Gujral gives Minister a strong dose, okays reduction in drug prices

In the case of all three drugs, Arunachalam disagreed with his department’s recommendations, despite the fact that these were, in turn, based on the findings of authorised bodies such as the Bureau of Industrial Costs and Prices (BICP) and the National Pharmaceutical Pricing Authority. Both BICP and now the NPPAI are responsible for conducting studies to fix prices for the 74 drugs whose maximum prices are fixed by the government.

All three drugs fall within this category.In the case of Ranitidine, for example, the BICP studied cost data of various producers and in July last year, recommended that its price be brought down to Rs 1,203 per kg from the prevailing Rs 1,714 per kg. At this point, one of the producers, Glaxo, protested and said that this should bereviewed.Arunachalam agreed and ordered that the matter be referred to the newly constituted NPPAI. (After November 1, 1997, it has taken over the BICP’s role in fixing prices of drugs which fall under the price control order). Ten days later, the NPPAI said it agreed with the BICP recommendation. At which time, Arunachalam asked for the methodology for fixing prices to be changed to take into account the cost of all manufacturers the existing methodology is to take the costs of producers who account for two-thirds of the industry’s production.

This generally starts with the cost structure of the cheapest producer, and then goes on to the more expensive ones, till details are available for two-thirds of the total production. As such, it is biased against the more expensive (and generally newer) producers. The methodology, however, rules in favour of the consumer who then gets cheaper priced drugs.

Glaxo, meanwhile, approached the Bombay High Court which ruled that if the government did not decide on thematter quickly, the price of Rs 1,714 would be taken to be the prevailing one. The department then approached the Prime Minister’s Office, stating that if no decision was taken quickly, they would lose the case.A similar logjam also occurred in the case of Rifampicin.

In this case, according to department officials, even if the minister’s suggestion on taking everyone’s costs into account had been adhered to, the ultimate price would still have been much lower than the existing price. The existing price is Rs 5,220 per kg, while the BICP-and-later-NPPAI recommended price was Rs 4,707 — the price taking every producer’s costs into account would have been Rs 4,800.