Rationale behind Drug Price Control: India is among those countries where OOP i.e. Out of Pocket expenditure on health is highest. NSSO survey data deciphers Expenditure on drugs constitutes over 67% of out of pocket expenditure on health care in India. As per WHO study estimates, about 65% of the Indian population lacks regular access to essential medicines. While India is among the largest producer & exporter of Generic Medicines even then 65% of the population lacks the access to the Essential category of Medications. A price capping over the medications would improve the universal access to medications & this will greatly reduce the out of pocket expenditure on Medications. The final outcome will be a healthy population. A High-Level Expert Group Report (HLEG) on Universal Health Coverage (UHC) for India recommended that an increase in the public procurement of medicines from around 0.1% to 0.5% of GDP would ensure universal access to essential drugs.
Basis: A. Section 3 of the Essential Commodities Act, 1955, (10 of 1955) B. Supersession of the Drug (Prices Control) Order, 1995 C. National Pharmaceutical Pricing Policy, 2012 (NPPP)
Policy governing price control: National Pharmaceutical Pricing Policy (NPPP)
DPCO: DPCO is the order by which price control is enforced.
Drug Price Control Ordering Ministry: Ministry of Chemicals and Fertilisers, which is the main nodal administrative ministry for pharmaceutical companies.
Drugs on which Price Controls are applicable: Price controls are applicable to “Scheduled drugs” or “Scheduled formulations”. These are those medicines which are listed out in the Schedule I of Drug Price Control Order (DPCO), by the Government of India.
When DPCO 2013 came, since then, scheduled formulations are noted as “Essential Medicines” declared by the Government through its National List of Essential Medicines (NLEM).
As per WHO published data, there were 348 medicines listed in NLEM 2011. A total of 106 medicines have been added, and 70 medicines have been deleted to prepare NLEM 2015 which now contains a total of 376 medicines.
Medicines in NLEM are listed with reference to the levels of healthcare, namely, Primary (P), Secondary (S) and Tertiary (T). There are 209 medicine formulations listed for all levels of health care (P, S, T), 115 medicine formulations for secondary and tertiary levels (S, T) and 79 medicine formulations for the tertiary level (T). It is to be noted that formulations of certain medicines are listed at different levels but as item, they are counted as one. The total number of medicines remains 376. The essentiality of a medicine has been considered in terms of its dosage form and strength also.
Points to be Noted:
-As per Para 19 of the DPCO-2013, the Government may, in case of extra-ordinary circumstances and in public interest, fix the ceiling price or retail price of any drug, whether scheduled or non-scheduled or a new drug for such period, as it may deem fit.
-Price controls are applicable on both generic & branded medications.
In case of Petition by Pharma Company: Department of Pharmaceuticals (DoP) is the reviewing authority whenever any pharmaceutical companies file review petitions against any price fixation done by NPPA. Review Petitions by Pharma Companies can be seen here.
Formulas & Steps Used for Fixing Prices of Drugs under DPCO
- ceiling price of a scheduled formulation
The ceiling price of a scheduled formulation of specified strengths and dosages as specified under the first schedule is calculated as under:
Step 1. First the Average Price to Retailer of the scheduled formulation is calculated.
Average Price to Retailer, P(s) = (Sum of prices to retailer of all the brands and generic versions of the medicine having market share more than or equal to one percent of the total market turnover on the basis of moving annual turnover of that medicine) / (Total number of such brands and generic versions of the medicine having market share more than or equal to one percent of total market turnover on the basis of moving annual turnover for that medicine.)
Step 2. Thereafter, the ceiling price of the scheduled formulation i.e. P(c) is calculated as below:
P(c) = P(s)x(1+M/100), where P(s) = Average Price to Retailer for the same strength and dosage of the medicine as calculated in step1 above. M = % Margin to retailer and its value =16%
There is no specific mechanism available in the DPCO, 2013 to check the difference between the actual cost of production and the retail price of medicines.
Ceiling price of a scheduled formulation in case of no reduction in price, due to absence of competition or cartelisation of a few players, is fixed by making certain adjustments as suggested in the DPCO.
Ceiling price of a new drug
The price to retailer of a new drug, not available in domestic market, is fixed by the Government with 16% margin on the principles of “Pharmacoeconomics” (a scientific discipline that compares the therapeutic value of one pharmaceutical drug or drug therapy to another) of the new drug and on the recommendation of a Standing Committee of Experts. (Here new drug refers to a formulation launched by an existing manufacturer of a drug of specified dosages and strengths as listed in the NLEM by combining the drug with another drug either listed or not listed in the NLEM or a formulation launched by changing the strength or dosages or both of the same drug of specified dosages and strengths as listed in the NLEM.)
A new formulation which is under patent would be exempted from the application of DPCO for the first five years since the commencement of commercial production.
Ceiling price changes in non-scheduled formulations
The prices of ‘non-scheduled’ formulations are not fixed by NPPA. There is no control on the launch price of the non-scheduled formulations. NPPA, however, regularly examines the movement in prices of non-scheduled formulations. The monthly market turnover reports of IMS Health (a US based company that provides information, services and technology for the healthcare industry) and the information furnished by individual manufacturers are utilized for the purpose of monitoring prices of non-scheduled formulations.
- As per DPCO-2013, manufacturers are not allowed to increase the prices of non-scheduled formulations exceeding 10% per annum.
- In case, a company increases the prices of non-scheduled formulations beyond 10%, the specific cases are taken up by NPPA with the respective companies for rolling back the increase within the limit of 10%.
- In case, a company does not comply with the instructions as above, NPPA initiates the process for capping the increase in the prices upto a ceiling of 10% by fixing the price of respective formulations pack/ medicine.
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