Ad Here  
GARP INVESTING – BLENDING TWOSOME IS AWESOME 5 things to watch out for Circle of competence An American Ghost Story Saving investors from themselves A good investment option Templeton’s P/E Fund
An American Ghost Story
Various research show that medicine prices in the United States are among the highest in the world even when compared to other developed countries. Should India follow this anti-power drug pricing?

To the bottom 20 per cent of the American citizens, most medicines are simply unaffordable.  To save money, the US. Customs estimates that at-least 10 million U.S. citizens bring in medications from abroad. An additional 2 million packages of pharmaceuticals arrive annually by international mail from countries like Thailand, India and South Africa.  US Consumers are also shopping vigorously at low-cost online pharmacies in India, the UK, and other countries where they can save money up to 80 per cent or more when compared to the prices in the United States. Perhaps not unconnected with the above is the fact that, Big Pharma companies in the US make obscene levels of profits.  In the annual Fortune 500 survey, the pharmaceutical industry topped the list of the most profitable industries in the US.  

But then why does this phenomenon occur? Why doesn’t the US have price controls on medicines like other developed and developing nations? The answer is because the United States believes in capitalism. Since the days of Ronald Reagan, the US has ordained itself to become the high priest in the temple of capitalism.  Its article of faith is that free markets would automatically bring down prices and will automatically lead to increased investment in pharmaceutical industry and also encourage competitions and boost innovation.  

However, as the American experience now clearly shows, free-market policies followed by the US have miserably failed to keep the medicine prices low.  Free capitalism as an arbiter of public health’s destiny has been a disastrous failure and the national pharmaceutical policy followed the US over the decades had failed the test. Because the bottom 20 per cent of the US population simply cannot afford the prescription drugs, price controls are now seen as an essential part of every nation’s strategy if it wants to keep the prices of medicines low and to ensure access to medicine by its citizenry.

However, the US may be far from price controls on medicines, not only due to its ideological bent of mind, but also because the Big Pharma spends over $855 million on lobbying activities alone (more than any other industry in the USA) to protect its industry’s interest in the Congress.


An Indian odyssey with the NPPA

In 1997, the government of India setup a regulatory body which it called ‘an Independent body of experts’ to control the prices of pharmaceutical drugs in India.  The body was called the National Pharmaceutical Pricing Authority (NPPA).  It was formally given powers to implement, control and enforce drug prices and also monitor drug shortages and take appropriate actions to rectify it. It advises the government on policies relating to drug pricing and monitors the data on export and import of drugs.

In 2013, the NPPA issued guidelines to have an uniform policy for price fixation under the Drug Price Control Order of 2013.  The guidelines said that the NPPA would monitor ‘inter-brand price differences’ between drugs of similar formulations on the basis of maximum retail price.  

This was to be done to track companies selling the same formulations at normal prices when compared to the industry prices.  In its analysis, the NPPA was dumbstruck and wanted to understand how considerable price differences in the market prevailed between different brands of the same drug formulation that were identical to each other in terms of active pharmaceutical ingredients strength and dosage.


Prescription - driven high prices...

The NPPA then realised that the main reason for market failure in normalising the prices of medicines in India is because access to medicine, was largely prescription-driven and the patient had very little choice in this regard.  In other words, the patient was buying medicines of ‘the brand’ the doctors were recommending despite the same formulations and the same dosage available at half the prices in another different brand or as a generic drug.

The NPPA then noted the huge inter-brand price differences in branded generics/ off-patent drugs. It further stated that given the significant role of pharmaceuticals in the realm of public health, the intervention of the government was mandated when exploitative pricing by pharmaceutical companies put a huge financial burden on the common man and on health care.

Therefore, the NPPA, in accordance with the powers conferred on it and in line with the newly framed guidelines, issued well-articulated and well-argued orders imposing price control on 108 drugs which outlined the need to fix prices in the face of market failures to ensure the affordability of medicines.

In July 2014 in a series of well-argued 50 orders, the NPPA put 108 drugs, mostly antidiabetes and cardio-vascular drugs, under price control. The NPPA’s focus on price control on anti-diabetes drugs was crucial and justified on the basis of very high incidence of diabetes in the country. According to International Diabetes Foundation, diabetes had moved from being ‘a rich man’s disease’ and now affects all the segments of Indian population and that India is on the verge of becoming ‘the diabetes capital of the world’ with around 61 million people affected by the disease and is expected to cross 100 million by 2030.  Given the scale of diabetes epidemic, the NPPA justified its price control orders.


All hell broke loose...

The Indian pharma industry reacted very aggressively to these decisions.  Both Indian and multinationals raised concerns that ‘India’s investment image’ had gone to the dogs and that the industry would have to shut down if the same trend continued. The Indian pharma lobbies also filed suits in the Delhi and Bombay High Courts, and prayed for a stay order which they were not granted as many Supreme Court judgments had earlier justified price controls on medicines in public interest


Should the government clip the power of NPPA?

Given the relentless industry demands, the Modi government decided to clip the wings of NPPA which was supposedly an expert body of regulators and withdrew their powers to pass such orders in the future. The decision of Modi government to the powers of the NPPA to set price caps on drugs raises serious questions on the state’s commitment to the welfare of the poor.  As a result, over 108 essential drugs will now lie outside the ambit of NPPA and its internal guidelines on regulation and control of drugs would cease to apply to them.  

According to the government, the reasoning for withdrawal of powers of NPPA and clipping of its wings was because ‘it lacked legality’.  Interestingly, the Modi government has found that NPPA was not legally competent to pass price control orders after over 17 years of its creation and immediately after it passed orders that would restrain pharma companies from making super normal profits.


Future of NPPA:

Earlier, the NPPA had planned to put under price control many more life-saving drugs like anti-asthmatics, anti-malarials, immunologicals etc.  But with Modi clipping its wings, this is now impossible.

India has a large number of poor people and has a bounden duty to ensure that access to medicine remains within the means of the common man.  Either the state must set up its own companies to manufacture drugs at affordable prices for its people or put price controls to the market prices.  Since the former appears to be distant, it is critical that the NPPA is re-created as an independent statutory agency, made up of renowned experts from industry to fix prices of drugs, in a manner that helps the companies receive a reasonable return on their investment while simultaneously ensuring the larger objective that the right of access to medicines price is protected.

If for financial reasons, poor citizens of India are unable to afford medicine, then the introspection lies on the conscience of the state.

Author :
Reported On :
Sector :
Shoulder :
IE, the business magazine from south was launched in 1968 and pioneered business journalism in south. Through the 45 years IE has been focusing on well-presented and well-researched articles. When giants in the industry stumbled to keep pace with the digital revolution, IE stayed affixed embracing technology.
Read more
Economist Communications Ltd is committed to ensuring that your privacy is protected.
Read more
You agree that your use of this Website and the purchase of the magazine will be governed by these terms and conditions.
Read more
S-15, Industrial Estate,
Chennai - 600 032.
PHONE: +91 44 22501236