A life-saving order

Print edition : July 30, 2004

While pharmaceutical companies try to persuade the government to reduce the number of drugs under price control, a Supreme Court order directs the government to ensure that the prices of life-saving drugs are kept under strict control.

EVEN as pressure from pharmaceutical companies to reduce the number of drugs that are under price control in India increased, the Supreme Court, in an order issued during the proceedings of a petition, said clearly that the government should ensure that the prices of essential and life-saving drugs were kept under control. The petition was filed by the All India Drug Action Network (AIDAN), the Medico Friends Circle (MFC), the Low Cost Standard Therapeutics (LOCOST) and the Jan Swasthya Sahyog. Says Colin Gonsalves, the advocate representing these organisations in the Supreme Court: "Any move to reduce the number of drugs in the DPCO [Drug Price Control Order] will be in contravention of the Supreme Court order in the K.S. Gopinath case where the court made an order on March 10, 2003, directing the government to ensure that essential and life-saving drugs do not fall out of price control."

According to the World Health Organisation (WHO), essential medicines are those that satisfy the priority health care needs of the population. The medicines are selected keeping in mind their public health relevance, evidence of safety and efficacy, and cost-effectiveness. Essential medicines are intended to be available in the context of a functioning health system at all times in adequate quantities, in appropriate dosage forms with assured quality and reliable information, and at a cost that the community and individual can afford.

The history of price control in India dates back to the Essential Commodities Act of 1955, which kept a check on prices of essential commodities including drugs. In 1979, there was a list of 347 drugs in the DPCO that were under price control. Over a period of time, as a result of sustained lobbying by the Indian pharmaceutical industry, the number of drugs listed in the DPCO fell to 142 in 1987 and to 76 in 1995. The problem is the absence of a regulatory agency that is empowered to keep a check on the prices pharmaceutical companies decide on and the profit margins they think are acceptable. The National Pharmaceutical Pricing Authority (NPPA), set up in 1997, is supposed to monitor the prices of drugs to ensure that they do not flout the maximum price allowed if they are under price control.

In the European Union (E.U.) and Australia, governments have tried complementing pharmaceutical licensing procedures with the ability of a company to demonstrate the cost effectiveness of the drug. For example, the Pharmacy Benefits Scheme (PBS) in Australia and the National Institute of Clinical Excellence (NICE) in England require companies to submit evidence of the costs and effects of new products. In the United Kingdom, the U.K. Pharmaceutical Price Regulation Scheme (PPRS) regulates profits to a band of 17 to 21 per cent on historical capital or the initial capital used to begin the venture with a 25 per cent variation on either side. Companies are free to set prices, provided the rate of return is within the band. If the profits are higher, the companies have to reduce profits the next year and if the profits are lower, they can raise the prices. In France, Italy and Belgium, prices are set in relation to relative cost, prices elsewhere in the E.U., and the contribution made to the national economy.

In India, the authority in charge of drug pricing is not the Ministry of Health and Family Welfare but the Ministry of Chemicals and Fertilizers. The Government of India appointed the Committee on Drug Pricing in 1999; its members included representatives from the pharmaceutical industry, the Secretary of the NPPA, the Drug Controller of India and the Secretary to the Ministry of Chemicals and Fertilizers. In its summary recommendations, the Committee said: "...In most other countries the regulation of drug prices is considered necessary to contain public expenditure due to the government's role in funding social health and insurance schemes that cover hospital and out-patient drugs... . In these countries, a substantial portion of the population is covered through health insurance and public health schemes. As a result, consumers are not affected directly by the high prices of drugs or the high costs of medical services but are made to pay for the increased costs through a high insurance premium. As opposed to this, a substantial portion of the population in India is market-dependent and have to meet all their expenses on this account out of their own pocket, making price regulation of pharmaceutical products unavoidable."

According to Pharmaceutical Policy 2002, which is formulated by the Ministry of Chemicals and Fertilizers, the criteria for price control of bulk drugs are based on the sales figures of drugs, that is, the Moving Annual Total value or MAT value of the drugs concerned. These are calculated by adding up the MAT values of single ingredient formulations of bulk drugs from the retail store audit data published by the market research company ORG-MARG. The idea is to identify bulk drugs of mass consumption, which do not have enough competition for the market to bring down the prices. Bulk drugs are kept under price regulation if the total MAT value in respect of any particular bulk drug is more than Rs.25 crores and the percentage share of any of the formulators is 50 per cent or more or the total MAT value arrived at in respect of any particular bulk drug is less than Rs.25 crores but more than Rs.10 crores and the percentage share of any of the formulators is 90 or more. Since MAT figures decide which drugs will go out of price control, there are many instances of life-saving drugs that are not controlled by drug pricing. According to ORG-MARG, in March 2001, the life-saving diuretic and anti-hypertensive, frusemide, had a total MAT value of Rs.9.48 crores and though the leading brand Lasix manufactured by Avantis had a market share of over 97 per cent, it escaped price control.

A cursory look at the drugs that are on the DPCO shows that the criteria for price control are not working. While drugs such as quinine and primaquinine used to combat malaria do not come under price control, analgin, which is banned in many countries because it can cause serious blood disorders, is listed as essential. Says Amit Sen Gupta, co-convener of Jan Swasthya Abhiyan, a network of organisations that works in the area of health: "The criteria for drug pricing have little to do with the country's health policy, the availability of health care or the diseases that are prevalent. For example, tuberculosis often leads to complications when patients do not comply with the prescribed regimes for treatment because drugs are not available to the patient. When this happens, second and third line drugs are used, but none of these are under price control."

Says S. Srinivasan, from LOCOST, a Vadodara-based trust that manufactures low-cost drugs on a no-profit basis, "If one looks at drug prices in terms of wages, that is, if you look at the costs of drugs for a person earning a minimum wage of Rs.60 in a State like Chhattisgarh, she/he has to spend one month's salary to afford immunisation for hepatitis A and nearly one and a half month's salary to afford treatment for tuberculosis. The difference between the prices of the Tamil Nadu Medical Services Corporation (TNMSC), set up to ensure the availability of essential drugs to government medical institutions in the State, and those charged in the market is glaring. For instance, the daily cost of treatment of tuberculosis using the least expensive brands available in the market is Rs.7.70 while the TNMSC rate is only Rs.2.49."

Pharmaceutical companies have been arguing that the number of drugs on the DPCO should be reduced as adequate competition will ensure reasonable prices. But a close look at the prices of drugs shows that this is not true. Often, the top-selling brand of a particular category is also the higher priced one; in other words, the brand leader is often the price leader too. Says Anurag Bhargav, a founding member of the Jan Swasthya Abhiyan and a physician: "If true competition and free market characteristics were present, the brand leaders that would sell the most would be the lowest priced. In reality, the brand leader is often the highest priced. For example, cefuroxime, a broad-spectrum antibiotic, produced under the brand name ceftum, is priced the highest although the brand has a share of 38 per cent, the highest in the market."

Although Finance Minister P. Chidambaram has indicated that the government will reduce the rigours of price control where it has become counter-effective, reducing the number of essential drugs on the DPCO will not only be in contravention of the Supreme Court's orders but also be contrary to the United Progressive Alliance government's Common Minimum Programme, which has promised to "take all steps to ensure the availability of life-saving drugs at reasonable prices". The government also has to worry about the coming into force of trade-related aspects of intellectual property rights or TRIPS in January 2005, which will mean that the generic equivalents of all drugs patented from that date onwards can no longer be produced in the country.

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