Drug Price Control: A Double Edged Sword: Article

The order set a price ceiling for these drugs by averaging the existing market prices of all brands that have a market share of 1% or greater.

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Medicine
Picture: Pixabay

Last Updated on March 24, 2021 by The Health Master

In May 2013, the Department of Pharmaceuticals (DoP) of India brought 348 medicines— essential and lifesaving drugs from the National List of Essential Medicines (NLEM)—under price control by the Drug Price Control Order (DPCO).

Also read NLEM in detail, click here

The main objective was to ensure the availability of essential medicines at affordable prices for more people in a country which is considered a privatized health economy with around 80% of healthcare expenses being borne as out of pocket expenses.

The order set a price ceiling for these drugs by averaging the existing market prices of all brands that have a market share of 1% or greater. While the brands priced above the ceiling price were to reduce the prices, the other brands had to maintain the prices at current levels.

Medicine Injection
Picture: Pixabay

Further, the order restrained the price increases (optional) to be in line with or below the wholesale price index in any one year period.

Also read: Latest notifications – DPCO /NPPA

While the policymakers worldwide typically aim at making the drugs more affordable, does this mean that price control works? In an IIMA working paper published in 2016 entitled, “Does Pharmaceutical Price Regulation Result in Greater Access to Essential Medicines?” with data till 2015, the results of the study suggested that while 37 molecules had an increase in sales volume attributable to DPCO, 52 molecules had a negative impact on their sales volume due to DPCO.

Firms may exit a category under regulation due to low profit prospects. Lesser profits may also act as a barrier to entry for new firms. Further, firms may shift marketing focus from the drugs under price control, and reduce detailing and promotion efforts for these drugs.


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In a follow on study in 2020 entitled, ‘Impact of DPCO 2013 on Availability & Accessibility of Medicines in the Indian Pharmaceutical Market’, with price and sales data till 2018, we concluded that the trend growth in volume of NLEM molecules was not significantly different from before DPCO 2013 as compared to after DPCO nor was it significantly different from that of non-NLEM molecules in comparable periods before and after DPCO 2013. A similar result applied after the change in NLEM in 2015.

At a more detailed level, there was a significant increase in sales volume of 24%-29% of NLEM SKUs and 30%-34% of NLEM molecules. However, there was also a significant decrease in sales volume of 18%-30% of NLEM SKUs and 21-22% of NLEM molecules while there was no significant change in the rest at around 40%-55%.

At an aggregate level there was no significant increase in sales volume of NLEM SKU and molecules post DPCO 2013 from the trend levels.

At the prescription level, a significant increase in prescriptions was observed in only 10% -12% of NLEM samples. Further, at the aggregate level, there was no significant positive difference in percentage sales growth of scheduled formulation and percentage sales growth of non-scheduled formulation post DPCO or % sales growth of scheduled formulation post and prior to DPCO.

The same aggregate results were observed in important therapeutic areas as well.


Also read other articles about NPPA, click here


Overall, therefore, DPCO would appear not to have achieved its objective of expanding affordability and accessibility at the aggregate level, though there is success in selected categories.
It would appear, therefore, that price control is not working the way it should.

In the USA, the pharmaceutical market is relatively unregulated and prices are not controlled. And arguably, access to quality medicines for all is a challenge.

This stands in contrast to Europe where governments are actively involved in price regulation. Some medical systems like the NHS in the UK follow an outcome based pricing model for critical life saving drugs that are under patent.

Healthcare is a public good and it is the responsibility of the government to ensure affordable and equitable access to medicines and healthcare for all citizens.

Our study’s findings have key policy implications. Since price control is actually decreasing access to the list of drugs that the government considers as essential, it may be time for the government to re-examine the design and operation of price control in India.

The mechanism by which the policy appears to be failing is that price control leads to a decrease in the marketing effort by pharmaceutical firms, especially as a reaction to the decrease in the price and profitability of molecules; this would suggest that, assuming that price control is the way to increase access, that the price control mechanism being set up by the government needs to be tweaked.

My view is that some form of price regulation is required in any country, and much more so in a country like India. And that the present mechanism is too blunt an instrument in a country like India.

It is worthwhile to note here the drug prices in India are already amongst the lowest in the world and that profit margins for Indian pharmaceutical firms are much lower than that of big pharma firms of the west.

So the question is how does one have a price regulation system that ensures access at affordable levels and ensures a reasonable margin for the main drug makers that need also to graduate to become innovator firms. How does one square this circle?

by Arvind Sahay
Professor of Marketing and International Business
MN Vora Chair Professor of Marketing and Entrepreneurship


(DISCLAIMER: The views expressed are solely of the author and The Health Master does not necessarily subscribe to it. The Health Master shall not be responsible for any damage caused to any person/organisation directly or indirectly.)

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