Loosening control

The Health Ministry’s moves to dismantle the established price regime for essential medicines, undermining affordable access to drugs and weakening the regulatory framework for pharmaceuticals, raise concern.

Published : Dec 21, 2016 12:30 IST

Bhupinder Singh, Chairman of the National Pharmaceutical Pricing Authority.

Bhupinder Singh, Chairman of the National Pharmaceutical Pricing Authority.

ON October 19, a meeting was held at the Ministry of Health and Family Welfare with Secretaries of the Department of Pharmaceuticals and the Department of Industrial Policy and Promotion and the chief executive officer of NITI (National Institute of Transforming India) Aayog attending it to discuss, among other things, the process of notification of essential medicines to be revisited and revamped.

The minutes of the meeting, which were enclosed in a communication sent by the Ministry to NITI Aayog and the Secretaries of the Departments on October 24, said it was decided that the Drug Price Control Order (DPCO) “may be delinked from the National List of Essential Medicines [NLEM] and the National Pharmaceutical Pricing Authority [NPPA] in its present form and the current function may be wound up and deployed in the Department of Pharmaceuticals with a new mandate”. It was also decided that “the right of regulating prices as per need would rest with the government”. These were undoubtedly momentous decisions on drug pricing, decisions that had been arrived at ignoring an ongoing petition in the Supreme Court filed by public health organisations on the need for rational and affordable drug pricing, among other things.

The other significant item on the agenda related to the period of approval of a new drug. The minutes (a copy of which is available with Frontline ) recorded a decision taken to consider a new drug as “new” for 10 years instead of four years and amend the drug rules accordingly.

The October 19 meeting was the second such held on issues relating to the pharmaceutical sector. The first one, held on October 1, was chaired by the Principal Secretary to the Prime Minister at the Prime Minister’s Office. Clearly, there seems to have been an urgency to make some far-reaching decisions in the pharmaceutical sector, especially in respect of drug pricing, at the topmost levels, giving rise to pertinent questions. For instance, were existing pricing mechanisms acting as an obstacle to certain market interests? Did the existing order fail in its objective of meeting the requirements of a welfare state where access to health care was still a distant dream?

In its eagerness to bring in changes in the sector, the meeting quite ignored two things: one, there was ongoing litigation in the apex court wherein the government had on several occasions expressed its commitment to the present DPCO and the Supreme Court had directed the government to bring all life-saving drugs under price control and, two, the NPPA, with its unique motto of “affordable medicines for all”, was a government authority set up in 1997 under the Department of Pharmaceuticals. Further, the NPPA, which derived its broad mandate from the DPCO, 1995, was sidestepped in the discussions that took place in October and, therefore, did not have any role to play in the decisions taken that concerned its objectives and functions, namely to monitor prices of essential drugs.

It was justifiably felt that there may have been larger reasons to delink the DPCO from the NLEM and to reduce the NPPA, which had a full-fledged office with four dozen staff, to a subservient subsidiary within the Department of Pharmaceuticals. It is pertinent, at this point, to note the unhappiness expressed by the Standing Committee of Parliament on Chemicals and Fertilizers in its 2005 report that the provision to keep a strict watch on the movement of prices was not being applied. The report also noted that the NPPA had expressed its helplessness to some State governments regarding curtailing the prices of some anti-cancer drugs, antibiotics, nutraceuticals and cetrizine.

Whittled-down role

According to the official website and home page of the NPPA, the organisation was “established, inter alia , to fix/revise prices of controlled bulk drugs and formulations and to enforce prices and availability of medicines in the country under the Drug Prices Control Order, 1995”. The NPPA was also entrusted with “the task of recovering amounts overcharged by manufacturers for the controlled drugs from the consumers”, including “monitoring the prices of decontrolled drugs in order to keep them at reasonable levels”. It was rather successful in making major recoveries this year.

The exclusion of the NPPA was a serious matter and so was the issue of delinking the DPCO from the NLEM. Not only was the NPPA kept out of the exercise and its motto undermined, but public health stakeholders were not made part of the deliberations. The minutes of the October 24 meeting stated that “the process of approval of new drugs is cumbersome. Secretary, Health, to convene and coordinate for timely approval of the recommendations of all the concerned committees, viz, RCGM (Review Committee on Genetic Manipulation), GEAC (Genetic Engineering Approval Committee) ICMR, Bio Safety etc and streamline the process of decision making.”

An informed source said: “It was because of the interventions of the NPPA from time to time that drug prices have been coming down and that is why the pharmaceutical industry has been creating a racket. The government’s decision seems to be in tandem with what the pharmaceutical sector wants.”

The NPPA Chairman, Bhupinder Singh, had no knowledge of the deliberations and the decisions that were arrived at. He was not given a copy of the minutes. He explained that the organisation set up by the Government of India controlled only 13 per cent of the pharmaceutical market, the rest was out of any price control.

The Indian pharmaceutical industry is one of the fastest-growing industries in the world and any deceleration in its growth is not because of price controls. Increasing competitiveness from neighbouring countries and interventions by the United States Food and Drug Administration are seen as some of the factors causing a slowdown. However, India, which is the largest manufacturer of generic medicines and is a bulk drug exporter, has little to worry about reducing profit margins. “We rationalised the prices of drugs where it was very high and where there was no change in the formulation.

The DPCO draws its authority from the Essential Commodities Act and the present pricing regime is perfectly okay,” Bhupinder Singh said, adding that there were areas of improvement. He refused to comment on the October 19 meeting and its outcome.

“If we do not revise the price, we are not doing our job. Our mandate is not only ensuring affordability but price fixing, monitoring and recovery as well as addressing public grievances,” he said. The process was such that at first the Department of Pharmaceuticals would notify the drugs and as the NLEM was part of Schedule 1 of the DPCO, under which the NPPA was constituted, the NPPA had the jurisdiction to revise the rates. Prices of nearly 540 formulations brought under the NLEM were revised in a span of seven months. The new NLEM was declared in December 2015. Sources within the NPPA pointed out that when the NLEM, 2011, was notified rates of 530-odd medicines in the list were revised over a period of three years, while the present exercise was done in a record seven months’ time.

“Affordable drugs are part of the larger issue of affordable health care. Drugs are one part; hospitals, tests are another. The country should have an affordable health policy,” Bhupinder Singh said.

No public consultation

Reacting to the surreptitious moves to dismantle price controls on essential medicines and the proposal to wind up the NPPA, organisations such as the All India Drug Action Network (AIDAN), LOCOST (Low Cost Standard Therapeutics, a company which produces low-cost drugs) and Jan Swasthya Abhiyaan said that the proposals, as reflected in the minutes, were at the behest of industry lobbies, under the pretext of removing unnecessary hurdles and pushing for “ease of doing business”. The Supreme Court, the organisations pointed out, had repeatedly maintained that the government had a constitutional obligation to ensure the affordability of essential medicines.

The government’s current approach of market-based pricing has been challenged in the court by AIDAN, and hearings are at a crucial stage. The petitioners have pleaded for a cost-based pricing mechanism that would make the majority of generic drugs affordable.

Dependence on private providers

A recent report on health and morbidity in India by Brookings India said that households still “overwhelmingly depend on private providers for health care services”. While 75 per cent of outpatient health care was exclusively private, 55 per cent of inpatient care was from private hospitals in India. But out-of-pocket expenditure had risen significantly, mainly because of a rise in inpatient department (IPD) spending towards doctors’ fees, medicines and diagnostics, the authors of the report, Dr Shamika Ravi, Rahul Ahluwalia and Sofi Bergkvist, said. Brookings India’s study on health-seeking behaviour reiterates what public health activists have been saying for decades.

A drug pricing control system is imperative with the NPPA at the heart of it. The DPCO, in any case, it has been argued, did not cover the entire range of drugs, including some life-saving drugs. Control over drug prices was introduced in 1963 with the promulgation of the Drugs (Display of Prices) Order, 1962, and Drugs (Control of Prices) Order, 1963, under the Defence of India Act. The prices of drugs were frozen from April 1, 1963.

In 1966, the DPCO was issued under the Essential Commodities Act of 1955 and drugs were declared essential commodities. In 1979, for the first time following the Drug Policy of 1978, some 347 drugs and their formulations were placed under price control.

In 1975, the Hathi Committee report recommended selectivity in price control and fixation of ceiling prices on the basis of an investigation of costs of production and the establishment of an effective and continuing system of monitoring production, profitability, and costs. The process of putting bulk drugs and their formulations under price control continued. The establishment of the NPPA through a Government of India Resolution on August 29, 1997, was a natural corollary to this process. The public interest seemed to be dictating policy.

In 2002, the draft pharmaceutical policy on the basis of the recommendations of the Drugs Price Control Review Committee, 1999, sought to reduce the number of formulations to fewer than 35. The policy was challenged in the Karnataka High Court, which issued a stay order. The stay was challenged in the Supreme Court. It was clear that the pharmaceutical industry meant business. And the government did not seem to mind it much.

In 2003, the Supreme Court directed the government to formulate appropriate criteria for ensuring that essential and life-saving drugs came under price control and also called for a review of such drugs. It held that the government should be putting all drugs in the “life-saving” basket. The Supreme Court order paved the way for the genesis of the NLEM. In 2005, the Pronab Sen Task Force report recommended that the NLEM be revised every three years.

The fear is that with the changed role of the NPPA and the DPCO, the government will now decide what drugs should be put in the essential list of drugs that will come under price control. According to Mira Shiva and Malini Aisola of AIDAN, the DPCO, 2013, was an outcome of the ongoing case in the Supreme Court. It was the best price control policy to have come out in the past 40 years, they said. The proposal to extend the period of a new drug to 10 years was fraught with danger as it meant delaying generic competition, said Gopa Kumar of Third World Network. One of the criticisms against the DPCO was that it did not have any control over patented medicines. By extending the period of a new drug, the control the DPCO would have had on the price of generic formulations has now been extended.

Attempts by pharmaceutical industries to scuttle the DPCO were abetted by the Pharmaceutical Department itself, said a businessman manufacturing stents. A gazette notification was issued after a government committee recommended that stents should be put on the NLEM. But stents, which are considered life-saving medical devices, do not feature in the NLEM as the Department of Pharmaceuticals has not referred the committee’s report and recommendations to the NPPA.

AIDAN and organisations such as LOCOST, which impleaded themselves along with the original petitioner, began their crusade in 2003, seeking directions from the Supreme Court to rectify the pharmaceutical policy of 2002. They pleaded for price control of essential and life-saving drugs and monitoring of prices of bulk drugs.

In 2010, the Department-related Standing Committee on Health and Family Welfare noted in its 45th report that “given the current ground realities in the country where more than 80 per cent of the population is dependent on private medical care and nearly 45 crore people live below the poverty line, the most effective and direct approach would be to put a blanket cap on profit margins of all medicines across the board. Medicines are the only items where the decision to buy is not taken by the purchaser but by the third party, i.e. doctor. Therefore, if prescribers and producers join hands and take advantage of a patient’s helplessness only the state can stop them.” The role of a welfare state could not have been spelled out more clearly.

S. Srinivasan of LOCOST said that in 2011, the NLEM had been notified and 348 essential medicines were brought into its ambit. The 2012 pharmaceutical pricing policy had little to do with controlling the prices of drugs. In May 2013, the DPCO was issued. It advocated a single market-based mechanism of price control. In fact, the 1995 pricing policy was a cost-based policy, which had in its list a limited number of drugs but controlled the pricing of bulk drugs as well.

In 2013, all essential drugs were brought under price control but were not cost-based. The petitioners gave a representation to the Supreme Court in July 2015 with regard to four issues: a problem with the simple average formula in the DPCO, 2013 (they gave reasons why they preferred the cost-based formula as in DPCO, 1995); exclusion of life-saving drugs from the price control order; manufacture of large quantities of irrational combinations; and exclusion of patented drugs from the price control order.

The arguments for a cost-based price control were that the price fixed had no relevance to the cost of manufacture, with specific reference to the price of raw materials consumed; that a few manufacturers tended to derive super normal profits; that market-based price approach led to an increase in prices of drugs; and that the market prices tended to crowd at the higher end. In its response to the representation submitted to the court, the government maintained that market-based pricing under the DPCO was in favour of the consumer and required no change.

The truism that the government has no business to be in business holds good. But as a welfare state committed to providing basic guarantees of life, of which health care is a crucial component, it should make it its business to ensure that profiteering does not take precedence over the well being of the majority.

The pharmaceutical industry is said to be the second largest enterprise in the world after arms and ammunitions production. Its regulation is all the more needed in a country like India. Unfair marketing practices of pharmaceutical companies occur in various forms and the government has been reluctant to make a code for ethical marketing practices mandatory and statutory ( Frontline , April 29, 2016).

The regulatory mechanism in health care and medical education needs to be strengthened. Any tampering with the established regime of price control, with the aim of weakening the extant regulatory framework, will spell disaster for a country like India. To begin with, the lack of transparency does not inspire any confidence in the government’s intentions.

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