Drug watchdog’s Quixotic dalliance

NEW DELHI: Ram Vilas Paswan’s indignant remarks on the huge trade margins in the pharma sector, especially in the unbranded drugs’ category and threat of extending price controls to all “essential drugs” and the industry’s dogged use of skullduggery to avert any adverse policy action have now been reduced to a joint re-reading of the relevant Supreme Court order.

This, in essence, has reduced the previous theatricals to a low comedy. It may be recalled that the apex court, through an interim order in March 2003, directed the government to formulate appropriate criteria to ensure that “essential and life saving drugs do not fall out of price control.” The question now is whether the court was proposing cost-based controls.

See how the recent report of the government-industry joint committee on the draft pharma policy is a lesson in management. In the battle between Mr Paswan and the industry, one of them (Paswan’s chemicals ministry) was given to take the mantle of the arbiter. Therefore, the National Pharmaceutical Pricing Authority (NPPA), usually a low-profile regulator of drug prices, had to speak up for the arbiter (the ministry) and exhibit killer instinct. The report says, “NPPA was asked by the secretary, department of chemicals and petrochemicals (who chaired the committee)” to examine industry’s suggestions and give its views on the same. Should there be cost-based price control or “price monitoring”? This was the vexed question the committee debated. And NPPA went through the minute details of the “composite mechanism” mooted by the industry in lieu of cost-based price control and came up with alternatives/ alterations.

Look at the views in contrast. The industry said all companies with annual turnover of Rs 100 crore and above will contribute 0.25% of their turnover for various government programmes including district drug banks. The contribution will increase to 0.5% from the third year onwards. There are 60 such companies as per the ORG-IMS data. The industry put some caveats, though. The contribution should qualify for tax deduction, and the companies will be free to select the districts. NPPA, on the other hand, said all companies with turnover of Rs 50 crore and above should contribute. Further, non-compliance with the contribution clause would invite cost-based control on all essential drugs manufactured by the companies.

Secondly, the industry proposes that it could reduce the prices of 62 of the 354 essential drugs by rolling them back to a level six months prior to the promulgation of a new drug price control order and making a further price cut of 5% on them. It wants the remaining drugs - which includes anti-cancer, anti-retrovirals, hospital supply products etc. — to be outside this price cut formula. The NPPA, however, wants 186 of the 354 drugs to be subject to the price rollback-cum-cut formula. The authority wants a steeper cut of 10% as against 5% agreed to by the industry.

More importantly, the industry proposed that 45 of the 74 drugs currently under cost-based price control which are there on the essential drug list also would be freed from controls after one year. Their prices could merely be subject to monitoring. The NPPA pitched for continuance of the 74 drugs and their formulations under price control for at least another three years. The MAPE (see box) could be increased by 25% each in 2nd and 3rd years. Significantly, NPPA has conceded that the mechanism could be reviewed after three years.

In short, Paswan’s ministry which had wanted to extend the scope of price controls, could end up freeing even the existing DPCO drugs from price control. It may be noted that these drugs are by definition mass consumption drugs and their sales impact drug companies much more than the “essential drugs” outside the current DPCO. The industry has obviously managed to stretch the discussion further to get all drugs freed from cost-based controls, status of which, it knows, is what really matter.

Is the industry wrong in doing so? Not really. Forget about the discussion over the desirability of cost-based controls. The question is whether the 74 DPCO drugs are the ones to be controlled for the benefit of the consumer if at all there should be cost-based controls.

These drugs were selected for control more than a decade ago, under a criteria which was considered dubious even then. Many of these drugs have cheaper therapeutic alternatives now and some of them have lost their comparative therapeutic value. So, NPPA’s revelation that prices of medicines that went out of controls in 1995 (of top 15 bulk drugs) showed an annual increase of over 10.5% as compared to an annual reduction of 0.16% in case of controlled drugs has little relevance.

NPPA is however right in pointing out that generally prices are very high when they are introduced in the market for the first time. When prices are high ab initio, the authority’s current policy of monitoring price increases (over 20% increase a year is questionable)is insensate.