Pharma Price Control and Policy Schizophrenia – I: Background and Context

Drug price control has been at the forefront of the Modi government’s electoral promises, which has been quick to claim “victories” on this front (such as the capping of stent prices earlier this year). Elsewhere, however, it has been noted that players within the government have expressed opinions against the expansion of price control, and have taken concrete action to strip the current price control mechanism of its bite. Over this post, I contextualise these events in the larger policy backdrop. In the next post, I examine whether price control is desirable or appropriate in the Indian drugs market.

Flip-flops everywhere

Established brands like this may soon face stiff competition from the Union Government

Writing for The Wire, Anoo Bhuyan does an excellent job of chronicling the last few months’ worth of bureaucratic squirrelling and backtracking. In a nutshell, pharmaceutical price control as a means of enhancing access to drugs was a major political promise, and the PM has been consistently sending out signals that he’s willing to incur the wrath of large pharmaceutical companies in order to deliver on this promise. On the ground, the situation is different. RTI replies from the NITI Aayog (which contradict the Ministry of Health & Family Welfare) have revealed that on 1 October 2016, Mr. Amitabh Kant, the CEO of the NITI Aayog, hosted a meeting with the Secretaries of the Department of Pharmaceuticals, the Ministry of Health & Family Welfare, and the Department of Industrial Policy and Promotion. A decision was made to delink the DPCO from the NLEM, and wrest the price control function from the NPPA (an ostensibly independent body) and vest it directly in the Department of Pharmaceuticals (which functions directly under the political leadership). Whether or not the attendees at this meeting had the authority to take these decisions is debatable, but the minutes of this meeting indicate the tone of the Indian bureaucracy.

Background: tussling around the NPPA

These developments represent merely the latest round in a long-drawn back-and-forth exchange in which patient pressure groups and the pharmaceutical industry have pulled out all the stops to determine the precise scope of price control. Governance wonks often refer to state policy as levers which can be used to dictate the conduct of citizens – by that analogy, the Indian government’s response to pharma pricing is more in the nature of a Rube Goldberg machine.

The NPPA administers the Drug Price Control Order 2013, which imposes market-based caps on the price of drugs. The DPCO sources its legal standing from the Section 3 of the Essential Commodities Act. The scope of the DPCO is typically limited to drugs enumerated in its Schedule (as amended from time to time), which mirrors the National List of Essential Medicines (which, in turn, is derived largely from the WHO Model List of Essential Medicines. Patented drugs are outside the scope of the NLEM, and consequently the DPCO. However, the NPPA has historically tended to be an activist body, independent of its political masters. In 2014, for example, the NPPA invoked emergency provisions in the DPCO (intended to deal with public health crises and other extraordinary circumstances) to pass price control orders against 108 formulations that were not listed in the NLEM. This included cardiovascular drugs, some of which (such as Merck’s patented anti-diabetic sitagliptin) were protected by valid patents. Manufacturers immediately filed writ petitions at High Courts in Delhi and Bombay, but were unable to obtain an interim stay on the price control orders. In a sudden and inexplicable development, the NPPA revoked its price control orders within weeks, ensuring that the storm died down amid much confusion. The withdrawal of the orders sparked another round of litigation, which remains unresolved, in which the All India Drug Action Network sought a writ of mandamus from the Delhi High Court ordering the reinstatement of price control over non-essential drugs.

Curiouser and curiouser

Two facts serve to contextualise this first round of skirmishing. First, the timing of the NPPA’s measure makes it clear that its activist tendencies are politically agnostic, and not motivated by the Modi government. The guidelines that regulated non-essential price caps were notified on 29 May 2014, mere days after the NDA government took office.

Second, the Bombay HC challenge to the orders (Indian Pharmaceutical Alliance v. Union of India, WP(C) 2700/2014) was dismissed in its entirety in September 2016, with the court finding that the cap on non-essential medicines was driven by a reasoned exercise of discretion on the part of an expert panel. Having bestowed a glowing endorsement on the NPPA’s conduct, the court declined to even interfere in the collection of dues in the form of fines and penalties from the IPA’s members. The Delhi HC challenge (Organisation of Pharmaceutical Producers of India v. NPPA, WP(C) 4809/2014) was withdrawn in August 2016. Although it’s unclear whether the specific question of patent rights was argued (Merck is not a member of either petitioner), it’s clear that the High Courts, guided by Supreme Court precedent that is riddled (in dicta) with access-friendly rhetoric, must afford the NPPA a significant amount of leeway in its exercise of discretion, most notably in determining what situations constitute emergencies or “extraordinary circumstances”.

What this means is that the NPPA withdrew its orders (a) on the Modi government’s watch; and (b) despite knowing with reasonable certainty that the orders would withstand the scrutiny of a writ court.

Post-2014 developments

In 2015, the Parliamentary Standing Committee on Chemicals and Fertilisers tabled a report in the House recommending the imposition of price control on all drugs (irrespective of patent status or essentiality) on the Indian market. In addition, the NPPA sought information specifically on patented drugs from manufacturers, in a bid to negotiate a ceiling price.

In 2016, after being chastised for its inaction by the Parliamentary Committee on Government Assurances for its “lackadaisical attitude” and “gross negligence” on this front, the Department of Pharmaceuticals began a consultation process with various ministries on the price control of patented drugs.



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