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Pharmaceutical Price Regulation - Is the government being two-faced?

Saturday, 21 September 2013 - 9:00am IST Updated: Saturday, 21 September 2013 - 10:38am IST | Agency: DNA
Saurav Datta looks at the various issues surrounding Price Control of Drugs.
  • DNA

Pharmaceutical Prices Regulation- the government’s deception needs to be called out.

“We cannot afford to let them die those who cannot afford to live”

It would be Utopian to wish this was embraced as a motto by both the State and the pharmaceutical industry (now bestowed with the monicker “Big Pharma”). The bitter fight over Obama’s universal health insurance scheme, and the way it created a bipolar schism of a magnitude not seen since the Civil War bares ample testimony to the fact that implementation of “health for all” is regarded as a blistering attack on liberty, of individuals and corporations (in the eyes of the law, they are also individuals, what is known as juristic persons). 

The US Supreme Court, by a narrow margin, upheld the constitutionality of this scheme, but the embers of spirited resentment, and determined efforts to derail it, have not lost a bit of their glow.

The situation is not so dire in India, though the debate in the run-up to the Supreme Court’s judgement in the Novartis case did demonstrate how fraught the situation, in all likelihood, shall become in the near future. The tug-of-war is essentially between the pharmaceutical companies’ right to levels of profitability they consider just, and the millions of people’s right to access healthcare. It is a matter of excruciating irony that a theory of rights (of corporations, to function, thrive and prosper with liberty- minimal, preferably nil government control) is being pitched against a theory of justice (also known as the Rawlsian paradigm ) but that is inevitable in a mercenary world, one might think.

Globally, a blazing battle rages on regarding governmental curbs on Big Pharma’s intellectual property rights so as to fulfill the obligation of making the human right to health a reality. A smaller battle, which has not scorched the media terrain yet, is against government regulation of pharmaceutical pricing.  Developing countries form the most common battleground, though it would be too facile to assume that equitable access to health and healthcare is a functional reality in developed countries too.

A commonly fired torpedo against such controls is the argument centred on innovation – millions are spent on R &D of drugs, and price curbs will dry up research, thereby having a pernicious effect on patients. A fitting riposte to that would entail going into the details of the economics of intellectual property rights, which is not our present purpose (though, this could come in handy as reference).  Rather, here in India, where every policy “debate” is characterised by tunnel vision and vociferous broadcast of binaries, the truth, and the devil, which lurks in the minute details, often escape scrutiny. The Bhagwati- Sen “slugfest” would be an apt example. The war of words and missiles of rhetoric being fired over the proposed Drug Prices Control Order (DPCO) seem to be following this same trajectory- towards a farce.

Price regulation of drugs, especially essential medicines and life-saving drugs are not a new phenomenon in India, although there has been a substantial whittling down, perhaps to remain onboard the liberalization juggernaut. For instance, in the DPCO 1995, the number of drugs subjected to such control was brought down to 74 from 166 in 1987. In 2002, the NPAA (National Pharmaceutical Pricing Authority) recommended a further dilution, which was carried out in earnest.

Before anyone screeches from the burlap- that such regulation is the ominous continuation of the sinister licence permit Raj , it must be noted that “regulation” and “control” are not coterminous. In control there is no freedom, in regulation there is freedom but subject to reasonable restrictions in the public interest. It must also be noted that prices of all drugs are not subjected to “control”

What is the government’s rationale for such regulation? It is essentially dependent upon the nature of the market. Because the Indian pharmaceutical market is oligopolistic in nature, where consumer sovereignty remains a distant mirage and information-asymmetry drives supplier-induced demand, it is a veritable private sector oligarchy. The problem is compounded by the fact that pharma companies’ loyalty to profitability is best described by Churchill’s phrase “as loyal as a leech.” Nothing wrong in that, except for the fact that in a country where inequitable access to healthcare is endemic, putatively laudable “enterprise” becomes nothing but demonic profiteering

Therefore, an NLEM- National List of Essential Medicines) is drawn up, on the basis of three critical underlying principles- Cost, safety and efficacy. 

The National Pharmaceuticals Pricing Policy 2012 replaced the Drugs (Price Control) Order, 1994 that currently monitors and regulates prices of essential medicines in the country. Under this, the Drug Price Control Order 2013, which came into effect on July 29, lowered prices of 348 essential drugs so as to bring succor to those in dire need. Big Pharma has cried murder and rushed to the Delhi High Court, which has since granted a stay on its implementation. What is lost in the tendentious account of the pros and cons of the impugned DPCO is the government’s sleight of hand.

It is an inescapable reality of present times that much-touted benevolence and care of the government usually camouflages malevolent mendacity. The NPPP 2012 achieves the same purpose by replacing CBP (Cost Based Pricing) with MBP (Market Based Pricing).

In previous regimes, drug prices were regulated at two levels:

  • The price of the bulk drug (i.e., raw materials or active pharmaceutical ingredients used in manufacture) by placing a ceiling on profitability.
  • The price of the finished product sold in the market was regulated by placing a ceiling on the maximum allowable post-manufacturing expenses (MAPE). The MAPE allowed included profit for the company, at a rate of 100%, according to the 1994 DPCO.


Thus, it was ensured no one was better off at the cost of another, that is, equitable access to healthcare (or a semblance of it, at least) was maintained. But now, with the MBP, it is a foregone conclusion that equity would be buried for good. This is because “The Invisible Hand” of the market, and an oligopolistic one at that, brushes away, in quite an insentient manner, everyone who lacks the capacity and capability to pay up.

Hence, instead of cheering the dutiful government and berating Big Pharma for its avarice, one might do well to train the guns on the government’s priority to safeguard the pharmaceutical industry. The human right to equitable access to healthcare and health is too precious to be expended in bickering over rhetoric.




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