Upcoming drug-pricing policy suffers a host of anomalies

The proposed drug-pricing policy suffers from a host of anomalies. Extending price control to all “essential” medicines implies massive regulatory overreach, especially given the widespread problem of substandard and spurious drugs in the over Rs 1-lakh-crore Indian pharmaceuticals sector (40% of which is exported).

Now, as per the last Drugs (Price Control) Order, 1995, the prices of 74 select bulk drugs are to be regulated, but only 47 of them were actually under production as of last year.

Evidently, the rigid cost-based approach in the present drug-pricing regime has discouraged output, and the new policy seeks changeover to market-determined prices. And the ceiling price envisaged is the simple average of all brands having market share of 1% and above of the total turnover in any particular medicine.

But such an approach would also be prone to misuse; it makes sense to work out weighted average prices at the very least. Also, the plan to hike drug prices annually in step with the wholesale price index (WPI) would defeat the very purpose of price control.

Regulated prices surely need to take into account a sector-specific efficiency factor X, so that prices rise by no more than WPI minus X. The new policy has no pricing provision for patented drugs.

The policy paper simply says a separate committee is looking into it! This is ridiculous. Price control, rather than frequent resort to compulsory licensing, is the way to make key drugs affordable.

A major reason why the market for drugs is unlike other markets is structural information asymmetry between the consumer and the doctor who determines what the consumer should demand. Modern information technology and telecom must be deployed to remedy this to a large extent, using mobile phone apps and text messaging service.