India’s drug price control regime just pulled off a logic defying move

Doing a head check on advancing technology.
Doing a head check on advancing technology.
Image: Reuters/Rupak De Chowdhuri
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India’s drug price control agency is jumping through hoops to make a bad decision look good. In the process it is sending terrible signals to the industry and to the broader world about fairness and efficacy of India’s regulatory regime.

The tale begins in 2013, when after 12 years of consultations, India brought 348 drugs under its price control regime, replacing an older one that had lost its relevance. The National Pharmaceutical Pricing Authority (NPPA) would monitor and control the prices under the Drug Price Control Order, 2013.

Suddenly in May 2014, it put out new guidelines, pointing out that certain clauses in relevant laws actually gave it wider powers to control drug prices. Soon afterwards, in July, it announced that 108 new drugs will be added to the list of controlled formulations, in addition to the 348 existing ones. The drug industry marched straight for the courts.

The parent of the drug price regulator, in a general challenge to common sense, is the ministry of chemicals and fertilizers. The ministry sought legal opinion and found that the May guidelines issued by the regulator utilized a clause that was meant to be sparingly used. It told the courts that the May guideline would be withdrawn, and sure enough, in a cryptic notification last week, the NPPA revoked its own guidelines.

That should have ended the matter. With the guidelines being held untenable by the government’s law officers, the act of including 108 new drugs under price control, which derived its validity from the guidelines, should have been considered null and void. But amazingly, while the guidelines have been revoked, the expanded price control stays.

The drug industry will of course fight the measure in court, and it is hard to see how NPPA’s stand can withstand scrutiny, but how the whole episode has played out makes both the NPPA and its parent ministry look short-sighted and casual about an issue that has long-term consequences on the health of the nation. It sends out confusing messages to investors. (Note that stock prices of the affected drug companies have reacted rather wildly to each move).

To avoid future gaffes, here are four questions that drug pricing authorities would do well to ask themselves before they make any more drastic moves of this nature.

Does it bear legal scrutiny?

Anyone could see that the NPPA’s attempt to extend price control beyond the list of essential medicines would be challenged. The industry stood to lose hundreds of crores. Unchallenged, it would’ve set a precedent for future price cuts involving other “non-essential” drugs. Now, according to this report in The Economic Times, the Solicitor-General has held that the NPPA did indeed overreach. Next time, perhaps they should ask him beforehand?

Is it sustainable?

Price cuts, beyond a point, make companies cut back production. A country that relies on private industry to meet its demand for medicines is unwittingly courting shortages when it goes overboard with price controls.

What message does it send?

The rollback emboldens industry to challenge similar moves in future. To consumer groups, the government looks like it has fallen prey to vested interests when all it has actually done is withdraw a decision it should not have made in the first place. In short, it is a public relations disaster all around.

Is there another way?

Well-designed bulk purchases by government that ensure a fair margin to industry while creating access to affordable medicine will be more welcome than indiscriminate price cuts. While much has been spoken of making this a part of India’s universal healthcare agenda, little has been done.

Afffordability—of not just drugs but healthcare as a whole—is a serious issue. Paying for healthcare pushes a significant percentage of Indian families below the poverty line. But the latest episode has made drug pricing look like a game of bluff between the government and the drug industry where the consumer, a mere spectator, is still trying to comprehend the rules. Given what’s at stake, this is indeed a dangerous game.

You can follow the writer on Twitter at @Apothecurry