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With Frugal Public Resource Allocation Quo Vadis Healthcare in India?

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The memory is still afresh in India. A new political dispensation took charge of the governance of the country, riding on the tidal waves of people’s hope and aspirations, with presumed credibility to ‘Walk the Talk’. The expectations were skyrocketing for a change…better days for all, sooner. This covered the public healthcare space, as well.

Responding to such genuine public expectations, when in May 2014, the then new Union Health Minister Dr. Harsh Vardhan reportedly announced that his ministry would soon start working on distribution of free medicines through public hospitals across the country, a hope for a long-awaited healthcare reform in India, sooner, was rekindled.

This happened despite the fact that similar promises were made by the immediate past Government too.

The Cost and the Span:

The erstwhile Planning Commission of India had estimated that a countrywide free generic drug program would cost Rs 28,560 Crore (roughly around US$ 5 Billion) during the 12th Five-Year Plan period. The Centre will bear 75 percent of the cost while the states would provide the rest.

Under the previous government plan, 348 drugs enlisted in the National List of Essential Medicines 2011 (NLEM 2011) were to be provided free at 160,000 sub-centers, 23,000 Primary Health Centers, 5,000 community health centers and 640 district hospitals of the country.

Previous action:

Late 2012, the previous Union Government made its first move in this regard by formally clearing Rs. 13,000 Crore  (around US$ 2.2 billion) towards providing free medicines for all through government hospitals and health centers.

To facilitate the process, in November 2013, the then Union Health Ministry by a notification reportedly made the public drug procurement system in the country through ‘Central Medical Services Society (CMSS)’ formally operational. For different flagship program of the Government such as, National Health Mission, the drug procurement was planned through the CMSS.

The notification said:

The CMSS will be responsible for procuring health sector goods in a transparent and cost-effective manner and distributing them to the States/UTs by setting up an IT enabled supply chain infrastructure including warehouses in 50 locations.

Unfortunately, due to resource constraint of the previous Union Government, the program of distribution of free medicines for all through public hospitals across the country could not be translated into reality.

The fresh hope scaled greater heights:

In the first Union Budget Proposal (2014-15) of the new Government, some high impact healthcare areas were addressed as follows:

A. Access improvement:

- “Health for All”: Free drugs and diagnostic services for all would help improving ‘Access’ to healthcare by manifold.

- Universal access to early quality diagnosis and treatment to TB patients would again help millions.

- Deeper penetration of health insurance and its innovative usage would also help a significant number of populations of the country having adequate ‘Access’ to healthcare.

B. Affordability:

- HIV AIDS drugs and diagnostic kits were made cheaper through duty rationalization.

- “Health for All” – Again, free drugs and diagnostic services for all would help answering the issue of ‘Affordability’, as well.

C. Capacity building:

- Two National Institutes of Aging (NIA) at AIIMS, New Delhi, and Madras Medical College, Chennai to come up.

- Four more AIIMS-like institutions in Andhra Pradesh, West Bengal, Vidarbha in Maharashtra and Purvanchal in UP, for which Rs 500 Crores were set aside.

- Additional 58 government medical colleges, including 12 colleges where dental facilities, were also proposed.

- The fund for 15 Model Rural Health Research Centers (MHRCs) in states for better healthcare facilities in rural India was provided.

- Central assistance to strengthen the States’ Drug Regulatory and Food Regulatory Systems by creating new drug testing laboratories and strengthening the 31 existing state laboratories was announced.

D. Innovation:

- Cluster-led biotech development was announced.

E. Ease of doing business:

- Number of common pan-industry initiatives enlisted in the Union Budget 2014-15 proposals, would improve overall ‘Ease of Doing Business’ in the healthcare sector too.

A concern remained…even at that time:

Despite all these, there was a concern. In the Union Budget proposals 2014-15, the health sector attracted a total outlay of Rs 35, 163 Crore, which was a very low increase from the previous year’s Rs 33, 278 Crore. I wondered at that time also, whether this increase would be sufficient enough to meet all healthcare commitments, as it does not even take inflation into account.

Draft ‘National Health Policy’ further boosted the expectations:

In the midst of growing expectations for healthcare reform in India, the Union Ministry of Health and Family Welfare through its draft National Health Policy, 2015 (NHP 2015) proposed making health a fundamental right.

The draft policy reiterates, “Many industrialized nations have laws that do so. Many of the developing nations that have made significant progress towards universal health coverage, such as Brazil and Thailand, have done so, and … such a law is a major contributory factor. A number of international covenants to which we [India] are joint signatories give us such a mandate – and this could be used to make a national law. Courts have also rulings that, in effect, see healthcare as a fundamental right — and a constitutional obligation flowing out of the right to life.”

The draft NHP 2015 even states, “The Centre shall enact, after due discussion and on the request of three or more states a National Health Rights Act, which will ensure health as a fundamental right, whose denial will be justiciable.”

The new draft policy acknowledges that primary healthcare of date covers not more than 20 per cent of the health needs and that a very high ‘Out of Pocket’ health expenditure (over 61 percent for of that is on medicines) is pushing nearly 63 million people into poverty every year.

One of the key features of the draft NHP 2015 is a universal medical insurance scheme that will be virtually free for the poor and affordable for the rest.

To translate all these good intents into reality, speedy implementation of a robust healthcare reform roadmap, backed by adequate budgetary support, is critical. Only such well coordinated and comprehensive action plan, when effectively put in place, would be able to send strong signals to the stakeholders about the seriousness of the Government to fulfill its much-hyped promises and obligations towards healthcare reform in India.

Required budgetary allocation:

The 12th Fiver Year Plan of the erstwhile Government of India, the fate of which is still not clearly known, acknowledged that the health sector expenditure by the central and state governments, both plan and non-plan will have to be substantially increased during the plan period. It also stated that the health expenditure was increased from 0.94 per cent of GDP in the 10th Plan to 1.04 per cent in 11th Plan and it should be increased to 2.5 per cent of GDP by the end of 12th Five Year Plan period.

That said, the bottom-line is, the current public spending on healthcare (excluding water and sanitation) is stagnating around 0.9 percent of the GDP.

Instead of increase, a steep cut in health budget of 2014-15:

Despite prevailing lackluster public healthcare scenario, in December 2014, just prior to the proposal of Union Budget 2015-16, the new Government reportedly ordered more than Rs 6,000 Crore or US$948 million cut (20 percent) from its own budget allocation of around US $5 billion for the financial year ending March 31, 2015, due to fiscal constraints.

The finance ministry reportedly also ordered a spending cut this year (2014-15) for India’s HIV/AIDS program by about 30 percent to US$ 205.4 million.

A report from Reuters, quoting one of the health ministry officials, stated that this budget cut could crimp efforts to control the spread of diseases. More newborns die in India than in poorer neighbors such as Bangladesh, and preventable illnesses such as diarrhea kill more than a million children every year.

India’s public healthcare expenditure one of the world’s lowest:

It is worth mentioning that at around 0.9 percent of GDP, India’s public health expenditure is already among the lowest in the world, as compared to 2.7 percent in China, 4.2 percent in Brazil, 1.4 percent in Bangladesh, 1.6 percent in Sri Lanka, 2.9 percent in Thailand and 8.5 percent in the United States.

It is noteworthy that the public sector is the main source of health funding in nearly all OECD countries. However, in India, only 33 percent of health spending was funded by public sources in 2012, a much lower share than the average of 72 percent in OECD countries.

Moreover, health accounted for only 4.8 percent of total government spending in 2012, significantly lower than the 14.4 percent across OECD countries.

Similarly, ‘Out-of Pocket’ costs accounted for over 60 percent of health spending in India in 2012, higher than in any other OECD country.

Are the successive Governments ignoring healthcare in India:

Despite such worrisome scenario in the healthcare space, India’s healthcare budget has already witnessed a 29 percent decline over the past year, from Rs. 29,165 Crore in 2013-14 to Rs 20,431.4 Crore (post cut) in 2014-15.

This assumes even greater significance, when India, contributing 21 percent of the global disease burden, accounts for just a fraction of global spending on health.

The hope flickers:

As stated earlier, to meet its fiscal deficit target the Government has slashed the health budget by 20 percent for 2014-15.

Despite the above huge budgetary cut, the hope of the stakeholders continued to flicker, expecting some major announcement on healthcare related financial allocation in the Union Budget of 2015-16. The stakeholders expected, at least this time the new Government would ‘Walk the Talk’ to fulfill its own promises, made thus far, on healthcare.

Very surprisingly, even from the reform oriented new Government, the Union Budget 2015-16 came as a dampener for the healthcare space in the country. The budgetary allocation for healthcare has been proposed as Rs. 33,152 Crore, a tad more than Rs. 30,645 Crore of 2014-15, with no visible indication for any healthcare reform measure in the country, any time soon, adequately backed by commensurate budgetary allocation.

It is worth noting that in the first three years of the 12th Five-Year Plan, the total health spend has been round Rs 70,000 Crore. This is significantly less than Rs. 2,68,000 Crore allocated for 2012-17 period.

‘Health’ is a State subject:

In his Union Budget speech of 2015-16 , the Finance Minister has articulated clearly that health being a State subject, individual States would require to take appropriate measures in the healthcare area, especially after substantial devolution of resources to the States by the 14th Finance Commission.

That said, a well-coordinated national action plan for healthcare, championed by the Union Ministry of Health, is equally important. This would also require appropriate budgetary resource deployment at the center.

Conclusion:

As we have all witnessed, in the healthcare domain of India, various good intents have been announced with appropriate media attention in the recent months, as was done by the previous Government earlier. However, none of these seemingly ‘off the cuff’ announcements is supported by any clear strategic road map with clearly earmarked budgetary allocations. On the contrary, some retrograde steps have already been taken in this area, as mentioned above.

While the draft NHP 2015, emphasizing the need of its effective implementation, strongly encourages a framework that will “specify approved financial allocations and linked to this, measurable numerical output targets and time schedules”, there is no mention of it even on a long-term budgetary allocation perspective in the Finance Minister’s budget speech, not even the program on ‘free medicines’ and the National Health Assurance Mission, which the prime minister is expected to launch in April 2015.

All these assume high significance, as a quantum leap in budgetary allocation for health would be warranted in the years ahead to fulfill the promises that have been already made for healthcare reform in India.

With this backdrop, while looking through the kaleidoscope of Government slogans on development in various spheres of national interest, including individual life, society and business, I still find hope around, painted craftily with different hues and colors, albeit faded though.

In the midst of this ongoing semi mass euphoria, as it were, possibly due to long-awaited change in governance of the country, none seems to still bother too much on the healthcare needs of the common man, far from creating through an informed discourse a ground swell for public healthcare reform process in India, soonest.

As things stand today, I wonder, with continuing frugal public resource deployment, and that too for such a long time, ‘Quo Vadis’ healthcare in India?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

With Free Medicines In, Would The New Government Revisit ‘Universal Health Coverage’ Soon?

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Friday last, the new Union Health Minister Dr. Harsh Vardhan reportedly announced that the his ministry would soon start work on distributing free medicines through public hospitals across the country.

For this purpose the Minister would soon call a meeting of the State Health Ministers to integrate this policy with the National Health Mission (NHM). The said meeting will be held under the framework of the Central Council of Health (CCH), which also includes professional experts.

A commendable beginning:

This decision of Dr. Harsh Vardhan would revive a plan that the former Prime Minister Manmohan Singh had promised in his Independence Day speech to the nation in 2012, but could not be implement due to paucity of adequate fund. Implemented effectively, the above scheme has the potential to significantly reduce the Out-of-Pocket (OoP) expenditure on healthcare in India.

According to a 2012 study of IMS Consulting, expenditure on medicines still constitute the highest component of OoP expenses in OP care, though its percentage share has decreased from 71 percent in 2004 to 63 percent in 2012.  Similarly for IP care, the share of medicines in total OoP has also marginally decreased from 46 percent in 2004 to 43 percent in 2012.

However, it is worth noting that still 46 percent of patients seeking healthcare in public channels purchase medicines from private channels for non-availability. The new scheme hopefully would resolve this issue with sincerity, care and a sense of purpose.

For early success in this area, experts recommend that up and running Tamil Nadu and Rajasthan models of this scheme, which are most efficient and cost effective, should be replicated in rest of the states.

Recently announced drug procurement system through Central Medical Services Society (CMSS) after hard price negotiation with the manufacturers, and distribution of those drugs free of cost from the Government hospitals and health centers to the patients efficiently, could further add value to the process.

The cost and span:

Planning Commission estimated that a countrywide free generic drug program would cost Rs 28,560 Crore (roughly around US$ 5 Billion) during the 12th Five-Year Plan period. The Centre will bear 75 percent of the cost while the states would provide the rest. Under the previous government plan, 348 drugs enlisted in the National List of Essential Medicines 2011 (NLEM 2011) were to be provided free at 160,000 sub-centers, 23,000 Primary Health Centers, 5,000 community health centers and 640 district hospitals.

“Universal Health Coverage” – Still remains the holistic approach:

That said, despite its immense importance, “distribution of free medicines” still remains just one of the key elements of Universal Health Coverage (UHC). It is expected that the new government would take a holistic view on the UHC agenda, sooner, to provide comprehensive healthcare services, including preventive care, to all citizens of the country.

According to another recent media report, the new Health Minister has already expressed a different viewpoint on this subject. Dr. Harsh Vardhan has reportedly said:

“I am not in favor of taxpayers’ money being used to push a one-size-fits-all health policy. From this morning itself, I have started contacting public health practitioners to know their minds on what should be the road ahead.”

Without deliberating much on the roll out of UHC as of now, the Minister promised that the government would work to provide ‘health insurance coverage for all’ through a National Insurance Policy for Health.

This statement is significant, because until recently, the ‘high level’ understanding was that the country, at least directionally, is in favor of public funded UHC, which was defined as follows:

“Ensuring equitable access for all Indian citizens, resident in any part of the country, regardless of income level, social status, gender, caste or religion, to affordable, accountable, appropriate health services of assured quality (promotive, preventive, curative and rehabilitative) as well as public health services addressing the wider determinants of health delivered to individuals and populations, with the government being the guarantor and enabler, although not necessarily the only provider, of health and related services”.

The groundwork started with ‘The HLEG Report‘ :

Just to recapitulate, in October 2010, the Planning Commission of India constituted a ‘High Level Expert Group (HLEG)’ on UHC under the chairmanship of Dr. Prof. K. Srinath Reddy, President of the ‘Public Health Foundation of India (PHFI)’. The group was mandated to develop a framework for providing easily accessible and affordable health care to all Indians.

HLEG in its submission had suggested that the entire scheme would be funded by the taxpayers’ money for specified sets of healthcare services and for additional services commensurate health insurance coverage may be purchased by the individuals. Accordingly, to ensure a modest beginning of the UHC, in the 12th Five Year Plan Period, public expenditure on health was raised to 2.5 percent of the GDP.

UHC guarantees access to essential free health services for all:

Because of the uniqueness of India, HLEG proposed a hybrid system that draws on the lessons learnt from within India, as well as other developed and developing countries of the world.

The proposal underscored that UHC will ensure guaranteed access to essential health services for every citizen of India, including cashless in-patient and out-patient treatment for primary, secondary and tertiary care. All these services will be available to the patients absolutely free of any cost.

UHC provides options to patients:

Under the proposed UHC, all citizens of India would be free to choose between public sector facilities and ‘contracted-in’ private providers for healthcare services. It was envisaged that people would be free to supplement the free of cost healthcare services offered under UHC by opting to pay ‘out of pocket’ or going for private health insurance schemes.

What exactly is the new Health Minister mulling?

If the new Health Minister is mulling something different to provide similar healthcare coverage to Indians, let me now explore the other options adopted by various nations in this area.

As we know, UHC is a healthcare system where all citizens of a country are covered for the basic healthcare services. In many countries UHC may have different system types as follows:

  • Single Payer: The government provides insurance to all citizens.
  • Two-Tier: The government provides basic insurance coverage to citizens and allows purchase of additional voluntary insurance whenever a citizen wants to.
  • Insurance Mandate: The government mandates that insurance must be bought by all its citizens, like what happened in the USA in 2010 under ‘Obamacare’.

The Global scenario:

As per published reports, all 33 ‘developed nations’ (OECD countries) have UHC in place. America was the only exception, till President Barack Obama administration implemented its ‘path breaking’ healthcare reform policy in 2010 against tough political opposition.

India is already too late in providing UHC:

Based on an article titled, ‘ Analyzing our economy, government policy and society through the lens of cost-benefit’ published in ‘True Cost’, following is the list that states in which countries the UHC is currently in place and from when:

Country Start Date of Universal Health Care System Type
Norway 1912 Single Payer
New Zealand 1938 Two Tier
Japan 1938 Single Payer
Germany 1941 Insurance Mandate
Belgium 1945 Insurance Mandate
United Kingdom 1948 Single Payer
Kuwait 1950 Single Payer
Sweden 1955 Single Payer
Bahrain 1957 Single Payer
Brunei 1958 Single Payer
Canada 1966 Single Payer
Netherlands 1966 Two-Tier
Austria 1967 Insurance Mandate
United Arab Emirates 1971 Single Payer
Finland 1972 Single Payer
Slovenia 1972 Single Payer
Denmark 1973 Two-Tier
Luxembourg 1973 Insurance Mandate
France 1974 Two-Tier
Australia 1975 Two Tier
Ireland 1977 Two-Tier
Italy 1978 Single Payer
Portugal 1979 Single Payer
Cyprus 1980 Single Payer
Greece 1983 Insurance Mandate
Spain 1986 Single Payer
South Korea 1988 Insurance Mandate
Iceland 1990 Single Payer
Hong Kong 1993 Two-Tier
Singapore 1993 Two-Tier
Switzerland 1994 Insurance Mandate
Israel 1995 Two-Tier
United States 2010 Insurance Mandate

In-sync with the concept, probably with different means:

From the above statement of the new Health Minister, it appears that to provide healthcare coverage to all citizens of India, his ministry would work towards developing a National Health Insurance Policy. He also expressed that his ministry wants to focus on preventive healthcare.

Preventive healthcare being an integral part of UHC, it could well be that Dr. Harsh Vardhan wants to follow ‘Single Payer’ type of UHC system type.

Another school of thought:

However, another school of thought opines that a government owned efficient public healthcare system with adequate infrastructural facilities provides healthcare to patients almost free of cost as compared to the “insurance mandated” one.

This is mainly because, to address respective healthcare needs currently the patients have either or a mix of the following two choices:

  • Use public health facilities: Available virtually at free of cost if accessible, but quality is mostly questionable.
  • Use private health facilities: Virtually unregulated, much better services, though available mostly at high to very high cost.

Thus, these groups of experts believe that provision of universal health insurance for treatment at the expensive private facilities may not be cost effective even for the government, if these are not adequately regulated with appropriate stringent measures.

In absence of all those measures, the new Health Minister could consider taking a decision in favor of tax-funded UHC, with appropriate budgetary provisions and investments towards improving country’s healthcare infrastructure and its delivery mechanism for all.

Conclusion:

Be that as it may, there is not even an iota of doubt that India needs ‘Universal Health Coverage (UHC)’, like any OECD or other countries of the world for its citizens, sooner. Just distributing free medicines through public hospitals across the country for all, without a holistic approach such as UHC, may not yield desired results.

From the initial deliberations of Dr. Harsh Vardhan, it appears that UHC would soon not just be revisited, but receive a new thrust too, from the no-nonsense minister, probably leaning more towards private participation than with a public funded one, contrary to what was proposed by the HLEG.

Does it matter really? Well…

By: Tapan J. Ray 

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Big Pharma Receives Another Body Blow: Would Indian Slumber End Now?

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On May 13, 2014, The New York Times reported, while major pharmaceutical companies have been facing increased scrutiny of their marketing practices from governments around the world, last Wednesday the Chinese authorities sent a strong warning to the pharmaceutical industry implicating Mark Reilly, the former head of Glaxo’s China operations, of ordering his subordinates to form a “massive bribery network” that resulted in higher drug prices and illegal revenue of more than US$150 million.  Mr. Reilly, a Briton, and two Chinese-born Glaxo executives, Zhang Guowei and Zhao Hongyan, had allegedly arranged to bribe government officials in Beijing and Shanghai.

The Chinese police has reportedly said that its 10-month investigation has found that under Mr. Reilly, Glaxo had pushed its staff to meet aggressive sales targets and that the company had conducted “false transactions” through its financial department to transfer “illegal gains” made in China to overseas companies. The authorities also said Mr. Reilly and other senior executives at Glaxo had bribed officials to stop investigations of wrongdoing at the company.

The report also states, although bribery is common in China, it is rare for foreign-born executives from MNCs to be prosecuted. In 2009, a Chinese-born Australian executive at the British-Australian mining giant Rio Tinto was arrested in a bribery and money-laundering case.

“Ethics Matter” – A Chinese warning to MNCs:

On May 16, 2014, Xinhua – the official news agency of China wrote in an editorial that Chinese probe into GSK’s local sales practices should send a warning to other foreign companies doing business in the country that “Ethics Matter”.

This stern action by China is indeed another body blow on the so called ‘ethical image’ of Big Pharma, despite its sophisticated global ‘Public Relations’ machinery working overtime under the respective pharma associations across the world.

Drug price manipulation:

While citing the example of a hepatitis B drug – Heptodin, Xinhua editorial said that GSK “manipulated prices to disguise real costs”, as Heptodin is declared as 73 Yuan to customs in China even though the actual cost is 15.7 Yuan and is sold at 26 Yuan in Canada or 30 Yuan in the U.K.

Quoting a Ministry of Public Security official at a briefing on May 14, it stated that Glaxo charged prices in China that in some cases were seven times as high as in other countries, and used the extra money to pay bribes.

According to this media report, in June last year, “Chinese authorities began investigating allegations that Glaxo had funneled money through local travel agencies to pay bribes to doctors in return for prescribing its drugs. They last year detained some executives on suspicion of economic crimes involving 3 billion Yuan of spurious expenses and trading in sexual favors.”

Not a first time allegation:

This is not the first of such cases and most probably won’t be the last also. Since quite some time many pharmaceutical giants are being reportedly investigated and fined, including out of court settlements, for bribery charges related to the physicians.

In this context July 4, 2012, edition of The Guardian reported a similar astonishing story on Big Pharma. When you click on this short video clipping, which was published on September 29, 2012 you would see that Big Pharma’s Medicaid fraud penalties had reached a record high with GlaxoSmithKline fined $3 Billion in the United States at that time.

It is widespread:

Following are a few more recent examples to help fathom the enormity of the problem:

  • In March 2014, the antitrust regulator of Italy reportedly fined two Swiss drug majors, Novartis and Roche 182.5 million euros (U$ 251 million) for allegedly blocking distribution of Roche’s Avastin cancer drug in favor of a more expensive drug Lucentis that the two companies market jointly for an eye disorder.
  • Just before this, in the same month of March 2014, it was reported that a German court had fined 28 million euro (US$ 39 million) to the French pharma major Sanofi and convicted two of its former employees on bribery charges.
  • In November 2013, Teva Pharmaceutical reportedly said that an internal investigation turned up suspect practices in countries ranging from Latin America to Russia.
  • In May 2013, Sanofi was reportedly fined US$ 52.8 Million by the French competition regulator for trying to limit sales of generic versions of the company’s Plavix.
  • In August 2012, Pfizer Inc. was reportedly fined US$ 60.2 million by the US Securities and Exchange Commission to settle a federal investigation on alleged bribing of overseas doctors and other health officials to prescribe medicines.
  • In April 2012, a judge in Arkansas, US, reportedly fined Johnson & Johnson and a subsidiary more than US$1.2 billion after a jury found that the companies had minimized or concealed the dangers associated with an antipsychotic drug.

There are many more of such examples.

The situation is alarming in India too:

Back home in India, deep anguish of the stakeholders over this issue is now being increasingly reverberated on every passing day, as it were. It has also drawn the attention of the patients’ groups, NGOs, media, Government, Planning Commission and even the Parliament.

An article titled, “Healthcare industry is a rip-off” published in a leading daily, the author highlighted that the absence of regulatory oversight in the healthcare industry needs urgent attention.

The quality of the pharmaceutical marketing in India has touched a new low, causing suffering to patients. Unethical drug promotion is increasingly becoming an emerging threat to society. The Government provides few checks and balances on drug promotion.

To counter the problem of ‘Unethical Drug Promotion’ to a great extent, the author broadly recommended the following:

  • Preparing treatment guidelines,
  • Conducting periodic prescription audits,
  • Generating consumer awareness and empowering consumer with relevant information in an user friendly way
  • Regulating entertainment of doctors in the garb of Continuing Medical Education (CME)

Moreover, the Department Related Parliamentary Standing Committee on Health and Family Welfare in its 58th Report strongly indicted the Department of Pharmaceuticals (DoP) on this score. It observed that the DoP should take prompt action in making the ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’ mandatory so that effective checks and balances could be brought-in on ‘huge promotional costs and the resultant add-on impact on medicine prices’.

Even the Planning Commission of India has reportedly recommended strong measures against pharmaceutical marketing malpractices as follows:

“Pharmaceutical marketing and aggressive promotion also contributes to irrational use. There is a need for a mandatory code for identifying and penalizing unethical promotion on the part of pharma companies. Disclosure by pharmaceutical companies of the expenditure incurred on drug promotion to be made mandatory, ghost writing in promotion of pharma products to attract disqualification of the author as well as penalty on the company, and vetting of drug related material in Continuing Medical Education (CME) should be considered.”

Unfortunately, nothing substantive has been done in India to effectively address such malpractices in a comprehensive manner, as yet, to protect patients’ interest.

A pending PIL:

Despite deplorable inaction by the government on the subject, frequent reporting by Indian media has triggered a national debate on this issue. A related Public Interest Litigation (PIL) is also now pending before the Supreme Court for hearing in the near future. Its judicial verdict is expected to usher in a breath of fresh air around a rather stifling environment for the patients.

Ethical marketing conduct in India – A Survey:

A survey report of Ernst and Young titled, “Pharmaceutical marketing: ethical and responsible conduct”, carried out in September 2011 on the UCMP and MCI guidelines, highlighted the following:

  • Two-third of the respondents felt that the implementation of the UCPMP would change the manner in which pharma products are currently marketed in India.
  • More than 50 percent of the respondents are of the opinion that the UCPMP may lead to manipulation in recording of actual sampling activity.
  • Over 50 percent of the respondents indicated that the effectiveness of the code would be very low in the absence of legislative support provided to the UCPMP committee.
  • 90 percent of the respondents felt that pharma companies in India should focus on building a robust internal controls system to ensure compliance with the UCPMP.
  • 72 percent of the respondents felt that the MCI is not stringently enforcing its medical ethics guidelines for the doctors.
  • 36 percent of the respondents felt that the MCI’s guidelines could have an impact on the overall sales of pharma companies.

 Conclusion:

Increasingly many companies across the world are reportedly being forced to pay heavily for ‘unethical behavior and business practices’ by the respective governments.

Intense quarterly pressure for expected business performance by stock markets and shareholders could apparently be the trigger-points for short changing such codes and values.

Be that as it may, I reckon, the need to announce and implement the UCPMP by the Department of Pharmaceutical under the new Modi Government, assumes critical importance in today’s chaotic pharmaceutical marketing scenario. At the same time, demonstrable qualitative changes in corporate ethics and value standards in this regard should always be important goals for any pharmaceutical business corporation in India.

Though late, China has at least started cracking down on the perpetrators of this alleged crime. As corruption conscious Modi-Government assumes office in the country, would India wake-up now to stop this growing menace by enacting and then strictly enforcing the rule of law?

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Why Try To Reinvent The Wheel With So Much Of Hullabaloo?

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A recent IMS study, apparently ‘authorized’ (whatever it means) by the Planning Commission of India has reportedly suggested various ‘ways to make drugs affordable in India’.

Though there does not appear to be anything new in the reported suggestions, the well publicized report could manage to snatch an eye-catching media headline: “Patented Drugs Cheaper, but Less Affordable Here”, for whatever may be the reason.

I wish I had an access to the full report for further enlightenment in this area.

Was this ‘authorized’ study necessary at all in the first place?

If the study were related to improving access to medicines in India, several questions would naturally come up, as follows:

  • What does “The study authorized by the Planning Commission” mean? Has the Planning Commission paid from the taxpayers’ money to get this avoidable study done? Or, has the study been done free of cost, as a favor extended to the Planning Commission of India on the issue, in lieu of authorization of the commission for quoting its name in the report?

Following the due process, it would not difficult to unravel whether the Government has made any payment for the study or not.

  • However, assuming that this study was done free of cost, it will be interesting to know what prompted the Planning Commission to even consider to reinvent the wheel with this new IMS study.
  • The reason being, the comprehensive report on the ‘Universal Health Care (UHC)’ dated November 2011 prepared by the ‘High Level Expert Group (HLEG), chaired by the Chief of the ‘Public Health Foundation of India (PHFI), Dr. Professor K. Srinath Reddy, is already pending before the Commission for giving shape to it working with all the concerned ministries. It is worth mentioning that the Planning Commission of India also had commissioned the HLEG study.
  • Instead of taking the UHC initiative forward, along with, hopefully, an expedited action of the Department of Pharmaceuticals to put in place a robust mechanism for patented drugs pricing, wasting time by moving in circles on the part of the Planning Commission in search of probably yet another ‘Eureka’ type report, would cost a great deal to the healthcare system of India. On the contrary, from the news report it appears that the findings or suggestions made in the IMS report are rather mundane, far from being anywhere near ‘Eureka’ type by any imaginable yardstick.

HLEG already charted the pathway for UHC in India:

The HLEG report has defined the UHC as follows:

“Ensuring equitable access for all Indian citizens, resident in any part of the country, regardless of income level, social status, gender, caste or religion, to affordable, accountable, appropriate health services of assured quality (promotive, preventive, curative and rehabilitative) as well as public health services addressing the wider determinants of health delivered to individuals and populations, with the government being the guarantor and enabler, although not necessarily the only provider, of health and related services”.

Ten principles for UHC in India:

Following are the ‘Ten Principles’, which guided the HLEG to formulate its recommendations for the UHC in India:

  • Universality
  • Equity
  • Non-exclusion and non-discrimination
  • Comprehensive care that is rational and of good quality
  • Financial protection
  • Protection of patients’ rights that guarantee appropriateness of care, patient choice, portability and continuity of care
  • Consolidated and strengthened public health provisioning
  • Accountability and transparency
  • Community participation
  • Putting health in people’s hands

HLEG study guarantees access to essential free health services for all:

Because of the uniqueness of India, HLEG proposed a hybrid system that draws on the lessons learned from within India as well as other developed and developing countries of the world.

UHC will ensure guaranteed access to essential health services for every citizen of India, including cashless in-patient and out-patient treatment for primary, secondary and tertiary care. All these services will be available to the patients absolutely free of any cost.

Under UHC all citizens of India will be free to choose between Public sector facilities and ‘contracted-in’ private providers for healthcare services.

It is envisaged that people would be free to supplement the free of cost healthcare services offered under UHC by opting to pay ‘out of pocket’ or going for private health insurance schemes 

Another Planning Commission commissioned report on procurement and distribution of medicines:

Another working group of the Planning Commission on health, constituted for the 12th Five Year Plan (2012-2017) headed by the then Secretary of Health and Family Welfare Mr. K. Chandramouli, had also submitted its report to the Commission.

The Part II of the report titled, “Provisions of ’free medicines for all in public health facilities …” recommends that health being a state subject, all the state governments of the country should adopt the successful and well proven Tamil Nadu model of healthcare procurement.

Tamil Nadu government through Tamil Nadu Medical Supplies Corporation (TNMSC) reportedly makes bulk purchases of drugs and pharmaceuticals directly from the manufacturers through a transparent bidding process, which reduces the cost of medicines to 1/10th and even to 1/15th of the Maximum Retail Price (MRP) of the respective product packs.

As per this report, the total running cost of procurement and distribution for the ‘Free Medicines for All’ project during the 12th plan period would be Rs. 28,675 Crore and an additional allocation of Rs. 1,293 Crore will be required as one time capital costs. The contribution of the Central Government at 85 percent of the total cost would be around Rs 25,667 Crore for the entire Plan period.

Conclusion:

In July 2012, while talking on the above K Srinath Reddy Committee report on UHC, which suggests universal health insurance coverage, the Deputy Chairman of the Planning Commission, Mr. Montek Singh Ahluwalia had reportedly said that the health sector of India would anyway receive a major shot in the arm in the 12th five-year plan with a budgetary allocation of 2 percent of GDP during the plan period. He also articulated that the country’s focus would be on cost-effective treatment and healthcare. For this, there would be a huge demand for human resources in the medical sector.

In the above backdrop, when two such excellent recent reports, commissioned earlier by the Planning Commission itself on improving access to affordable healthcare in India, are still pending before it for initiation of meaningful action with public knowledge, it is difficult to fathom what prompted the necessity for yet another Planning Commission ‘authorized’ study on similar area, with no seemingly earthshaking findings, as detailed in the media report.

This brings me back to where I started from, why is this particular attempt by the Planning commission to ‘Reinvent The Wheel’, yet again, and that too with so much of a hullabaloo, instead of diligently acting on the well crafted pending ones?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Does the Landmark Glivec Judgment Discourage Innovation in India?

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No, I do not think so. The 112 pages well articulated judgment of the Supreme Court of India delivered on April 1, 2013, does not even remotely discourage innovation in India, including much talked about ‘incremental innovation’. This landmark judgment reconfirms the rules of the game for pharmaceutical innovation, as captured in the Indian Patents Act 2005.

When one reads the judgment, point 191 in page number 95 very clearly states as follows:

“191. We have held that the subject product, the beta crystalline form of Imatinib Mesylate, does not qualify the test of Section 3(d) of the Act but that is not to say that Section 3(d) bars patent protection for all incremental inventions of chemical and pharmaceutical substances. It will be a grave mistake to read this judgment to mean that section 3(d) was amended with the intent to undo the fundamental change brought in the patent regime by deletion of section 5 from the Parent Act. That is not said in this judgment.”

Thus all ‘incremental innovations’, which some people always paint with a general broad brush of ‘evergreening’, should no longer be a taboo in India. The judgment just says that Glivec is not patentable as per Section 3(d) of Indian Patents Act based on the data provided and arguments of Novartis.

To me, the judgment does also not signal that no more Glivec like case will come to the Supreme Court in future. It vindicated inclusion of Section 3(d) in the amended Indian Patents Act 2005.

It is interesting to note that honorable Supreme Court itself used the terminology of ‘incremental innovation’ for such cases.

That said, I find it extremely complex to imagine what would have happened, if the judgment had gone the opposite way.

A critical point to ponder:

The judgment will also mean that all those products, having valid product patents abroad, if fail to meet the requirements of Section 3(d), will not be patentable in India, enabling introduction of their generic equivalents much sooner in the country and at the same time causing a nightmarish situation for their innovators.

However, this again, in no way, is an outcome of this judgement or a new development, as stated above. It is just vindication of the intent behind inclusion of Section 3(d) in the amended Indian Patents Act, when it was enacted by the Parliament of India in 2005.

Patentability of ‘Incremental Innovations’ in India:

Patentability criteria for any ‘incremental innovations’ has been defined in the Section 3(d) of the Indian statute as follows:

“The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.

Explanation: For the purposes of this clause, salts, esters, ethers, polymorphs, metabolites, pure form, particle size isomers, mixtures of isomers, complexes, combinations and other derivatives of known substance shall be considered to be the same substance, unless they differ significantly in properties with regard to efficacy.”

Supreme Court interpretation of the term “Efficacy” in Section 3(d): 

The Honorable Supreme Court in page 90 of its above order under point 180 stated that in case of medicines, efficacy can only be “therapeutic efficacy”, which must be judged strictly and narrowly. The interpretation goes as follows:

180. “What is “efficacy”? Efficacy means ‘the ability to produce a desired or intended result’. Hence, the test of efficacy in the context of section 3(d) would be different, depending upon the result the product under consideration is desired or intended to produce. In other words, the test of efficacy would depend upon the function, utility or the purpose of the product under consideration. Therefore, in the case of a medicine that claims to cure a disease, the test of efficacy can only be “therapeutic efficacy”.

The Honorable Court under the same point 180 further elaborated:

“With regard to the genesis of section 3(d), and more particularly the circumstances in which section 3(d) was amended to make it even more constrictive than before, we have no doubt that the “therapeutic efficacy” of a medicine must be judged strictly and narrowly…Further, the explanation requires the derivative to ‘differ significantly in properties with regard to efficacy’. What is evident, therefore, is that not all advantageous or beneficial properties are relevant, but only such properties that directly relate to efficacy, which in case of medicine, as seen above, is its therapeutic efficacy.” 

Based on this interpretation of Section 3(d), the Honorable Supreme Court of India ordered that Glivec does not fulfill the required criteria of the statute.

The rationale behind Section 3(d):

A report on ‘Patentability of the incremental innovation’ indicates that the policy makers keeping the following points in mind formulated the Indian Patents Act 2005:

  • The strict standards of patentability as envisaged by TRIPS pose a challenge to India’s pharmaceutical industry, whose success depended on the ability to produce generic drugs at much cheaper prices than their patented equivalents.
  • A stringent patent system would severely curtail access to expensive life saving drugs to a large number of populations in India.
  • Grant of a product patents should be restricted only to “genuine innovations” and those “incremental innovations” on existing medicines, which will be able to demonstrate significantly increased efficacy over the original drug.

IPA challenges: 86 pharmaceutical patents granted by IPO fall under Section 3(d):

A study by the ‘Indian Pharmaceutical Alliance (IPA)’ indicates that 86 pharmaceutical patents granted by the IPO post 2005 are not breakthrough inventions but only minor variations of existing pharmaceutical products and demanded re-examination of them.

Possible implications to IPA challenge:

If the argument, as expressed above in the IPA study, is true by any stretch of imagination, in that case, there exists a theoretical possibility of at least 86 already granted product patents to get revoked. This will invite again another nightmarish situation for innovators.

Examples of revocation of patents in India:

On November 26, 2012, the Intellectual Property Appellate Board (IPAB) reportedly denied patent protection for AstraZeneca’s anti-cancer drug Gefitinib on the ground that the molecule lacked invention.

The report also states that AstraZeneca suffered its first setback on Gefitinib in June 2006, when the Indian generic company Natco Pharma opposed the initial patent application filed by the global major in a pre-grant opposition. Later on, another local company, GM Pharma, joined Natco in November 2006.

After accepting the pre-grant opposition by the two Indian companies, the Indian Patent office (IPO) in March 2007 rejected the patent application for Gefitinib citing ‘known prior use’ of the drug. AstraZeneca contested the order through a review petition, which was dismissed in May 2011.

Prior to this, on November 2, 2012 the IPAB revoked the patent of Pegasys (Peginterferon alfa-2a) – the hepatitis C drug of the global pharmaceutical giant Roche.

Though Roche was granted a patent for Pegasys by the Indian Patent Office (IPO) in 2006, this was subsequently contested by a post-grant challenge by the large Indian pharma player – Wockhardt and the NGO Sankalp Rehabilitation Trust (SRT) on the ground that Pegasys is neither a “novel” product nor did it demonstrate ‘inventiveness’, as required by Section 3(d) of Patents Act of India 2005.

It is worth noting, although the IPO had rejected the patent challenges by Wockhardt and SRT in 2009, IPAB reversed IPO’s decision revoking the patent of Pegasys.

Similarly the patent for liver and kidney cancer drug of Pfizer – Sutent (Sunitinib) granted by IPO in 2007, was revoked by the IPAB in October, 2012 after a post grant challenge by Cipla and Natco Pharma on the ground that the claimed ‘invention’ does not involve inventive steps.

Patent challenges under section 3(d) may come up even more frequently in future:

Some observers in this field have expressed, although ‘public health interest’ is the primary objective for having Section 3(d) in the Indian Patents Act 2005, many generic companies, both local and global, have already started exploiting this provision as a part of their ‘business strategy’ to improve business performance in India, especially when an  injunction is usually not being granted by the honorable Courts for such cases on public health interest ground.

Thus, as stated above, there is likely to be many more cases like, Glivec coming before the Supreme Court in the years ahead.

Another related development of the last week:

It has been reported that American pharma major MSD has last week filed a suit in the Delhi High Court against Indian pharma major – Glenmark for alleged patent violation of its leading anti-diabetic drugs Januvia and Janumet. In this case also no interim injunction has reportedly been granted to MSD by the Honorable Delhi High Court.

Glenmark has stated through a media report, “It is a responsible company and has launched the products after due diligence and research.” The company has also announced that their version of the molecule named Zita and Zita Met will be available to patients at a 20 percent discount to MSD’s price.

Hence, once again, the Indian court to decide, the balance of justice would now point to which direction.

Government has no role to play – patent challenge is a legal process across the world:

The proponents of ‘no change required in the Section 3(d)’ argue, ‘Patent Challenge’ is a legal process all over the world, the Government has hardly got any role to play in settling such disputes. The law should be allowed to take its own course for all disputes related to the Patents Act of the country, including Section 3(d).

They also opine that India must be allowed to follow the law of justice without casting aspersions on the knowledge and biases of the Indian judiciary for vested interests.

That said, there is certainly an urgent need to add speed to this legal process by setting up ‘Fast-track Courts’ for resolving all Intellectual Property (IP) related disputes in a time bound manner.

Arguments against Section 3(d):

Opposition to the Section 3(d) counter-argues by saying, this is a critical period for India to help fostering an appropriate ecosystem for innovation in the country. This group emphasizes, “Providing the right incentives for incremental pharmaceutical innovation can move India forward on this path and encourage the development of drug products that meet the needs of Indian patients. Reforming Section 3(d) to encourage and protect incremental pharmaceutical innovation would create such incentives and help India become a true powerhouse of innovation.”

Another group says that the main reason in favor of Section 3(d) being the provision will prevent grant of frivolous patents, the ultimate fallout of which will result in limited access to these drugs due to high price, is rather irrelevant today. This, they point out, is mainly because the Government is now actively mulling a structured mechanism of price negotiation for all patented drugs to improve their access to patients in India.

Importance of ‘Incremental Innovation’ in India:

Incremental innovations are indeed very important for the country and have been benefiting the patients immensely over decades, across the world.

A report titled, “The Value Of Incremental Pharmaceutical Innovation” highlighted as follows:

  • As per the National Knowledge Commission, while 37.3% of Indian companies introduced breakthrough innovations in recent years, no fewer than 76.4% introduced incremental innovations.
  • 60 percent of the drugs on the World health Organization’s essential Drug list reflect incremental improvements over older drugs.

The report indicates some of the benefits of ‘Incremental Pharmaceutical Innovation’ for India as follows:

  1. Improved quality of drug products, including products that are better suited to India’s climate.
  2. Development of treatments for diseases that are prevalent in India for which new drug discovery is currently limited or otherwise inadequate.
  3. Increasing likelihood that for every therapeutic class, there is a treatment to which an Indian patient will respond.
  4. Development of the R&D capacity and expertise
 of Indian pharmaceutical companies.
  5. Reduction of healthcare and other social costs in India through improved drug quality and selection.
  6. Increased access to medicine as a result of price competition.

The study concluded by saying that Section 3(d) potentially precludes the patenting of hundreds of incremental pharmaceutical innovations that Indian companies are attempting to patent and commercialize outside India.

There are umpteen numbers of examples that can ably demonstrate, ‘incremental innovation’ of the pharmaceutical innovators help significantly improving the efficacy and safety of existing drugs. All such innovations should in no way be considered “frivolous” as they have very substantial and positive impact in improving conditions of the ailing patients.

Be that as it may, the Supreme Court judgment has categorically mentioned that all ‘Incremental innovations’ should conform to the requirement of the Section 3(d) of the statute.

“West should learn from India’s high patent standards”

An article appeared just yesterday written by a well-regarded Indian economist recommended, “West should learn from India’s high patent standards”. It observed that    over-liberal patent system of the West is now broken and it should learn from India’s much tougher patent system.

Patent monopolies needs to be given only for genuine innovations, as defined in the Indian Patents Act 2005, where the public benefits clearly exceed the monopoly cost.

The author concluded by saying, “This means setting a high bar for innovation. High standards are desirable for patents, as for everything else.”

View of the Glivec inventor: 

In another interview titled, “If you erode patents, where will innovations come from?” Dr Brian Druker, whose work resulted in the development of Glivec, re-emphasizing the need for R&D by the pharmaceutical industry, commented,  “I’m going to stay away from the legal judgment … but as a physician, I do recognize that the advances will come from new products, not modifications.”

Are discordant voices out of step with time?

The interpretation of the Section 3(d) of the statute by the Honorable Supreme Court of India is the last word for all, despite a few voices of discord from within and mostly outside India. These voices, many would reckon, could well be out of step with time, especially in relatively fast growing, modern, independent, thinking and assertive young  India.

Conclusion:

In my view, nothing materially has changed on the ground before and after the Supreme Court judgment on the Glivec case so far as the Indian Patents Act is concerned and also in its interpretation.

While encouraging all types of innovations, including incremental ones and protecting them with an effective IPR regime are very important for any country. No nation can afford to just wish away various socioeconomic expectations, demands and requirements not just of the poor, but also of the growing middle class intelligentsia, as gradually getting unfolded in many parts of the globe.

Available indicators do point out that the civil society would continue to expect in return, just, fair, responsible and reasonably affordable prices for the innovative medicines, based on the overall socioeconomic status of the local population.

This critical balancing factor is essential not only for the progress of the pharmaceutical industry, but also to alleviate sufferings of the ailing population of the country, effectively.

For arguments sake, in an ideal scenario, if the Central and State Governments in India decide to buy such drugs to supply to all patients free of cost, just like any ‘welfare state’, will even the Government be able to afford these prices and fund such schemes in India?

It is, therefore, now widely expected that innovator pharmaceutical companies, which play a pivotal role in keeping population of any nation healthy and disease free to the extent possible, should also proactively find out ways to help resolving this critical issue in India, working closely with the Government of 1.2 billion Indians, including other concerned stakeholders.

In that context, the landmark Supreme Court judgment on the Glivec case has vindicated the need of striking a right balance between encouraging and protecting innovation, including incremental ones and the public health interest of India.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion. 

To Curb Pharma Marketing Malpractices in India Who Bells the Cat?

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Bribing doctors by the pharmaceutical companies directly or indirectly, as reported frequently by the media all over the world, including India, to prescribe their respective brand of drugs has now reached an alarming proportion, jeopardizing patients’ interest, seriously more than ever before.

In this context July 4, 2012, edition of  The Guardian reported an astonishing story. Since quite some time many pharmaceutical giants are being reportedly investigated and fined, including out of court settlements, for bribery charges related to the physicians.

In another very recent article titled “Dollars for Docs Mints a Millionaire” the author stated as follows:

“The companies in Dollars for Docs accounted for about 47 percent of U.S. prescription drug sales in 2011. It’s unclear what percentage of total industry spending on doctors they represent, because dozens of companies do not publicize what they pay individual doctors. Most companies in Dollars for Docs are required to report under legal settlements with the federal government.”

In India, deep anguish of the stakeholders over this issue is also being increasingly reverberated day by day. It has also drawn the attention of the patients’ groups, NGOs, media, Government and even the Parliament. An article titled, “Healthcare industry is a rip-off” published in a leading business daily of India states as follows:

“Unethical drug promotion is an emerging threat for society. The Government provides few checks and balances on drug promotion.”

Unfortunately, nothing substantive has been done in India just yet to address such malpractices across the industry in a comprehensive way, despite indictment by the Parliament, to effectively protect patients’ interest in the country.

Countries started taking steps with disclosure norms:

It is interesting to note that many countries have already started acting, even through implementation of various regulatory disclosure norms, to curb such undesirable activities effectively. Some examples are as follows:

USA

The justice department of the U.S has reportedly wrung huge settlements from many large companies over such nexus between the doctors and the pharmaceutical players.

To address this issue meaningfully, on February 1, 2013 the Department of Health and Human Services (HHS) of the United States of America released the final rules of implementation of the ‘Patient Protection and Affordable Care Act (PPACA)’, which is commonly known as the “Physician Payment Sunshine Act” or just the “Sunshine Act”.

This Act has been a part of President Obama’s healthcare reform requiring transparency in direct or indirect financial transactions between the American pharmaceutical industry and the doctors and was passed in 2010 by the US Congress as part of the PPACA.

The Sunshine Act requires public disclosure of all financial transactions and transfers of value between manufacturers of pharmaceutical / biologic products or medical devices and physicians, hospitals and covered recipients. The Act also requires disclosure on research fees and doctors’ investment interests.

The companies have been directed by the American Government to commence capturing the required data by August 1, 2013, which they will require to submit in their first federal reports by March 31, 2014.The first such disclosure report will be available on a public database effective September 30th, 2014.

France:

On December 2011, France adopted a legislation, which is quite similar to the ‘Sunshine Act’. This Act requires the health product companies like, pharmaceutical, medical device and medical supply manufacturers, among others to mandatorily disclose any contract entered with entities like, health care professionals, hospitals, patient associations, medical students, nonprofit associations, companies with media services or companies providing advice regarding health products.

Netherlands:

On January 1, 2012, Netherlands enforced the ‘Code of Conduct on Transparency of Financial Relations’. This requires the pharmaceutical companies to disclose specified payments made to health care professionals or institutions in excess of € 500 in total through a centralized “transparency register” within three months after the end of every calendar year.

UK:

According to Deloitte Consulting, pharmaceutical companies in the UK are planning voluntary disclosures of such payments. One can expect that such laws will be enforced in the entire European Union, sooner than later.

Australia and Slovakia:

Similar requirements also exist in Australia and Slovakia.

Japan:

In Japan, the Japan Pharmaceutical Manufacturers Association (JPMA) reportedly requires their member companies to disclose certain payments to health care professionals and medical institutions on their websites, starting from 2013.

India still remains far behind:

This issue has no longer remained a global concern. Frequent reports by Indian media have already triggered a raging debate in the country on the subject. It has been reported that a related case is now pending before the Supreme Court against a Public Interest Litigation (PIL) for hearing, in not too distant future.

It is worth noting that in 2010, ‘The Parliamentary Standing Committee on Health’ expressed its deep concern stating, the “evil practice” of inducement of doctors by the pharma companies is continuing unabated as the revised guidelines of the Medical Council of India (MCI) have no jurisdiction over the pharma industry.

It was widely reported that the letter of the Congress Member of Parliament, Dr. Jyoti Mirdha to the Prime Minister Dr. Manmohan Singh, attaching a bunch of photocopies of the air tickets to claim that ‘doctors and their families were beating the scorching Indian summer with a trip to England and Scotland, courtesy a pharmaceutical company’, compelled the Prime Minister’s Office (PMO) to initiate inquiry on the subject.

The letter had claimed that as many as 30 family members of 11 doctors from all over India enjoyed the hospitality of the pharmaceutical company on the pretext of ‘Continuing Medical Education (CME)’.

In addition Dr. Mirdha reportedly reiterated to the PMO, “The malpractice did not come to an end because while medical profession (recipients of incentives) is subjected to a mandatory code, there is no corresponding obligation on the part of the healthcare industry (givers of incentives). Result: Ingenious methods have been found to flout the code.”

The report also indicated at that time that the Department of Pharmaceuticals (DoP) is trying to involve the Department of Revenue under the Ministry of Finance to explore the possibilities in devising methods to link the money trails of offending companies and deny the tax incentives on such expenses.

Incidences of such alleged malpractices are unfolding much faster today and are getting increasingly dragged into the public debate where government can no longer play the role of a mere bystander.

Indian Parliamentary indictment for not having a ‘Marketing Code’:

Thereafter, the Department Related Parliamentary Standing Committee on Health and Family Welfare presented its 58th Report on the action taken by the Government on the recommendations / observations contained in the 45th report to both the Lower and the Upper houses of the Parliament on May 08, 2012.

The committee with a strong indictment to the Department of Pharmaceuticals (DoP), also observed that the DoP should take decisive action, without any further delay, in making the ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’ mandatory so that effective checks could be ensured on ‘huge promotional costs and the resultant add-on impact on medicine prices’.

Unfortunately nothing substantive has happened on the ground regarding this issue as on date.

Ministry of Finance fires the first salvo:

Firing the first salvo closer to this direction, Central Board of Direct Taxes (CBDT), which is a part of Department of Revenue in the Ministry of Finance, has now decided to disallow expenses on all ‘freebies’ to Doctors by the Pharmaceutical Companies in India.

An internal circular dated August 1, 2012, of the CBDT addressed to its tax assessment officers categorically stated that the any expenses incurred by the pharmaceutical companies on gifts and other ‘freebies’ given to the doctors, which do not conform to the revised MCI guidelines, will no longer be allowed as business expenses.

The High Court upheld the CBDT order:

As expected, the above CBDT circular was challenged in the court of law by an aggrieved party.

However, on December 26, 2012, in a significant judgment on the this CBDT circular related to promotional expenses, the High Court of Himachal Pradesh, ordered as follows:

“Therefore, if the assesse satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the Medical Council of India (MCI), then it may legitimately claim a deduction, but it is for the assesse to satisfy the assessing officer that the expense is not in violation of MCI regulations as mentioned above. We, therefore, find no merit in the in the petition, which is accordingly rejected, No costs.”

Unless this High Court order is challenged in the Supreme Court and reversed subsequently, the CBDT circular related to pharmaceutical promotional expenses has assumed a legal status all the way.

Current situation in America post ‘Sunshine Act’:

After enactment of the ‘Sunshine Act’ one gets a mixed response as follows, though these are still very early days of implementation of this new Law in America.

Low awareness level of the ‘Sunshine Act’:

Though this Act was passed in the U.S in 2010, the awareness level is still very low. More than half of the 1,025 physicians interviewed in a recent survey said, they didn’t know that the law requires pharmaceutical and medical device companies to track any payments or “transfers of value” to physicians and teaching hospitals as of August 1, 2013.

The ground reality:

Despite all such measures, current situation in the United States on this issue is still not very encouraging.

The same 2013 survey highlights that many physicians in the United States continue to have some sort of financial relationship with the industry, as follows:

  • Receiving samples (54%)
  • Receiving food and beverage in their workplace (57%),
  • Participating in an “industry-funded program” (48%),
  • Participating in speakers bureau programs (11%)
  • Advisory board programs (10%).

Spin-off benefits of the Law:

It has been reported that the ‘Sunshine Act’ will also provide enormous data on how much the pharmaceutical companies and each of their competitors spend to make the doctors prescribe their drugs from the public data that will be available from September 2014. This will help these companies tracking which type of marketing tools and processes have a linear relationship to generate increased number of prescriptions.

Thus the above report concludes that pharmaceutical players ‘will not stop wooing doctors. They may simply get better at it’, making their marketing expenditure increasingly productive.

However, despite all these, another recent report indicated that after the ‘Sunshine Act,’ some pharma companies have really started cutting back on their payments to doctors and many others have stepped up their efforts in this direction. This augurs a good beginning, if fructifies on a larger scale.

Such Laws could be more impactful in India:

A law like ‘Sunshine Act’ of America, if implemented well in India is expected to have much greater and positive impact. This is mainly due to existence of an effective pharmaceutical pricing ‘watchdog’ in the country in form of the ‘National Pharmaceutical Pricing Authority (NPPA)’ .

When pharmaceutical-marketing expenditures of individual pharma companies, through such public disclosures, will be found to contributing disproportionately to the total expenses of any player, pressure from the regulators and the civil society will keep mounting to bring down the prices of medicines.

An interesting survey in India:

A survey report of Ernst and Young titled, “Pharmaceutical marketing: ethical and responsible conduct”, carried out in September 2011 on the UCMP and MCI guidelines, highlighted the following:

  • Two-third of the respondents felt that the implementation of the UCPMP would change the manner in which pharma products are currently marketed in India.
  • More than 50% of the respondents are of the opinion that the UCPMP may lead to manipulation in recording of actual sampling activity.
  • Over 50% of the respondents indicated that the effectiveness of the code would be very low in the absence of legislative support provided to the UCPMP committee.
  • 90% of the respondents felt that pharma companies in India should focus on building a robust internal controls system to ensure compliance with the UCPMP.
  • 72% of the respondents felt that the MCI was not stringently enforcing its medical ethics guidelines.
  • 36% of the respondents felt that the MCI’s guidelines would have an impact on the overall sales of pharma companies.

The Planning Commission of India expresses its anguish: 

Recently even the Planning Commission of India has reportedly recommended strong measures against pharmaceutical marketing malpractices as follows:

“Pharmaceutical marketing and aggressive promotion also contributes to irrational use. There is a need for a mandatory code for identifying and penalizing unethical promotion on the part of pharma companies. Mandated disclosure by Pharmaceutical companies of the expenditure incurred on drug promotion, ghost writing in promotion of pharma products to attract disqualification of the author and penalty on the company, and vetting of drug related material in Continuing Medical Education would be considered.”

The Ministry of Health may now intervene: 

It was reported by the media just last week that the Ministry of Health (MoH) strongly feels that unethical practices and aggressive promotion of drugs by the pharmaceutical companies through the doctors in lieu of gifts, hospitality, trips to exotic foreign and domestic destinations are adding up to cost of medicines significantly in India. Thus, the MoH is expected to suggest to the Department of Pharmaceuticals for 
mandatory implementation of the ‘Uniform Code of Pharmaceutical Practices (UCPMP)’ by the industry soon.

Conclusion:

Statistics of compliance to UCPMP are important to know, but demonstrable qualitative changes in the ethics and value standards of an organization in this regard should always be the most important goal to drive any pharmaceutical business corporation in India.

The need to announce and implement the UCPMP by the Department of Pharmaceutical, without further delay, assumes critical importance in today’s allegedly chaotic pharmaceutical marketing scenario.

Very unfortunately, the status quo remains unbroken even today. The juggernaut of marketing malpractices keeps moving on unabated. The ‘Cat and Mouse’ game continues as ever. The moot question still remains, who bells the cat? …For patients sake.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Credible role of CCI and NPPA should allay fear of possible ill effects of FDI in Pharmaceuticals

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On August 3, 2011, ‘The Hindu Business Line’ reported, “Domestic drug-makers worried by side-effects of MNC buyouts.” It opined, “Acquisitions in the pharma industry came in for sharp focus, after several domestic drug-makers sold their operations partially or entirely to overseas companies – raising concerns of, among other things, increase in medicine prices.”

However, on August 4, 2011 the same business daily retorted, “MNC drug-makers allay fears of rise in prices.” It asserted, “Multinational drug-makers have stressed that they are committed to achieving the country’s healthcare goals”.

March 18, 2011 issue of  ‘Export Import News’ wrote, “FDI in pharma sector comes down during current financial year as debate on ‘Take-Overs’ rages on”.

The Union Health Minister Mr. Ghulam Nabi Azad is reportedly arguing in favor of putting a cap on the FDI limit for pharmaceuticals in India. This is based on an apprehension that such FDI would have an overall adverse impact on the health care scenario of the country, especially, on pricing and availability of medicines to the common man.

It has also been reported that the Commerce Ministry is in favor of reviewing the situation after taking into consideration of the report to be submitted to them by an international consulting firm. This seems to have been prompted by the request of the Department of Pharmaceuticals (DoP) based on the recent takeovers of Indian companies by the Multi National Pharmaceutical Corporations. It appears that the recommendations of the Ministry of commerce, prepared in consultation with the DoP, will then be forwarded to the Economic Advisory Council to the Prime Minister for a final direction on the much hyped and talked about issue.

Views of the Planning Commission of India:

Meanwhile, most of the daily business papers of India reported that on July 12, 2011, the Deputy Chairman of the Planning Commission of India Mr. Montek Singh Ahluwalia commented, “I don’t think there is any move anywhere to prevent the expansion of existing 100% foreign owned pharmaceutical companies or to prevent green field investment by foreign companies.”

A reasonable comment:

This comment of Mr. Ahluwalia seems quite reasonable, considering the fact that full control of powers on Mergers and Acquisitions of the Competition Commission of India (CCI) effective June 1, 2011, has already been notified.

CCI to address all possible adverse impact on competition due to M&A:

The Competition Commission of India (CCI) will now carefully scrutinize the possibilities of the market being less competitive due to Mergers and Acquisitions (M&A) of companies across the industry in the country. This concern becomes even greater, especially, in the horizontal mergers and acquisitions between the comparable competitors in the same products or geographic markets, as we have been witnessing also in the pharmaceutical sector of India, over a period of time.

However, the country is yet to notice any quantifiable ill effects of such horizontal or vertical M&A. Neither is there any major case pending with the CCI in this regard for the pharmaceutical sector.

Competition related scrutiny is nothing new in the developed markets:

Competition related scrutiny during M&A is nothing new in the developed markets of the world and is already being followed in the USA, the countries within the European Union (EU) and elsewhere.

Key concerns with M&A in pharmaceuticals:

Many believe that M&A even in the oligopolistic nature of pharmaceutical market in any country, if not abused will not do any harm to competition.  Possibly for this reason, it will be rather difficult to cite many examples, the world over, where companies have been stopped from merging by the regulators because of anti-competitive reasons.

Another school of thought, however, believes that large M&A could ultimately lead to oligopolistic nature of the pharmaceutical industry with adverse impact on competition. Thus M&A regulations are very important for this sector.

Moreover, we need to remember that competition no longer depends only on the number of players in any given field. To explain this point many people cite the example of two large global players in the field of brown liquid beverages, Coke and Pepsi, where despite being limited competition, consumers derive immense value added economic benefits due to cut throat competition between these two large players.

It goes without saying, CCI must ensure that in any M&A process, even within the pharmaceutical industry of India, such rivalry does not give way to an absolute monopoly, directly or indirectly.

M&A activity in India:

In India, the consolidation process within the Pharmaceutical Industry started gaining momentum way back in 2006 with the acquisition of Matrix Lab by Mylan. 2008 witnessed one of the biggest mergers in the Pharmaceutical Industry of India, when the third largest drug maker of Japan, Daiichi Sankyo acquired 63.9% stake of Ranbaxy Laboratories of India with US $4.6 billion.

Last year, in May 2010, Chicago based Abbott Laboratories acquired the branded generics business of Piramal Healthcare with US$3.72 billion. This was soon followed by the acquisition of Paras Pharma by Reckit Benkiser.

The ground realities:

In India, if we look at the ground reality, we find that the market competition is extremely fierce with each branded generic/generic drug (constituting over 99% of the Indian Pharmaceutical Market, IPM) having not less than 50 to 80 competitors within the same chemical compound. Moreover, 100% of the IPM is price regulated by the government, 20% under cost based price control and the balance 80% is under stringent price monitoring mechanism.

In an environment like this, the apprehension of threat to ‘public health interest’ due to irresponsible pricing will be rather imaginary. More so, when the medicine prices in India are the cheapest in the world, cheaper than even our next door neighbors like, Bangladesh, Pakistan and Sri Lanka.

CCI and NPPA will play a critical role:

One of the key concerns of the stakeholders in India is that M&A will allow the companies to come together to fix prices and resort to other anti competitive measures. However, in the pharmaceutical industry of the country this seems to be highly unlikely because of effective presence of the strong price regulator, National Pharmaceutical Pricing Authority (NPPA), as mentioned above.

Thus even after almost three years of acquisition, the product prices of Ranbaxy have remained stable, some in fact even declined. As per IMS MAT June data, prices of Ranbaxy products grew only by 0.6% in 2009 and actually fell by 1% in 2010. Similarly post acquisition of Piramal Healthcare by Abbott USA and Shantha Biotech by Sanofi of France, average product price increases of these two Indian subsidiaries were reported to be just around 2% and 0%, respectively.

However, even if there is any remote possibility of M&A having adverse effect on competition, it will now be taken care of effectively by the CCI, as it happens in many countries of the world,  Israel being a recent example involving an Indian company.

‘Competition Commission’ does intervene:

In the process of the acquisition of Taro Pharma of Israel by Sun Pharma of India in 2008, being concerned with the possibility of price increases due to less competitive environment in three generic carbamazepine formulations, the Competition Commission in Israel intervened, as happened in many other countries.  As a result, Sun Pharma was directed by the regulator to divest its rights to develop, manufacture and market of all these three formulations to Torrent Pharma or another Commission approved buyer.

There are many such examples, across the world, of Competition Commission playing a key role to negate any possible ill effect of M&A.

Will the new Competition Law delay the M&A process?

Some apprehensions have been expressed that the new competition law could delay the process of a Mergers and Acquisitions (M&A) . However, it is worth noting, in case the CCI will require raising any objection after the voluntary notification has been served, they will have to do so within 90 working days, otherwise the M&A process will deem to be solemnized.

Conclusion:

I reckon, in the M&A process, the entire Pharmaceutical Industry in India would continue to act responsibly with demonstrable commitment to help achieving the healthcare objectives of the nation.

Global players will keep on searching for their suitable targets in the emerging markets like India, just as Indian players are searching for the same in the global markets. This is a process of consolidation in any industry and will continue to take place across the world.

Adverse impact of M&A on competition, if any, will now be effectively taken care of by the CCI. In addition, the apprehension for any unreasonable price increases post M&A will be addressed by the National Pharmaceutical Pricing Authority (NPPA).

Thus, there are enough checks and balances already being in place to avoid any possible adverse impact due to M&A activities in India.In this evolving scenario, it is indeed difficult to understand, why the FDI issue related to M&A in the Pharmaceutical space of India is still catching headlines of both in the national and international media.

Be that as it may, it goes without saying that as we move on, the role of CCI in all M&A activities within the Pharmaceutical Industry of India will be keenly watched by all concerned, mainly to ensure that the vibrant competitive environment is kept alive within this sector.

Disclaimer:The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Limiting FDI in Pharma is a protectionist cry: Does not benefit the common man.

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“Protectionism is harmful” very aptly commented by Mr. Pranab Mukherjee, the Finance Minister of India, just the other day. This was in context of “recent US moves to hike visa fees and clamp down on outsourcing”.
While almost at the same time, both Indian and the foreign media reports indicate that being concerned by the recent acquisitions of the home grown relatively large pharmaceutical and biotech companies, the Department of Pharmaceuticals (DoP) and the Department of Industrial Policy and promotion (DIPP) of the Government of India are mulling a proposal to do away with the current practice of allowing 100% Foreign Direct Investments (FDI), as applicable to the pharmaceutical industry in India.

Even the Health Minister of India has been expressing this concern since ‘Abbott – Piramal deal’ was inked last year. He expressed the same apprehension, as he read out from his written speech, in an industry function in Mumbai held on January 7, 2011.

Thus the moot question is, will limiting FDI in pharmaceuticals be not considered by the world as a protective measure, just as ‘hiking visa fees and clamping down outsourcing’ from India by other countries?
Is it a mere speculation?
I would reckon so, as at this stage India cannot afford to take any retrograde anti-reformist measure in its endeavor to further accelerate the economic progress of the nation. The Finance Minister of India has also expressed so publicly, in the same context, quite recently.
Still the speculation is quite rife that a new cap of 49% FDI for pharmaceuticals would be able to keep the multinational companies (MNCs) away from having controlling stakes in the Indian companies, which will not jeopardize access to quality medicines at an affordable price to a vast majority of the population.
The key apprehensions:
The Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industries in its ‘Discussion Paper’ dated August 24, 2010, which was primarily on Compulsory Licensing (CL), also expressed some of the following key apprehensions towards foreign acquisitions of the Indian pharmaceutical companies by the MNCs:
1. Such takeovers could lead to an ‘oligopolistic market’ where a few companies will decide the prices of essential medicines, adversely impacting the ‘Public Health Interest (PHI)’.
2. If large Indian companies having the wherewithal to replicate any patented molecule are taken over by the MNCs, the ‘oligopolistic’ situation thus created and being strengthened by the exclusivity of products through product patent rights, will severely limit the power of the government to face the challenge of PHI by granting CLs.
3. In such a situation MNCs could well decide to sell only the high priced patented and branded generic drugs rather than the cheaper essential drugs, pushing up the drug prices and causing inconvenience to patients.
Addressing the key apprehensions:
Let me now try to address these apprehensions impartially and with as much data as possible.
1. Can Indian Pharmaceutical Market (IPM) be ever oligopolistic? Dictionary defines ‘Oligopolistic market’ as ‘a market condition in which sellers are so few that the actions of any one of them will materially affect price and have a measurable impact on competitors’.
IPM has over 23,000 players and around 60,000 brands (source: IMS 2010). Even after, all the recent acquisition, the top ranked pharmaceutical company of India – Abbott, enjoys a market share of just 6.1% (source: AIOCD/AWACS , November 2010). Even the Top 10 groups of companies (each belonging to the same promoter group though different and not the individual companies) contribute just around 40% of the IPM.
Thus, IPM is highly fragmented. No company or group of companies enjoys any clear market domination. In a scenario like this, the apprehension of an ‘oligopolistic market’ being created through acquisitions by the MNCs is indeed unfounded.
2. The idea of creating a legal barrier in terms of limiting the FDIs to prevent the domestic pharma players from selling their respective companies at a price, which they would consider lucrative, just from the CL point of you, as mentioned in the ‘discussion paper’ of DIPP, sounds bizarre.
3. The market competition is also extremely fierce in India with each branded generic/generic drug (constituting over 99% of the IPM) having not less than 50 to 60 competitors within the same chemical compound. Moreover, 100% of the IPM is price regulated by the government, 20% under cost based price control and the balance 80% is under stringent price monitoring mechanism. In an environment like this, the very thought of any threat to ‘public health interest’ due irresponsible pricing, may be taken as an insult to the government’s own price regulators, who have contributed in making the medicine prices in India cheapest in the world, cheaper than even our next door neighbors like, Bangladesh, Pakistan and Sri Lanka.
Hard facts tell us a different story:
The apprehension that acquisition of Indian drug companies by MNCs will hurt the consumer interest is not based on hard facts. MNCs constitute 19% of the total share of the Indian pharmaceutical market in value terms. Of the 455 companies listed in IMS ORG, 38 are foreign owned (only 8.4%). The fragmented nature of the industry ensures high level of competition that has led to the lowest prices of essential medicines in India.

Ranbaxy was the first major Indian drug company to be acquired by the Japanese MNC Daiichi Sankyo in June 2008. Two years later, the prices of medicines of Ranbaxy have remained stable, some in fact even declined. As per IMS MAT June data, prices of Ranbaxy products grew only by 0.6% in 2009 and actually fell by 1% in 2010.
Access to world class science and technology:
Even the acquisition of Shantha Biotechnique by Sanofi-aventis has enabled the domestic bio-tech company to get world class R&D support and international exposure in partnership with the one of the world’s largest vaccines development company – Sanofi-Pasteur. It is worth noting that none of the prices of locally produced vaccines by Shantha Biotechnique has gone up after this acquisition.
Data also shows that the number of products under price control is now much higher for MNCs in general than the domestic drug companies.
Other positive fall outs of acquisitions/collaborations:
All these acquisitions were absolutely voluntary in every way and brought in for the country large amount of foreign investments as can be seen in the Piramal Healthcare buyout amounting to US $3.72 billion and earlier the Ranbaxy buyout of US $4.2 billion. Such acquisitions also help in shifting investment and R&D focus of the MNCs into India, which offers good science and technology base with a significant cost arbitrage.
Conclusion:
In my opinion, through partnering with MNCs, local drug companies have begun to gain access to international expertise, resources and good manufacturing practices. A number of local companies have already entered into alliances with MNCs to leverage these opportunities.
Thus limiting FDI in the pharmaceutical industry at this stage, when the government in fact is debating to open up the retail and the insurance sectors to foreign investments will indeed be a retrograde step for the country.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.