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Drug prices: Whose game is it?

Those who are hit badly by it claim that NPPA's recommendations are baseless. Sandeep Moudgal investigates the working of Tamil Nadu Medical Services Corporation (TNMSC), which sets precedence for the base price of the drugs.

Tamil Nadu Medical Services Corporation (TNMSC), the corporate body which National Pharmaceutical Pricing Authority (NPPA) relies on , is one of its kind. Formed for the purpose of supplying drugs to government agencies, this body has made an annual turnover of nearly Rs 50 crore for the current year. This autonomous body was formed under the Companies Act and is headed by an IAS officer.

Every year, TNMSC procures nearly 256 essential drugs on a wholesale rate based on pharmaceutical trade journals. The Managing Director for TNMSC, Dr Kumar Pandian claims that these drugs are distributed to various departments as per the requirement, and are in turn, used for treating the needy, practically free of cost. When questioned if there exists a price variation between the government procured drugs and those sold in the market, Pandian replies, "Perhaps, almost to the tune of nearly 100 percent on certain medicines."

National Pharmaceutical Pricing Authority (NPPA), which regulates market rates on pharmaceuticals, (which some believe is just a politically motivated body or for others) is just a joke in the industry that pulls its act once in three years in the name of auditing. It has recently cracked down upon nearly 72 drugs that had vast differences in its rates that were on MRP and those TNMSC purchase.

But this crackdown has not made every one jump with joy. D P Mody, Chairman, Pharmaceutical Export Promotion Council (Pharmexil), replies on the controversial decision of the NPPA cracking down on the pharmacos, "The matter has been taken up by the Group of Ministers (GoM). And as far as I can understand, the GoM have arrived to a conclusion that the pharmaceutical industry is a 'sunrise' industry and it needs to be encouraged for the future."

Who is wrong?

Today, most purchases made by government across the country are decentralised. Drug prices differ according to the location, departments and procurement agencies. To avoid a difference in the procurement of drugs by government bodies, a centralised agency in the form of TNMSC was constituted in Tamil Nadu. Now, this recent formation of the company that was safeguarded from political influences by placing it as an autonomous body has become a referral center for the NPPA in bringing down the heat on drug manufacturers.

Homi Bhaba, Director of OPPI expressed his views on the notices that were served to certain drug companies. "I think we should get the issue of companies overcharging on their medicines in the right perspective. At present, the DPCO is operative, under which only 74 drugs are under price control. The industry has made repeated representations to the government that price control leaves very little margin for the manufacturer. Hence, companies try to meet profits through price increases from the decontrolled range. The notices that are being issued by the government are presently not for the price control product range but for the products, which are out of price control. Also, in the past, government used to question price increases in decontrolled range only if they exceeded 20 percent in the year. Now, NPPA is issuing notices even when the price increases by 10 percent in a year. Thus, the issue of these notices is putting the profitability of the industry under severe strain," he said.

"NPPA needs to put in a system to review the price difference in the raw material prices so that it responds quickly to industry's needs, which would ensure fair treatment to pharmaceutical industry," states Vimal Kumar, Director of Shasun Chemicals. Certain industry sources believe that there exists no difference between the branded products that are acquired by the government and those found in the market. But it was the generics, which were found to be differing in its prices from what the government acquires and those sold at MRP in the market. "It is the SMEs that have a huge margin in selling the drugs at a huge mark up prices than the organised sector that has to invest in formulations and infrastructure," says Mody.

On the basis of anonymity, an industry source from a pharmaceutical company said, "If NPPA keeps on extending its provisions on the basis of politically motivated factors then the industry can not help it." Mody feels, "It should just be involved in enforcing the regulations on only those drugs that are under the DPCO and not involve the other drugs."

Bhaba has a similar view on the matter. "Unfortunately, the price control mechanism followed under DPCO 1995 is on a cost plus basis. This is a very costly and time-consuming process and should be replaced by a simple price monitoring mechanism. As far as the decontrolled range is concerned, companies definitely fix their prices on the needs of the patient (this is a marketing principle followed by all companies). The intense competition prevailing in the market also ensures that the price is affordable to the patient." T S Jaishankar, Chairman of Confederation of Indian Pharmaceutical Industry (CIPI) also echoes the industry thinking on the competition itself taking care of the price difference in drugs. "Imagine a drug like Gatifloxacin that was priced at Rs 52 at the time of its entry into the market four years ago is today available for Rs 4 because of the competitive factor."

Au contraire

Though much has been said otherwise, there is in fact a mention made in the Paragraph 3 in the DPCO Act of 1995 shows that the NPPA which talks about competition. It says, "When the number of manufacturers of the said drug is more than one, the maximum sale price is fixed at 2/3rd cut off level or weighted average price, depending upon the situation."

No matter what the debate is all about, the real question remains—Are market prices on drugs actually affordable like the industry claims? Are the calculation of prices by TNMSC while procuring drugs, can be referred to as the 'exact price'? (A few examples life saving drugs are compared to market rates in the box titled Sale Counter)

People like Pandian, would say that the government procurement of drugs helps the needy and also people who cannot afford to buy life saving drugs, which are apparently available at rates that are 25 to 30 percent higher in the market.

Mody, Jaishankar and other industry professionals believe that the procurement of drugs in the healthcare industry and its usage constitute only a fraction of the treatment rates. So the pricing control and difference is not a requirement.

The industry representatives believe that the price differences will always exist and the market forces shall take care of it. They say that the production of pharmaceuticals is a business and it needs to be dealt in the market and not in the political arena.

With nearly 453 drugs under the NPPA till date, the pharmaceutical industry has voiced its apprehension. Today, the national body for fixing drug prices has according to sources, begun to realise its negative impact and planning to reconsider the essential drugs list.

At the same time, TNMSC model is being implemented in the neighboring State of Andhra Pradesh. It is also providing consultancy services to various other states in procuring drugs for its government bodies.

The verdict is still awaited on the pharmaceutical pricing structure. Will competition in today's globalised world take care of the prices? Is government interference hampering the growth of the 'sunshine' industry? Who is thinking more about the welfare of the consumers, government or the pharmacos? Whose game is it?

sandeep.moudgal@expressindia.com