Side-effects of drug price control

The Department of Pharmaceuticals' decision to stick to cost-based pricing will put drugs out of reach of the poor. Market pricing will improve access to medicines by spurring competition in the industry.

March 30, 2012:

The figures just don't add up for Nathu Ram, a daily-wage earner, who supports a family of five. Eking out a meagre existence on Rs 200 a day, he finds himself in an inescapable predicament: either to feed the family or foot the medical bills of his wife, diagnosed with breast cancer recently. He does try to balance it out, but even concessional treatment and medicines remain out of bounds.

Nathu Ram is not an isolated case. Millions of people in India don't have access to essential medicines. Just making drugs cheaper doesn't help their case. Nor does rhetoric! It's time we understood why the well-drafted National Pharmaceutical Pricing Policy (NPPP) 2011 might not meet its avowed objectives.

Directed by the Supreme Court, the Department of Pharmaceuticals (DoP) set the tone for the NPPP 2011 with a focus on improving access to essential medicines and encouraging industry competition through a market-based pricing policy. But since then, there has been a series of flip-flops on its position, the latest move being to stick to the cost-based pricing mechanism. This policy play has baffled experts and leaves little to the imagination on what lies ahead for the industry.

It has also given rise to fears of the kind of licence raj' that encouraged companies to adopt unethical means to inflate cost of production and thus increase profitability.

Apart from being cumbersome and non-transparent, the cost-based model ensured there was no incentive for cutting costs, efficient manufacturing and wide distribution, completely defeating the Government's avowed objective of making essential medicines affordable to all.

Mindful of the central objective of promulgating the principles for pricing of essential drugs, as laid down in the National List of Essential Medicines (NLEM) 2011, the NPPP 2011 proposes to strike a balance between enabling industry growth and ensuring affordable and reasonably-priced medicines to patients, particularly the poor. The key principles of the NPPP 2011 include essentiality of drugs, market-based pricing and affordability. In fact, the market-based pricing mechanism has been well received by the industry and supported by the WHO.

Even a cursory look at the prevailing cost-based policy reveals its significant limitations and adverse impact on the industry and consumers. For one, it has shifted bulk-drug production out of India (to countries such as China), escalated prices for select medicines, reduced the number of industry players, weakened innovation in cost control and limited new introductions. Above all, it has failed to help patients in the rural areas access medicines.

Further, the cost-based policy has created an inefficient mechanism of price calculation not aligned with India's needs. In fact, the WHO welcomed the intent to move away from cost-based pricing as it has been abandoned elsewhere. Given these severe handicaps, a market-based pricing policy can bring about improved access and encourage competition.

Originally posted here:
Side-effects of drug price control