DPCO-2013: WILL DECONTROL DRUG PRICES
Introduction :
Since the Department of Pharmaceuticals (DoP),
under the Union ministry of health and family welfare,
notified the Drug Price Control Order (DPCO-2013)
on 15 May this year, the rumour is afloat that prices of
medicines, including lifesaving drugs, will become
cheaper by up to eighty per cent and the consumer
stands to benefit with lowered prices of medicines.
But, such act of the rumour-mongers through wide-
spread media coverage is of no use to the suffering
Indians who are forced to buy medicine at its escalating
cost every time. Pharma corporate in India, backed
by foreign multinationals, are playing a hoax with the
new DPCO. On one hand they are claiming that there
will be an immediate value erosion of country's
pharmaceutical market to the tune of 1,600 crores
(nearly 2.2 per cent of current market) which will reduce
their profitability. On the other, they are welcoming
the move of the government because they are feeling
that "the policy (DPCO-2013)is unlikely to have any
major negative implication for the (pharma) sector".
However, it will be illusive and erroneous to conclude
that DPCO - 2013 will reduce the drug prices to bring
a sigh of relief for common Indians.
Replacing the 1995 Order, the DPCO - 2013 issued
under the Essential Commodities Act, 1955, proposes
that retail price of 348 drugs will be fixed at the simple
average price of all brands that have one per cent or
more market share which, according to DoP, is called
Market Based Pricing"
(MBP). This will make a
complete shift from earlier DPCO which promulgated
the formula of fixing retail price of medicine based on
input costs of manufacturing. Moreover, the National
Pharmaceutical Pricing Authority (NPPA) will be the
implementing authority for the new DPCO.
Pharma Industry in India after Independence
The development of an indigenous, self reliant and
growth oriented pharmaceutical industry in India is
having its own historical background with many
contributing factors. One of them was, obviously, the
price control mechanism in post independent India.
Shortly after independence, through :
"Industrial PolicyStatement, 1948 "
Government of India openly invited
the multinationals hoping that their entry would attract
enough capital useful to form industrial base in the
country. Following, the flood gate was opened for the
entry of the multinational drug firms in India. But, the
initial investments by them in India were insignificant.
Here, most of the leading multinational drug companies
established themselves as trading companies and
started importing finished drug formulations and
marketing them. Later on, they started importing bulk
formulations and got them packed in this country.
Thus, India did neither obtain technology to form an
industrial base for production of bulk drugs from the
basic stage, nor capital was formed through foreign
investments. On the contrary, India had to shed
enough from its exchequer towards expensive imports
of medicines and common people had to pay the price
for it.
High Price Regime
During fifties, drug prices in India were one of the
highest in the world. The multinational drug firms of
US origin heavily over-priced their medicines,
particularly antibiotics, supplied in India. This was
noted by the Kefauver Committee, a United States
Senate committee set up to study the working of
pharmaceutical companies. Government of India filed
a suit in the American Courts of Law in 1974 against
US companies namely Pfizer, American Cynamid Co.,
Squibb Inc, E R Squibb and Sons and I&C etc for
overcharging prices of the broad spectrum antibiotics
supplied by them and the claim was for $ 38.315 million.
In July, 1981 the US Senate passed a bill amending
the anti-trust Law (Clayton Act) to debar Indian
government from pursuing the claim which pushed India
to settle outside the court with a meagre amount of
$0.8 million.
Hathi Committee
These revelations brought the multinational drug
firms under sharp criticism and resulted in debate both
inside and outside the Parliament. It is in this
background, government of India in line with Kefauver
committee agreed to constitute the Committee on Drug
and Pharmaceutical Industry with Jai Sukhlal Hathi
as its Chairman. This 15 member committee consisting
of the Members of the Parliament and experts was
constituted in 1974 and is popularly known as the Hathi
Committee. After examining the existing situation in
drug industry, Hathi Committee submitted its 275 pages
report to government of India in April, 1975 with number
of recommendations in pursuant of reducing drug prices
in the country. Ironically, no action was taken during
the entire period of emergency. After the emergency,
Hathi committee report was brought out and following
its recommendations a Drug Policy was announced
for the first time in the country in March, 1978.
DPCO - 1979
Though some major recommendations of Hathi
Committee were rejected in the process and some were
diluted, Drug (Prices Control) Order (DPCO - 1979)
was issued on 31 March, 1979 based on Drug Policy,
1978 and its recommendations. It was aimed towards
the availability of essential drugs at affordable prices
and played a vital role in directing the pharmaceutical
industry's fortune by putting a ceiling on prices of all
mass-usage bulk drugs and their formulations. It was
to ensure restricted yet reasonable return to the
producers. The DPCO, 1979, put 370 bulk drugs and
their formulations under price control which was around
80 per cent of the Indian pharma industry in value
terms. These drugs were segregated into four
categories, having different MAPE (Maximum
Allowable Post manufacturing Expenses). The most
important drugs, including life saving drugs were put
in Category I which had the least MAPE. In fixing the
price, the government continued to advocate the
profitability ceiling and an upper limit was put on the
return on net worth or capital employed for pharma
companies. The retail prices of controlled formulations
were decided by applying the concept of MAPE. It
was a mark-up on ex-factory costs, provided to cover
selling and distribution costs including retail and
wholesale trade margins. The pricing formula was:
Retail Price = (MC+CC+PM+PC) x (1+MAPE/100) +
excise duty, where MC was the material cost including
cost of bulk drugs / excipients, CC was the conversion
cost as per the dosage form is, PM was the cost of
packing material suitable to dosage form and PC was
the packaging charge worked out in accordance with
established costing procedures. The experiences show
that there was price increase of decontrolled group of
drugs during post DPCO, 1979. However, the Order
was a landmark regulation in the sense that it had
several implications in shaping the country's
Pharmaceutical industry.
Price Control before 1979
Price control over drugs was first introduced in India
through the Drugs (Display of Prices) Order, 1962 and
the Drugs (Control of Prices) Order, 1963 under the
Defence of India Act, 1915. Thereafter, a series of
price control regimes were notified through various
Orders from time to time based on different principles.
The Drugs (Prices Control) Order of 1966 and the Drugs
(Prices Control) Order of 1970 were issued under
Section 3 of the Essential Commodities Act, 1955
declaring drugs to be essential commodities.
Priceless PSUs
Besides DPCO, with setting up of the Indian public
sector drug companies (PSUs) like HAL, IDPL etc.
the prices of medicines, particularly that of antibiotics,
were reduced as much as by 60 to 70 per cent. Hathi
committee described the activities of the multinationals
as anti-national and recommended their nationalization
and till such time their equity share to
be gradually reduced to 26 per cent. Supported by the
Indian Patent Act, 1970; the Drug Policy, 1978 and
DPCO, 1979 the PSUs played the leading role in
fulfilling the drug-needs of the people and country's
self-reliance in drugs. Due to powerful pressure lobby
of the multinationals, the process of conspiracy was
started to cripple the PSUs from both inside and
outside. Arjun Sen Gupta committee was constituted
by the Central Government, headed by Indira Gandhi.
Finally, the conspiracy gained momentum during Rajiv
Gandhi's regime with official recognition of the slogan
of privatization of PSUs on the alleged ground of
inefficiency. Thereafter, out of vested interests,
constant attempts were made to push public sector
drug units into sickness.
Post 1979 Developments
Moreover, the Drug Policy, 1978 which dealt with
certain major areas like licensing, pricing, drug-needs
of the people etc. and the DPCO, 1979 were not
accepted by the drug cartels mostly by the
multinationals. With sharp criticism, they were out to
challenge these two major and significant steps towards
.self-reliance, legally and through anti-campaign .
13 multinational corporations challenged the Order in
different courts and obtained stay orders to block its
implementation. They also resorted to cut in the
production of essential drugs to create artificial scarcity.
Their pressure tactics started yielding results. During
Rajiv Gandhi's regime - the Govt. of India agreed to
review the Drug Policy of 1978 and DPCO OF 1979.It
appointed steering committee and working groups
having representatives of the drug multinationals in
these committees. In 1984, the Kelkar Committee
came out with its recommendations of excluding
number of drugs from the purview of price control. The
committee stressed the need to liberalize the strict
profitability curbs that were allegedly acting as a hurdle
to the growth of the pharma sector. The government
de-licensed 94 bulk drugs in 1985 changing the basic
contents of the Drug Policy of 1978 and resorted to
liberal imports.
DPCO 1987
Subsequently, the Drug Policy, 1986 and DPCO,
1987 were announced. These two were essentially two
surrender documents under the pressure from the drug
multinationals and in contrary to the country's
economy, self reliance and the ailing people. The
DPCO, 1987, promulgated on 26 August, reduced the
number of bulk drugs under price control from 370 to
142. From Category I 20 and from Category II 122 drugs
were taken off. In addition, the categories of control
were reduced to two and higher MAPE was provided
for each category of controlled drugs. The MAPE for
Category I and Category II was increased from 40 per
cent and 55 per cent respectively to 75 per cent. The
MAPE for Category IV was increased from 60 per cent
to 100 per cent. Even the new drugs that were brought
under price control got a liberal 75 per cent MAPE.
Furthermore, industrial licensing norms were changed
which allowed the multinational corporations to amend
their product mix ensuring improved profitability. Still,
around 75 per cent of the pharma industry was under
price control.
DPCO -1995
The process of liberalization in India set in motion
in 1991 which considerably reduced the scope of
industrial licensing and demolished many non-tariff
barriers to imports. In September 1994, the new drug
policy was announced through which the criteria for
selecting bulk drugs or formulations for price control
were liberalized. In addition, industrial licensing was
abolished for all bulk drugs and foreign investment up
to 51 per cent was allowed in case of all bulk drug
their intermediates and
formulations. FDI above 51 per
cent was to be considered on
a case to case basis. The
DPCO, 1995 was passed on 6
January. The span of price
control under DPCO, 1995 has
been liberalized considerably
from 142 drugs to just 76.
While fixing the maximum retail
price of a bulk drug, the
government has to provide
either a post-tax return of 14
per cent on net worth or a return
of 22 per cent on capital
employed. Each company can
choose one of the two methods
mentioned above as per its own
free will. So, the choice of
method is company-specific
and not product-specific.
Moreover, under DPCO, 1995,
a uniform MAPE of 100 per
cent is given on all formulations
under price control. This is in
contrast to the earlier practice
of giving a MAPE of 75 per
cent on some formulations. In
the new system, the retail price
of a DPCO formulation is fixed
as:
Retail Price =
(MC+CC+PM+PC) x 2 +
excise duty
. However, this
price is not the Maximum Retail
Price (MRP). Local taxes are
additional. For imported drugs
and formulations, the landed
cost including customs duty
and clearing charges.
The Later Years
A Planning Commission
panel pointed out that there
was nearly 40 per cent average
rise in all drug prices between
1996 and 2006. Those in the
Essential Drug List (EDL)
increased by 15 per cent while
the price of drugs that were
neither under price control, nor
under the EDL grew by 137 per
cent. The Ministry of Health and
Family Welfare under the
government of India prepared
and released the first National
List of Essential Medicines
(NLEM) of India in 1996. This
list was subsequently revised
in 2003. Under these
circumstances, The National
Pharmaceutical Pricing
Authority (NPPA)
was
established in August, 1997
inter alia, to fix / revise the
prices of controlled bulk drugs
and formulations and to enforce
prices and availability of the
medicines in the country, under
the DPCO, 1995. Further,in
order to review the drug price
control mechanism , with objective
inter-alia of reducing the rigors of
price control , where they have become
counter productive.
a committee, called the Drugs
Price Control Review
Committee (DPCRC) was set
up in 1999. The DPCRC
recommendedto have effective moniteering
and enforcement system so as to move
away from the controlled regime to a
a moniteering regime
.The DPCRC also suggested the low cost
drugs measured in terms of cost per day per
medicine may be taken out of price control.
.
Following the recommendations of DPCRC
The Pharmaceutical Policy -2002
was announced. All
these exercises were meant for
diluting and abolishing the
effective price control
mechanism.
NPPA and NLEM:
The core committee meeting
of NLEM, initiated by Drug
Controller General of India
(DGCI), held on July 22, 2010
deliberated that although WHO has prepared an updated list
of essential medicines it cannot be accepted and adopted
and the NELM should be India specifc - considering
the disease prevalence , cost of medicine etc in the
country.
In the meeting
the criteria for inclusion/
deletion of medicines were
developed and a road map for
the revision and updating of
NLEM, 2003 was drawn. Later,
during 3-4December, 2010
National Consultation Meet for
Revision of National List of
Essential Medicines was
organized by Department of
Pharmacology, AIIMS, Central
Drugs Standard Control
Organization (CDSCO) and
Ministry of Health and Family
Welfare. The recommendations
of the Workshop were further
deliberated upon by the Expert
Core Committee on 4 Jan and
31 Jan, 2011 at CDSCO.
Thus, the revised NLEM
2011was prepared. 348
essential medicines were
included in NLEM, 2011 while
the 2003 list had 354; number
of medicines deleted was 47
and 43 medicines were added.
Out of the 348 medicines, only
37 medicines were under price
control by NPPA. Under the pretext
of careful selection of a limited range of
essential medicines and more effective
use of health resources for higher quality
of care and better management .Scope
was given to the Pharma Corporates
to loot the common people
through increased medicine prices
prices.
DPCO - 2013
DPCO - 2013 proposes
complete withering of price
control on medicines.
According to it, prices of
medicines would be determined
in the open market, by the
market and for the benefit of
the market under the dictate of
the multinationals. The National
Pharmaceutical Pricing Policy
(NPPP), 2012 was approved
by the Union Cabinet on
22November, 2012 and later it
was notified on 7 December,
2012. While laying down the
Principles for Drugs Price
Control and Determination
, the
The NPPP- 2012 noted the methodology
of fixing a ceiling price of NLEM medicines
by adopting the simple Average Price of
all brands having market share of 1% or more
. It was further noted that the formulations
will be priced only by fixing a ceilingprice
(CP) and the CP WILL BE FIXED ON THE
BASIS OF MARKET BASED DATA ,
which would be
available through IMS Health.
NPPA would only check the
data through appropriate survey/ evolution.
If required , the principle also suggested
that the prices of NLEM - 2011 medicines
will be allowede an annual increase as per
Whole Sale Price Index as notified by by the
Department of Industrial Policy and Promotion
and accordingly on 1st of April every year
companies will automatically authorized to increase
the prices of their products .
. NPPP-2012 also suggested that the non - essential drugs
should not be under under a controlled regime and their
prices be fixed by market forces.
.
The CP of imported drugs would also be
determined as mentioned
above. However, the pricing of
Patented Drugs would be
finalized based on the
recommendations of a separate
Committee constituted by the
Government order dated 1
February, 2007.
Conclusion:
It is clear from the above
discussion that the Indian
pharmaceutical industry will be
heavily benefited from NPPP -
2012. The drug market in India
will become more profitable
and viable. There will be an end
to price control regime.
Ironically, it took a long time to
finalize NPPP
–
2012 due to
differences between ministries
of health and chemicals and
fertilizers. There were also
oppositions from many
quarters. However, amidst
much criticism, DPCO
–
2013
was announced based on the
above recommendations of
NPPP
–
2012. Earlier, while
hearing a writ petition, the
Supreme Court division bench
comprising of Justices G.S.
Singhvi and S.J.
Mukhopadhaya made critical
observation and commented
that
the government should
not alter the drug price system.
It is patently clear that the
government of India is hell bent
before the multinationals
pressure. It will not even prefer
to listen to the Supreme Court.
FMRAI has demanded that the
prices of medicines should be
capped with maximum 100 per
cent margin on manufacturing
costs. Such demand is directed
only towards a peripheral
remedial measure to benefit the
ailing countrymen. For actual
and effective price control of
Indian Pharmaceutical Market,
FMRAI is committed to build
colossal movement. FMRAI will
bring the broadest section of
the society along with it
