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Reaping rich harvest with less moaning and bagful of creative ideas from emerging Rural Markets of India

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About 72 percent of the population and 135 million households of India live in the rural areas of the country. Many of them are poor.

Definition of ‘Rural’:

Agencies of the Government of India like, National Council of Applied Economic (NCAER) and Insurance Regulatory and Development Agency (IRDA) have defined the terminology ‘rural’ as “villages with a population of less than 5000 with 75 percent population engaged in agriculture…”

Rural India is no longer an agrarian economy:

A recent study by ‘Credit Suisse’ indicates that rural India is no longer a pure agrarian economy, depending mostly on the quality of rain falls during monsoon season. This has been corroborated by the fact that the contribution of agriculture to the total GDP of rural India has come down from 50 percent, as registered during the turn of this century, to its current level of about 25 percent.

This transition of rural India from agriculture to industry and services, is now taking place at a much faster pace than ever before, as the rural economy is getting increasingly attuned to the national economic cycle, creating more and more non-agrarian jobs in those areas. Most of the incremental job creation is taking place in manufacturing, construction, retail and wholesale trade and also in the community services.

Currently, 55% of India’s GDP from manufacturing comes from rural India as the ‘Credit Suisse’ report highlights. As a result, since April 2000, per capita GDP in rural India has grown at a much faster pace than in urban India.

This welcoming change, in turn, is expected to play a key role in significantly improving the consumption of reasonably affordable healthcare, besides many other products and services, in the rural India.

Rural share of GDP growing faster:

Since last several years with various rural reform initiatives of the Government, the hinterlands of India have started growing faster than ever before.

A National Council of Applied Economic (NCAER) Research survey, indicating rural share of India’s GDP improved from 40 percent in 1980 to 54 percent in 2010, vindicates this point. At the same time, aggregate rural consumption (US$ Bn) increased from 94 in 1985 to 203 in 2005 and is expected to reach 350 in 2015. (Source: National Statistical Offices, UN, Euro Monitor International, Office of the Registrar General & Census Commissioner, India).

A new growth opportunity:

According to McKinsey Report, rural India currently accounts for 21 percent of the Indian Pharmaceutical Market (IPM). It is interesting to note from the NCAER report that both urban and rural India spend 5% of their total income on health.

Rural growth drivers:

McKinsey estimates that by 2015, upcoming smaller towns and the rural markets will contribute as much to the growth of IPM as the metros and top tier towns.

The following factors are expected to drive the growth of the pharmaceutical industry in the rural India:

  • Large patient base
  • Increasing overall income (over 1 percent of the total population coming above the poverty line every year)
  • Increasing number of middle class in rural areas
  • Disease pattern gradually shifting to chronic ailments
  • Improving healthcare infrastructure with increasing Government spend on the National Rural Health Mission (NRHM)
  • Rashtriya Swasthya Bima Yojana (RSBY), which is the National Health Insurance Scheme for Below Poverty Line (BPL) families, will provide health cover to increasing number of BPL households
  • New initiatives of the Department of Pharmaceuticals (DoP) like, “Janaushadhi”  scheme will provide low cost quality medicines to boost the uptake

Rural market size:

The rural markets contribute about 21 percent of U.S$ 12.5 billion pharmaceutical market in India (AIOCD-AWACS, February, 2012). As reported in ‘India Pharma 2015’ of McKinsey, by 2015 rural pharma market size is expected to reach U.S$ 4.8 billion from U.S$1.2 billion in 2005.

Currently, rural markets are dominated by ailments related to various types of infections. As stated above, this disease pattern is expected to change by the next decade to non-infectious chronic illnesses, like diabetes, cardiac, cancer, hypertension etc.

Increasing Pharmaceutical growth trend in the rural markets:

In 2011 the rural markets of India registered a growth of around 23 percent over the previous year. This decent pace of growth is expected to continue in the next decades.

MAT Dec 2011 (INR M)

MAT Dec 2011 (Saliency)

Growth %
Indian Pharma Market

538,028

100.00

14.92
CLASS I TOWNS

168,339

31.29

12.12
METROS

164,625

30.60

16.33
CLASS II TO VI

102,536

19.06

9.93
RURAL

102,528

19.06

23.19

(Source: IMS Town Class Data – Dec MAT 2011)

Moreover, McKinsey Report forecasts that rural markets will contribute around 27 percent of the total consumption of India by 2020 and by 2015, rural India will account for over 24 percent of the domestic pharmaceutical market from its current level of 21 percent.

Charting the uncharted frontier:

It has been reported that growth rate of the rural markets of many companies have more than doubled due to their rural marketing focus. Possibly as a testimony to this new business opportunity, one can now see:

1. Novartis with its “Arygoya Parivar” initiative is rolling out a tailor-made program for rural areas of seven states of India, to start with. They have developed special packs of essential medicines with special prices to reach out to the rural population. To create disease awareness within the target population and also for disease prevention and treatment, Novartis has deployed health educators for this project.

2. Sanofi has initiated a dedicated rural marketing initiative called ‘Prayas’.  The initiative is aimed at ‘bridging the diagnosis‐treatment gap through a structured continuing education program for rural doctors across India’.

The Company says, “through ‘Prayas’, specialists from semi‐urban areas will share latest medical knowledge and clinical experience with general practitioners based in smaller towns and villages in the interiors of India”. Their second strategy, reportedly, is for improving healthcare access by making quality medicines available at affordable prices for the rural patients.

3. Novo Nordisk is currently engaged in screening patients for diabetes in the rural areas of Goa with mobile clinics. This initiative is expected to create widespread awareness about diabetes and early detection of the disease, so as to prevent early onset of the disease related complications.

4. Eli Lilly developed a program along with the Self-Employed Women’s Association in Ahmedabad to educate and encourage rural patients suffering from tuberculosis to go for treatment.

5. Elder pharmaceuticals created a dedicated 750 strong rural marketing sales force called Elvista.

6. Cadila Pharma has set up a dedicated rural marketing arm called ‘Explora’.

7. Alembic Chemicals created a rural business unit called ‘Maxis’.

These are just a few illustrations and not an exhaustive list. However, the issue is whether the rural marketing initiative will continue to remain an experimental one to the pharmaceutical companies in India or will get translated into a decent long term strategic business move.

“The Fortune at the Bottom of the Pyramid”:

The iconic management guru C K Prahalad in his well-known book titled, “The Fortune at the Bottom of the Pyramid” wrote:

“If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative consumers, a whole new world of opportunity will open up.” I am not sure whether the above profound observation is encouraging the pharmaceutical companies to explore the rural India with the wings of courage, where majority of the Indian populations live and most of them are poor.

A ‘Pot of Gold’ in the rural markets?

Currently around 20 million middle class households live in over 6,00,000 villages of India. This is almost the same as the number of middle class households residing in urban India and holds the key to significant increase of healthcare spending in rural India.

Rural market-entry strategy:

Instead of transplanting the urban marketing strategy into rural India, some companies, as mentioned above, have taken the community-welfare route to make the rural population aware of particular disease segments like, tuberculosis, diabetes, cardiovascular, waterborne diseases etc. together with the treatments available for such ailments.

These value added marketing strategies offer benefits to both the patients and the company concerned. The local medical practitioners, in turn, are also benefited as they get increasing number of patients in their clinics through such disease awareness community program by the pharmaceutical companies.

Key challenges:

There are some key challenges for effective rural penetration by the Indian pharmaceutical industry, as follows:

• Inadequate basic healthcare infrastructure. Only 20 percent of total healthcare infrastructure of the country is in rural areas where over 72 percent population of the country lives. • Density of doctors per 10,000 populations in India is just 6. A large number of villages in India do not have any doctor. As per AC Nielson study, an average rural Indian has to travel about 6 km to visit a doctor. A Medical Representative will require traveling about 250 to 300 km every day just to meet about 10 doctors and 4 dealers. • Many villages are not well connected by proper all season roads. • Lack of appropriate supply chain network and logistics support.

Conclusion:

With increasing infrastructural support and tailor made innovative marketing strategies for rural India, simultaneously delivering both preventive and curative therapies under one umbrella, it may not be difficult for the Indian pharmaceutical companies to discover ‘The Fortune at the Bottom of the Pyramid’ – a win-win situation indeed for both the ‘haves’ and a vast majority of ‘have-nots’ living in an amazing country called India.

The name of the game is less moaning and a bagful of implementable creative ideas.

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.

In the Pharmaceutical Space: The Dragon breathes fire

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Currently both China and India, the two most populous nations of the world are also the front runners of the global economy in terms of the pace of GDP growth. The economies of the two countries are greatly influenced by their respective sociopolitical environment. However, the economy of China is more robust ranking second in the world, against eleven of India. The dragon is indeed breathing fire.

A comparison of the economy of the two countries, as reported by ‘MapsofIndia.com’ updated in July 2011, is as follows:

Facts India China
GDP US$1.31 trillion US$ 4.90 trillion
GDP growth 8.90% 9.60%
Per capital GDP US$1124 US$7,518
Inflation 7.48 % 5.1%
Labor Force 467 million 813.5 million
Unemployment 9.4 % 4.20 %
Fiscal Deficit 5.5% 21.5%
Foreign Direct Investment US$12.40 billion US$9.7 billion
Gold Reserves 15% 11%
Foreign Exchange Reserves US$2.41 billion US$2.65 trillion
World Prosperity Index 88th Position 58th Position
Mobile Users 842 million 687.71 million
Internet Users 123.16 million 81 million.

Global pharmaceutical ranking:

As reported by IMS, in global ranking, China was ninth largest pharmaceutical market against thirteenth of India in 2004, became  fifth largest in 2009 against thirteenth of India and is expected to be the third largest by 2014 against tenth of India, growing at a much faster pace.

2004 Rank

2009 Rank

2014 Rank
1 United States 1 United States 1 United States
2 Japan 2 Japan 2 Japan
3 France 3 Germany 3 China
4 Germany 4 France 4 Germany
5 Italy 5 China 5 France
6 United Kingdom 6 Italy 6 Brazil
7 Canada 7 Canada 7 Italy
8 Spain 8 Spain 8 Canada
9 China 9 United Kingdom 9 Spain
10 Brazil 10 Brazil 10 India
11 Mexico 11 Russia 11 Russia
12 Australia 12 Mexico 12 United Kingdom
13 South Korea 13 India 13 Venezuela
14 India 14 Australia 14 Turkey
15 Netherlands 15 Turkey 15 South Korea

Source: IMS Health MIDAS, Market Prognosis September 2010; Market size ranking in constant US$

Healthcare coverage:

In China, out of a population of 1.3 billion, 250 million are covered by health insurance, another 250 million are partially covered by insurance and balance 800 million are not covered by any insurance.

Against these statistics of China, in India total number of population who have some sort of healthcare financing coverage will be around 200 million and penetration of health insurance will be just around 3.1% of the population. India is fast losing grounds to China in this respect mainly due to better response to healthcare infrastructure and regulatory challenges by China.

Commitment to globalization:

A very high level of commitment of the Chinese Government to make China a regional global hub for pharmaceutical R&D and contract research and manufacturing (CRAM) activities within next seven to ten years is now paying rich dividends.

Department of Pharmaceuticals (DoP) of the Government of India (GoI) also expressed its intention to make India a R&D hub in not too distant future. Unfortunately, this cannot be achieved with just good intent of investments of couple of million US$ through Public Private Partnership (PPP) initiatives, as announced by the DoP earlier.

A strong commitment of the GoI to hasten regulatory reform processes with visible action will be the deciding success factor. IPR regime in the pharmaceutical industry has been put in place, but an appropriate to foster innovation in the country is yet to be created.

Healthcare Infrastructure:

Korn/Ferry International has reported that China’s infrastructure in the pharmaceutical space is better than India, primarily due to firm commitment of the Chinese government to accelerate reform measures to fetch maximum benefits of globalization process in the country.

It has been reported that China has not only better healthcare infrastructure as compared to India, but they are also more open  to of foreign trade and investments to improve these further in their country.

R&D Comparison:

Talent Pool and no. of Patents granted:

According to WIPO, China has better R&D talent pool and grants more patent per year than India as follows:

India

China
R&D Talent Pool

45,000

56,000
Patents Granted (2008-09)*

16,061

48,814

*Patent Granrted in India during 2009-10:6168

Source: FE Bureau / WIPO / IPO

Scientific Publications:

India also lags behind China in the number of scientific publications as follows:

Pre 2000 (A)

Post 2000 (B)

B/A*
India 3,04,737 4,98,394 1.64
China 2,30,154 19,94,706 8.67

*Multiple of Post-2000 over Pre 2000

Between pre-2000 and post-2000 era, China’s count of scientific publications rose more than eight times compared to India’s 1.6 times. (Source: Search on Scopus Sciverse (Database from Elsevier)

Based on ‘WIPO PCT’ applications, it has been reported that 5.5% of all global pharmaceutical patent applications named one inventor or more located in India as against 8.4% located in China.

Biology Research:

China is taking faster strides in the Biology Research area as follows:

INDIA

CHINA
  1. Only about five companies with proven skills in basic molecular biology and protein expression

2. Innovative research focused on bioinformatics and bio-chips

3. Limited biology talent pool owing to historic focus on generics1. Established skills in basic molecular biology and protein expression

2. Innovative research in stem cells, bio-chips, and gene sequencing

3. Expanding biology talent pool

(Source: BCG report, Looking Eastward)

Clinical trials:

In the area of clinical trial, though by amending  the Schedule Y of the Drugs and Cosmetics Act in line with ICH GCP, India has already put in place the Good Clinical Practices (GCP), China has, on the other hand, brought its GCP, GLP, and GMP standards in line with ICH guidelines.

May be because of all these reasons ‘A.T. Kearney’ in its ‘Country Attractiveness Index’ (CAI) for clinical trials has given 6.10 to China against 5.58 to India.

BCG compared India with China in the Clinical Trial space as follows:

INDIA

CHINA
1. Experienced CROs with full service range and output of similar quality to that of developed markets.

3. Limited FDA approved hospitals

4. Shorter trial approval times than in China

5.Uneven infrastructure and shortage of clinical research assistants

  1. Experienced CROs and growing vendor pool providing full spectrum of services
  2. High quality FDA-approved hospitals
  3. Low-cost and efficient enrollment compared to the US and Europe
  4. Trial approvals lengthy and complex

(Source: BCG report, Looking Eastward)

Despite all these, both India and China pose challenges to both global and the local pharmaceutical players in dealing with subjects of wide cultural diversity within the country besides illiteracy and poverty. Many cases of conflict between ethics and natural justice have been reported from both countries during recruiting process of the subjects for clinical trial.

Pharmaceutical outsourcing:

In terms of attractiveness for outsourcing among the emerging pharmaceutical markets of the world, India and China are outpacing others with their cutting edge offering of high quality services at lower cost together with large pool of skilled manpower.

India has the potential to be a contender of supremacy for Pharmaceutical outsourcing of all types with all the required success ingredients. However, putting these ingredients together for effective use to make it happen has indeed become a real challenge.

On the other hand China is racing ahead to effectively avail the global opportunities and in that process fast distancing itself from India, widening the competitive performance gap between the two countries. Brain drain:

Korn/Ferry International has reported that more and more Indian talent is being pulled to China to fill key roles, especially in the API sector, signaling ‘brain drain’ from India to China.

Where India is a high flier:

Chemistry Research:

India is globally considered as a more mature place for chemistry related drug-discovery activities than China. Probably, because of this reason, companies like, Aurigene, Advinus, Divis Lab and Jubilant Organosys could enter into long-term collaborative arrangements with Multinational Companies (MNC) to discover and develop New Chemical Entities (NCEs).

BCG report, ‘Looking Eastward’ compared India with China in the Chemistry Research area as follows:

INDIA

CHINA
  1. Large pool of vendors with full services and track record of strong capabilities

2. Generally better IP protection than in China

3. Trend toward project based alliances and emerging build-operate-transfer (BOT) contracts

4. Vast pool of skilled and low cost chemists

  1. Capabilities residing mostly with government institutes; only a few small private companies with a track record
  2. Established basic chemistry skills moving to more complex offerings, but no end to end capabilities
  3. Large and growing pool of raw talent, but limited English language skills still an issue

(Source: BCG report, Looking Eastward)

Earlier reform in China: It is important to mention that healthcare reform process started much earlier in China. The Product Patent regime in India was reintroduced in January 1, 2005. Well before that time China started creating and encouraging a large number of independently funded pharmaceutical R&D institutions to create an environment of innovation within the country. Many of these institutions are now viable profit centers, creating wealth for the country.

At the same time, focusing on economies of scale, Chinese pharmaceutical players have now become globally competitive, may be a shade better than India. Clear dominance of China in the business of ‘Active Pharmaceutical Ingredient (API)’ among many others, will vindicate this point.

On other hand in the formulations business, India is miles ahead of China, catering to over 20 percent of global requirements for the generic pharmaceuticals. Even in ANDA and DMF filings, India is currently ahead of China. 

Conclusion:

While comparing India with China one should also take into consideration that not only the sociopolitical structure of India and China are quite different, but the difference exists also in their commerce and industry related political decision making process.

Moreover, the average age of Chinese population is much more than Indians and continues to increase rapidly. The factor of aging population may have an adverse impact on the overall productivity of their people in the coming years constraining the economic growth of China. In contrast, the percentage of young working people in India is expected to keep increasing through 2030, offering a very critical  demographic advantage to the country in the years ahead.

Though China will continue to have aging population and India the younger ones, both countries will have to deploy greater resources to cater to the growing healthcare needs for altogether different reasons. The net gainer will indeed be the pharmaceutical industry in both the countries.

That said, just a wishful thinking of the Government of India, sans expeditious and prudent regulatory and other related policy reforms, will helplessly make India watching the gap between the pharmaceutical industry of the two countries fast widening, making the dragon keep breathing fire, unabated.

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.

Draft National Pharmaceutical Pricing Policy 2011: A flawed recipe

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The ‘Drug Price’ has always remained one of the critical factors to ensure greater access to medicines, especially in the developing economies like India, where predominantly individuals are the payers. This point has also been widely accepted by the international community, except perhaps the diehard ‘self-serving’ vested interests.

Just to cite some key examples, in the “ACCESS TO MEDICINES” report, the ‘Swiss Agency for Development and Cooperation (SDC)’ of ‘Swiss Centre for International Health’ has highlighted, “Affordability is one core issue at the center of debates about medicine use in international health.”

An article appeared on “This is Africa”, a new publication from the ‘Financial Times’ dated November 11, 2011 wrote: “The BRIC countries have redefined affordable drugs, making access to medicines possible for millions in low income regions. Yet changing priorities for major generic drug producers, such as India, could reshape the African pharmaceutical landscape. Access to medicines has improved dramatically over the last decade, driven by the rise of cheap pharmaceuticals from Asia, domestic efforts by governments of developing countries, commitment from donors, and price cuts from brand producers.”

Even the Director General Pascal Lamy of the World Trade Organization (WTO) in his address to the 11th Annual International Generic Pharmaceutical Alliance Conference in Geneva on 9 December 2008, said that since the 2001 Doha Declaration on the TRIPS Agreement and Public Health, “access to medicines has been improved through a major reduction of prices, enhanced international funding, a greater recognition of the need to find a balance within the intellectual property system, as well as the use of some of the TRIPS flexibilities by certain WTO Members”.

Similarly, the global pharmaceutical major GlaxoSmithKline (GsK) in its 2010 ‘Corporate Responsibility Report’ indicated: “Pricing is one factor that impacts on access to medicines and vaccines.”

Echoing similar sentiment the Swiss Pharma giant Novartis in its website articulated: “The issue of access to medicines is complex, involving factors such as development and health policies, health system infrastructure and best practices, pricing, rational use of drugs and adequate funding.”

‘Drug Price’ control alone cannot improve access to medicines:

As we have seen above, drug price is indeed one of the critical factors to improve access to modern medicines. It is for this reason, Governments in countries like Germany, Spain, UK, Korea and China have recently mulled strict price control measures in their respective countries.

Thus, I reiterate, drug price is certainly an important factor to improve access to modern medicines, but definitely not the only factor to focus on, as is being done in India by its successive governments.

In India, we have witnessed through almost the past four decades that drug price control alone would do little to improve access to modern medicines to the common man significantly, especially in the current socio-economic and healthcare environment of the country.  Continuation of poor access to modern medicines even after 40 years of stringent drug price control vindicates this point.

Draft NPPP 2011:

A reform-oriented ‘Drug Policy’ of India, was languishing as a ‘prisoner of indecision’ of the policy makers, since quite a  while.

Draft National Pharmaceutical Pricing Policy 2011 (NPPP 2011) has just been announced by the government with the ‘essentiality’ criteria for price control. The stakeholders have been requested to give their views on the same.

The draft policy seems to have taken some bold initiatives in terms of criteria and mechanics of price control, especially, moving away from the age old and non-transparent ‘Cost Based Pricing (CBP)’ to a more transparent ‘Market Based Pricing (MBP)’ model of Pronab Sen Committee of 2005.

However, in my view, NPPP 2011 has failed yet again to go beyond price control by effectively addressing other key issues for inadequate access to modern medicines by the common man, in a comprehensive and holistic way.

HSPH article of 2007 echoes the basis of Draft NPPP 2011:

‘Harvard School of Public Health’ in an article of July 2007 titled, ‘How Effective Is India’s Drug Price control Regime?’ had commented that in the present form, DPCO 1995 is inadequate in its coverage and does not serve the purpose that it had intended to.

The article recommends that there is an urgent need to replace the existing criteria for price control using monopoly and market dominance measures with the criteria of ‘essentiality’ of drugs, which would have a maximum spill-over effect on the entire therapeutic category.

In addition the paper says that this critical change is also ‘likely to prevent the present trend of circumventing price controls through non-standard combinations and at the same time would discourage producers moving away from controlled to non-controlled drugs’.

Just as mentioned in the draft NPPP 2011, the ‘Harvard School of Public Health’ article of 2007 reiterates that direct price control should be applied on formulations rather than basic drugs, which is likely to minimize intra-industry distortion in transaction.

The paper also points out, “Huge trade margins are a rule rather than exceptions in Indian drug industry. In view of this, there is a need to fix ceiling on trade margins which could lead to significant downward influence on medicine prices. Finally, we argue that to ensure drug security in India, a strong regulatory institutions need to be established.”

It is interesting to note that NPPP 2011 draws so much similarity with the ‘Harvard School of Public Health’ article published way back in 2007.

Basic objectives of a Drug Policy:

The ‘Drug Policy 1986’ clearly enunciated the basic policy objectives relating to drugs and pharmaceuticals in India, as follows:

  • Ensuring abundant availability of medicines at reasonable price and quality for mass consumption.
  • Strengthening the domestic capability for cost effective, quality production and exports of pharmaceuticals by reducing barriers to trade in the pharmaceutical sector.
  • Strengthening the system of quality control over drug and pharmaceutical production and distribution.
  • Encouraging R&D in the pharmaceutical industry in a manner compatible with the country’s needs and with particular focus on diseases endemic or relevant to India by creating an conducive environment.
  • Creating an incentive framework for the pharmaceutical and drug industry which promotes new investment into pharmaceutical industry and encourages the introduction of new technologies and new drugs.

After having completed around 25 years since then, it is high time for the government to ponder and assess whether the successive drug policies have delivered to the nation the desirable outcome as enunciated above.

Even the draft NPPP 2011 does not seem to have made any conscious attempt to make any amend in these areas either.

The draft NPPP 2011 offered another opportunity for a robust beginning:

Many of us will know that the 2002 Drug Policy was challenged in the Karnataka High Court, which by its order dated November 12, 2002 issued stay on the implementation of the Policy. This order was challenged by the Government in the Supreme Court, which vacated the stay vide its order dated March 10, 2003 but observed as follows:

“We suspend the operation of the order to the extent it directs that the Policy dated 15.2.2002 shall not be implemented. However we direct that the petitioner shall consider and formulate appropriate criteria for ensuring essential and life saving drugs not to fall out of the price control and further directed to review drugs, which are essential and life saving in nature till 2nd May, 2003”.

When nothing tangible happened thereafter, in October 2011, the honorable Supreme court against another Public Interest Litigation (PIL) asked the Ministry of Health (MoH) and the Department of Pharmaceuticals (DoP) to submit separate affidavits to the court on November 17, 2011 explaining their seriousness to bring the essential drugs under price control.

As a result of the November 17, 2011 order of the Supreme Court, it now appears that to put a new pharmaceutical policy in place in an unprecedented hurry, with the ‘essentiality’ criteria for price control, the Government lost another golden opportunity for a new and robust beginning with a comprehensive and well thought out national drug policy.

Draft NPPP 2011: Is it just to satisfy the Supreme Court of India?

The overall objective of any ‘Drug Policy’ is indeed to help accelerating all-round inclusive growth of the Indian pharmaceutical industry and to make it a force to reckon with, in the global pharmaceutical arena. At the same time, the policy should help creating an appropriate ecosystem to improve access to quality medicines at an affordable price by the entire population of the nation.

As stated above, in NPPP 2011, fixing Ceiling Price (CP) based on ‘Market Based Pricing (MBP)’ approach for 348 drugs falling under National List of Essential Medicines 2011 (NLEM 2011) and not beyond, could make sense, especially keeping in mind the direction given by the honorable Supreme Court of India on March 2003 and October 2011 on the subject, as indicated above.

However, just one pronged approach with the drug price control mechanism to address the issue of improving access to modern medicines in no way can be considered as a holistic approach to achieve objectives of a Drug policy. Isolated and incoherent initiatives of price control (though important) in the draft NPPP 2011, without taking the big picture into consideration, appears to be foolhardy.

A lurking fear creeps in though, has NPPP 2011 been drafted by the Government just to satisfy the Supreme Court of India with the incorporation of ‘essentiality’ criteria for price control medicines?

12th Five Year Plan increases public spending towards health:

In the 12th Five Year Plan of India commencing 2013, the country is expected to spend 2.5% of its GDP for health. Currently, public spending on health as a percentage to the GDP being at 0.9% is among the lowest in the world and against 1.8% of Sri Lanka, 2.3% of China and 3.3% of Thailand, just to name a few.

Recently another expert committee under the chairmanship of Dr. Srinath Reddy suggested that high ‘out of pocket’  healthcare expenditure of the people of India, should be significantly reduced by doubling the public spending on health. The committee also commented, “Increasing public health spending to our recommendations will result in a five-fold increase in real per capita health expenditures by the government from Rs 670 in 2011-12 to Rs 3,432 by 2021-22.”

Health coverage for ‘outpatient treatment’ in India is a necessity:

It is important to note from the above report that outpatient treatment in India accounts for around 78% of the ‘out-of-pocket’ expenses, with medicines accounting for 72% of the total outpatient health expenditure. Unfortunately, there is hardly any cover available to the common man for outpatient treatment in India, even by those holding some form of health insurance coverage.

A comparison of private (out of pocket) health expenditure:

Following is a comparison between ‘out of pocket’ expenses between India and its closer neighbors:

1. Pakistan: 82.5% 2. India: 78% 3. China: 61% 4. Sri Lanka: 53% 5. Thailand: 31% 6. Bhutan: 29% 7. Maldives: 14%

(Source: The Lancet)

Taming drug price inflation has not helped improving access to medicines:

It is quite clear from the following that food prices impact health more than medicine costs:

Year

Pharma Price Increases

Food Inflation

2008

1.1%

5.6%

2009

1.3%

8.0%

2010

0.5%

14.4%

Source: CMIE

Over one third of Indian population can’t afford to spend on medicines:

While framing the draft NPPP 2011, the Government should have kept in mind that a population of around 35% in India, still lives Below the Poverty Line (BPL) and will not be able to afford any expenditure even towards essential medicines.

Adding more drugs in the list of essential medicines and even bringing them all under stringent price control will not help the country to resolve this critical issue.

Why 40 years of stringent price control failed to make medicines ‘affordable’?

In my view, there is no ‘one size fits all’ type of definition for affordability of medicines, just like any other essential commodities, especially when around 78% of healthcare expenditure is ‘out of pocket’ in our country. Any particular price point may appear affordable to some, but will still remain unaffordable to many, especially in a country like India.

The initiatives taken by the government for price control of medicines since the last four decades have certainly been able to make the drug prices in India one of the lowest in the world coupled with intense cut throat market competition.

Unfortunately, this solitary measure has failed to improve access to modern medicines to the common man significantly due to various other critical reasons, which we hardly discuss and deliberate upon with as much passion as price control.

Despite so many drug price control orders, even today 47% and 31% of hospitalization in rural and urban areas, respectively, are financed by private loans and selling of assets by individuals.

Multi-dimensional approach to improve access to affordable medicines:

Access to healthcare and affordable medicines can be improved through an integrated and comprehensive approach of better access to doctors, diagnostics and hospitals, along with an efficient price regulatory mechanism for each component of healthcare cost including medicines. We should not forget that in India over 46% of patients travel beyond 100 km to seek medical care even today. (Source: Technopak & Philips (2010) Accessible Healthcare: Joining the Dots Now, New Delhi).

Healthcare infrastructure in India is severely constrained by lack of trained healthcare professionals, limited access to diagnostics/treatment and availability of quality medicines. Consequently, the supply of healthcare services falls significantly short of demand.

The current figure of 9 beds per 10,000 population in India is far from the world average of 40 beds per 10,000 people. Similarly, for every 10,000 Indians, there are just 6 doctors available in the country, while China has 20 doctors for the same number of population. Without proper equipment and doctors to diagnose and treat patients, medicines are of little value to those who need them most.

Thus, drug price control alone, though important, cannot improve access to healthcare without creation of adequate infrastructure required to ensure effective delivery and administration of medicines, together with appropriate financial cover for health.

Encourage healthy competition among healthcare providers:

Effective penetration of various types of innovative health insurance schemes will  be one of the key growth drivers for the inclusive growth of the Indian pharmaceutical industry, as desired by many in India.

Simultaneously, there is a need to promote tough competition within those healthcare providers to make them more and more cost-efficient while providing greater patients’ satisfaction. In that process, all elements of healthcare expenditure like physicians’ fees, diagnostic tests, hospital beds and medicines could be made affordable to the common man.

In such competitive environment, the patients will be the net gainers, as we have seen in other knowledge based industries, like the telecom sector with incredible increase in the tele-density of the country.

The drug policy should also include an equally transparent system to ensure that errant players within the healthcare sector, who will be caught with profiteering motives for manipulation of drug formulations and dosage forms to avoid price control, are brought to justice with exemplary punishments, as will be defined by law.

The Government won’t be able to do it all alone:

The Government needs to partner with the private sector to address India’s acute healthcare challenges through various Public-Private-Partnership (PPPs) initiatives.

Recent examples of successful PPP in the health sector include outsourcing ambulance services, mobile medical units, diagnostics and urban health centers  to private NGOs. PPP should adequately cover both primary and specialty healthcare, including clinical and diagnostic services, insurance, e-healthcare, hospitals and medical equipment.

Conclusion:

‘Drug price’ is universally recognized as one of the important elements, though not the sole element, to improve access to modern medicines. India is no exception.

This time around, the draft NPPP 2011 has come out in the public domain again with a flawed recipe, though the policy makers have tried to include some welcoming changes in it. The authors of the draft policy seem to be still preoccupied and obsessed with addressing the symptoms of ‘affordability of medicines’ rather than focusing on the larger issue of ‘access to modern medicines’ in a holistic way.

By not addressing the all important ‘access’ related critical issues in the draft NPPP 2011 rather comprehensively, dismantling the operational ‘silos’ and inter-ministerial administrative boundaries, the architects of NPPP 2011 seem to have missed the bus, yet again, in their endeavor to help achieving a significant dimension of the long overdue ‘health for all’ objective of the nation.

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.

Restructure, reposition and empower the DoP to deliver more to the nation: Break the Silos

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A news item on July 25, 2011 reported, “DoP (Department of Pharmaceuticals) moots National Authority for Drugs & Therapeutics (NADT) with Central Drugs Standard Control Organization (CDSCO) under it”.

If I recall, some years ago, a Government of India (GoI) appointed taskforce had also suggested integration of the offices of the DCGI, CDSCO and NPPA along with all their powers and functions. However, nothing has fructified, as yet, not even the Central Drug Authority (CDA) Bill, which was mooted in 2007.

In the same context while taking a pause to look back, we note that in 2008 to help accelerating the growth momentum of the pharmaceutical industry of India through a more efficient government administrative and policy machinery, the GoI created a new department called the ‘Department of Pharmaceuticals’ under the MOC&F.

It was widely expected at that time that the DoP will be able to address the following key pharmaceutical industry related issues with an integrated approach to strike a right balance between the growth fundamentals of the industry and the Public Health Interest (PHI):

  • Drug policy and pricing
  • Providing access to high quality and affordable modern medicines to all
  • A facilitating drug regulatory system
  • An appropriate ecosystem to encourage R&D and protect Intellectual Property Rights (IPR)
  • Addressing the issue of high out of pocket expenses of the general population for healthcare
  • Fiscal and tax incentives required by the Micro-Small and Medium Enterprises (MSME) within the pharmaceutical industry of India.

As stated above, all these will necessitate close coordination and integration of work of various departments falling under the different ministries of the government. 

The key Objectives of the DoP: 

Following are the stated key objectives of the DoP:

1 Ensure availability of quality drugs at reasonable prices as per the Pharma Policy

2 Facilitate growth of Central pharma PSUs with required support

3 Develop Pharma Infrastructure and Catalyze Drug Discovery and Innovation

4 Launch and Position Pharma India Brand.

The moot questions:

Considering all these, the moot questions that could follow are as follows:

  1. Do the objectives of the DoP effectively address the need to improving access to quality and affordable medicines to the common man with an integrated approach between all concerned departments of MOC&F and MOH&FW?
  2. Is the nodal department of the pharmaceutical industry – the DoP currently placed in the right Ministry to contribute more effectively to achieve the ultimate national goal of ‘ affordable healthcare for all’ ?

Need for greater co-ordinated approach:

The issue of access to quality and affordability medicines, reaching patients in conformance to a strict regulatory framework, will need to be addressed with an integrated systems approach.

As is commonly believed, increasing access to modern medicines will depend mainly on the following key requirements:

  1. Creating an appropriate healthcare infrastructure and delivery system across the country.
  2. Making prices of medicines reasonable/affordable to a large section of the population.
  3. Reducing high (80%) ‘Out of Pocket’ healthcare expenses of the common man through a well-structured healthcare financing/health-insurance model for all strata of society.

All these measures will entail very closely working together between the DoP and the related departments of MOH&FW. This situation calls for consideration of repositioning the DoP by making it a part of MOH&FW and NOT of MOC&F.

Pharmaceutical Industry: The areas of key importance:

Be that as it may, let us now try to have a closer look at the other aspect – the key areas of importance of the pharmaceutical industry for its accelerated growth and development and try to ascertain, if DoP is made responsible for all these critical areas, which Ministry they will need to deal with, the most:

1. Drug Policy and Pricing:

Currently DoP is responsible for an inclusive growth oriented drug policy and drugs pricing (through National Pharmaceutical Pricing Authority, NPPA) under the MOC&F. This key activity of  the department has immense impact on the performance of the pharmaceutical industry of India.

2. ‘Access’ and ‘Availability’ of modern medicines across the country:
Availability of pharmaceutical products is intimately linked to the quality of access to pharmaceuticals by a vast majority of population of India, as indicated above, depends on availability of requisite healthcare infrastructure and the delivery systems, besides the prices of medicines.

‘Jan Aushadhi’ scheme – a praiseworthy initiative of the DoP now seems to be a near disaster in terms of the project implementation.  This scheme could have been more meaningful with the support of adequate health related infrastructural facilities and in tandem with the projects like, National Rural Health Mission (NRHM), National Urban Health Mission (NUHM), Rashtriya Swasthaya Bima Yojna (RSBY) targeted to offer better healthcare to the common man with a robust and integrated healthcare delivery initiative.

Ministry of Health and Family Welfare (MOH&FW) is responsible to create such healthcare related infrastructure and delivery system.

3. Drug Regulatory System:

The drug regulatory system of the country, which is so important to the pharmaceutical industry for its rapid growth and development, is now operating at a sub-optimal level for various reasons. The dissatisfaction of the industry with this key regulator reportedly has reached its nadir.

Almost the entire Drug Regulatory System in India is being run and governed by the office of the Drug Controller General of India (DCGI), which comes under the MOH&FW. DCGI’s office is responsible for effective and speedy implementation of the Drugs and Cosmetics Act of India (DCA), which includes world class and ethical clinical trial standards in the country, marketing approval of all new products including exports, implementation of Schedule M (cGMP), all pharmaceuticals site registrations and effectively addressing the issue of spurious and counterfeit drugs, just to name a few. DoP has hardly any direct or indirect control over any of these key activities falling under the purview of the MOH&FW.

4. Biopharmaceuticals:

The Department of Biotechnology under the Ministry of Science and Technology currently looks after this emerging area of pharmaceuticals sector. DoP has no direct control over these activities.

5. R&D and IPR:

R&D and IPR related issues in pharmaceuticals/biopharmaceuticals are very important areas of the pharmaceutical business in the country. Although IP Policy related areas are looked after by the Department of Industrial policy and Promotion (DIPP), some contentious and highly debated IP related issues like, Regulatory Data Protection (RDP), Patent Linkage etc. are currently within the domain of DCGI under MOH&FW. DoP has no direct role to play in these areas.

6. High out of pocket expenses for healthcare:

In India ‘Out of Pocket Expenses (OPE)’ towards healthcare is around 80%. Such high OPE, especially in case of very serious and life threatening illnesses, like cancer, cardiovascular emergencies etc. could make a middle class household poor and a poor household could even be pushed ‘Below the Poverty Line (BPL)’.

Thus high OPE is indeed a very serious issue of the country, which can only be addressed through policy initiatives by designing appropriate health insurance/healthcare financing scheme for all strata of society in India.

For a large section of the society, this issue can be addressed by MOH&FW in consultation with Ministry of Finance, just as they have come out with an innovative and praiseworthy RSBY scheme for the BPL families. DoP does not seem to have much role to play in this area, as well.

Thus the objective of GoI to have greater focus on healthcare in general and the pharmaceuticals in particular could be better achieved, if the DoP is made a part of MOH&FW by breaking the independent silos in form of the NPPA, CDSCO, DCGI etc., now operating, especially, in these two ministries.

Key issues of pharma industry versus key objectives of the DoP: From the above details, if one compares the key issues and success factors of the pharmaceutical industry of India versus the key objectives of the DoP, one will notice a dis-conformity.

If this is allowed to continue even the all-important first objective of the department, ”Ensuring availability of quality drugs at reasonable prices as per the Pharma Policy” will continue to remain an illusion. It is indeed surprising to note that this objective does not talk anything about improved access to modern medicines by the common man, either.

Over a period of over last four decades India has experienced that only through increased focus on affordability, the objective of increased access to medicines by the common man could not be achieved in India. Besides other healthcare infrastructure related factors, high OPE still remains a key barrier to access to modern medicines by the common man.

Why is  DoP trying to revive the loss making pharmaceutical Public Sector Units (PSUs)?

As stated above, the second objective of the DoP, which states, “Facilitate growth of Central pharma PSUs with required support” is equally intriguing. Everyone knows that all these PSUs created by spending tax payers’ money , miserably failed to perform and deliver even when the Indian pharmaceutical industry continues to register a CAGR growth of around 15% decade after decade. It is indeed difficult to fathom, which magic wand of the DoP will be able to bring these loss making and heavily bleeding PSUs out of continuous non-performance and governance failure in an era of fierce competitive pressure within the industry, by pouring even more from the national exchequer’s fund in the bottomless pits of losses of these PSUs?

I reckon, if these PSUs still attract interest of some good private buyers/investors with reasonable valuation, the government should unhesitatingly decide to unlock these values, sooner the better.

Conclusion:

In my view, if the DoP is expected to ensure improved “access to affordable and quality modern medicines to all”, as discussed above, the department should be repositioned and made a part of MOH&FW, rather than keeping it with the MOC&F, ignoring any possible political squabbles between the two concerned ministries, even in the coalition politics of India.

Such restructuring, repositioning and empowerment of the DoP in turn, will help achieving one of the key healthcare objectives of the nation, simultaneously fostering rapid growth of the industry making it a formidable global force to reckon with, both in the innovative and generic pharmaceutical business of the world.

This expected scenario, if gets translated into reality will justify the creation and existence of the DoP at the cost of huge amount of public fund.

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.

Missing the woods for the trees – Yet another golden opportunity to rewrite the Drug Policy of India

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Long overdue the new ‘Drug Policy’ of India, since a long while, has been languishing as the ‘prisoner of indecision’ of the policy makers, while the outdated ‘1995 Drug Policy’ continues to remain operational since over a decade and half, by now.

The need for putting a new, robust, comprehensive, holistic  and reform oriented ‘Drug Policy’ in place, sooner, is absolutely critical for the fast evolving pharmaceutical industry of India.
The ‘Drug Policy 1986’ clearly enunciated the basic policy objectives relating to drugs and pharmaceuticals in India, as follows:-

  • Ensuring abundant availability of medicines at reasonable price and quality for mass consumption.
  • Strengthening the domestic capability for cost effective, quality production and exports of pharmaceuticals by reducing barriers to trade in the pharmaceutical sector.
  • Strengthening the system of quality control over drug and pharmaceutical production and distribution.
  • Encouraging R&D in the pharmaceutical industry in a manner compatible with the country’s needs and with particular focus on diseases endemic or relevant to India by creating an conducive environment.
  • Creating an incentive framework for the pharmaceutical and drug industry which promotes new investment into pharmaceutical industry and encourages the introduction of new technologies and new drugs.

After having completed around 25 years since then, it is high time for the government to ponder and assess whether the successive drug policies have delivered to the nation the desirable outcome, as enunciated above.
‘Missing the woods for the trees’:

The overall objective of the ‘Drug Policy’ is indeed to help accelerating the all-round inclusive growth of the Indian pharmaceutical industry to make it a force to reckon with in the global pharmaceutical arena. At the same time, the policy should help creating an appropriate ecosystem to improve access to quality medicines at an affordable price to the entire population of the nation.

Just one pronged approach of drug price control mechanism for drugs and pharmaceuticals is in no way can be considered as a holistic approach to achieve the set objectives. Isolated initiative of price regulation could at best be treated as just one such important measures, out of very many, at the very best. This initiative may justifiably be construed as ‘missing the woods for the trees’.

Financial cover towards medical expenses for all, is very important: 

One of the major issues in the healthcare space of the country is high out of pocket expenses by majority of the population. Financial protection against medical expenditures is far from universal in India with around 15% of the population having some sort of medical financial cover.

January 11, 2011 edition of ‘The Lancet’ in its article titled, “Financing health care for all: challenges and opportunities” commented as follows:

“India’s health financing system is a cause of and an exacerbating factor in the challenges of health inequity, inadequate availability and reach, unequal access, and poor-quality and costly health-care services. The Government of India has made a commitment to increase public spending on health from less than 1% to 3% of the gross domestic product during the next few years…. Enhanced public spending can be used to introduce universal medical insurance that can help to substantially reduce the burden of private out-of-pocket expenditures on health.”

A comparison of private (out of pocket) health expenditure:

1. Pakistan: 82.5% 2. India: 78% 3. China: 61% 4. Sri Lanka: 53% 5. Thailand: 31% 6. Bhutan: 29% 7. Maldives: 14%

(Source: The Lancet)

Food prices impact health more than medicine costs:

Year

Pharma Price Increases

Food Inflation

2008

1.1%

5.6%

2009

1.3%

8.0%

2010

0.5%

14.4%

Source: CMIE

The key affordability issue still remains unresolved: 

The above edition of ‘The Lancet’ highlighted that outpatient (non-hospitalization) expenses in India is around 74% of the total health expenses and the drugs account for 72% of this total outpatient expenditure. The study has also pointed out that 47% and 31% hospitalization in rural and urban areas respectively, are financed by loans and sell of assets.

Around 35% of Indian population can’t afford to spend on medicines:

While framing the ‘Drug Policy’, the government should keep in mind that a population of around 35% in India, still lives below the poverty line (BPL) and will not be able to afford any expenditure towards medicines.

Adding more drugs in the list of essential medicines and even bringing them all under stringent price control will not help the country to resolve this critical issue.

Successive ‘Drug Policies’ of India focused on affordability and access just through ‘price control’:

There is no ‘One Size Fits All’ type of definition for affordability of medicines, just like any other essential commodities, especially when around 80% of healthcare expenditure is ‘out of pocket’ in India.  Any price point, thus, may be affordable to some and unaffordable to some others.

The initiatives taken by the government in the successive drug policies, since the last four decades, have certainly been able to make the drug prices in India one of the lowest in the world.

However, very unfortunately, despite such price control, even today, 47% and 31% of hospitalization in rural and urban areas, respectively, are financed by private loans and selling of assets by individuals, as stated earlier. 

Multi-dimensional approach to improve access to healthcare and affordable medicines:

Access to healthcare and affordable medicines can be improved through an integrated and comprehensive approach of better access to doctors, diagnostics and hospitals, along with price monitoring mechanism for each component of healthcare cost, including medicines.

Healthcare infrastructure in India is now constrained by a lack of trained healthcare professionals, limited access to diagnostics and treatment and availability of quality medicines. Moreover, while around 80% of Indians pay out of pocket for healthcare, the Government of India spends less than 1% of GDP on health.

Consequently, the supply of healthcare services falls significantly short of demand. The current figure of 9 beds per 10,000 in India is far from the world average of 40 beds per 10,000 people. Similarly, for every 10,000 Indians, there are just 6 doctors available in the country, while China has 20 doctors for the same number of Chinese population.

Access to affordable medicines still remains a key challenge for the ‘Drug Policy’ makers:

Over 46% of patients in India travel beyond 100 km. to seek medical care.

(Source: Technopak & Philips (2010) Accessible Healthcare: Joining the Dots Now, New Delhi).

Many places in rural India, lack of availability of good quality medicines such as antibiotics poses even a greater challenge than their affordability. The national immunization program provides 6 vaccines free of cost, yet just around 60% of the country’s population is covered by it. The National AIDS Control Organization (NACO) provides free ARV (Anti-Retroviral) treatment to the poor, yet the drugs do not reach more than 10% of those in need of the same.

Without proper equipment and doctors to diagnose and treat patients, medicines are of little value to those who need them most.  Drug price regulation alone, though important, cannot increase access to healthcare without creation of adequate infrastructure required to ensure effective delivery and administration of the medicines, together with appropriate financial cover for health.

The Government won’t be able to do it all alone:

The Government needs to partner with the private sector to address India’s acute healthcare challenges through Public-Private-Partnership (PPPs) initiatives.

Recent examples of successful PPPs in the health sector include outsourcing ambulance services, mobile medical units, diagnostics and urban health centers in several states to private NGOs, hospitals and clinics.  PPPs in India should adequately cover primary and specialty healthcare, including clinical and diagnostic services, insurance, e-healthcare, hospitals and medical equipment.

A golden opportunity for a new beginning:

Many of us may know that the modified Drug Policy of 2002 was challenged under a Public Interest Litigation (PIL) in the Karnataka High Court in the same year. The honorable High Court in its order had directed the Central Government to consider and formulate appropriate criteria to ensure that the essential and lifesaving drugs do not fall out of price control. The court, at that time, also directed the Government to review the drugs which are essential and lifesaving in nature.

The above matter came up before the honorable Supreme Court of India on March 31, 2011, when the Union of India made a statement that the Central Government has not implemented and is not going to implement the 2002 Policy and a new Drug Policy is being framed.

In view of the submissions made on behalf of Government of India, the appeal was disposed of as infructuous by the Supreme Court of India.

Expectations from the ‘New Drug Policy’:

In view of the above and especially when a new Drug Policy is being worked out, adequate and immediate policy measures, with an absolutely fresh look, are essential to address the root cause of the country’s failure to ‘Improve Access to Quality Medicines at Affordable Prices’ to ensure ‘Health for all’.

The Government has already signaled increasing allocation of resources towards the health sector by doubling the funding available for the National Rural Health Mission (NRHM) along with plans to extend ‘Rashtriya Swasthya Bima Yojna (RSBY)’ scheme to provide out-patient coverage to low income groups.

As has been demonstrated by many countries of the world, healthcare financing offers an enduring mechanism for reducing the out-of-pocket expenses of the poor and improve access to healthcare. Government and the private sector need to pool resources to expand health insurance coverage initially to at least 40% of the population who are below the poverty line. Positive developments are being reported in this area, as well, albeit slowly.

Allocating resources from national welfare schemes towards health insurance coverage is a step in the right direction.  For example, a portion of the MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) funds could be spent on health insurance premia for labors engaged in such work.

Thus to achieve the objective of ‘Improving Access to Quality Medicines at Affordable Prices’, there is a pressing need for the policy makers to put in place a robust healthcare financing model for all strata of the society, sooner than later. This initiative will significantly reduce high overall ‘out of pocket expenses’ towards healthcare in India by the common man.

Encourage healthy competition among healthcare providers:

Simultaneously, by encouraging tough competition within healthcare providers, like health insurance companies, all elements of healthcare expenditure like physicians’ fees, diagnostic tests, hospital beds, medicines etc. will be kept under tight leash by themselves, just to be more cost-effective in their businesses along with ensured patients’ satisfaction.

In such a competitive environment, the patients will be the net gainers, as we have seen in other knowledge based industries, like in the telecom sector with incredible increase in teledensity within the country.

Effective penetration of various types of innovative health insurance schemes will thus be one of the key growth drivers not only for the Indian pharmaceutical industry, but also for its inclusive growth, as desired by many in India.

The policy should also include an equally transparent system to ensure that errant players within the healthcare sector, who will be caught with profiteering motives, under any garb, at the cost of precious lives of the ailing patients, are brought to justice with exemplary punishments, as will be defined by law.

Conclusion:

I have no doubt that the presence of an effective drug price regulator in the country is absolutely necessary to keep a careful vigil on the drug prices.

At the same time one should realize that the good old routine approach in formulating the long overdue ‘New Drug Policy’, even if it includes all drugs featuring in the ‘National List of Essential Medicines (NLEM)’, would not suffice anymore to ‘improve access to quality medicines at an affordable price’ to the common man.

The real answer to affordable healthcare in India, including medicines, unlike the developed countries of the world, lies in the expertise of the policy makers in innovatively addressing the vexing issue of  ‘around 80% out of pocket expenses towards healthcare’ by the ordinary citizens of the country.

This factor itself, in case of just one or couple of serious illnesses, could make a middle class household in India poor and a poor could be pushed even Below the Poverty Line (BPL).

Inadequate access to modern medicines in India, after 40 years of stringent drug price control and despite essential medicines being available in the country at the lowest price even as compared to Sri Lanka, Pakistan, Bangladesh and Nepal, will vindicate this critical point.

However, ‘The Economic Times’ dated May 23, 2011 has reported yet again, quoting Shri Srikant Jena, the Minister of State for Chemicals and Fertilizers, who oversees the pharmaceutical sector, that the Government ‘is putting together a host of policy changes to reduce the cost of medicines’.

This time around, let us sincerely hope that the drug policy makers do not repeat the same old folly of ‘missing the woods for the trees’.

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.

In the quagmire of Pharmaceutical Pricing

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Pricing of Pharmaceutical Products has now become one of the most complex and sensitive areas of the business, like never before. This is mainly because of the concern on the impact of medicine prices to access of medicines, especially, in the developing markets, like India and the cost containment pressure of the governments as well as the healthcare providers in the developed markets of the world.

It is widely believed that invaluable pharmaceuticals products, which play a central role in keeping the population of a nation healthy and disease free to the extent possible, should not be exploited in efforts to make unreasonable profits by anyone.

Pharmaceutical companies are often criticized in this area by those stakeholders who are concerned with the well-being of ailing poor and underprivileged population globally. The debate of access to medicines continues to revolve round pharmaceutical pricing in almost all countries of the world. India is no exception.

Current scenario in some major countries:

Early April, 2009, China, a nation of 1.3 billion people, unfolded a plan for a new healthcare reform process for the next decade to provide safe, effective, convenient and affordable healthcare services to all its citizens. A budgetary allocation of U.S $124 billion was made for the next three years for this purpose.

Similarly, 2010 is also be remembered as yet another significant year in recent times to improve access to medicines to a large number of population by encouraging usage of low cost generics. In this year:

- With contentious new healthcare reform, President Obama expanded access to Health Insurance to additional around 40 million Americans and encouraged prescription of low cost generic medicines.

- The Governments in UK and European Union, including the largest market in the EU – Germany, introduced stringent cost containment measures for pharmaceutical products.

India and Japan signed a Comprehensive Economic Partnership Agreement (CEPA) in February 2011 where Japan will gain access to low cost Indian generic medicines by extending similar facilities, like Japanese, for drug registration and release to the Indian pharmaceutical players.

How much to charge for a brand of medicine?

While there is no single or right way to arrive at the price of a medicine, how much the pharmaceutical manufacturers will charge for a pharmaceutical brand still remains an important yet complex and difficult task, both locally and globally.

Pharmaceutical pricing model is changing: Pharmaceutical pricing mechanism has undergone significant changes across the world. The old concept of pharmaceutical price being treated as almost given and usually determined only by the market forces with very less regulatory scrutiny is gradually but surely giving away to a new regime.

Currently in many cases, the prices of even patented medicines differ significantly from country to country across the globe, reflecting mainly the differences in healthcare systems and delivery along with income status and conditions.

Global pharmaceutical majors, like GSK and Merck (MSD) have already started following the differential pricing model, based primarily on the size of GDP and income status of the people of those countries. This strategy includes India.

If this trend continues, a win-win situation could be created, when unmet needs of a large number of patient groups could be met with innovative medicines, paving the way for the innovator companies to register a healthy, both top and bottom line, business growth in these emerging markets of the world to effectively fund their R&D projects, besides other areas of business. 

Four common pharmaceutical pricing models:

Following are the four common methods, which are usually followed to decide prices of medicines.

  • Cost-plus pricing (CPP):  This is a method of arriving at a selling price where a pre-determined percentage is added to the cost price to cover profit.
  • Target return pricing (TRP): This method of pricing estimates the desired return on investment to be achieved from the fixed and working capital investment and includes the same in the price of a product.
  • Reference Pricing:  In this method a product is sold at a price close to its main competing brand. The idea behind “reference pricing” is that certain drugs are interchangeable in terms of their therapeutic effectiveness within a disease group and reimbursement is based on the least expensive option. The concept started taking hold in Europe and has driven down pharmaceutical prices significantly in Germany.

Both the governments and patients save money in ‘Reference Pricing’ mechanism. However, all patients are free to choose a more expensive brand within the therapeutic group by paying the difference between the cost of those two drugs for reimbursement purpose.

  • Pharmacoeconomics based or Value-based pricing (PBP/VBP): Pharmacoeconomics, as we know, is a scientific model of setting price of a medicine commensurate to the economic value of the drug therapy.  Pharmacoeconomics principles, therefore, intend to maximize the value obtained from expenditures towards medicines through a structured evaluation of products costs and disease outcomes.

PBP/VBP basically offers the best value for money spent. It ‘is the costs and consequences of one treatment compared with the costs and consequences of alternative treatments’.

Let me hasten to add that some shortcomings in PBP/VBP system have already been highlighted by some experts and are being debated. The key question that is being asked now is how to quantify the value of saved life or relief of intense agony of patients while arriving at a price of a drug based on PBP/VBP model.

PBP/VBP concept is gaining ground: The concept of ‘evidence-based medicine’, is gaining ground in the developed markets of the world, prompting the pharmaceutical companies generate requisite ‘health outcome’ data using similar or equivalent products. Cost of incremental value that a product will deliver is of key significance. Some independent organizations like, the National Institute for Health and Clinical Excellence (NICE) in the UK have taken a leading role in this area. PBP/VBP could help in ‘freeing-up’ resources to go to front-line healthcare: On November 11, 2010 ‘Pharma Times’ in a news item titled, “Government (UK) to consult on drug pricing in December” reported that newly-published business plan of the Department of Health for 2011-15 sets out the coalition government’s structural reform priorities for healthcare as follows:

  • Create a patient-led NHS
  • Promote better healthcare outcomes
  • Revolutionize NHS accountability
  • Promote public health
  • Reform social care

As per the Department of Health, UK, these reforms ‘will help to create a world-class NHS that saves thousands more lives every year by freeing up resources to go to the front line, giving professionals power and patients choice, and maintaining the principle that healthcare should be delivered to patients on the basis of need, not their ability to pay’. Global pharmaceutical companies using more ‘health outcomes’ data to set pricing strategies: Some global pharmaceutical companies have already taken pro-active measures on the subject. In early 2009, reported agreements between Sanofi-Aventis, Procter & Gamble and Health Alliance, as well as between Merck and Cigna, vindicate this point. These agreements signify a major shift in the approach of the global pharmaceutical industry to gather and use ‘health outcomes’ data.

In the Sanofi-Aventis/Procter & Gamble-Health Alliance agreement, concerned companies reported to have agreed to reimburse the expenses incurred by the Health Insurance companies for patients suffering from non-spinal bone fracture, while undergoing treatment with their drug Actonel.

In the Merck/Cigna agreement, Cigna will have the flexibility to price two diabetes drugs based on ‘health outcomes’ data. ‘Outcomes-based’ pricing strategies are expected to become the order of the day, in not too distant future, across the world.

The ground realities in India are very different: Medicines are very important and constitute a significant cost component of modern healthcare systems, globally. In India, overall healthcare system is fundamentally different from many other countries, including China. In many of those countries around 80% of expenses towards healthcare including medicines are reimbursed either by the Governments or through Health Insurance or similar other mechanisms.

However, in India the situation is just the reverse, about 80% of overall healthcare costs including medicines are private or out of pocket expenses incurred by the individuals/families. The corresponding figures for the same in China is 61%,  Sri Lanka 53%, Thailand 31% and Bhutan 29% (Source: TOI, May 8, 2011).

What’s happening in India now?

Currently in India CPP is being followed by the Government for all those pharmaceutical products which are under ‘Price Control’. However, for products which are outside price control, pharmaceutical manufacturers, by and large, follow the TRP model.

National Pharmaceutical Pricing Authority (NPPA) of the country still remains far behind in this respect and is almost groping in the dark to appropriately address this critical issue.

Many believe that NPPA has been taking arbitrary, non-pragmatic, non-transparent and populist pricing decisions since decades and has not been able to improve access to medicines significantly to a vast majority of population of the country even today. A pragmatic and modern approach in this area is the crying need of the time.

Conclusion:

PBP/VBP pricing models will be able to help yielding true benefits to the civil society only when its healthcare system and pharmaceutical coverage are integrated and made universally available to all, without any exception.

In India, before considering this approach, long overdue healthcare reform process should first be initiated to ensure universal healthcare coverage, together with a robust and comprehensive health insurance model for all strata of society, without further delay.

It is widely believed, without universal coverage of healthcare supported by clearly assigned, organized and well-integrated healthcare providers, the use of PBP/VBP models could prove to be counterproductive with further aggravation of inequities and inefficiencies in the healthcare system of 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.

Tapan Ray in ‘Focus Reports’, March 2011

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FR: Our last report on India dates back to 2006, right after the Patent Law was passed. What developments have you seen happening in the industry since then?

TR: There has been a paradigm shift with the Product Patent Regime coming in place in 2005. The era from 1970 to 2005 has been a very successful era of reverse engineering, when Indian manufacturers were copying and marketing innovative products in India at a fraction of their international price. Nevertheless, this also required talent, for which India had brilliant process chemists. However, the country eventually realized that reverse engineering model would not truly serve the longer term advancement of the economy in creating a conducive ecosystem to foster innovation. This realization process started in 1990 and was reinforced after signing the WTO Agreement in 1995. After the ten-year transition period, the patent law came into force in January 2005.

Since around 2005 Indian companies, which had mainly been relying on cost efficient processes, started investing in the drug discovery research. There are now at least 10 Indian companies engaged in basic research, while around 32 New Chemical Entities (NCEs) are at various stages of development.

This significant step that the country has taken so far, could not have been possible without a conscious decision to move away from the paradigm of replication to the new paradigm of innovation. More importantly, this shift has not happened at the cost of fast growing generic pharmaceutical industry in the country. Branded generics continue to grow rapidly in the new paradigm.

Today, branded generics constitute over 99% of the domestic pharmaceutical market. Of course, according to McKinsey (2007), the share of patented medicines is expected to increase to 10% by 2015. Even in that scenario 90% of the market will still constitute with branded generics in value terms.

FR: At the same time, companies are still only spending some 4% of their revenues on R&D, while internationally these numbers amount up to 12%. Many of the people in the industry seem to still see the future of India for the next 10 years to remain in manufacturing. Is innovation really the story of India right now?

TR: As I mentioned earlier, around 32 NCEs are at various stages of development from pre-clinical to Phase III. Thus, what Indian companies have achieved since 2005, is, indeed remarkable. If you now look at the investments made by the Indian pharmaceutical companies in R&D, as a percentage of turnover, you will notice an ascending trend. Though the R&D ecosystem in India cannot be compared with the developed world just yet, India is catching up.

FR: In some previous interviews we have conducted, concerns were raised over the Indian industry, saying that the local companies are selling off to international players. What is your take on this?

TR: In India, we all express a lot of sentiments and are generally emotional in nature. These are not bad qualities by any standard. However, such expressions should ideally be supported by hard facts. Otherwise these expressions cannot be justified.

Consolidation process within the industry is a worldwide phenomenon and is also taking place in India. One of the apprehensions of such consolidation process in India is that drug prices would go up, as a consequence. In my view, all such apprehensions should be judged by what has already happened in our country by now, in this area.

One example we can cite is the Ranbaxy-Daiichi-Sankyo deal, an acquisition which has not at all led to an increase in Ranbaxy’s product prices. Similarly, the acquisition of India-based Shantha Biotech by the French pharmaceutical major, Sanofi-Aventis did not lead to any increase in product prices either. It is difficult to make out how could possibly the drug prices go up when we have an effective national price regulator called National Pharmaceutical Pricing Authority (NPPA) in India? Currently, 100% of the pharmaceutical market in the country is regulated by NPPA in one way or the other.

India is currently having a drug policy which came into force way back in 1995. As per this drug policy, any company which increases its product price which are outside price control, by more than 10% in a year, will be called for an explanation by the NPPA. Without a satisfactory explanation, the concerned product – not the product category – will be brought under price control, that too for good. In addition, intensive cut-throat competition has made pharmaceutical product prices in India the cheapest in the world, even lower than in the neighboring countries such as Bangladesh, Pakistan and Sri Lanka. Moreover, if the potential to increase prices exists, why would any company wait for an acquisition in a highly fragmented pharmaceutical market in India?

Many of the concerns are, therefore, difficult to justify due to lack of factual data. In fact, on the contrary, the presence of multinational pharmaceutical companies in India is good for the country. These companies with their international expertise and resources would help India to build capacity in terms of training and creating a world-class talent pool. Indian companies, therefore, should consider to take more and more initiatives to partner and collaborate with these MNCs to create a win-win situation for India.

Another key advantage is in the area of market penetration. Market penetration through value-added innovative marketing has happened and has been happening all over the world; India should not let go this opportunity.

FR: In that case, how do you feel about some of the proposed protectionist measures such as a 49% cap on Foreign Direct Investment (FDI)?

TR: This may, once again, be related to the strong local sentiments. India needs financial reforms and wants to attract more and more FDI. The country wants to liberalize the process of FDI and, to the best of my knowledge, any step to move backward in this area should not be contemplated.

It is also worth mentioning that the acquisitions that have taken place were not of any hostile nature. Both Indian companies and MNCs have their own sets of skills, competencies and best practices. Both cost revenue and value synergy through such consolidation process could be made beneficial for the country.

Without commenting on any specific cases, I believe India has taken significant steps to encourage and protect innovation by putting in place the product patent Act in 2005. However, there are some additional steps that the Government should take to further strengthen the process, such as fast-track courts that can quickly decide on the cases of patent infringements. Another example is that when any company will apply for marketing approval for a product, the regulator will upload the same on its website. This is an easy way for other players to detect patent infringement and start taking counter-measures at an early stage. These are examples of steps that can be taken to create a proper ecosystem without amending the law.

FR: You mentioned the paradigm shift towards innovation earlier, to some extent a similar path as China. How innovative has India become in this respect and is it sufficient in terms of clinical trials and other related aspects of the sector?

TR: With regards to attracting FDI in areas such as R&D and clinical trials, India at present is far behind China. The reason for this, as said earlier, is that the country should try to analyse why the innovator companies are not preferring India to China in these areas. Simultaneously, there is a need to assess the expectations of the innovative companies from India in various areas of IPR. One such factor that is bothering the global innovative companies is the absence of regulatory data protection in India. The Government should seriously ponder over this need and take active steps towards this direction as was proposed by ” Satwant Reddy Committee in 2007.”

FR: In your view, what is the industry going to look like in the coming years?

TR: I do not expect a radical shift in the way the Pharmaceutical Industry will be operating in the next few years. Changes will take place gradually and, perhaps, less radically. The increase of the share of patented medicines to 10% of the market share by 2015 as was forecasted by McKinsey in 2007, in my opinion, is rather ambitious. We will certainly see more and more patented products in the market, but it will be slow and gradual unless corrective measures are taken to tighten the loose knots in the Patent Amendment Act 2005, as stated earlier. As more and more Indian companies will start embracing an innovation-driven business model, the strengths and the international experience of the MNCs in this area should be leveraged to catapult the Indian pharmaceutical industry to a much higher growth trajectory.

The interview is available at the following link:

http://www.pharma.focusreports.net/#state=Interview&id=0

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.

Making quality medicines available at an affordable price – Are we ‘missing woods for the trees’?

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On August 4, 2010 the Parliamentary standing committee for Health and Family Welfare in its 45th report, recommended the following to the ‘Rajya Sabha’ of the Parliament of India for ‘Making quality medicines available at an affordable price’ to the common man:

1. Blanket caps on the profit margins of all medicines across the board, as these are the ‘only items’ where the purchasing decision is taken by a doctor – a third party and not by the patients who will actually pay for such medicines. In such a situation, a possible’ unholy nexus’ between the prescribing doctors and the pharmaceutical companies could put the patients at a disadvantage and in a helpless situation.

2. This blanket cap on profit for ALL drugs will discourage pharmaceutical companies to shift the balance of their product portfolio from schedule (price control) to non-schedule (outside price control) formulations.

3. This action will make the administration of the ‘Price Control’ mechanism by the Government much simpler by eliminating the current practice of price monitoring and the government preference of substitution of generic drugs for the branded pharmaceuticals

4. MRP of ALL medicines should be determined by the NPPA based on an open and transparent process and considering interests of all stake holders, as is currently being followed in other areas like, electricity tariff, bus, auto rickshaw and taxi fares, insurance premiums and various interest rates.

5. The Department of Health and Family Welfare and the Department of Pharmaceuticals should work out a system through the Inter-Ministerial Coordination Committee to put a blanket cap on profit margins of ALL drugs across the board, immediately.

6. Despite amendment of the MCI guidelines for the doctors in December 2009, banning the acceptance of all kinds of gifts, trips to foreign destinations and availing various types of hospitality by them from the pharmaceutical companies, nothing much has changed on the ground related to such ’unethical practices’. Since MCI has no jurisdiction over the pharmaceutical companies, the government should formulate similar punitive steps through the DCGI, CBDT etc. against the erring pharmaceutical companies.

7. The Committee indicated that it desires to be kept apprised of the action taken in this regard by the Government.

The key factors influencing affordability of medicines:

All the above steps will remain as good intent by the policy makers, if the issue of access to medicines is not addressed simultaneously. As we know that affordability will have no meaning, if one does not have even access to medicines.

In my view, there are five key factors, which could ensure smooth access to medicines to the common man across the country; affordable price being just one of these factors:

1. A robust healthcare infrastructure
2. Affordable healthcare costs including pharmaceuticals
3. Rational selection and usage of drugs by all concerned
4. Availability of healthcare financing system like, health insurance
5. Efficient logistics and supply chain support throughout the country

High out of pocket expenditure could push a section of population below the poverty line:

In India ‘out of pocket expenditure’ as a percentage of total healthcare expenses is around 80%, being one of the highest in the world.

A study by the World Bank conducted in May 2001 titled, “India – Raising the Sights: Better Health Systems for India’s Poor” indicates that out-of-pocket medical costs alone may push 2.2% of the population below the poverty line in one year.

‘Missing woods for the trees’?

Affordability is indeed a relative yardstick. What is affordable to an average middle class population may not be affordable to the rest of the population even above the poverty line. Similarly, below the poverty line population may not be able to afford perhaps any cost towards medicines. In a situation like this, putting a blanket profit cap on all medicines will not be just enough. There is a crying need to put in place an appropriate healthcare financing model by the policy makers, covering all sections of the society. Are we then ‘missing woods for the trees’?

Create a robust healthcare provider group through Public Private Partnership (PPP) initiatives to offer quality healthcare at an affordable price:

To resolve the issue of affordability of healthcare in general including medicines, the policy makers should take immediate steps to put in place the ‘Healthcare Financing’ initiatives through a robust PPP model in the country. A highly competitive ‘Health Insurance’ sector, created through PPP, could emerge as a powerful and key healthcare provider in the country. The power that such stakeholders will then assume in deciding for their respective clientele, types of doctors, hospitals, diagnostic labs and even what types of medicines that will be dispensed to them to offer quality healthcare at an affordable price, could indeed be a game changer having an immense influence in bringing the cost of overall healthcare for the common man, including medicines, very significantly.

The ‘Health Insurance’ companies can then decide through the Third Party Administrators (TPA), based on public interest, what types of fees should be charged by the following to offer quality healthcare services at an affordable price to their clientele, if these groups would like to avail the huge business potential for a long period of time:

1. Doctors
2. Hospitals
3. Diagnostic laboratories
4. Other related service providers

For making centralized purchase of medicines, these insurance companies or payors may enter into a hard negotiation with the pharmaceutical companies directly to bring down the price of medicines for the use of their respective clientele.

A recent incident:

To illustrate the above point let me quote an important and related news item, which was published in almost all the leading national daily newspaper, just in the last month.

In July 2010, it was reported that about 18 health insurance companies, who were providing cashless services to the policy holders at over 3,000 hospitals across India, found out that only 350 of them constituting around 11% of the total, were consuming more than 80% of the total claims.

It was also reported that the patients were overcharged by these hospitals for each hospitalization irrespective of the treatment provided and were left with them very little funds for their next treatment. This prompted the said insurance companies to bring some order out of the chaos, as it were.

As a result, at least 150 hospitals only from Delhi and the National Capital region were taken out of their designated list for the cashless facility, keeping the facility available at around 100 hospitals where none belonged to any corporate chain. Similar action was taken against hospitals in other cities, as well.

Thereafter, these insurance companies also decided to convey to the invidual policy holders the fresh list of hospitals for cashless facilities, working out new treatment packages depending on the quality of available healthcare infrastructure of each hospital and a lower or a higher rate was worked out for implementation, accordingly.

This illustration will vindicate how powerful and assertive the health insurance companies could be with the effective use of the TPAs for the sake of public health interest, if they wish to and at the same time to protect their respective bottom lines, creating a win-win situation for all.

Conclusion:

It is indeed an irony that despite being the 4th largest producer of pharmaceuticals and catering to the needs of 20 per cent of the global requirements for the generic medicines, India is still unable to ensure access to modern medicines to around 650 million population of the country (The World Medicine Report, WHO 2004). Like in many other emerging economies of the world, in India too, access to modern medicines along with their affordability, is the key macro healthcare issue of the nation.

In a situation like this, as stated above, when the payors or health insurance companies will start exerting immense performance pressure to all concerned to provide quality healthcare at an affordable price, even the alleged ‘unholy nexus’ between the pharmaceutical companies and the medical profession, perhaps will not have any practical relevance.

It is worth pondering, whether the Government is now sending confusing signals to the civil society at large by propagating ‘non-regulated pricing’ for Petroleum Products and ‘regulated pricing’ for pharmaceutical products?

By Tapan 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.