Government Mulls New Mechanism to Monitor Drug Prices

The drug pricing mechanism in the country is likely to be overhauled soon, according to a report in the Times of India newspaper. Among the changes proposed by the government is the move to introduce a new price index for pharmaceutical products that will become the benchmark to determine prices of all medicines sold in the country – even those that are currently outside the drug price control order.

Prices of around 850 essential drugs are capped by the government. The drug price regulator, National Pharmaceutical Pricing Authority (NPPA), revises these prices annually based on the wholesale price index (WPI). For all other medicines, companies are allowed to raise prices by no more than 10% in a year.

Under the proposed mechanism, the Centre plans to link prices of all medicines with the new pharmaceutical index. Drug makers would be allowed to revise prices annually only on the basis of movement in the index.

The proposed index will not only replace the WPI for revising prices of scheduled or price-controlled drugs, it will be used to regulate prices of non-scheduled medicines. The proposal is part of the recommendations made by the government think-tank Niti Aayog for making changes to the Drug Price Control Order, 2013. Once in place, the new system will change the price movement of all medicines. Under the present price mechanism, only 17% of the over Rs. 1 lakh-crore domestic pharmaceutical market is under direct government price control. Even by volumes, the government regulates 24% of all medicines sold.

Industry concern

The suggestion to create a new index came in the wake of objections from the pharmaceutical industry to linking of prices with WPI. However, it seems the government’s latest move may also not go well with drug makers. “Quality comes at a price. On one hand, the government wants companies, particularly the medium and small size enterprises, to comply with WHO quality norms. This requires significant investment. If these companies are not allowed to hike price beyond WPI then they will not upgrade their infrastructure and facility to meet quality requirements,” Indian Pharmaceutical Alliance’s Secretary General, Mr. D.G. Shah was quoted as saying in the report.

Mr. Sanjiv Kaul, partner at ChrysCapital, said, “It will not only serve no significant economic purpose but also create additional headwinds to an already beleaguered industry. For Indian pharma to be competitive on exports and earn valuable foreign exchange, the domestic revenues must absorb significant portion of the infrastructural overheads. If the latter gets impacted negatively, it takes a toll on R&D and exports.”

However, there are experts who believe that linking prices to an index will be better and less discretionary than the present mechanism and may actually result in increase in prices rather than a decrease.