The government should ensure that its move to cap trade margins of medicines take into account the cost price of the products, and the final price should not exceed its cost by an “unreasonable” amount, says K Srinath Reddy, President, Public Health Foundation of India (PHFI). Dr Reddy, who feels that strengthening the country’s public procurement system and capabilities of public sector enterprises is also important to bring down prices, tells Prabha Raghavan in an interview that any policy developed by the government should not be knee-jerk, and should focus on ensuring affordability, availability and quality. Edited excerpts:
How crucial are pharmaceutical pricing regulations in ensuring access to quality and affordable healthcare in India, especially outside Tier-1 regions?
With a broad band of health disorders, infectious as well as non-infectious, affecting a large segment of our population, we need to ensure availability and affordability of these medicines. The question, of course, is who is actually going to be supplying them, who is going to be paying for them and their incomes, the production dynamics as well as the procurement dynamics, and then the pricing issue. Ultimately, all of this will have to converge to ensure medicines are available to all who need them without imposing a financial burden. That is ultimately the essential of universal health coverage overall.
Medicines are a very important factor in that. We know that even out of the 55 million persons in 2015-16 who were impoverished because of healthcare in India, 38 million were because of the cost of medicines alone. Given the fact that out-of-pocket expenditure is an important contributor to poverty, and that expenditure on medicines is an important contributor to that out-of-pocket expenditure, pricing, availability and quality is important.
So, any government policy will have to be tailored essentially towards ensuring all of these.
The government plans to move towards a regime of trade margin caps of medicines. How effective do you think this will be in curbing profiteering in this industry?
It depends on how the ceiling is set. The ceilings can be set arbitrarily, but if you can actually get the cost of production very clearly identified, and then you say cost plus (margins should be set from the basic production price), then it becomes easier to fix it. Otherwise, ceilings become very arbitrary over a period of time.
…If it (the cap) starts from the (price at which) manufacturer (has sold) to the distributor, you’re trying to reduce the cost along the rest of the value chain. Of course, those costs do need to be reduced, but I’m looking at the ultimate price.
I’m tracking backwards to the cost price and I’m saying that the ultimate price should not exceed the cost price by an unreasonable amount. Previously, it has gone up to 1,000 per cent and even higher in some cases. So, that’s where I’m saying it’s cost plus, but fixing it at the cost. Along the distribution chain…the more you shift to…sourcing through public procurement, the number of middlemen would be reduced. I know between the distributor and the retailer, there are some costs that are affixed. And now, obviously, how much is the distributor required is the big question to be asked.
What should the government keep in mind when going ahead with such a move?
We do need much more information, much greater transparency across (the value chain)… One of the reasons I’m also a little concerned is the fact that a number of our Indian pharmaceutical firms are being taken over by international industry. Now, our priorities may be different from their priorities. Our control systems may be not something that they will appreciate, and they actually may slow down the production of some of the essential medicines and only focus on certain high profit margin medicines.
We need to ensure that our domestic industry is protected, that we do not easily permit acquisition of well-developed domestic industry by international profit-seeking entrepreneurs, and also that we retain, in some degree, public sector capacity to brace for eventualities — where we have to use compulsory licensing or produce drugs for neglected tropical diseases — and keep that running… I think reviving some public sector capacity is important. Trusting our private sector, in terms of its production and contribution of needed drugs with assured quality (is important), but encouraging them through adequate controls to keep their prices low is also going to be important.
I think one of the ways in which we can actually bring about this change in price is through pool public procurement… If the private sector gets engaged in (schemes like) the Pradhan Mantri Jan Aarogya Yojana, and one of the conditionalities you lay down is that an empanelled hospital also should get (drugs) only from the central or state’s procurement agency…, then you’re cutting down the cost for everybody.
Over the last few years, we’ve seen policy vacillations between imposing price caps and easing price curbs to counter shortages. What is the impact of such changes?
Ideally, you should have a stable, rational, and predictable policy which will guide both the manufacturing sector as well as the health sector which is procuring and using the medicines. However, it is also true that policy has to be responsive to changing situations and specific new realities.
Now, for example, if the API (key ingredient) prices have gone up, and if some price revisions have to be made, then they have to be made. But then that cannot be seen as the only response. We need to ask the question, ‘Why is our dependency on important APIs holding us hostage?’, and (understand) how we can actually avoid that situation in the future…
A policy which only functions as a knee-jerk response would be very harmful, both from the point of view of the people who manufacture, and for the people who operate the health system. So, I would certainly want to see a great deal of stability in the way we analyse and predict things and frame a policy which is flexible, but not necessarily oscillating or vacillating.
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