Drug Prices Control Order 2013: Impact, limitations and recent developments

Malini Aisola

Oxfam India

Hyderabad, 4 March 2015

CIPS workshop on

Access to Low Cost Essential Medicines:

Issues of procurement, pricing, selection and distribution

Overview

• Brief history of price control in India

• Key features of the Drug Prices Control Order (DPCO) 2013

• Scope and impact of the DPCO 2013

• Government’s attempt to expand price control in the public interest

• Recent developments and recommendations

Drug Price Regulation

• Medicines are an essential commodity could mean the difference between life and death

• Out-of-pocket expenses on medicines are a major contributing factor to impoverishment (34 million persons in 2011-12)

• Medicines account for 50-80% of treatment costs

• Price control is an instrument to regulate the prices at which medicines can be sold in the private sector

– Vital for expanding access to medicines, addressing health needs and reducing the financial burden on patients

Market Failure in Pharmaceuticals

• Weak patient power due to information assymetry

• Branding of medicines – perception that some brands are better

• Aggressive marketing and promotion

SYMPTOMS of market failure:

• Large inter-brand price variations for the same medicine

• Competition is based on market dominance top-selling brands are often also the most expensive

• High concentration small number of firms control large segments of the market

• Huge market of irrational medicines and fixed dose combinations (47% of the market)

TIMELINE OF DRUG PRICE CONTROL

1963

• Price control over drugs introduced in the aftermath of India’s war with China. Prices of drugs frozen w.e.f. April 1st 1963

1966

• Drugs Prices Control Order (DPCO) 1966 issued under the Essential Commodities Act 1955; drugs declaring as essential commodities under the Act

1970 • DPCO 1970

1979

• First comprehensive pricing mechanism with DPCO 1979: 347 bulk drugs and their formulations

1986

• DPCO 1986: list is pruned to 142 bulk drugs and their formulations

1995

• DPCO 1995: further decontrol and list pruned to 74 bulk drugs formulations (1,577 formulations in total as of 2012)

1997

• Establishment of the National Pharmaceutical Pricing Authority (NPPA)

2002

• Draft pharmaceutical policy in 2002 seeks to reduce number of drugs to 35: challenged in the Karnataka High Court and stay order issued

2003

• Order of stay challenged in the Supreme Court and struck down. Court directed the government to formulate appropriate criteria for ensuring that essential & life saving drugs do not fall out of price control

2011

• National List of Essential Medicines 2011 notified by MoHFW – 348 essential drugs

2012

• National Pharmaceutical Pricing Policy 2012 – regulation of prices based on the National List of Essential Medicines

2013

• Drugs Prices Control Order 2013 – significant departure from earlier DPCOs

Key Principles of DPCO 2013

1. DPCO 2013 brings all 348 medicines in the NLEM 2011 under control (~ 620 dosage forms and strengths)

– Drugs not listed in the NLEM are left outside price control

2. Only prices of formulations are controlled

Cost-Plus Based Pricing under DPCO 1995

Takes into account the cost of production and provides a profit margin

Retail Price =

(M.C + C.C. + P.M. + P.C.) X (1+MAPE/100) + E.D.

• M.C denotes material cost including drug cost and other pharmaceutical aids

• C.C. indicates conversion cost

• P.M. means packing material cost of formulation

• P.C. connotes packing of shipment

• MAPE denotes Maximum Allowable Post-Manufacturing Expenses which includes trade margin

• E.D. indicates excise duty.

3. Market-based formula to calculate the ceiling prices

Ceiling price = Simple average of the prices of brands with at least 1% market share

Reliance on proprietary market data from IMS

Excluded from price control

• Dosages and strengths of essential medicines not mentioned in the NLEM (e.g., paracetamol 650mg tablet)

• Existing combinations involving essential medicines (in fact only 5% of all combinations are covered)

• Other drugs in the same therapeutic class if not mentioned (e.g., simvastatin, rosuvastatin)

• Several medicines used in national treatment programs such as anemia prophylaxis, malaria and HIV

• Standard of care medicines in priority areas such as TB and MRTB

• Several pediatric formulations

• Several life saving medicines in various therapeutic areas

DPCO touches only 11% of the market (Rs. 87,000 cr)

• Antidiabetics – 86%

• Antimalarials – 88%

• Anti-infectives - 63%

• Anti-TB – 81%

• Blood related- 99%

• Cardiac - 71%

• Derma – 90%

• Gastrointestinal – 85%

• Gynaec - 86%

• Hepatoprotecives – 100%

• HIV related -73 %

• Hormones - 56%

• Neuro/CNS - 82%

• Opthal/otologicals - 94%

• Sex stimulants/rejuvenators -99%

• Pain/analgesics - 90%

• Respiratory - 94%

• Stomatologicals - 100%

• Vitamins/minerals/nutrients - 99%

• Vaccines – 68%

Market Based Ceiling prices

• Leaves most FDCS and other formulations

untouched

• Escape hatches: combinations, non-standard

dosages

• Most ceiling prices are still in the range of 200

to 4700 % margin

Disease Drug & Pack form

Ceiling price

(as per DPCO

2013)

(Rs.)

Ceiling price

(as per DPCO 1995)

(Rs.)

RMSC

Tender

price.

(Rs.)

Antihypertensive

Atenolol 50 mg (14 tabs) 30.80 3.5 1.75

Amlodipine 5 mg (10 tabs) 30.10 1.77 0.82

Enalapril Maleate 5 mg (10

tabs) 31.50 2.4 1.27

Antiemetic Domperidone 10 mg (10 tabs)

24 2.5 1.21

Antidiabetic Glibenclamide 5 mg (10 tabs)

10.2 1.42 0.84

Antiallergic Cetirizine 10 mg (10 tabs)

19.2 2 0.77

Cholesterol lowering

drug

Atorvastatin 10 mg (10 tabs) 62.8 5.6 2.61

The profit margins, even with price control are anywhere between 100 to 4000 percent.

ILLUSION OF PRICE CONTROL UNDER DPCO 2013

Impact of DPCO 2013

Estimated loss of revenue is Rs. 1,281 cr.

Equivalent to less than 2% of total market sales in 2012

Patient savings: less than Rs. 1 per person per month

DPCO 2013: conclusions

• Market based pricing provides insufficient financial relief to patients

• Reduction in prices is inadequate

• Weak safeguards to prevent companies from migrating production and marketing to formulations not controlled under DPCO

• Gradually lead to proliferation of non-essential & unsafe medicines

Expansion of price control through orders of 10th July 2014

• 50 drugs for diabetes and cardiovascular disease 108 formulations

• A bold move by NPPA using Para 19 of the DPCO 2013

• Industry filed lawsuits in Bombay and Delhi High Courts

• Interventions by AIDAN and LOCOST in affirming the need for extensive use of Para 19

• Estimated loss of revenues is around 2% of sales turnover in diabetes and CVD segments

Para 19 of DPCO

• Para 19: “… the Government may, in case of extraordinary circumstances, if it considers necessary so to do in public interest, fix the ceiling price or retail price of any Drug for such period, as it may deem fit …”

– Evidence of market failure (high inter-brand differences)

– Public health: burden of diabetes and cardiovascular disease of epidemic proportion

Withdrawal of guidelines

• May 29, 2014: Internal Guidelines of NPPA to interpret how Para 19 can be used for putting non NLEM drugs under price control

• Department of Pharmaceuticals sough Solictor General’s opinion

• SG: “The (internal) guidelines (dated 29.05.2014) and orders of 10.07.2014 of the NPPA are not in consonance with provisions of Para 19 of DPCO 2013.

Department of Pharmaceuticals to NPPA

• Withdraw guidelines based on SG’s opinion

• July 10th price control orders still standing

• However use of para 19 in other therapeutic categories is paralyzed – HIV, cancer, malaria, asthma

NLEM 2015

• First NLEM against the backdrop of price control

• NLEM revision process has been subjected to heavy lobbying from the pharmaceutical and biologicals industry

• Expansion to 500+ drugs is rumored

Recommendations

• NLEM 2015 should address the anomalies of NLEM 2011

• NLEM should consider state EMLs, medicines for diseases endemic to regions, minorities etc.

• Life saving medicines should be included under price control (as per Supreme Court order)

• Expand the scope of DPCO to cover additional dosage, strengths and combinations of essential drugs

• Revert to cost-based pricing