Out of control

The exit of the NPPA Chairman, who made sincere efforts to check overcharging by private hospitals, does not inspire confidence that the government is interested in addressing the anomalies in the costs of health care.

Bhupendra Singh, until recently the NPPA Chairman.

IN the first week of March, in a not very publicised move, the appointments committee of the Cabinet made some transfers. They were very much routine, but for one: the Chairman of the National Pharmaceutical Pricing Authority (NPPA) was moved to the National Authority on Chemical Weapons Convention and given the rank of Additional Secretary. In normal circumstances this would have been deemed as routine. But for the NPPA, which had faced the threat of being dismantled and its mandate of drug price control being merged in the Department of Pharmaceuticals, and its Chairman, Bhupendra Singh, the matter was not a routine one.

While the Bharatiya Janata Party-led (BJP) National Democratic Alliance (NDA) government has, on more than one occasion, appeared to be committed to the regulation of drug prices and medical devices such as cardiac stents, it has permitted the transfer of the NPPA Chairman under whose tenure some significant decisions pertaining to medicine prices and recoveries of crores of rupees as penalties in lieu of overcharging by the pharmaceutical industry had been effected.

The NPPA, under the National List of Essential Medicines (NLEM), 2015, had capped the prices of 871 essential drugs along with the retail prices of 642 drugs that were classified as “new drugs” by manufacturers. The NDA, led by Prime Minister Narendra Modi, has been high on rhetoric on the issue of controlling the prices of essential medicines. The government has also launched an advertisement blitzkrieg to showcase how it has “capped” the prices of cardiac stents and knee implants.

It may be recalled that one of the major announcements in this year’s Union Budget was the National Health Protection Scheme (NHPS) promising an insurance cover of up to Rs.5 lakh each for 10 crore families, with the rationale that there was a need to give some protective cover to patients seeking medical care as out-of-pocket expenditure on health was astronomical, as borne out by government data.

It was also intriguing that rather than expand the list of items under Schedule 1 of the Drug Price Control Order (DPCO), 2013, such as drugs, consumables and medical procedures, which account for much of the out-of-pocket expenditure of out-patients as well as in-patients, and rein in the private medical sector, the government had embarked on an insurance cover without even a national-level preliminary review of the Rashtriya Swasthya Bima Yojna (RSBY), the previous avatar of the NHPS.

The NPPA has been making headlines ever since it rationalised the prices of cardiac stents. The most recent instance involved cases of overpricing by four reputed hospitals in the National Capital Region (NCR) in the treatment of dengue and other ailments.

Fortis case

The case involving the death of seven-year-old Adya Singh at the Fortis Memorial Research Institute, Gurugram, last year prompted even the Central government, through the Secretary (Health), to send out a letter to the Chief Secretaries of States to ensure that standard treatment protocols were followed and malpractices such as overcharging did not occur.

The letter drew attention to the Clinical Establishments (Registration and Regulation) Act, 2010, wherein action can be taken against health care establishments engaging in fraudulent and unethical practices. The letter also urged the State governments to adopt and implement the Clinical Establishments Act. Only 10 States and six Union Territories had adopted the Act. One of the features of the Act is that it enjoins establishments to display prominently details of charges and facilities at a conspicuous location. The Fortis case had a cascading effect. Instances of overcharging were reported from other big hospitals too.

The NPPA, after receiving complaints of overpricing from the relatives of the deceased, acted within its mandate under DPCO, 2013. It demanded details of such bills from four major hospitals in the NCR. Of the four, three requested confidentiality, which the NPPA complied with, although it was not obliged to do so in the public interest.

The billing details of the four hospitals were nothing less than shocking. Medicines that were out of the NLEM and DPCO Schedule 1 constituted the bulk of the bills. There was an urgent need, therefore, to expand the list of medicines and drugs, including consumables, medical devices, procedures and diagnostic services under the NLEM and, more importantly, to bring them under price control as not all drugs under the NLEM were under price control.

In fact, Section 3 of the Essential Commodities Act, 1955, gives the right to the Central government to amend the DPCO to include drugs and formulations hitherto excluded from price control. It was in December 2016 that the NPPA was ordered by the Ministry of Chemicals and Fertilizers, the parent Ministry, to include coronary stents in DPCO 2013.

This was after the NPPA looked into complaints and representations involving the high cost of stents, following which Modi himself declared in a public meeting in Surat, before the Gujarat elections, that his government had reduced the price of cardiac stents and thereby protected poor patients from being fleeced. However, that was only the tip of the iceberg, as it was evident that routine costs of non-scheduled formulations and drugs, in either in-patient or out-patient care, were the cause of patient anxiety and despair.

NPPA analysis

The NPPA’s analysis of the bills submitted by the four hospitals, the details of which are available in its office memorandum of February 20, indicates that the problem lies elsewhere and is not merely limited to the cost of cardiac stents, local or imported, alone. The cost incurred on scheduled medicines and formulations (those under price control and based on the NLEM, 2015, i.e, falling under Schedule 1 of DPCO 2013) used in treatment accounted for only 4.1 per cent of the total as compared with 25.67 per cent for non-scheduled formulations (those out of price control). Consumables such as surgical gloves and masks, which are not covered under Schedule 1 of the DPCO and which do not come under price control, accounted for 9.6 per cent and diagnostic services 15.56 per cent of the total costs.

The charges on consumables were almost a tenth of the total bills and twice the cost of the expenditure on scheduled or essential drugs. Consumables are not under any price control, nor are they curbed by maximum retail price (MRP) norms, as they are not registered as drugs under the Drugs and Cosmetics Act. Therefore, the memorandum noted, the NPPA could “neither monitor the MRPs nor bring these disposables under price control even in public interest under extraordinary conditions”.

Non-scheduled devices, which include disposable syringes, catheters and cannulas, accounted for 1.52 per cent of the costs. Non-scheduled formulations, consumables and non-scheduled devices, including diagnostic services (which also are not under the price control list of drugs), together accounted for nearly 36.7 per cent of the total costs.

Random checks by the NPPA revealed that diagnostic services constituted nearly 15 per cent of the total costs. These costs were higher than the services provided by other independently run private centres. The major beneficiaries of profits due to inflated MRPs in all the four instances studied by the NPPA were the hospitals themselves rather than drug and device manufacturers.

The NPPA memorandum observed that the “total cost on scheduled medicines used in the treatment” was “only 4.10 per cent as compared to 25.67 per cent on non-scheduled formulations”. It noted: “It is amply clear that for claiming higher margins, doctors-hospitals preferred prescribing and dispensing non-scheduled branded medicines instead of scheduled medicines while scheduled medicines under NLEM are supposed to cover all essential medicines.”

The profit margins in non-scheduled devices were “exorbitant and clearly a case of unethical profiteering in a failed market system”, it said. The memorandum called for “policy interventions”, leaving it to the government to formulate them.

The memorandum observed that manufacturers were producing “drug variants” of those drugs already in the scheduled list of NLEM and got them out of price control by classifying them as “new drugs” or as fixed dose combinations. This, the authority said, had become the “preferred choice for manufacturing and the medical fraternity thereby diluting the purpose of putting these drugs under the essential category under the NLEM where the specification of dosage and forms (as essential) made it easier for manufacturers to launch a different dose or form and to come out of price control with an added benefit of the permissible 10 per cent annual increase in MRPs.”

What the NPPA observed has been a matter of concern for long for public health organisations such as the All India Drug Action Network (AIDAN), which has been fighting a case in the Supreme Court for several years now pleading for a cost-based formula instead of a market-based formula with regard to the fixing of prices of drugs. Therefore, it viewed the timing and the transfer of the NPPA Chairman with justifiable consternation.

The number of non-scheduled drugs and formulations has gone up in recent years, almost doubling the list of those drugs in NLEM 2015. “The trend of migration from scheduled to non-scheduled category is reflected in the growth rate of NLEM and non-NLEM drugs in the year 2017 where the rate of growth of non-NLEM drugs is almost double the rate of NLEM drugs,” the NPPA said in the memorandum.

Bulk purchases

The other malpractice it highlighted was the institutional bulk purchases resorted by hospitals from pharmacies owned by them, which made it easier for them to get high profit margins on drugs and devices without a need to violate the MRPs, which were already inflated. And in order to get bulk supply orders, the industry would be “forced” to print higher MRPs as per “market requirements”, it held.

Most of the drugs, devices and disposables were used and sold by the hospitals from their own in-house pharmacies and patients were given no choice or opportunity to procure them from outside where the prices were lower owing to some “discounts”, the NPPA said in the memorandum.

Even in the case of scheduled formulations, which are under price control, the margins on procurement prices ranged from 290 per cent to 357 per cent, while the margins on non-scheduled formulations were abnormally high, ranging from 500 per cent to 1,293 per cent.

Not only were the MRPs four to five times the cost of the prices at which the hospital had purchased the drug or injection; the total that was billed to the patient for those same units was far higher. The margins on procurement price on consumables such as surgical masks and hand gloves ranged from 347 per cent to 1,737 per cent, and for non-scheduled medical devices such as disposable syringes with or without needles, catheters and cannulas, the margins ranged from 361 per cent to 2,112 per cent.

In the memorandum, the NPPA made the observation that diagnostic services along with other charges by hospitals were beyond its purview and that of the Central government, but could be regulated through State-specific laws either through the adoption of the Clinical Establishment Act, 2010, and the corresponding rules, or through State-specific legislation.

The case of Adya Singh, who died at the Fortis Memorial Research Institute following failed treatment of dengue shock syndrome in September 2017, drew attention to increasing instances of inflated billing as well alleged negligence. On the basis of media reports and a right to information application seeking details of billing rates, the NPPA directed the hospital to furnish the same.

The margins on the procurement price (per unit MRP/billing rate minus the per unit procurement price) ranged from a 5 per cent on 100 ml of dextrose to 914 per cent on certain injections. There were two injections of the same drug of two different brands priced at different MRPs—one at Rs.3,112.50 per unit and the other at Rs.499 per unit.

As the matter got widely reported, the State government was compelled to conduct an inquiry. The Medical Board of Haryana submitted its report on December 5, 2017, which showed that the patient had been billed disproportionately: for example, one unit of platelet transfusion, which should have cost Rs.400, was billed at Rs.2,000. The committee found that the family had paid Rs.15 lakh for 15 days for emergency intensive care unit (ICU) treatment. The committee found that basic protocols were ignored, but ruled out negligence in the ICU. However, the withdrawal of ventilator support that ultimately led to the child’s death was tantamount to negligence, it held.

As for overcharging, the hospital was found to have made an overall profit of 108 per cent over MRP on all drugs and consumables used for the child. The government, the committee concluded, must intervene in some manner to control the profit margins of all drugs other than those notified by the NPPA and to contain the prices of procedures in hospitals. More drugs needed to be brought under the DPCO and price control by the NPPA, it said.

The nub of the issue is that more drugs need to be brought under the DPCO and the price fixing needs to be based on the cost of production of the drug rather than a market-based mechanism. Medical device manufacturers have been loath to come under any system of price regulation, especially one that has to do with fixing the rate on the basis of cost of production. Arguments about different portfolios (imported and locally produced) are also given for differential pricing. The manufacturer places the onus on the distributor or the stockist who, in turn, places the onus on the retailer.

On its part, AIDAN has demanded that the government impose price control immediately not only on syringes and needles but on any commonly used device. The exit of the NPPA Chairman in the overall scenario of overcharging and overpricing by the private sector does not bode well, nor does it inspire confidence that the government is interested in addressing the anomalies in the costs of health care.