NE HEALTH BUREAU
Government intervention to regulate prices of essential drugs has not achieved its objective of expanding affordability and accessibility at the aggregate level, though there is success in selected categories, says a study titled “Impact of Drug Price Control Order (DPCO) 2013 and National List of Essential Medicines (NLEM) 2015 on Access and Affordability of Medicines in India”, conducted by Prof Arvind Sahay, Indian Institute of Management – Ahmedabad (IIM-A).
Professor Sahay shared key insights to assess the efficacy of price regulation on affordability and access to medicines. Based on data collected on the sales and prices of medicines between 2011 and 2018 in India.
“The government needs to re-examine the nature and implementation of pharma price regulation. There are two-fold objectives that price regulation must satisfy: Essential medicines have to be available to all that need it at a reasonable price; and price regulation should leave enough resources with Indian pharma firms to invest in research. Thereby aiding their growth towards truly becoming the ‘pharmacy of the world,’ ” says Prof Sahay in his study.
The Indian pharmaceutical industry has been governed by price regulation since the promulgation of DPCO in the 1990s. The last two major changes (DPCO 2013 and NLEM 2015) changed the basis of price control to market-based prices from cost-based and also changed the list of SKUs in the essential medicines.
The research employed two approaches to investigate whether DPCO 2013 and NLEM 2015 increased the level of access and affordability of the select medicines in the Indian market. The data used for the investigation were monthly molecule level and SKU level IQVIA data and bi-monthly prescription data from SMSRC. The research was supported by the Indian Pharmaceutical Alliance.
Key Highlights:
- The trend growth in the volume of NLEM molecules after DPCO 2013 is not different from what it was before DPCO 2013
- Interestingly, the difference in the trend growth rate is NOT significantly different from that of non-NLEM molecules in comparable periods before and after DPCO 2013 as well
- A similar result applies after the change in NLEM in 2015
Overall DPCO 2013 has not achieved its objective of expanding affordability and accessibility at the aggregate level, though there is success in selected categories. The macro-contextual factor and firm related factors that underlie the results of this study flow from (a) Competition in the Indian Pharmaceutical Industry (b) Impact of Imported Active Pharmaceutical Ingredients (API) Prices on Indian Pharma Price (c) Cost-Based Pricing vs. Market-Based Pricing in Price Control (d) Firm Related Factors and (e) Experience of Other Industries.
This is validated by the high levels of competition in the pharmaceutical industry in India (the HH Index – a measure of competition is less than 0.15 for 7 of the 9 NLEM categories indicating very high competition), there is an automatic downward pressure on price and downward pressure on profits.
Prices in India are already amongst the lowest in the world. And at these levels, price elasticity may be limited. The research literature also suggests that market-related prices (based on reference prices) are likely to be better than cost-related prices (prior to DPCO 2013). When combined with the increase in the API prices by as much as 30% in the duration of the data that has been analyzed for this study, it details out that firms would be under higher pressure to maintain margins (which are among the lowest in the world for profitable innovating pharmaceutical firms).
The experience of other industries (fertilizer, sugar, etc.) also suggests that price controls over a period of time lead to an increase in subsidies and sub-scale manufacturing units and a lack of new investment.
