Price control is a blunt instrument in healthcare
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With the National Pharmaceutical Pricing Authority (NPPA) venturing into new territory, from essential medicines to medical devices, the spotlight has returned to India’s long-standing drug-pricing dilemma. On 14 February, NPPA significantly lowered the price of stents—a tiny tube-shaped device placed in narrowed or blocked coronary arteries to maintain blood supply—for which hospitals would previously charge anything between Rs50,000 and Rs2.5 lakh. The price of bare metal stents has now been fixed at Rs7,260 and of drug-eluting stents at Rs29,600. And more recently, on Monday, NPPA reduced the price of cancer drugs by up to 86% and diabetes drugs by up to 42%.
The public has naturally welcomed these decisions. But it is important to keep in mind that while the government must ensure that the common man has access to proper healthcare, it also cannot undercut market dynamics entirely. If companies do not have the resources to invest in research and innovation, it is ultimately the public that will suffer. This is not to make a case for no regulation at all but to argue for a more comprehensive regulatory framework that looks beyond price caps to ensure quality healthcare coverage for all citizens. Remember that India already has some of the lowest drug prices in the world and yet the average Indian’s out-of-pocket expenditure on healthcare is as high as 61%, not to mention the millions who are routinely deprived of life-saving drugs. Clearly, there is a mismatch in the policy framework.
Take the example of stents: After the NPPA slashed prices, there were genuine concerns that manufacturers in India would exit the field and there would be shortages at hospitals. Subsequent reports indicate that such a situation has been averted for the moment but there’s no telling how this will unravel in the long term. When the Drug Price Control Order (DPCO) was issued in 1995, it forced producers out of the Indian market. Its successor, the DPCO 2013, has only served to encourage oligopolistic behaviour that almost always hurts consumers. Today, the active pharmaceutical ingredient in many commonly used drugs and front-line medications come from China. A recent report by the Boston Consulting Group and the Confederation of Indian Industry has flagged the risks of such dependence on Chinese imports and noted that any threat to the supply chain in China, as evidenced before the Beijing Olympics, could affect the manufacture of critical drugs.
Is India repeating its drug-manufacturing mistakes with medical-device manufacturing? The latter is valued at $2.5 billion currently, according to Ficci, but as a Deloitte analysis shows, the medical-devices sector is growing at a healthy CAGR of around 15%, which is significantly higher than global industry growth of 4-6%, and is expected to become a $25-30 billion industry in India by 2025. This will also feed into the overall Indian healthcare industry, which is expected to be at $280 billion by 2025.
The current government, with its focus on developing India as a global manufacturing hub (including for medical devices and pharmaceuticals), has sought to walk the fine line between providing reasonably priced medicines (and now medical devices) to the public and having a business- and innovation-friendly environment for the healthcare industry. But like its predecessors, it too has struggled to find a balance. In 2014, it lent its weight to industry and nudged the NPPA to withdraw an internal guideline that fixed the prices of 108 non-essential drugs. Then, in 2016, NITI Aayog toyed with the idea of either dismantling or revamping the NPPA—but this week the Prime Minister himself underlined the agency’s price-reduction decision at a recent election rally.
To be sure, this is a complicated matter and India is not the only country that is struggling to get a handle on it. In the US, for example, President Donald Trump campaigned on the issue and there have been quite a few drug-pricing scandals in recent years—from Martin Shkreli, who raised the price of the anti-parasitic drug Daraprim from $13.5 to $750, to Heather Bresch, under whose watch Mylan NV increased the price of EpiPen, used to treat children with Duchenne muscular dystrophy, by 400-600%. Across the world, in Japan, which has traditionally supported multinational pharmaceutical companies by spending about ¥10 trillion annually on medications through a national insurance scheme, the government has now begun more frequent reviews of drug prices. In November, it unexpectedly halved the price of a cancer drug that was estimated to cost the national health system about $15 billion annually—eating into the manufacturer’s profit estimates.
In India, as policymakers grapple with the issue of supporting public welfare versus medical innovation on limited resources, they will do well to look at other key elements of the healthcare matrix, such as extending the insurance coverage (currently at 25%) and shoring up healthcare infrastructure. At the same time, the manufacturing industry should also reach out to the public and explain how there is more to its pricing strategy than just profits. This year, Johnson & Johnson has led the way with a report detailing its medicines’ price increases, while Allergan, Novo Nordisk and AbbVie have all pledged to limit price increases to a certain percentage. A little bit of transparency can go a long way.
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