A look at The Draft National Pharmaceuticals Policy, 2011

This post gives an insight into the Draft National Pharmaceuticals Policy released last month.
The policy’s objective is: to put in place a regulatory framework for pricing of drugs so as to ensure availability of essential medicines at reasonable prices while providing opportunity for innovation and competition.

The 2011 policy follows two failed attempts (2002 and 2006) to replace the 1994 policy currently still in place.

Main Features of the Policy
  • Prices would be regulated based on essentiality of drugs rather than the economic criteria and market share principle enunciated in the Drug Policy of 1994.
  • The new policy would regulate the price of formulations only which is different from the earlier principle of regulating the prices of specified bulk drugs and their formulations.
  • The price of formulations would be regulated through market based pricing rather than cost based pricing.
  • Formulations will be priced only by fixing the ceiling price which would be calculated on the basis of Weighted Average Price (WAP) of the top three brands.
  • The policy is unclear on the pricing of patented drugs; it states that their prices will be determined by a separate committee constituted by the Government.

What the Critics say?
Initial reaction to the policy suggests that most of the Indian pharma industry is against it. Most critics state that the policy instead of reducing prices will increase the price of drugs. Some of the main criticisms to the policy are
  • The mechanism used to calculate ceiling prices is a tedious process
  • Imposing a ceiling price will ensure that all brands increase their price to match the ceiling price limit, since the ceiling price for a drug would be fixed on the basis of the WAP of the top 3 brands by value it. Since the prices of the brand leaders tend to be higher than the others, the ceiling price would actually drive prices up rather than down.
  • More drugs will be subjected to price control (almost 60% of the pharma market up from the current 20% of the market being subject to control)
The All India Drug Action Network (AIDAN) had filed a petition in 2003 against the implementation of a National Pharmaceutical Policy stating that it would result in an increase in prices of drugs rather than reducing them. AIDAN’s lawyers also pointed out serious flaws in the new, 2011 policy mainly
  • The new policy would lead to escalation of prices because of its costing mechanism which is based on market price rather than cost price
  • The control price would be determined based on the market price of the top three best selling brands (leading to an increase in the price of other brands)
  • Manufacturers could avoid price control by changing the formulation which has now been made the subject of price control
On the other hand the Government pointed out that the new policy is beneficial as it brings 348 drugs under price control up from 74. (The full list of essential medicines covered can be found here)
The matter came up for hearing recently and the Supreme Court observed that the Government should ensure the prices of drugs reduce rather than escalate.
What happens next?
The drama continues to unfold and whether this policy will see the light of day or be shelved like its previous two predecessors remains moot. In the mean time the draft policy is under consideration by a group of ministers and the PIL will be heard next in January, 2012. The Government meanwhile has announced that it is awaiting feedback on the draft policy and has laid down no specific time frame for its implementation.

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