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PMEAC comes up with 3 pricing models to fix retail prices of 328 drugs-Khomba Singh

The Prime Minister's Economic Advisory Council has suggested a complex combination of three pricing models to fix retail prices of 348 essential drugs to balance industry's concerns and public health. The proposal, however, has drawn the ire of drug makers who say it is a watered down version of the health ministry's proposals.

The council has proposed that for medicines facing "insufficient competition" or a monopoly-like situation, the retail price should be fixed on the basis of cost of production with a top up to cover marketing costs and profits for companies.

It has defined insufficient competition as a situation where a drug with an annual turnover of over 4 crore has 40% market share or where a medicine with annual sales of less than Rs 1 crore has 90% share of the market.

A drug will fall under this category also if there are less than 10 companies marketing the formulation. According to a senior drug regulatory expert, who has reviewed the 57-page note, the cap of Rs 4 crore is absurd as this was fixed in 1994 when the size of the industry was one-ninth of the current market size of Rs 60,000 crore.

If a drug is widely procured through the government's bulk procurement process, more than 5% of the overall market, then the cap should be linked to the tender price, the council has suggested. For the rest, it has suggested the cap at either 1.25 times the median of the segment's price, or "the price which 80% of the consumers are paying", whichever is less.

ANOTHER DRUG PRICING MODEL 

PMEAC has come up with 3 pricing models to fix retail prices of 328 essential drugs. 

Proposals 

For medicines facing a monopoly-like situation, the retail price should be fixed on the basis of cost of production with a top up to cover marketing costs and profits for companies. 

If a drug is procured through the govt's bulk procurement process, more than 5% of the overall market, then the cap should be linked to the tender price. 

For the rest, there should be a cap at either 1.25 times the median of the segment's price, or the price which 80% of the consumers pay, whichever is less. 

Side effects 

Experts say these proposals will bring about two-thirds of the medicines under costbased policy, which will stifle the industry.
 
The industry executive said these proposals will bring about two-thirds of the medicines under cost-based policy, which will stifle the industry. "At present only 47 of the 74 drugs under price control are marketed by companies," he said. "The same situation will repeat if this proposal is accepted."

A government official said the council's views are flawed as its models are based on a wrong assumption that consumers and market forces drive the industry. "It is doctors' prescriptions that determine sales and patients have no say which brand to buy," he said.

In October, the Department of Pharmaceuticals floated the National Pharmaceutical Pricing Authority, which seeks to regulate prices of 348 essential drugs and its combinations sold in the country at the average price of three bestselling brands. More than two dozen stakeholders suggested varied pricing models.

While health ministry and health groups reject the market-based pricing model, drug makers are opposed to the other group's recommendation of a cost-based pricing or one linked to tender price.

The expert group has agreed with the industry's demand that regulation of drugs should be limited to the 348 medicines and not extend to their combinations.

To ensure that companies do not stop marketing the essential formulations to duck price control, it has suggested that the National Pharmaceutical Pricing Authority be given the mandate to ask companies making combinations or strengths of essential drugs to first produce the essential medicines.

At the same time, the group has rejected the proposed exemption for drugs costing Rs 3 per unit, saying it is not consistent with the objective of the policy to reduce cost of healthcare. Industry officials say instead of focusing on the costlier brands, the NPPA's already inadequate resource would be wasted on these fringe products.

A group of ministers, led by agriculture minister Sharad Pawar, was scheduled to meet on Tuesday but the meeting was postponed. Although the views of the council are not binding on the panel of ministers, they carry a lot of weight.

The Department of Pharmaceuticals is also in favour of a cost-based pricing, toying the health ministry line, a chemicals and fertilisers ministry official said.

Drug makers say the council's proposal is a milder form of what was proposed by the health ministry and is a poor attempt to find a middle path. In February, health ministry rejected the Department of Pharmaceuticals proposal, saying it will increase prices of medicines. Instead, it suggested pricing of essential medicines on the basis of their costs.