Even as Prime Minister Narendra Modi announced the government’s intention to ensure access to affordable medicines, the government policy think tank NITI Aayog seems to be pushing for greater deregulation of drug prices and to disempower India’s drug price regulator.

In its Three Year Agenda document for 2017-2020, the NITI Aayog has said that the Drugs (Price Control) Order that declares the ceiling price for essential and life saving medicines be delinked from the National List of Essential Medicines, which is a list of medicines considered essential in India prepared by the Ministry of Health and Family Welfare.

The NITI Aayog cites the need for a “balanced approach” towards regulation to achieve the objectives of access to effective medicines and a vibrant pharmaceutical industry as its reason for the recommendation. The agenda document, which was finalised on April 23, says: “There is a trade-off between lower prices on the one hand and quality medicine and discovery of breakthrough drugs on the other. It is therefore recommended that the Drugs (Price Control) Order may be delinked from the National List of Essential Medicines.”

Health activists who have been working for greater affordability and accessibility of medicines say that the move has been suggested at the behest of industry lobbies. Even the Swadeshi Jagran Manch, a lobbying group supported by the Rashtriya Swayamsevak Sangh, decried the move and on May 1 wrote to the Prime Minister alleging that the NITI Aayog, the Department of Pharmaceuticals and the health ministry were sabotaging the country’s drug price control regime.

“It is shocking to see senior officials of these three ministries and the NITI Aayog acting in such a concerted fashion to lobby for the crass commercial interests of the pharmaceutical sector,” said the letter.

Congress Rajya Sabha MP Husain Dalwai has also decided to write a letter to the Prime Minister about this issue and alleged that the NITI Aayog is trying to favour the pharmaceutical industry. “When it comes to the public health sector we are anyway so backward,” he said. “A common man should get access to medicines.”

Meanwhile the Advanced Medical Technology Association, a pharmaceutical trade body operating out of the United States of America, has come out in support of the NITI Aayog’s proposal. The association has issued a statement saying: “DPCO in its current form, is meant only for the pharmaceutical products and was created for Indian healthcare system of the early 70’s based on cost-accounting principles instead of patient health and safety aspects. We appreciate that the government recognizes that the DPCO needs revision and is taking steps to make it more relevant for driving large scale patient access for safe, effective and innovative medical devices.”

Restricting the regulator?

Currently, the prices of 376 medicines on the National List of Essential Medicines are capped. If the National List of Essential Medicines is delinked from the Drugs (Price Control) Order, it will become just a checklist of essential medicines. The criteria for which drugs should be price controlled could then shift from how essential they are to market share and any other factor as decided by the government.

This is not the only change that the government’s policy agency is suggesting.

Last October, NITI Aayog Chief Executive Officer Amitabh Kant met officials from the health ministry and the Department of Pharmaceuticals. A major recommendation from this meeting was that the the National Pharmaceutical Pricing Authority “in its present form and current function be wound up”.

National Pharmaceutical Pricing Authority regulates drug prices by implementing the Drugs (Price Control) Order. The authority has made several gains in ensuring that medicines are more accessible to the poor. In a major move this year, the authority capped the price of cardiac stents at less than Rs 30,000 – almost one-fifth the price charged by private hospitals.

Last October, the authority also won two important cases in the Supreme Court that challenged its powers to regulate drug prices under paragraph 19 of the Drugs (Price Control) Order.

One case pertains to a clutch of petitions filed by various pharmaceutical companies which challenged the notifications issued under the Drugs (Price Control) Order 1995. The second case was filed by the Indian Pharmaceutical Alliance in 2014 challenging the authority’s powers of capping prices. The drug price regulator had, at the time, just capped prices of some essential drugs for cardiovascular disease and diabetes. The Supreme Court upheld the authority’s powers in both the cases.

Health activists have observed that by recommending that the National List of Essential Medicines by delinked from Drugs (Price Control) Order, the NITI Aayog is going against the Supreme Court’s directives.

The National Pharmaceutical Pricing Authority has also started recovering money from pharmaceutical companies that have been overcharging for medicines that have been regulated under the Drugs (Price Control) Order. The authority claims that companies have overcharged medicines to the tune of more Rs 4,500 crore.

The government is fighting another case at the Supreme Court. In 2013, the All India Drug Action Network amended an earlier a public interest litigation asking for reform of the Drugs (Price Control) Order to also challenge the government’s decision to switch from a cost-based pricing formula to cap prices of essential medicines to a market-based pricing formula.

In the Drugs (Price Control) Orders 1995, ceiling prices were fixed such that companies manufacturing essential medicines were allowed to make nominal profits over their manufacturing costs. According to the Drugs (Price Control) Orders 2013, maximum prices are fixed based on a simple average of all medicines having one percent or more market share. The reduction of drug prices using the market-based pricing formula is much less than the reduction in prices using the cost-based formula.

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History of drug price control

Under the Drugs (Price Control) Order of 1995, medicines on the National List of Essential Medicines were brought under price control based on market share and the manufacturing company’s turnover. Under the 1995 order, only 74 drugs were under price control.

In 2002, the Department of Pharmaceuticals decided to liberalise its hold over drug pricing by increasing the turnover limit to Rs 25 crores from Rs 4 crores, thereby reducing the number of medicines that come under price control. This was challenged in the Karnataka High Court which stayed the policy. The Supreme Court upheld the judgment and ordered the government to formulate a new policy that ensured essential life saving medicines do not fall out of price control.

After this Supreme Court order, the government started drawing up a new National List of Essential Medicines and linked this new list to the Drugs (Price Control) Order of 2013. The new list had 348 drugs, all of which came under price control, something that the pharmaceutical industry has not been happy about.

Health activists fear that delinking the Drugs (Price Control) Order and the National List of Essential Medicines could make the process of price control of drugs arbitrary. The minutes of the October meeting states that right to regulate drugs “as per need” rests with the government.

Against innovation and quality?

The NITI Aayog’s Three Year Agenda document indicates that lowering prices of medicines is antithetical to producing quality medicine and discovery of drugs. A senior bureaucrat who did not want to be named called this line of reasoning by the NITI Aayog “unfortunate” and noted that it goes against the prime minister’s push for affordable medicines. He said that the NITI Aayog’s plan is not clear on what criteria can be used in fixing the prices of medicines.

Writing in The Hindu Business Line Srinivasan of LOCOST argues that the reasoning that price control inhibits growth of the pharmaceutical industry not evidence based since price control affects only 12% of the total domestic market leaving about 88% of the market out of price control. Srinivasan also points out that during the time that the Drugs (Price Control) Order, 2013 has been in operation, domestic sales of medicines have increased from Rs 70,000 crore in 2013 to more than Rs 100,000 crore in 2017 and exports have contributed another Rs 1,00,000 crore.

The Swadeshi Jagran Manch has also referred to the “false link” between price regulation and poor quality of medicines, lesser innovation and deterioration and called it “misleading” in its letter. “These bureaucrats are taking decisions based on industry’s interests,” said Dr Ashwani Mahajan of the Swadeshi Jagran Manch. “The NITI Aayog is not in sync with the policies that benefit the people.”