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Wednesday, July 18, 2018

How are drug prices regulated?

The reduction in the prices of cardiac stents and knee implants has been applauded. But while cutting the prices of lifesaving drugs, how much is too much? The regulator takes up a specific case today

Written by Abantika Ghosh | New Delhi | Updated: June 28, 2018 8:13:38 am
How are drug prices regulated? Efforts of the regulator, the National Pharmaceutical Pricing Authority (NPPA), to regulate the prices of drugs and medical devices have included a much-applauded order in February 2017 to dramatically cut the prices of cardiac stents. (C R Sasikumar)

At its meeting scheduled for Thursday, India’s drug pricing regulator will take up the case of a lifesaving drug for children which has almost disappeared from the market after its price was slashed by over 90%. Earlier this month, the regulator wrote to the drugmaker to “rush supplies”; however, the pharmaceutical company argues that although it is a responsible corporate citizen, it can’t provide “vast quantities” of the drug for less than its manufacturing cost.

Efforts of the regulator, the National Pharmaceutical Pricing Authority (NPPA), to regulate the prices of drugs and medical devices have included a much-applauded order in February 2017 to dramatically cut the prices of cardiac stents. However, a price cap that threatens to drive a crucial drug out of the market presents a different set of problems.

The drug in question — furoped or furosemide, often sold under the brand name Lasix — is a diuretic prescribed to babies with heart ailments to drain the body of fluids to reduce the load on the heart. Last November, NPPA cut its price from Rs 100-110 to Rs 10 per pack. Supplies have been hit, and over the last couple of months a serious shortage has emerged, with parents of very sick babies, some of them newborns, left running from pillar to post.

Which drugs are under price control?

Every few years, the Health Ministry, in consultation with experts, draws up a National List of Essential Medicines (NLEM). These medicines, deemed essential for the treatment of common conditions, automatically come under price control. Under NLEM 2015, a total 376 drugs are under price control. In addition, the government has the power to bring any item of medical necessity under price control. (Para 19 of the Drug Price Control Order, 2013) This provision was used to regulate the prices of cardiac stents and knee implants.

And what exactly does this provision say?

Para 19 of DPCO, 2013 says: “Notwithstanding anything contained in this order, the Government may, in case of 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 may deem fit and where the ceiling price or retail price of the drug is already fixed and notified, the Government may allow an increase or decrease in the ceiling price or the retail price, as the case may be, irrespective of annual wholesale price index for that year.” The practice of exorbitant trade margins was used as the reason to bring stents and implants under price control. (But intriguingly, package rates for angioplasties have not come down.)

How are ceiling prices calculated?

DPCO, 2013 lays down a complicated formula: “(Sum of prices to retailer of all the brands and generic versions of the medicine having market share more than or equal to one per cent of the total market turnover on the basis of moving annual turnover of that medicine) / (Total number of such brands and generic versions of the medicine having market share more than or equal to one per cent of total market turnover on the basis of moving annual turnover for that medicine.)” In other words, the ceiling price is the average of prices of all brands of a medicine with more than 1% market share. In the way pricing control works, until the formula has been applied for a drug and NPPA has come out with a ceiling price, the drug can continue to sell at the current price even if it is included in the NLEM. NPPA is constantly in the process of fixing ceiling prices.

On what grounds was furoped brought under price control?

By an order issued on November 23, 2017, the price of furosemide (furoped) was set at 0.29 per unit. This made the effective ceiling price of a pack around Rs 10. The decision, as the order itself said, was taken without looking at market data. It said: “Whereas NPPA also sought information from the various Government Procurement Agencies under Central Government and States and State Medical Services Corporation, as it is necessary to fix ceiling prices of scheduled formulations. Accordingly, in the absence of the relevant market based data in the Pharmatrac report of AIOCD- AWACS, it has been decided in the Authority Meeting held in the NPPA on 19/9/2017 to fix the ceiling prices of remaining scheduled formulations on the basis of procurement prices.”

NPPA chairman R K Vats has told The Indian Express that supplies have since come down by about 40%.

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