Last Updated on August 3, 2022 by The Health Master
Drug prices in India
As the government indicated trade margin rationalisation (TMR) on non-scheduled drugs to bring down prices of medicines by cutting margins earned by wholesalers, distributors and retailers, several small and medium pharma companies have suggested the government adopt the ‘one-molecule, one-price formula instead.
The difference between the price at which manufacturers sell products to stockists and the price at which they are sold to consumers is known as trade margin.
The National Pharmaceutical Pricing Authority (NPPA) has fixed the rates of scheduled drugs, whereas the prices of non-scheduled drugs are allowed to increase by as much as 10 per cent a year.
What is a one-molecule, one-price policy (OMOP) ?
Such a policy will ensure the same price for all drugs that are made with similar chemical compositions, irrespective of the brand manufacturing them.
But the demand for this uniform formula has amplified due to a medical marvel.
Medical Marvel
At present, medicines with similar chemical compositions are sold at multiple prices by different pharmaceutical companies.
For instance:
- A strip consisting of 14 tablets of Atenolol Tablets 50 mg, which is manufactured by FDC Limited, is sold for Rs 8 (approximate value), whereas the drug with the same chemical composition, manufactured by Nicholas Piramal India Limited, is sold for around Rs 64.
- Similarly, tablets like Zydus Cadilas diclofenac are sold under four names: Activa, Diclofen, Inac, and Jonac with prices for a 10-tablet pack ranging from 19 paise to Rs 1.29.
The Drug Price Control Order (DPCO) suggested a formula to decide the retail price of the drugs. This formula calculates material cost (MC), conversion cost (CC), cost of packaging material including the process loss (PM), packing charges (PC), maximum allowable post-manufacturing expenses (MAPE) and excise duty (ED) for the price at which consumers will buy drugs.
This means, retail price = (MC+CC+PM+PC)*(1+MAPE/100)+ ED
If the formula is set by the government agency then what leads to the medical marvel?
A senior industry official said a massive variation in the prices of drugs by different companies is caused by changes the firms make in MAPE to increase drug prices.
In several instances, companies have added to their research and development expenditure, product development and regulatory approval costs to raise the price of the drug.
The disparity in prices became evident when the pharma industry lost over Rs 2000 crore after the implementation of the new drug price control order (DPCO) that came into effect in July 2013. To stop the widening gap, DPCO sets the ceiling prices.
Debates around price regulation
Moneycontrol.com, in an explainer, said, the pricing mechanism followed by DPCO is a market-based pricing mechanism.
It means that the ceiling price of drugs is decided on the basis of the simple average price of ‘all brands having at least one percent market share of the total market turnover of that drug, plus a notional 16 percent retailer’s margin.’
This mechanism was implemented in 2013. Prior to it, DPCO used to follow a cost-based pricing mechanism that was based on costs put in for manufacturing medicine along with reasonable profit margins. Health experts argue that this mechanism offers lower prices than the current policy.
Besides the structural issue, an unhealthy alliance between doctors and pharma companies also results in the former prescribing medicines of the latter’s brand to the patient.
Towards a reform
Laghu Udyog Bharati, Federation of Pharma Entrepreneurs, Himachal Drug Manufacturers Association (HDMA), and the Indian Federation of Pharma Generics have urged the government to adopt this formula.
They are also planning to raise this issue in an upcoming meeting with Union Minister for Health and Chemicals and Fertilizers Mansukh Mandaviya.
What if only TMR is implemented?
In an article for The Economic Times, Rajesh Gupta, the all-India head of the Laghu Udyog Bharati, said, “We request the government to find out another way and apply a uniform formula (OMOP) for all segments.”
He also added that TMR will benefit big companies by allowing them to gain profits by selling their drugs at high prices. On the other hand, generic brands may be wiped out due to their meagre margins in the next few years.
If implemented, how one-molecule, one-price policy will impact the existing structure?
The proponents of the uniform formula believe that it would assist in streamlining the margins of wholesalers and retailers. ET quoted a member of HDMA saying “This will avoid losses to the industry and confusion.”
Presently, the pharma sector is growing at 9 per cent annually, and to avoid any downward trend, it is important for the government to facilitate the pharma industry. “
Some industry experts also believe that it will disrupt the monopoly of big pharma entities.
Those against the implementation of OMOP argue that its implementation will not help pharma MSMEs as the brand value still remains with the larger pharma entities. Another argument is that it will increase the weighted average again, resulting in a price hike.
Why is there a buzz for an alternative pricing structure?
A report published in The Lancet in 2018 reported that 2.4 million Indians die from treatable conditions every year in India because of unaffordable medicines. It was considered to be the worst outcome among 136 nations that were assessed for the study.
A report by Azim Premji University titled ‘State of Working India 2021:One Year of C-19’ reported that from 2020 to 2021, the number of individuals below the national wage threshold, which is Rs 375 per day (as per the recommendations of the Anoop Satpathy committee), has increased by 230 million. Even after this, India’s health expenditure remains comparatively low.
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