Pricing authority fails to recover Rs1,800 cr penalty

Pricing authority fails to recover Rs1,800 cr penalty
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First Published: Mon, Feb 09 2009. 12 08 AM IST

Still pending: A file photo of Union agriculture minister Sharad Pawar. A decision by a group of ministers led by Pawar on the 2002 drug policy, which proposed more powers for the pricing authority, i
Still pending: A file photo of Union agriculture minister Sharad Pawar. A decision by a group of ministers led by Pawar on the 2002 drug policy, which proposed more powers for the pricing authority, i
Updated: Mon, Feb 09 2009. 12 08 AM IST
Mumbai: India’s drug prices regulator has failed to recover at least 90% of the Rs1,800 crore in penalties it imposed on firms for overpricing medicines, due to long-drawn litigations and lack of administrative muscle.
Still pending: A file photo of Union agriculture minister Sharad Pawar. A decision by a group of ministers led by Pawar on the 2002 drug policy, which proposed more powers for the pricing authority, is awaited. PTI
The outstanding penalty payments from about 50 pharmaceutical firms—including Cipla Ltd, Ranbaxy Laboratories Ltd, Dr Reddy’s Laboratories Ltd, Lupin Ltd, Cadila Healthcare Ltd, and the Indian subsidiaries of GlaxoSmithKline Plc. and Wyeth Pharmaceuticals Inc., among others—include the excess the firms charged over stipulated prices and the interest on this. The fines, in some cases, are overdue for at least 10 years now.
India has retail price ceilings on 74 drugs it terms essential under a drug price control order, introduced in 1970 under the Essential Commodities Act, 1955. It revises the list from time to time.
Since firms have withdrawn these price-controlled drugs from the market aggressively— the market share of these drugs have shrunk to 20% in 2008, down from 40% in 1995, official data reveal.
At least one-third of the overcharging cases are pending with various court across the country. “Cases amounting to more than Rs1,400 crore due to the government kitty are facing legal challenges,” said A.K. Banerjee, chairman of the National Pharmaceutical Pricing Authority (NPPA).
“NPPA has so far recovered about Rs140 crore...though a large chunk is still outstanding due to legal disputes,” Banerjee said on the sidelines of the 47th annual day celebrations of the Indian Drug Manufacturers’ Association in Mumbai last week.
The authority has been hobbled by a weak cost analysing system, poor legal support and lack of infrastructure to track violations, say regulatory experts.
A drug policy in 2002 proposed giving NPPA more powers to enforce price control and undertake aggressive recovery measures, but has been held back due to a public interest lawsuit, which contests an essential drugs list anticipated in the policy, filed by a social worker in the Karnataka high court.
Though the Karnataka court’s order was challenged by the government in the Supreme Court later, a final decision on the policy by a group of ministers led by minister for agriculture Sharad Pawar is still awaited.
NPPA has detected about 600 cases of drug overpricing in the past 11 years. Though several of those penalized have paid a portion of the overcharged amount, most have gone to the courts.
For instance, Cipla was served a notice in 2007 to pay a penalty of Rs748 crore for overcharging for five price-controlled drugs, according to NPPA data.
Cipla has contested the claim in the Supreme Court, saying NPPA’s demand is against the interim orders granted by Karnataka and Allahabad high courts earlier on its appeals.
Ranbaxy owes NPPA Rs124.21 crore, while Dr Reddy’s and Lupin owe Rs31.11 crore and Rs68.53 crore, respectively, NPPA said. However, all these cases are also being contested in various courts, though most companies have made part payments, based on the notices.
The proposed drug policy has suggested many measures to give more teeth to NPPA—to make it a judicial agency with expanded infrastructure in every state, for instance.
While the numerous lawsuits are the main obstacles to recovery, a delayed policy is also a major roadblock, according to a former NPPA official, who did not want to be identified.
On his part, NPPA’s Banerjee said: “The companies have the right to be heard before being penalized.”
Normally, the drug companies try to have a dialogue with NPPA when they receive notices on overcharging. “However, we resort to legal options only if such dialogues fail,” said an executive at the Mumbai office of a foreign drug company, who did not want to be named.
Many defaulters, however, use the slow pace of the judicial process to delay paying penalties, said a Mumbai-based industry consultant, who too didn’t want to be identified.
ch.unni@livemint.com
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First Published: Mon, Feb 09 2009. 12 08 AM IST