NPPA caps prices of non-essential medicines:A policy appraisal

In a momentous development the National Pharmaceutical Pricing Authority has capped the prices of 108 anti-diabetic and cardiovascular formulations, which has left the pharma industry fuming!

Last year around, May 2013 the Department of Pharmaceuticals (DOP) intervened and  released drug price control order (DPCO),which expanded the list of medicines which fall under the essential medicines category.We had blogged about it in detail over here.

NPPA cap: how does it work?

While considering the price cap of non-essential medicines, the NPPA identified 8 therapeutic areas namely, anti-cancer, HIV/ AIDS, anti-TB, anti-malaria, cardiovascular, anti-diabetics, anti-asthmatic, and immunological (sera/ vaccines); where the incidence of disease was severe and where  there was huge inter-brand price variation; even among  generic/off patent drugs.

According to Business standard, with the latest NPPA order,58% of the entire cardiovascular drug market comes under price control, while 21 % of the anti-diabetic drug market faces price caps. Paragraph 19 of DPCO, 2013, authorizes the NPPA “in extraordinary circumstances, if it considers necessary so to do in public interest, fix the ceiling price or retail price of any drug for such period as it deems fit”.

Among the drugs under price control, if the price of a drug exceeds the average price in the market by more than 25 percent, it’s capped.It is important to note that all the existing manufacturers selling medicines at a price higher than the ceiling price fixed by the Govt will have to revise their prices downward while those selling at price below the ceiling price will have to maintain their existing MRP and wouldn’t be allowed to increase their prices.

Twitterati’s reaction:

Entrepreneurs, thought leaders alike questioned the rationale of the NPPA price cap and argued that the price controls could lead to severe drug shortages in future.Some others opined that the pharma sector has been singled out for arbitrary price caps.

Some interesting tweets are captured below.


Price cap: Ramifications and my thoughts

The pharma sector is understandably piqued at the price cap since they believe that the Govt should have stuck to bringing essential drugs under price control than controlling the pharma sector. Critics opine that NPPA’s latest move might increase drug affordability at the cost of quality and efficacy.

Also, since paragraph 19 allows NPPA to fix ceiling price of any drug (including patented drugs), this could undermine compulsory license provision, on the ground of reasonableness of the price of the patented medicine.

At first blush, the NPPA’s price cap decision may seem draconian and antithetical to the very idea of laissez-faire drug market. But then again the pharmaceutical sector can hardly be termed as free market, because drugs unlike most other commodities are bought by patients based on doctors’ prescriptions. In most cases patients are unaware of low cost –alternatives and patients cannot exercise discretion in purchase of medicines. Even after accounting for quality differences,huge inter-brand price variation is indicative of a severe market failure. For instance, the price of a pack of 10 tablets of Rosuvastatin leading anti-cholesterol drug varies from a high of ₹180 to as low as ₹59.50.The price of Rosuvastatin (10mg) has been capped at ₹115.80.

Similarly for Telmisartan an anti-hypertensive drug, the price for a pack of 10 tablets (40 mg) varies from a low of ₹25 to as high as ₹385. The Government has capped the price of Telmisartan 40mg at ₹82

For the anti-diabetic drug Sitagliptin (100mg) since the molecule is patented, there is hardly any market competition, hence no price variation. The price of single tablet of Sitagliptin (Januvia and Istavel 100mg) is 42.71.The Govt has capped the price of Sitagliptin (100mg) at 41.80 per tablet.

While market failure alone is not sufficient reason for government intervention, but when such failure is considered in the context of the essential role of pharmaceuticals play in the area of public health, such intervention becomes necessary. In a country where very few people have health insurance, 70% of Indians pay for healthcare expenses out of their own pockets, exploitative pricing makes medicines unaffordable and beyond the reach of most.

 PS:Many thanks to Swaraj for bringing this news to my attention.




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11 thoughts on “NPPA caps prices of non-essential medicines:A policy appraisal”

  1. Madhulika Vishwanathan

    A senior industry leader and regular spicyip reader sent me this very interesting question via e-mail:
    Companies make R&D and drug development choices based on their expectation of future revenue.If companies expect to earn less from future drug sales they would alter their research strategies to lower average R&D spending. Such arbitrary price caps would work to disincentivize investment in indigenous R&D.

    While this is true to some extent the DPCO 2013 has safeguards in place to ensure that this dopes not happen. Drugs resulting from innovation attributed to Indian/Indigenous R&D are exempt from price control for a period of 5 years.

    Following types of innovation qualify for this exemption:

    1) drugs that arise from indigenous R&D

    2) improvements by an Indian company on a process for making an existing drug;

    3) development of a new drug delivery system by Indian R&D.

    Hopefully this ought to trigger innovation in pharma industry!

  2. Do you know a source where we could find the number of drugs that fell under the categories 1, 2, and 3 (say over the last 10 years)?

    I feel that the government ought to look at implementing quality standards more strictly, and then the price difference will automatically reduce, and drugs become cheaper.

  3. Madhulika,

    Disclaimer first: I work for an MNC pharma company but the views below are my own and do not reflect those of my employer.

    A patent does not imply a new drug (category 1), or an improved process of manufacture (category 2), or drug delivery (category 3). What I wanted was a list of drugs launched by Indian firms that fall under these categories and have been exempted from price control. Also, a large number of those patents belong to MNCs, and not Indian firms.

    Second, we do have quality standards in place. What is lacking is extensive implementation of these standards. Because of the large difference in quality of generic drugs, doctors prefer the so called “branded generics” manufactured by more prominent firms, and allow them to charge the price premium. If quality standards are implemented, all drugs would be of acceptable quality and become commodity items removing the price differential, as is the case in US and other developed markets.

  4. Madhulika Vishwanathan

    Let me help you get your facts straight. First:I never said that a patent application/grant correlates to new drug launches. I just thought that the link could be a useful lead. Please do not expect me to do your research!
    Also the DPCO price control exemptions for new products and processes are applicable only if a patent has been granted.

    Second;we should have minimum quality standards in place- by this I meant that we should both implement and enforce quality standards,
    no we do not have enough quality standards -CDSCO does not place emphasis on potency/efficacy of therapeutics, whereas the FDA does.

    Third If quality standards are implemented, all drugs would be of acceptable quality and become commodity items removing the price differential, as is the case in US and other developed markets– This is not the case – there is huge inter-brand price difference here too almost as high as of 60 USD -but this is hardly noticed due to medicare/insurance in the US

  5. I wrote a long comment, defending some of my points with data, which somehow did not get posted. And now I don’t have the patience to write it again. I guess we agree that the price difference does not impact the final customer.

    I am sorry if I offended you – that was not the aim. And I did not want you to do my research for me. Peace.

  6. Madhulika,
    While browsing through the comments section I found your reply to be vague or perhaps an under-researched one. How did you arrive at your conclusion that CDSCO doesn’t emphasize on Efficacy ( I’ll keep potency aside for while) of the drugs being sold in the country? Could you please quote your sources? No NEW DRUG IS NOT ACCEPTED IN INDIA OR AS A MATTER OF FACT IN ANY COUNTRY ACROSS THE GLOBE without demonstrating EFFICACY. I second Amit , its rather true that CDSCO does have its own quality standards. Their enforcement is a different issue and whether FDA is approach is superior to that of CDSCO approach to quality standards is still debatable

  7. Somehow , my full comment wasn’t posted. The tags ‘efficacy’ and ‘potency’ in context of regulator(FDA or Other) appear confusing to layman. For one , most of the trials I speak extensively about Phase II and Phase III do a comparative study in randomized trials, demonstrate their therapeutic superiority in terms of EFFICACY when COMPARED to PLACEBO and NOT OVER existing treatments (sometimes they may be subpar) , even if some did those that didn’t demonstrate will be deliberately neglected or not submitted to the regulator. When a new drug is in the market , for the same indication as a layman, one will usually think its a superior choice.

  8. Kireeti,

    Just one point. Most of the trials today are mostly done versus the current Standard of Care (SoC) unless there is not treatment available, and not placebos. While this might not be necessary for regulatory approval (though it does influence it), it is a must for reimbursement, without which a drug is dead in water anyway.

  9. Amit,
    You didn’t get it right . Nowhere I said that they are NOT done in comparison with Standard care. Please read it again, my position is despite being compared with standard care , the new drug may be at par or sometimes subpar to the standard care, although demonstrates efficacy when compared to placebo. That’s what I mean. From regulator’s point of view its more of RISK BASED ASSESSMENT rather than BETTER BENHCMARKING IT AGAINST STANDARD CARE. However, reimbursement comes into picture when we consider health insurance policies, While it may hold true in Developed countries where people stick to Private health insurances , its not necessarily true when care is made universal like in Western European countries or in Emerging Markets.

  10. Kireeti,

    From a regulators perspective, placebo controlled trial are a moral hazard and generally not allowed if there is an approved treatment. Also, if they can’t quantify the risk vis-a-vis current SoC, they might not be too convinced of approving a new drug.

    For reimbursement, most developed markets, US, EU5, JP, CA, AUS, etc need efficacy evaluation. Look up what Germany does with IQWiG, UK does with NICE, and AUS with PBS. In fact, pricing is easier in US than in most developed markets including Western Europe. All said and done, for most innovative medicines, these markets make up the majority of the sales.

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