SC Asks Government To Explain Shift In Drug Pricing Formula
NEW DELHI, 6 OCT 2017:
The Supreme Court on Thursday observed that drugs were not “sunglasses” and asked the Central government to explain the shift from its earlier cost-based drug pricing policy to a new market-driven pricing of essential drugs.
A three-judge bench led by Chief Justice Dipak Misra prima facie said that the market driven formula seemed patchy and could be misused and asked the government to explain the reasons behind the shift.
Under the new policy, instead of the earlier cost-plus policy, the government would go by the average market price of best-selling brands to determine the prices of over 370 essential medicines.
The government switched to regulating prices of drugs using a market-based formula when it introduced its National Pharmaceutical Pricing Policy in 2012. This has been challenged by a petition filed by NGO All India Drug Action Network (AIDAN).
Under this and the subsequent Drug (Prices Control) Order, 2013, maximum prices that companies could charge for drugs under price control was calculated by averaging prices of brands that held at least 1% share of the market for the formulation.
According to AIDAN, this is not as effective in making essential and life-saving drugs affordable as the cost-based formula that had been used to calculate the ceiling prices before the 2012 policy was introduced.
“If it was a competitive market, you would imagine the cheaper brands would be bought more. But, in pharma, it has been documented widely that the most expensive brands have the highest sales,” Malini Aisola of AIDAN told ET. “The market-based formula legitimises profiteering.”
The cost-based formula calculated ceiling prices using all the input costs of the drug and adding a markup of around 100%.
“We are not opposed to a reasonable markup but the price ceiling must be correlated to costs of inputs and deliver truly affordable prices to the public at large,” said Aisola.
Ceiling prices of medicines capped using the market-based formula could be as much as 17 times higher than the ceiling prices using the cost-based formula, according to an AIDAN representation to the government that ET has seen parts of.
Today, the top court also said that any average based pricing system seemed “irrational”.
AIDAN, through senior advocate Colin Gonsalves, pointed out that the prices of procuring such basic drugs was low in some states such as Tamil Nadu and Rajasthan. The prices of same drugs would now be higher, he argued.
Gonsalves argued that the market-based pricing regime has no correlation with cost of production and also does not make medicines affordable for the masses.
It was also “arbitrary” too, he said. The earlier cost-plus basis of determining drug prices took into account all inputs including packaging and transportation of drugs, he said.
The top court asked the NGO to provide a comparative chart of prices being paid by the states and elsewhere to get a fair idea of the price difference in the market of essential drugs.