Health ministry: “No, to market based drug pricing.”

Anxious about an across-the-board increase in the prices of essential drugs, the health ministry is seeking to pressurize the department of pharmaceuticals (DoP) to rethink its policy to change to market-based pricing of drugs. The current drug pricing regime is based on cost-plus pricing, where prices are determined on the basis of raw materials, competition and profit margin. However, in October, the DoP introduced the National Pharmaceutical Pricing Policy 2011 (NPPP), which recommended market-based pricing.

However, the health ministry has objected to this methodology. At the core of the dispute is the proposal that drug prices should be determined on the basis of the weighted average price of the top three branded medicines in each category. The health ministry fears that this will trigger an increase in retail prices.

“We have made our views clear to the DoP, especially regarding the recommendation of market-based pricing. The health ministry is not agreeable to that and we have requested the DoP to re-evaluate the draft policy and ensure that the drugs categorized as ‘essential’ under the national list of essential medicines come under price regulation,” said Arun Kumar Panda, joint secretary, ministry of health. There are over 900 molecules—basic salts from which pharmaceutical drugs are derived—being used in India. Of these, 348 are regulated and classified as essential drugs and, hence, operate under an administered pricing regime.

Within this essential drugs category, there are two segments—those priced below Rs. 3 per tablet and those above Rs. 3. In the former category, drugs can be freely priced as long as they remain within the cap of Rs. 3. However, this base is inflation-indexed and can be raised or reduced every year. Drugs within this category include enalapril (for high blood pressure and priced at Rs. 1.50 per tablet), salbutamol (asthma, Rs. 0.40), cyclophosphamide (cancer, Rs. 2.20), furazolidone (diarrhoea, Rs. 0.22), ranitidine (hyper-acidity, Rs. 0.52) and verapamil (heart disorders, Rs. 0.66).

The health ministry’s objections are directed towards the second category, in which the price is to be fixed as a weighted average of the top three brands—where the weights are made up of the sales volumes and prices. Some analysts have backed the health ministry’s claim by arguing that this methodology is potentially open to misuse. The issue has gained urgency within the government because of a related case being heard by the Supreme Court. The matter came up for hearing during a public interest litigation filed in 2003 by the All India Drug Action Network and others that had complained that currently only around 78 drugs are under the Drugs (Prices Control) Order, 1995, making other medicines unaffordable to the common man. In fact, NPPP 2011 was issued under pressure from the apex court, which was concerned about rising drug prices. The government had assured the court that a final draft of the policy will be presented within a month’s time. The matter will come up for hearing in the Supreme Court on 13 March, 2012. The government has time till then to sort out differences between the health ministry and the ministry of chemicals and fertilizers, which oversees the DoP.