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