect can make a mockery of the new drug pricing policy?
It may not happen, but there is no penalty in case of violation. According to Para 13(2) of Drug Price Control Order (DPCO), 2013: “All the existing manufacturers of scheduled formulations, selling the branded or generic or both the versions of scheduled formulations at a price lower than the ceiling price (plus local taxes as applicable) so fixed and notified by the Government shall maintain their existing maximum retail price.“
According to Dr Chandra M Gulhati, editor, Monthly Index of Medical Specialities (MIMS), “There is no penalty for not following government policy on ‘not increasing the prices to ceiling levels’ unlike for those that do not decrease the price to ceiling levels. It is like saying that ‘drive on the left side but even if you don’t we will not take any action.’ There are also practical problems (a) Once the government fixes the MRP, it can not legally force manufacturers to sell the same product below MRP, such an order will be unconstitutional (b) there is no data on prices prevalent in 2012 and (c) it will hurt manufacturers who are at the bottom of the price ladder and making very little profit in case there is price increase in raw material, conversion costs etc. Thus in reality the government will be penalizing honest manufacturers.”
For the two-third essential medicines there can be average price reduction of 22%, but DPCO has given leeway of 10% price increase every year. It means that the savings can get wiped out in two years even if the raw material prices do not increase at the same rate. According to S Srinivasan, managing trustee, LOCOST (Low Cost Standard Therapeutics), “WPI (whole-sale price index) may be even more than 10 %. If they had a cost based ceiling price instead of MBP, you could factor the actual increase of raw material and other conversion costs you could have given at the same rate as say the WPI.”
NGO All India Drug Action Network has filed PIL (public interest litigation) in SC contending that MBP is never used for any price regulatory purposes and under the new policy simple average ceiling prices are in many cases higher than the market leader price. According to the NGO, “We stick to our stand of reversing to the cost-based pricing mechanism from the newly-adopted market based pricing.”
Mr Srinivasan, says, “Price control for all drugs (scheduled and unscheduled) needs to be strengthened by a grievance mechanism for the consumers to allow complains about lack of access, overpricing of medicines or any unethical marketing practices in the trade. At present in the DPCO 2013 under para 31, the ’aggrieved person(s)’ appear to be only manufacturers. There is no room for consumer grievances on unreasonable prices.”
DPCO itself covers only 14%-17% of the Rs75,000 crore pharma market. There are some wrong estimates given about it covering two-third of pharma market.
In the second part of the article, we will look at the escape routes that pharmaceutical industry can exploit to ensure there is minimum dent in their profitability.
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