Write a critical note on price fixing under the Indias Drug Price Control Order 2013.

By Swathy S Semester IX BBA LLB HONS School of legal Studies Cochin University of Science and Technology Cochin Kerala

In a liberalized economy, is there a need for drug price Policymakers and the medicine industry does not think so. They believe that price controls are incompetent tools that distort resource allocation, reduce revenue and profit, and breeds corruption. Almost all the nations around the world impose price controls on medicines, including the most liberalized economies. Although the method and structure of price controls measures may vary, they are an important public policy tool to make drugs affordable. Medicine price controls are critical because unlike other commodities, the people cannot exercise choice in the market when buying drugs, but are guided by the doctors or dispensers, whose primary objective may not be guided by the factor of affordability for patients more on the incentives they receive from the companies. The origin of Indian drug price control system a dates back to 1978, when 350 lifesaving and essential drugs were brought under regulation. However, in 1986 and 1995, the number of medicines under Drug (Prices Control) Order (DPCO) came down to 186 and 76 respectively. The drug price control mechanism until the recent order was based on cost-plus based (CPB) pricing. The DPCO allows National Pharmaceutical Pricing Policy NPPP 2012 to regulate the prices of 348 drugs which are covered under essential medicines list 2011 thus effectively replacing the earlier DPCO 1995 order.

In the DPCO 1995 formulations that are under price control are those that have annual turnover of Rs. 40 million and above with monopoly scenario and annual turnover of less than Rs. 40 million but not less than Rs. 10 million with less market competition. Across the

board, the price control order of 1995 fixed 100 per cent Maximum Allowable PostManufacturing Expenses (MAPE) to all drugs.

The retail price of the formulation is calculated based on the following formula:

Retail Price = (M.C + C.C. + P.M. + P.C.) X (1+MAPE/100) + E.D.

M.C : material cost (drug cost + other pharmaceutical aids) C.C: conversion cost; P.M. : packing material cost of formulation; P.C.: packing of shipment; MAPE: Maximum Allowable Post Manufacturing Expenses includes trade margin E.D : indicates excise duty.

According to DPCO 2013 the scheduled formulations will have a ceiling price, to be determined by a formula that has been spelt out in the order. The ceiling prices would be calculated by taking simple average of all the drug brands having a market share of more than 1%. Local taxes and a 16 per cent profit margin to the retailer would be added to arrive at the final price to patient-consumer. This shifts the ceiling price calculation from a cost based to a market based method. However all the existing manufacturers selling medicines at a price higher than the ceiling price fixed by the Government will have to revise their prices downward and all those manufacturers selling medicines at a price below the ceiling price will have to maintain their existing MRP and wouldnt be allowed to increase their prices.

The All India Drug Action Network had filed a petition in the Supreme Court stating that government was delaying a pricing policy that would make drugs affordable to the common man. There contention is that the intention was to push through a version suggested by the manufacturers lobby that wanted to make profits of over 1300 %. The NGO has sought a directive from the court to bring under control prices of all drugs in the National List of Essential Medicines, including their combinations to root out irrational formulations. It also requested the court to ensure that only safe drugs and their formulations are manufactured and marketed for promotion of generic medicines. Life-saving drugs, for cancers, HIV/AIDS,

certain non communicable diseases were left out of the National List of Essential Medicines (NLEM). The prices of these drugs are steep enough to require intervention.

The DPCO 2013 has left out Fixed Dose Combinations (FDCs) of drugs involving one or more essential drugs. By simply combining one essential medicine with another non-essential drug, a manufacturer can escape ceiling price. Most of therapeutic medicines in India now consist of FDCs especially in drugs used in chronic conditions. By not bringing similar drugs under price ceiling, a wide open escape route has been provided to the manufacturer. In view of restrictive and narrowed definition and interpretation of the Essential Drug List and its dosages and strengths, the new DPCO 2013 is expected to cover only 18 per cent of the overall oral solid market.