Article 2: Bitter pills
Why in news: The Supreme Court has raised concerns over large differences between medicine procurement prices and MRPs, particularly for cancer drugs, highlighting gaps in drug pricing regulation and patient affordability.
Key Details
- Large price gaps: The Court noted instances where the MRP was many times higher than the price paid by hospitals to procure medicines.
- Hospital incentives: Low procurement prices combined with high MRPs can create incentives for hospitals to prefer higher-margin brands, affecting patient choice.
- Regulatory gap: The Drugs (Prices Control) Order, 2013 regulates ceiling prices for specified medicines but does not fully address margins in hospital procurement.
- Cancer medicines: A 2019 NPPA exercise placed a 30% trade-margin cap on 42 non-scheduled anti-cancer drugs, followed by substantial price reductions for several brands.
- Way forward: Drug pricing policy could consider reasonable and progressively lower margins for expensive medicines, alongside stronger monitoring of hospital procurement and billing.
Supreme Court’s Concern
- The Supreme Court questioned large disparities between Price to Retailer (PTR) and Maximum Retail Price (MRP) of medicines.
- In some cases, the difference reportedly reached 1,000%.
- The concern is particularly serious for cancer medicines and other essential drugs.
How the Pricing Model Works
- Many specialised medicines are not sold over the counter.
- Hospitals therefore have significant influence over which brand patients purchase.
- Pharmaceutical companies may offer hospitals a low PTR but maintain a high MRP.
- Hospitals can retain the difference between their purchase price and the permitted selling price.
Impact on Competition
- This creates an incentive for hospitals to prefer medicines with higher margins.
- Patients may have limited ability to compare brands and prices.
- Where hospitals require patients to purchase medicines from in-house pharmacies, competition from outside pharmacies is further reduced.
- More affordable equivalent medicines may therefore become commercially less attractive to hospitals.
Burden on Patients
- High medicine prices can increase the financial burden of treatment.
- This is especially significant for patients requiring long-term cancer or chronic-disease treatment.
- High costs may potentially affect treatment adherence, particularly among financially vulnerable patients.
Regulatory Gap
- The issue is linked partly to the Drugs (Prices Control) Order, 2013.
- Price controls regulate the maximum final price of scheduled medicines.
- However, the framework does not adequately address the markup between PTR and the final price charged by hospitals.
Illustrative Example
- Suppose the NPPA calculates a market-based price of ₹100.
- The permitted ceiling price becomes ₹116.
- A hospital may negotiate a PTR of only ₹50 with the manufacturer.
- It could still charge up to ₹116, creating a ₹66 difference.
- Thus, the legal price ceiling does not necessarily prevent large margins.
NPPA’s 2019 Experiment
- In 2019, the National Pharmaceutical Pricing Authority (NPPA) conducted a pilot exercise involving 42 non-scheduled anti-cancer drugs.
- Their trade margins were capped at 30%.
- The Department of Pharmaceuticals subsequently reported that prices of 526 brands fell by up to 91%.
- This indicated that significant margins were embedded in some medicine prices.
Possible Reform
- A uniform percentage markup could improve transparency in medicine pricing.
- However, a regressive margin structure could be considered.
- Under this approach, the permitted percentage margin would decline as the price of the medicine rises.
- This could reduce incentives to favour more expensive medicines simply because they generate higher absolute margins.
Way Forward
- Strengthen NPPA monitoring of PTR–MRP disparities.
- Improve price transparency for patients.
- Address excessive margins in hospital-pharmacy transactions.
- Strengthen competition by allowing patients greater freedom to purchase equivalent medicines.
- Ensure that pricing reforms protect affordability without discouraging pharmaceutical supply and innovation.
Conclusion
Affordable medicines are essential for health security and equitable healthcare. Drug-price regulation should address not only manufacturers’ prices but also the incentives created across the distribution and hospital-procurement chain. Greater transparency in procurement, effective monitoring, rational margins and stronger enforcement can reduce excessive price differences. Such reforms can improve affordability while maintaining the availability and sustainability of essential medicines.