The government has proposed dramatic changes to regulations that keep a check on prices of medicines and medical devices in order to prevent profiteering and deliver affordable healthcare to patients. The Department of Pharmaceuticals has drafted a new pharmaceutical policy that proposes to balance the need for price control over medicines with the Union government’s push for ease of business and “Make in India” programme – this time for the domestic pharmaceutical industry.

If the draft is accepted, the National Pharmaceutical Pricing Authority, which on Wednesday capped the prices of orthopedic knee implants bringing costs of the basic model down 65% from current market prices, will lose substantial powers and heft. In its place, the Union government will gain a greater role in deciding prices of medicines and medical devices. The likelihood of price caps being imposed on patented medicines will go down.

At the same time, the draft policy requires pharmaceutical manufacturers to sell their medicines under generic names and not under differently-priced brands. The policy also proposes that illegitimate promotion of medicines would attract legal action and will not be left to self-regulation by industry.

The policy also sets out a host of actions, schemes and changes in regulations to facilitate higher growth of the domestic pharmaceutical sector. reviewed a copy of the draft policy which has been shared with select stakeholders for discussions.

Current price ceiling mechanism

At the moment, the pricing authority is required to function as an independent body of experts, largely protected from the Union government’s influence. The authority was constituted in 1997 and given these wide-ranging powers to regulate medicine prices in 2013.

The authority has the powers to fix the maximum price at which medicines and several medical devices can be sold to patients. These include medicines and devices that have been specifically listed by the Union government for price control. But, the authority also has discretion to put a cap on the price of any medicine or medical equipment under extraordinary circumstances for public interest.

The authority used its overriding powers on Wednesday to cap the prices of knee implants and earlier in February to bring down the prices of cardiac stents by 85% in pursuance of court directives. Even earlier, it has done so for many medicines as well. It has tried to use this power to also cap prices of patented medicines that do not fall under the government’s list of essential medicines. The authority’s website, updated last in 2016, notes that since 2015 it had fixed and notified the ceiling price of 330 medicine formulations by June 2016 and planned to set price caps for all 799 formulations that are listed in the national list of essential medicines.

The authority could now lose its teeth if the new pharma policy is accepted in its current shape.

Keeping pricing authority in check

The new draft pharmaceutical policy suggests that the authority regulate only those medicines and medical equipments that are specified by the government in the National List of Essential Medicines. It would lose the powers to invoke extraordinary circumstances to regulate other medicines and medical devices as it did on Wednesday and earlier in February.

The pricing authority will also lose the option to fix prices of patented medicines. Currently, the Drug Price Control Order is used to regulate the prices of all branded and generic medicines on the National List of Essential Medicines that contain the same molecule or active pharmaceutical ingredients. This does not include patented drugs but the authority has previously used its special powers to control their prices too in public interest.

The draft policy recommends that the prices of drugs still under patents be regulated mostly by compulsory licensing and the authority step in as an exception only when instructed by the government. Under compulsory licensing the patent holder allows another company to make a generic version of the drug at a forced low license fee. The Patents Act allows the government to grant compulsory licenses under circumstances of extreme emergency or in the case of public non-commercial use. The government has, so far, issued only one compulsory licence.

In 2016 the United States Trade Representative noted that the US India Business Council had been “privately assured” by the Indian government that it would not would not use compulsory licences for commercial purposes. Three other business associations also reported to the US government that India sounded more “positive” in its approach against compulsory licensing and in favour of protecting patents. In 2017, the US Trade Representative noted that India continued to be on its watch list and would be lobbied for stricter intellectual right protection laws, particularly for the pharmaceutical industry.

Prime Minister Narendra Modi addressing the US-Indian Business Council in September 2014. (Narendra Modi/Flickr)

The European Union too advocates much better protection for intellectual property rights squeezing the space for countries such as India to undertake any large scale compulsory licensing of medicines. The draft policy also states that once the authority fixes prices, it would not be able to revise these prices unless directed specifically by the government or a higher court to do so.

The draft does clarify that the ceiling price of regulated medicines will be linked to changes in the wholesale price index.

What the new draft policy does not indicate is whether it will change it basic formula for fixing the prices of essential medicines and medical devices. At the moment the price cap is calculated on the basis of market prices of medicines being sold in the market. Earlier the cap was built on a cost plus model, in which the authority would calculate the costs incurred by the manufacturer and then put a cap above that to limit profits at all levels in the supply chain.

In 2013, the All India Drug Action Network, in an on-going public interest litigation, challenged the government’s decision to switch from a cost-based pricing formula to cap prices of essential medicines to a market-based pricing formula claiming the market-price based formula for deciding the cap resulted in a smaller reduction of drug prices.

Limited authority

The draft policy also wants to substantially alter the functioning and organisation of the National Pharmaceutical Pricing Authority.

The authority was envisaged as a body of independent experts consisting of a Chairperson with the rank of a secretary to the government. Additionally it was to have members with expertise in the field of pharmaceuticals, economics and cost accountancy and a member secretary. The authority’s website says it currently has an IAS officer as chairperson and a member secretary as full time officials. The Drugs Controller General, an economic advisor from the department of economic affairs and an advisor from the department of expenditure as other members.

If the policy is adopted, along with the chairman, the authority will have a member (enforcement) and a member (pricing), who will be selected by the government. Decisions of the authority will be made by consensus of these three members.

The authority will also have an advisory body that includes members of civil society, doctors, pharmacists, industry representatives and government representatives – all of whom will all be nominated by the government. While the advice of this body will be recommendatory, the authority will have to give reasons in writing for modifying or rejecting its advice.

The other staff of the authority can so far be hired by the authority under qualifications laid down by the government. Under the draft policy the government shall provide the necessary staff on deputation and no one shall serve more than three years in the authority.

Unlike present practice, appeals against the orders of the authority shall lie directly with the Union government. The union government’s decisions can be challenged in court.

Quality control and ease of business

The new policy also states that the list of for capping prices – the Drug Price Control Order – will have only the medicine’s name. So far this list includes strengths and dosages of medicines as well, which allows pharmaceutical companies to make minor adjustments to the strength of the drug and market it as a “new drug” outside price control. By mentioning only the drug name, all strengths and dosages of the medicine will fall under the price cap.

A major change that the draft policy suggests is the use of only salt (active ingredient) names on the packaging of generic drugs. Branded generic drugs are currently sold like other patented medicines, with their brand names displayed on the packaging. A manufacturer, the policy states, will only be allowed to stamp the company name and the generic name on drug packaging and not a brand name. Patented drugs and fixed dose combinations can be sold under brand names but the Department of Pharmaceuticals will have to ensure only that a company offers a drug with the same active ingredient under only one brand name and with one price.

The policy also seeks to bring down the unreasonable trade margins offered by various stockists to hospitals.

An enabling legal environment will be created to set up bulk drug and pharmaceutical parks in private-public partnerships with ease of clearances and common facilities such as common effluent treatment plants being set up by the central government for the industry. While the policy makes bio-availability and bio-equivalence tests mandatory for quality control a prerequisite to get manufacturing licences from state and central drug regulators, it also allows manufacturers to self certify that their products are compliant with these tests until their licences come up for renewal. The Central Drugs Standard Control Organisation is to conduct annual audits of drug companies’ manufacturing facilities, but the policy suggests that even these facilities may be self-certified until the regulator sets up an adequate inspection mechanism. The government shall ensure to get the World Health Organisation’s Good Manufacturing Practices and Good Laboratory Practices adopted by all manufacturing units in a phased manner. Central and state drug regulators will have to give manufacturers clearances within a period of three months – extendable by another three months at best.

The draft policy also seeks to legitimise and encourage online sale of medicines under guidelines that have “adequate safeguards”, stating that opportunities in the e-pharmacy sector hold potential for attracting Foreign Direct Investment.