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Market-based drug pricing formula gets GoM nod

Drug makers say using simple average to arrive at prices will erode profits; new model will raise prices, say activists
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First Published: Wed, Nov 21 2012. 07 20 PM IST
The new system suggests shifting to a market-based price mechanism, which takes the simple average of prices of all medicine brands in a therapeutic category that have at least 1% market share to fix the maximum retail price. Photo: Mint
The new system suggests shifting to a market-based price mechanism, which takes the simple average of prices of all medicine brands in a therapeutic category that have at least 1% market share to fix the maximum retail price. Photo: Mint
Updated: Wed, Nov 21 2012. 11 37 PM IST
New Delhi: A group of ministers (GoM) has cleared a market-based pricing formula for 348 drugs on the so-called national list of essential medicines, which will be placed before the cabinet on Thursday for approval.
The government currently sets the price of 74 drugs through a cost-linked pricing system, under which it collects cost data from firms and other sources and fixes prices through a cost-plus-margin method.
The new system suggests shifting to a market-based price mechanism, which takes the simple average of prices of all medicine brands in a therapeutic category that have at least 1% market share to fix the maximum retail price.
The government has been under pressure to finalize the policy as early as possible after the Supreme Court took up a public interest litigation filed by a health group questioning the delay in implementing a medicine-pricing policy.
Both local drug makers and health activists reacted unfavourably to the new proposed policy.
“The decision to reach retail prices based on a simple average is very damaging to the industry,” said D.G. Shah, secretary general of the Indian Pharmaceutical Alliance, an industry grouping. “Our profit margins will erode considerably.”
The ministerial panel, led by farm minister Sharad Pawar, had earlier suggested capping of prices on the basis of the weighted average price of each segment so that the price of a particular medicine will have a weight equal to the market share when the average price or median price is calculated. It had further suggested that the prices be linked to the Wholesale Price Index.
The new formula will marginally decrease prices in a few segments, keeping the rest of the retail drug prices unaffordable, an activist said.
“The whole policy is designed for pharmaceutical producers and not the common man. The policy appears to be legitimizing unaffordable pricing of life-saving drugs,” said Sakthivel Selvaraj, development economist with All India Drug Action Network, which petitioned the apex court on drug pricing. “One has to understand that the pharmaceutical market is unique. Prices and profit margins differ significantly in each segment. Simple average might bring down the cost in some segments, but in most cases, the prices will be high.”
“On the whole, any market-based pricing mechanism is not in the interest of the general public,” Selvaraj said. “We are hoping the court will intervene in this matter.”
The ministerial group also decided that an increase in prices beyond 10% will have to be cleared by the National Pharmaceutical Pricing Authority, which will be the final authority on price revisions.
The rush to finalize the policy comes after the Supreme Court set a deadline of 25 November for the government to formulate and notify the national pharmaceutical pricing policy. The previous version of the policy was referred back to the panel of ministers by the Prime Minister’s office, following last-minute opposition from the finance ministry.
The finance ministry had objected to the new policy as it may cause drug prices to increase and had suggested a cost-based pricing mechanism. Finance minister P. Chidambaram attended Wednesday’s meeting as a special invitee.
The Supreme Court is likely to hear the matter on 27 November. The government has indicated that it will notify the new policy by 25 November.
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First Published: Wed, Nov 21 2012. 07 20 PM IST
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