HONG KONG – The Indian government is considering new ways to regulate the prices of drugs, including the introduction of a new price index.
One of the key changes proposed by the National Institution for Transforming India (NITI Aayog) is to introduce a new price index to link the prices for all pharmaceutical products. NITI Aayog, the department of pharmaceuticals (DoP) and the Prime Minister's Office have been in discussion over those proposed amendments.
At the moment, the government only regulates the prices of about 850 essential medicines in the name of public interest. The National Pharmaceutical Pricing Authority (NPPA) revises the prices of those "scheduled drugs" each year based on the wholesale price index (WPI). The proposed price index would likely replace the WPI for those drugs.
For the other medicines, companies are allowed to raise prices of those "non-scheduled drugs" by no more than 10 percent each year. But the proposed amendment would allow the government greater control on their price changes.
With the new price index, drug manufacturers would only be allowed to revise their prices annually based on the movement in the index. It will serve as a benchmark to determine prices for all medicines sold in the country, even those that are currently not under the drug price control order.
Malini Aisola, co-convenor of All India Drug Action Network, told BioWorld that she supports the equalization of the annual price increase between scheduled and non-scheduled drugs.
"We currently have a situation where there are strong incentives for companies to market non-scheduled formulations to avail to automatic 10 percent increase. Compounded over five years, the price of a non-scheduled drug goes up by over 60 percent. This is problematic for drugs that are used for chronic conditions and highly priced products," said Aisola.
"Currently, pharma companies are launching a whole lot of fixed-dose combinations or minor variants to avail 10 percent increase and get lax retail prices," she added. "So, they're obviously upset because this was a good source of profits."
Aisola said she believes that those scheduled drug prices will most likely to go up, while the non-scheduled ones would come down. But she remains cautiously optimistic about the system's effectiveness.
"We reserve judgment on [the] new index since we don't have any details yet. In theory, it sounds okay except that DoP has no expertise in making a pharma index, which is critical in such an exercise," she said. "But who knows what they will do. This is one of several proposals and they are targeted at major overhaul of pricing, revamping and weakening NPPA."
Rajiv Nath, forum coordinator for the Association of Indian Medical Devices Industry, questioned the target of that proposal.
"So what is to be achieved by this move? Slowing down market retail price [MRP] increase to less than 10 percent? Is that the problem area? Will this include medical devices notified as drugs? In medical devices, the problem area is price disparity. How does this move address huge price disparity between similar products?" Nath told BioWorld.
"The possible solution lies in capping trade margins to a rational level – the danger is the government may overreach and curb trade margins to an irrationally low level, from one excess to move to another excess."
Nath noted that if trade margins need to be rationalized, it needs to not be defined from price to distributor to market retail price.
Rather, he suggested it be defined from cost insurance and freight import price to MRP for importers and ex-factory to MRP for domestic companies.
"Another possible mechanism is to disincentivize MRP increase by manufacturers using tax-based disincentives, like a levy of 1 percent goods and services tax [GST] on MRP to be paid by manufacturer and importer," said Nath.
He said he believes that approach will reward ethical manufacturers providing for low trade margins and lower MRP with lower tax. And it will penalize unethical manufacturers with higher MRP through proportionately higher tax.
"The artificial inflation of MRP will be curbed, and after some time there may be motivation to voluntarily reduce MRP to reduce tax burden to match input GST credit with GST collected from clients," Nath concluded.
DoP is expected to announced the results of the deliberation within this month.
Recent moves by the Indian government to monitor its pharmaceutical market include the setting up of a national database of pharmaceutical manufacturers and their medicines to help address drug shortages and quality issues. (See BioWorld, April 18, 2018.)