National Pharmaceutical Pricing Authority: Analysis and Suggestions

To bring about a greater degree of transparency and objectivity to the pharmaceutical industry, the Government of India in 1997 constituted an advisory body – National Pharmaceutical Pricing Authority (NPPA), entrusted with the power to fix prices of bulk drugs and formulations. Most people in India buy healthcare from the private sector, a compulsion that accounts for a high proportion of healthcare-related expenditure. The lack of access to essential medicines to the poor masses along with out-of-pocket spending on medicines is impoverishing people across the country.  Over the years, NPPA has tightened the rope on many multinational pharmaceutical companies violating the rule laid down by it.   

Functions of National Pharmaceutical Pricing Authority:
a) To implement and enforce the provisions of the Drugs (Prices Control) Order in accordance with the powers delegated to it
b) To monitor the availability of drugs, identify shortages, if any, and to take remedial steps
c) To collect/ maintain data on production, exports, and imports, the market share of individual companies, the profitability of companies etc, for bulk drugs and formulations
d) Assistance to the Central Government in the parliamentary matters relating to the drug pricing

As a matter of practice, apart from keeping the drug prices at par, NPPA also undertakes matters which involve:

a) Complaints received from individuals, NGOs, and institutes related to  pricing/marketing at prices higher than the price fixed by NPPA
b) Legal matters arising out of the decisions of the Authority
c) Inter-sectoral coordination including coordination between organizations and institutes under the Central and State Governments, in areas related to the subjects entrusted to the Department
d) Medical Devices – Industry issues relating to promotion, production, and manufacture

Earlier, the prices of bulk drugs and the formulations included in the Scheduled categories were regulated by the Government of India as per the Drugs (Prices Control) Order (DPCO), 1995, issued from time to time under the provisions of section 3 of the Essential Commodities Act, 1955. DPCO, 2013 substituted the DPCO, 1995, which, unlike the previous order, which had only 74 medicines under its ambit, regulated prices of 348 essential drugs and laid down the framework for the drug policy and mechanism for regulating prices.

The current Drugs (Prices Control) Order, 2013 has three primary aims:
a) Expanding the National List of Essential Medicines (NLEM)
b) Authorizing the National Pharmaceutical Pricing Authority to regulate prices of India’s NLEM
c) Authorizing the NPPA to regulate price increases of non-essential medicines

The first NLEM was prepared and released in 1996. NLEM was subsequently revised by the National Pharmaceutical Pricing Authority (NPPA).

The Hon’ble Supreme Court of India in its order dated 10.03.2003 in SLP no. 3668/2003 (Union of India Vs. K.S Gopinath and Others) has also emphasized the need to “… Consider and formulate appropriate criteria for ensuring essential and life-saving drugs not fall out of price control…”

Thereafter, a series of price control regimes were carried out from time to time by the NPPA, keeping a fine balance between varying requirements of the pharmaceutical industry to grow and at the same time ensuring affordable and reasonably priced medicine to the consumers, especially poor masses.

The list of essential medicines to be included in the NLEM is based on regional epidemiology – patterns, causes, and effects of health and disease condition. As of now, the NLEM includes 348 medicines belonging to 27 therapeutic categories such as anti-cancer, anti-infective, cardiovascular, ophthalmological preparations, diuretics and anti-allergic etc.

Method of price fixing:
The drug prices in India are controlled using Drug (Price Control) Order (DPCO), which uses market-based mechanisms to set a price ceiling. Under the provisions of DPCO, the prices of only those medicines are fixed which are on the National List of Essential Medicines (NLEM), which in value terms constitutes approximately 17% of the total pharmaceuticals market.  

According to the official website of NPPA, if there are many drugs in the same category, the price cap is calculated based on the average price of the available drugs which collectively have at least 1% market share in the category and if the drug is the only drug available in the product category, then the price cap for that drug is the fixed percent and these fixed percent calculations are based on the price reduction done in similar drug categories, of the current drug price.

This way of calculating the drug price has come under severe criticism from various Non-governmental organizations (NGOs), who want the government to adopt the Cost Based Pricing (CBP) instead of Market Based Pricing (MBP).

(Source: Jan Swasthaya Abhiyaan)

According to a press release by one such NGO, Jan Swasthaya Abhiyaan, the Supreme Court had suggested that the Cost Based Pricing (CBP) formula, as specified in the Drug Price Control Order (DPCO) 1995, should be followed. The GOM (Group of Ministers), formed in 2005, had reserved its decision in spite of directives by the Court to expedite its decision. The delay allowed the pharmaceutical industry to continue to charge exorbitant prices, thus exploiting millions of hapless patients.

The NPPA currently has no mechanism to officially penalize an offending manufacturer. As per the NPPA guidelines, medicines not listed on the NLEM are allowed only a 10% annual hike on other drugs not listed under NLEM. If companies intend to hike the price of the medicines beyond 10%, then they will be required to seek permission from the NPPA. For all NLEM-listed treatments, yearly price increases must be in line with or below the wholesale price index.  

Recent reforms in the functioning of NPPA:

Coronary stent price regulation:
Coronary Atherosclerotic Heart Disease (CAD) is a common form of cardiovascular disease in India, which afflicts around 32 million people with a mortality of around 1.6 million per annum. In May, 2014, NPPA issued a new price control order on 108 non-scheduled medicines, dealing with heart, diabetes, TB and cancer, to which the major medical device manufacturers argued that those 108 drugs are not in there in the National List of Essential medicine and there is no shortage, therefore, NPPA has no authority to regulate the prices.

The Ministry of Health and Family Welfare, Government of India has notified coronary stents as “Drugs‟ under Section 3 (b) (iv) of the Drugs and Cosmetics Act, 1940.

A PIL was filed by Shri Birender Sangwan, through Ministry of Health & Family Welfare, and National Pharmaceutical Pricing Authority, New Delhi, (case of w.p. (c) 1772/2015), seeking directions of the court for the inclusion of “Coronary Stents” in the National List of Essential Medicines (NLEM).

In 2016, the government revoked the paragraph 19 of the Drug (price control) order, 2013, notifying the inclusion of stents in the National List of Essential Medicines (NLEM), citing unethical profiteering and exploitative pricing by the manufacturers. Following the path, National Pharmaceutical Pricing Authority (NPPA) slashed the price of the stent, a small mesh device used to pop open the blocked arteries, from Rs 1.21 lakh to Rs 27,890.

As a result of price control, Abbots Healthcare pulled the plug on two of its coronary stents, citing commercial unsustainability in India. Boston Scientific, a multinational company also withdrew two of its high-quality stents from India. An expert committee set up to review the request of setting a higher ceiling price for the brands if the product was proven to be clinically superior, rejected the plea, keeping in mind the exorbitant prices these multinational pharmaceutical companies were charging.

Orthopedic implants:
As per a report by World Health Organization (WHO), with over 70,000 hip and knee replacements performed every year, the growth rate of the orthopedic implants due to Musculoskeletal disease is estimated to be more than 25 percent per annum for the next five to six years. In 2017, widely used cobalt chromium knee implants, priced at up to 250,000 rupees at Indian hospitals, were capped at 54,720 rupees. Major international pharmaceutical companies protested against India’s price controls on drugs and medical devices, arguing this will curb innovation and would hurt future investment plans.

Furosemide drug:
The National Pharmaceutical Pricing Authority also regulated the price of a medicine prescribed to babies with heart ailments – Furosemide, sold under the brand name Lasix. The regulatory authority cut its price from Rs 100 to Rs 10. However, in 2018, the apex drug regulator increased the price of the medicine by almost eight times following reports of the drug going off the shelves after the prices were reduced by over 90 percent.

Bayer Corporation vs. Union of India
Cancer medicines are included in Section 8 of the First Schedule to the Drugs (Price Control) Order, 2013. In a one-of-its-kind case, a first compulsory license (CL) was granted to the Hyderabad-based Natco Pharma Limited, a generic drug maker, to produce and market Nexavar, an already patented cancer drug invented by Bayer Pharma, paving way for a reduction in the prices of costly life-saving drugs. Natco attained the license to manufacture and sell in India the patented drug under its brand name at a price of less than Rs.10, 000/- per month as against the price of Rs.2,80,428/- per month charged by the Bayer Corporation. It was the first step towards fixing the price of life-saving drugs as Bayer failed to fulfill the reasonable requirement of the public with regard to the aforementioned drug.

In 2017, the biggest crackdown by NPPA happened when, after analysis of market data and associated reports of December 2016 submitted by AIOCD-AWACS, it found out that 634 drugs which were under the ambit of the National List of Essential Medicines, were priced higher than the price fixed for them. This crackdown took on the companies like Sun Pharma, Cipla, Lupin, GlaxoSmithKline etc.

Suggested way forward:
More than 60% of deaths, about 6.1 million, in 2016 were due to Non-communicable diseases (NCDs), up from about 38% in 1990. Emerging lifestyle diseases in the last few decades have resulted in an immense increase in the availability of medicines in the marketplace, though accessibility is still an issue that needs to be resolved. Life-threatening diseases are on the rise and so is the profit-making by the pharmaceutical industry. A huge amount of research and development goes into discovery, development and clinical trials, before the commencement of the production. Every newly launched drug is thus very expensive, to begin with. Our country with its one-third population living below the poverty line, contracting a disease comes with a huge cost.

Hence, to address the issue of increasing drug prices affecting millions of people across the country, the Indian government may look to other larger areas of the pharmaceutical market to introduce new and increased regulation to make medicines more affordable. The ways that can be adopted are:

⇀ The government should replicate the drug price regulating model adopted by the state of Tamil Nadu and Kerala. Under these state schemes, drugs outside NLEM is also procured and sold at reasonable rates. According to a report by Kerala Medical Services Corporation and Odisha’s State Drug Management published on the World Health Organization’s (WHO) website, the Medical Services Corporation does central tendering and purchasing of the essential drugs for the entire state that is delivered to the district warehouses by the supplier in stipulated quantities. From here the drugs are distributed to the facilities based on a value-based passbook system. The system is claimed to be efficient with minimal delays.

⇀ We should have a cost-based system, keeping in mind that the market-based system not only worsens the condition of poor people but also monopolizes the market.

⇀ It is also important that the drug companies reduce the profit margin to serve the need of the people in want of the life-saving medicine.

⇀ People should be made aware of the Pradhan Mantri Bhartiya Jan Aushadi Scheme, a novel project launched by the Government of India in 2008. Under this scheme, medicines are provided to the public at a reasonable price.

The present predicament, of poor access to affordable health care amidst plenty of overpriced medicine, should not be allowed to continue to imperil the lives and health of Indians across the country.



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