Fixing drug trade margins only remedy, feels ministry

NEW DELHI: Chemists will soon lose the incentive to prefer selling costly drugs that offer higher margins and push cheaper low-margin products out of the market in the process.

In order to address the perverse incentive structure existing in pharmaceutical marketing, the chemicals and fertilisers ministry has modified the strategy to regulate trade margins it had envisaged in the proposed new pharmaceutical policy.

It has dropped the idea of fixing trade margins of drugs in percentage terms and is going to arm itself with the ‘general power’ to fix trade margins in absolute terms for all drugs.

Instead of notifying a 15% and 35% trade margin for wholesalers and retailers proposed in the draft new pharmaceutical policy, the ministry has now sought the law ministry’s consent for a broad amendment to the drug price control order (DPCO) 1995 in this regard. Once it is through, margins could be notified for all costly drugs in rupee terms. This is expected to remove the preference chemists show in stocking drugs depending on their trade margins.

Although a trade margin-driven marketing strategy exists in the case of other products also, the decision to buy a medicine is not with the consumer and hence this anomaly should be corrected, the ministry believes.

While the draft policy had prescribed a 15%-35% trade margin for drugs which are outside government price control, a margin of 8%-16% already exist for price controlled drugs which account for about one fourth of the Rs 23,000 crore market. The proposed amendment also does not mention any relaxation for SMEs, which the ministry had been working on.

This would be addressed when trade margins are notified. Some officials, however, pointed out that fixing margins on thousands of individual formulations may prove to be somewhat difficult for the government considering the limited manpower price regulator National Pharmaceutical Pricing Authority (NPPA) has.