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UPSC IAS Exam : Drug Policy in India

Apr 11, 2016 18:08 IST

    Relevance of the Topic:

    General Studies Paper III

    1. Awareness in the field of IT, Space, Robotics, Computers, Bio-Technology, Nano-Technology, and issues related to Intellectual Property Rights.

    General Studies Paper II

    1. Government policies and intervention for development in various sector, and issues arising out of their design and implementation.

    2. Issues relating to development and management of social sector/services relating to health, education, human resources.

    Practice Question for Students:

    1.    The Supreme Court’s harsh description of India’s Drug Policy as ‘Irrational and Unreasonable’ seems quite accurate. How? Discuss.

    2.    Indian Pharmaceutical Sector is severely suffering with many constraints. Suggest some of the measures to reform it and make advancement in it.

    Introduction:

    India being the second most populated country and having the highest number of population under poverty line which massively impacted the people’s health of nation. Therefore India is branded as a generic market, which means rather than the underlying formulation; doctors prescribe the brand of medicines which should be consumed by patients. Doctors in various cases prescribe leading brands which are priced at a higher price, despite availability of cheaper brands.

    As patients are ignorant about cheaper substitutes, they seldom switch to the low-cost equivalents of the expensive drug brands recommended by their doctors. Patients have little discretion in the choice, making it necessary for the state to intervene and make essential drugs available to the needy at reasonable prices.

    In this environment India became one of the first countries from the third World, who formulated a National Drug Policy (NDP) for promoting the indigenous manufacturing, increasing the technological capabilities in pharmaceuticals sector, and controlling the prices of selected essential and life saving medicines.

    The government's efforts to procure drugs for public distribution, even for special disease-targeted programmes were half-hearted effort, usually lagged behind its more energetic industrial initiatives, never looked properly focused on the concept of essential drugs and life saving medicines or a need clause, and not adequately backed by public funding or regulations.

    Until 1970, the government made hardly any efforts to control the prices of important medicines, although it had issued the Drug (Price Control) Order in 1963. The Drug (Price Control) Order of 1970 was significant in two respects. First it limited the scope of price control to 16, and eventually to 33 essential medicines, on which a mark-up of 75 per cent over cost was permitted.

    Later on, after two decades, the Drug Price Control Order (DPCO) introduced in 1995, which covered 74 bulk drugs and their formulations. The result of this law was not quite as hoped resulted into half the products were discontinued after their producers exited. The extremely Vital drug’s Indian production shifted to China.

    Historical underpinning:

    To formulate the drug policy, India reached a high point in the 1970s and resulted in the robust and high growth of an indigenous pharmaceuticals industry which massively benefited from a favourable regime of intellectual property rights (IPR) which allowed innovation. In the 1980s, although the policy was substantially diluted by the pressure from the powerful drug industry. But government succeeded to formulate the Drug policy in 1986. The main objectives of the Drug Policy, 1986 are as under:

    i.    Ensuring abundant availability, at reasonable prices of  essential and life saving and prophylactic medicines of good quality;

    ii.    Strengthening the system of quality control over drug production and promoting the rational use of drugs in the country;

    iii.    Creating an environment conducive to channelising new investment into the pharmaceutical industry to encouraging cost-effective production with economic sizes and to introducing new technologies and new drugs; and,

    iv.    Strengthening the indigenous capability for production of drugs.

    By the early 1990s, it was very nearly abandoned as the Indian government, under the tutelage of the World Bank and the International Monetary Fund (IMF), embraced a new economic policy. This policy favoured indiscriminate deregulation, extensive liberalisation, privatisation of the public sector and cutbacks in public investment in health care, along with a dismantling of the effort to achieve self-reliance and protect indigenous producers against oligopolistic foreign cartels.

    With the signing in December 1993 of a new international trade agreement under the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), involving a severe change in the IPR regime, there are signs that India's gains-improved (but by no means adequate) availability of relatively low-priced medicines, and a vigorous technological capability in the drug industry-will be wiped out.

    There is a growing danger of a considerable deterioration in the drug supply situation in India and adverse effects on the countries poor.This danger results from the failure to impose rational controls on the registration of drugs or prescribing practices-itself related to the ideology underlying the new economic policy-the absence of an independent source of information on drugs, and the soaring prices of medicines.

    With all the issues regarding IPR rules, indigenous manufacturing of drugs, strict controls over pricing looming around, Drug Price Control Order (DPCO) was introduced in 1995- Covered 74 bulk drugs and their formulations; from which half the products were discontinued after their producers exited.

    Later on the new Drug Price Control Order (DPCO) in 2013 formulated as its successor. It was issued by the Ministry of Chemicals and Fertilisers on the basis of National Pharmaceutical Pricing Policy, 2012 (NPPP), issued in 2012 for fixing the ceiling price of medicines contained in the  National List of Essential Medicines (NLEM-2011), issued by Ministry of Health and Family welfare.

    Under the new DPCO-2013, the shift has been favoured more towards non-controlled products since no new investment was coming up. Under the provisions of DPCO 2013, only the prices of drugs that figure in the National List of Essential Medicines (NLEM) are monitored and controlled by the regulator, the National Pharma Pricing Authority. Under the earlier avatar of the DPCO (1995), 74 drugs were subject to price control. In the 2013 version, the number of drugs under the price control was expanded five-fold to 348. The recent controversy over drug prices erupted after the NPPA decided to regulate the prices of drugs outside the NLEM; the Government has now said that it should stick to regulating essential medicines alone.
    In May 2013, NPPA notified that the maximum prices for these 348 essential drug formulations cannot exceed the average price of various brands (of the same underlying formulation) with a market share of one per cent or more. This is a departure from the cost plus pricing formula used in DPCO 1995. Then, companies were allowed to make a nominal profit over manufacturing cost. While the coverage of newer drugs used to treat cardiovascular problems and diabetes under DPCO 2013 has benefited patients, the move from a cost- to a market-based pricing mechanism has been positive for drug-makers too. The average number of incumbent brands and new introductions of drugs in the DPCO 2013 list has been reduced compared to the non-DPCO 2013 list; strengthening oligopolistic behaviour and reducing the choice set of doctors and patients

    Why price control under new Policy?

    As per WHO estimates, the economic impact of pharmaceuticals is substantial -- especially in developing countries. While spending on pharmaceuticals represents less than one-fifth of total public and private health spending in most developed countries, it represents 15 to 30% of health spending in transitional economies and 25 to 66% in developing countries. In most low income countries pharmaceuticals are the largest public expenditure on health after personnel costs and the largest household health expenditure. And the expense of serious family illness, including drugs, is a major cause of household impoverishment.

    Despite the potential health impact of essential drugs and despite substantial spending on drugs, lack of access to essential drugs, irrational use of drugs, and poor drug quality remain serious global public health problems:
    India is among the countries with the highest Out Of Pocket (OOP) expenses on health care. Expenditure on drugs constitutes over 67% of out of pocket expenditure on health care (NSSO 68th Round 2011-12). High Level Expert Group Report (HLEG) on Universal Health Coverage (UHC) for

    India recommended that an increase in the public procurement of medicines from around 0.1% to 0.5% of GDP would ensure universal access to essential drugs, greatly reducing the burden of out-of-pocket expenditures and increasing the financial protection for households. As per WHO study estimates, about 65% of the Indian population lacks regular access to essential medicines. This is a paradox given that India is one of the largest manufacturers and suppliers of generic drugs to the world.

    Branded medicines are generally costlier than generic medicines even though their effectiveness remains the same, given the standardized procedures for its manufacturing. Annual Report 2014-15 of Department of Pharmaceuticals points out some instances of such price differentials where certain branded medicines comes at 17 times costlier than the generic versions. In some cases, prices have dropped by almost one-third in certain states when publicly procured through an open tendering, indicating the super normal profit margin available to manufacturers in these cases.

    Moreover, doctors hardly prescribe medicines by generic names, but by brand. In some states, instructions were issued that doctors should prescribe by generic names only. But this has not brought relief to the consumers/ patients since the chemist would give him/her a list of brands with the same chemical / generic name and ask him/her to choose. In the process they end up buying the costliest brand because of the notion that ‘the costlier the better’.

    This is not to say that price regulation is the best solution in the present context. As is the case with any price regulation, some companies try to get around price regulation by registering their brands and declaring that these are not medicines. Also, there have been many instances when firms have resorted to changing their formulations by using derivatives of the scheduled drugs/ formulations (raw material) for escaping price regulation. Under DPCOs, particularly during the earlier DPCOs when the bulk drugs prices were fixed alongside their related formulations, some companies either stopped producing the particular formulation or started producing only for export destinations. 

    All these point to the complexities involved in regulation of pharma pricing. However, given the asymmetry of information and the essentiality of the medicines, price controls are resorted to. This was also justified by the Supreme Court of India.

    As mentioned in NPPP-2012, Government has resorted to a regulatory framework for pricing of drugs so as to ensure availability of required medicines – “essential medicines” – at reasonable prices even while providing sufficient opportunity for innovation and competition to support the growth of industry, thereby meeting the goals of employment and shared economic well being for all.

    Impact of Drug Policy

    As per the estimates given in NPPP-2012, Indian Pharmaceutical industry is, globally, the 3rd largest producer of medicines by volume yet 14th in terms of value. The lower value is due to the fact that Indian medicines are amongst the lowest priced in the world. However, despite this, medicine costs continue to be an important component in the overall medical expenditure in the country, given the low purchasing power of the citizens.

    There are 628 formulations specified in the first schedule of DPCO, 2013 as in September 2015, covering 27 therapeutic groups including medicines used in the treatment of Cancer, Tuberculosis, Diabetes, Cardiac disease, vaccines etc.
    Significant reduction in prices have been effected on the medicines notified under DPCO, 2013 as compared to the highest price prevailed prior to the announcement of DPCO, 2013. Ceiling prices have been formulated for more than 84% of the medicines enlisted in the Schedule I of DPCO-2013.

    NPPA has also notified 139 retail prices of new drugs on request of the manufacturers till 31st December, 2014. Around 108 non-scheduled drugs were also brought under price cap using the exceptional powers granted under para 19 of the DPCO-2013. Prices of 127 drugs have reduced over 40% after the enforcement of DPCO, 2013 as per the Annual report of Department of pharmaceuticals 2014-15. Around 509 medicines in total have benefitted from price decrease. Pharmaceutical companies had gone to the court against price controls. However, there has been no stay order on the reduced prices.

    There are two contradictory developments over this policy:

    1.    There is now a possibility that stents (a small mesh tube used to treat narrow or weak arteries) will become a component of the National List of Essential Medicines (NLEM).

    2.    Lifting up of Customs duty exemptions on a number of drugs.

    This juggling act of government achieves the twin objectives:

    i.    Enabling broad access to reasonably priced medicines, and

    ii.    Allowing the marketplace to function well enough for pharmaceutical companies to invest in innovation.

    Road Ahead:

    Amidst all the chaotic version of reality that the India Pharma industries exhibits, the Supreme Court’s description last year of India’s drug pricing policy as irrational and unreasonable is unfortunately accurate from several angles. Courts have done well to clamp down on the practice of ever-lasting patents and protecting the India’s vital generic drug industry. India should move towards some different approach to work on. Such as:

    1.    Establishing of New Ministry for pharmaceutical and medical devices. The National pharmaceutical Pricing Authority should be brought under this Ministry. It would be responsible for setting up the price ceiling for essential drugs and live saving drugs.
    Another organization like The Central Drugs Standard Control Organization and the Drug Controller General of India ( Presently governed by the health ministry) should also be brought under this ministry. It looks after the regulatory control over: Import of drugs, Approval of new drugs and Clinical trials.

    2.    To create Bulk Drug Policy for reducing the India’s dependence on China as India gets more than 75% of its bulk drugs from China. It would be a big boost for public sector enterprises, Tax-free status for manufacturers and Cluster development.

    3.    Regulation for the online booming market for drug selling.

    4.    Ceiling on Trade Margin: Total business in these drugs, known as trade generics, is estimated at Rs.5, 000-6,000 crore, or five to six percent of India’s total pharmaceutical market. It requires the ceiling because in trade generics practice, the distributors appoint medical representatives (MR) to market products to doctors in rural areas, in addition to supplying to retailers.
    Apart from all the above, there are certain core issues which needs to be corrected in due course of time. One of that is expansion if insurance coverage.

    According to a Rand Corporation study, about Regulating Drug Prices, has shown that financing consumer price reductions via insurance has many long-term benefits over ceiling of price controls. But as far as India is concern, it is one of the least penetrated insurance sectors in the world. As per IRDA o nly 17% of the population had any health insurance coverage till March 2014. The raising of the FDI cap in the insurance sector to 49% last year should, ideally, introduce benefits. But so there has been little in evidence, where much works has to be done by government.

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