Relevance: GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Key Phrases: National Pharmaceutical Pricing Authority, National List of Essential Medicines, Wholesale Price Index, Scheduled Drugs, drug regulator, pharma industry, Drugs (Prices Control) Order, 1995, ceiling price, Active Pharmaceutical Ingredients, trade margin rationalization.

Why in News?

• Consumers may have to pay more for medicines and medical devices if the National Pharmaceutical Pricing Authority (NPPA) allows a price hike of over 10% in the drugs and devices listed under the National List of Essential Medicines (NLEM), this coming month.

Context:

• The escalation which is expected to have an impact on nearly 800 drugs and devices is propelled by the rise in the Wholesale Price Index (WPI). Lobby groups that represent domestic pharmaceutical companies have been asking the Central Government to extend the 10% annual hike to scheduled formulations under price control.
• Prices of Scheduled Drugs are allowed an increase each year by the drug regulator in line with the WPI and the annual change is controlled and rarely crosses 5%. But the pharmaceutical players pointed out that over the past few years, input costs have flared up. “The hike has been a long-standing demand by the pharma industry lobby. All medicines under the NLEM are under price regulation.
• As per the Drugs (Prices) Control Order 2013, scheduled drugs, about 15% of the pharma market, are allowed an increase by the government as per the WPI while the rest 85% are allowed an automatic increase of 10% every year. The pharma lobby is now asking for at least a 10% increase for scheduled drugs too than going by the WPI.

Why are inputs costs high?

• 60%-70% of the country’s medicine needs are dependent on China.
• Self-reliance for India also means self-reliance in bulk drugs (Active Pharmaceutical Ingredients/APIs) and chemicals/intermediates that go into making the drug.
• The method to calculate the annual ceiling price increase should be revisited.
• WPI is dependent on price rise in a basket of a range of goods that are not directly linked with the items that go into the cost of medicines. More importantly, the unrealistic simple average method of calculating ceiling prices should be replaced by a cost-plus mechanism that was prevalent under the earlier DPCO 1995.

What are the solutions then, if not simply harsh price controls?

• The first solution is a scientific approach called Trade Margin Rationalization (TMR). A complex supply chain exists in the drug market, from the stockist to the retailer. Therefore, rationalizing trade margins does end up regulating prices for medicines and devices.
• It is important that robust healthcare infrastructure is created that values patient safety, encourages innovation and reduces costs. India must encourage research-based organizations to operate in India. That’s reason enough to ensure a moderate return on investment for both domestic and foreign firms. TMR is one such solution that allows manufacturers of drugs and medical devices to invest in new drugs and vaccines while competing with others in the market.
• The second solution is to move towards centralized procurement. This would give the state stronger negotiating power and greater bargaining clout. There is nothing that stops states from bringing drugs and devices under bulk procurement. Tamil Nadu’s success proves that changes in procurement and inventory management can be transformational.
• The other solutions that have worked in various geographies are social health insurance schemes, cross subsidization and state financing of essential drugs. Using these multiple solutions will not only make healthcare affordable, but also give our state accessibility to latest technology.
• Arbitrarily cutting prices and issuing compulsory licences will make the ease of doing business go back to old levels and strike at the very root of innovation. It’s important here to note that India’s healthcare sector remains an import-driven market, despite price caps on key devices.
• Apart from the foreign sector, the private sector’s role in India’s healthcare reforms is also more than significant. The best option would have been to take the entire healthcare mechanism under the government control and move to state provision and public financing of healthcare. However, given that state and Union budgets are now under much pressure, we need to explore ways in which the costs of medicines and equipment can be brought down.

Way Forward:

• There is needed a good healthcare infrastructure and larger public investment in health. In the absence of these, we are left with the second best option of letting the large private sector play a stronger role in provision of drugs and vaccines. At the moment, the state machinery is absent in most parts and healthcare needs are met by the private sector. Nearly three-fourths of all medical expenditure is spent on privately provided care.
• The other solution towards lower out-of-pocket expenditure is social health insurance. When an individual falls sick, there can be a severe impact on household finances. If social safety nets are inadequate, a family can become impoverished not only directly from the out-of-pocket payments for medical care, but also indirectly from missing work, disability, or premature death, thereby leading to lowered income. However, health insurance also needs a careful control over prices and a check on frauds, which Ayushman Bharat is already struggling with.
• Clearly, given that India has a large patient base that suffers from neglected diseases, anything that further disincetivizes the market and innovation cannot be a good policy.

Source: The Hindu 

Mains Question:

Q. What is the National Pharmaceutical Pricing Authority’s role in fixing drug prices? Why is the pharma lobby seeking a 10% increase for scheduled drugs? How will it impact consumers? Critically analyse.