Bitter Pills, Pg6

Key Highlights:

• The Supreme Court has highlighted significant disparities, sometimes up to 1,000%, between the Price to Retailer (PTR) and the Maximum Retail Price (MRP) of certain drugs, including cancer medications.
• This discrepancy allows hospitals to profit by negotiating low PTRs from manufacturers and selling drugs at inflated MRPs.
• The issue stems from a loophole in the Drug (Prices Control) Order, 2013, which caps the final maximum price of scheduled drugs but not the markup on hospital transactions.
• In 2019, the National Pharmaceutical Pricing Authority (NPPA) capped trade margins of 42 non-schedule anti-cancer drugs at 30%, leading to price drops of up to 91% for 526 brands.
• The practice leads to severe financial strain for patients and undermines price competition, especially when private hospitals mandate drug purchases from their on-premise pharmacies.

Detailed Insights:

• Pharmaceutical companies primarily compete for hospital business rather than directly for patients, leading to inflated MRPs that allow hospitals larger profit margins.
• Hospitals are incentivized to stock brands with higher margins, which disadvantages more affordable equivalent drugs in the market.
• Investigations by the Competition Commission of India (CCI) have established that private hospitals often compel patients to purchase drugs from their in-house pharmacies, limiting patient choice.
• The Drug (Prices Control) Order, 2013, issued under the Essential Commodities Act, 1955, sets ceiling prices for scheduled drugs, but hospitals can still sell at this ceiling even after procuring them at a much lower PTR.
• The Department of Pharmaceuticals reported that the 2019 trade margin capping exercise on anti-cancer drugs significantly reduced prices, demonstrating the presence of compressible margins.
• The Supreme Court suggested implementing a fixed percentage markup, potentially with a regressive margin, to neutralize incentives for selling more expensive products.
• Drug regulators in states like Karnataka and Maharashtra have also raised concerns regarding the financial burden on patients and potential non-adherence to long-term treatments due to high drug costs.

Key Concepts Involved:

• Drug (Prices Control) Order, 2013: A legal framework under the Essential Commodities Act, 1955, regulating drug prices in India to ensure affordability and availability.
• National Pharmaceutical Pricing Authority (NPPA): A government body under the Ministry of Chemicals and Fertilizers that fixes and revises prices of scheduled drugs and monitors their availability.
• Competition Commission of India (CCI): A statutory body enforcing the Competition Act, 2002, to prevent anti-competitive practices and promote fair competition in markets.
• Price to Retailer (PTR): The price at which a pharmaceutical manufacturer sells a drug to a retailer or hospital.
• Maximum Retail Price (MRP): The highest price at which a packaged product can be sold to the end consumer.
• Trade Margin Capping: A regulatory mechanism to limit the profit margin between the ex-factory/import price and the retail price of drugs.