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Is The New ‘Market Based Pricing’ Model Fundamentally Flawed?

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After a long wait of close to two decades, when the Drug Price Control Order 2013 (DPCO 2013) followed the National Pharmaceutical Pricing Policy 2012 (NPPP 2012) last year, it appeared that the new pharma price control regime is more acceptable to the industry than the previous, resulting in better over all implementation and compliance.

However, just within a year, the reality seems to be quite different. Not only the Ceiling Price (CP) calculation process of the National Pharmaceutical Pricing Authority (NPPA) based on DPCO 2013 appears to be fundamentally flawed, its misuse and abuse by some pharma players have also been the subject of great concern and consumer aghast.

The eternal ‘Cat and Mouse’ game continues:

Probably there would be many instances of pharmaceutical companies dodging the DPCO 2013. However, FDA, Maharashtra, has unearthed the following two instances, so far:

1. Favorable consumer expectations with well-hyped DPCO 2013 received a body blow for the first time, when the general public came to know through media reports, that too after almost a year, that GlaxoSmithKline (GSK) Consumer Healthcare having launched its new ‘Crocin Advance’ 500 mg with a higher price of Rs 30 for a strip of 15 tablets, has planned to gradually withdraw its conventional price controlled Crocin 500 mg brand costing around Rs 14 for a strip of 15 tablets to the patients . GSK Consumer Healthcare claims that Crocin Advance is a new drug and therefore should be outside price control.

According to IMS Health data, ‘Crocin Advance’ is currently the fifth largest brand among top Paracetamol branded generics, clocking a sales turnover of Rs 10.3 Crore during the last 12 months ending in February 2014.

2. The second instance of evading DPCO 2013 has also been reported by the media. In this case some other pharmaceutical companies have reportedly started selling the anti-lipid drug Atorvastatin in dosage forms of 20 mg and 40 mg, which are outside price control, instead of its price controlled 10 mg dosage form. Quoting the Maharashtra FDA, the report states: “Atorvastatin may face a similar kind of action from the state FDA as other overpriced brands of drugs as this drug has been overpriced five to 10 times more than the DPCO price. This kind of overcharging is a subject for investigation. Atorvastatin of 40 mg dosage is generally recommended for senior citizens.”

Tip of an Iceberg?

All these seem to be just the tip of an iceberg related to evasion of DPCO 2013 by some pharma black ships, raising costs of essential medicines for the patients. Ironically, what is happening now is an exact replica of the same old strategy that many pharma players got involved into to avoid price control under earlier DPCO 1995. Continuation of the same act of deceit with DPCO 2013 confirms that the ‘cat and mouse game’ to avoid price control is eternal in India, in the absence of any strong and exemplary deterrent.

Better late than never:

When Maharashtra FDA brought it to the notice of National Pharmaceutical Pricing Authority (NPPA), the later asked GSK to immediately reduce the market price of ‘Crocin Advance’, as there is no proven additional therapeutic efficacy for the product. The price regulator also sought confirmation of the action taken by the company in this regard. Additionally, GSK Consumer Healthcare now faces consequential punitive measures from the NPPA for price overcharging. This action on the part of NPPA, in all probability, would get lost in the quagmire of litigation, as usually happens in India.

Be that as it may, I expect NPPA taking similar action for Atorvastatin too and increasing its vigil for such scant respect on patient-centric laws and policies of the country.

A brief recapitulation:

Just to recapitulate, DPCO 2013 has been fundamentally different from its ‘predecessor’ DPCO 1995, mainly on the following two counts:

1. Methodology of Price Control:

This has changed from earlier ‘Cost Based Pricing (CBP)’ to ‘Market Based Pricing (MBP)’ based on simple average of all products having 1 percent or more market share.

2. Span of Price Control:

In DPCO 1995, all formulations of 74 bulk drugs, selected based on specified criteria, were under cost based price control, covering over 1700 formulations. Whereas, in DPCO 2013 all essential drugs as mentioned in the National List of Essential Medicines 2011 (NLEM 2011) come under price control applying the above new methodology of MBP. DPCO 2013 brings around 652 formulations of 348 drugs under 27 therapeutic segments of the NLEM 2011, under price control.

Significant benefits of DPCO 2013 to the industry:

DPCO 2013 offers following three key advantages to the industry, both in the short and longer term:

  • MBP methodology in DPCO 2013 is considered by the industry as more transparent and less ‘intrusive’ than CBP methodology.
  • Span of price control with DPCO 2013 came down to 18 percent of the total pharmaceutical market covering around 610 formulations, as against 20 percent in DPCO 1995 covering over 1700 formulations.
  • Opportunity for automatic annual price increase for controlled formulations based on WPI, which was not there in DPCO 1995, is now available to the industry. Thus, in keeping with the relevant provision of DPCO 2013, NPPA has recently allowed the drug companies to increase the Maximum Retail Price (MRP) of the price controlled medicines, contributing 18 percent of the total market, by 6.32 percent effective April 1, 2014, while prices of balance 82 percent of drugs, that are outside price control, can go up by 10 percent every year.

Check on essential drugs going out of market:

Interestingly, DPCO 2013 has tried to prevent any possibility of an essential drug going out of the market without the knowledge of NPPA by incorporating the following provision in the order:

“Any manufacturer of scheduled formulation, intending to discontinue any scheduled formulation from the market shall issue a public notice and also intimate the Government in Form-IV of schedule-II of this order in this regard at least six month prior to the intended date of discontinuation and the Government may, in public interest, direct the manufacturer of the scheduled formulation to continue with required level of production or import for a period not exceeding one year, from the intended date of such discontinuation within a period of sixty days of receipt of such intimation.”

However, it is still not clear, whether or not GSK Consumer Healthcare had followed this stipulated provision for price controlled conventional Crocin formulations. At least, I do not remember having come across any such public notice, as yet.

Key concerns expressed with DPCO 2013:

The MBP methodology seems to be unique to India as CBP is more common in countries that follow drug price control. Hence the following concerns were expressed with DPCO 2013.

  • Reduction in drug prices with market-based pricing methodology is significantly less than the cost based ones. Hence, consumers will be much less benefitted with the new system.
  • Earlier cost based pricing system was not more transparent only because a large section from the industry reportedly did not co-operate with the NPPA in providing cost details, as required by them.
  • Serious apprehensions have been expressed about the quality of outsourced market data lacking adequate confidence level across the board, which now forms the basis of CP calculations.
  • Additionally, outsourced data would provide details only of around 480 out of 652 NLEM formulations. How will the data for remaining products be obtained and with what level of accuracy?

It is, therefore, believed now by many that DPCO 2013 is more of an outcome of a successful lobbying efforts of the pharmaceutical industry in India, rather than a robust pricing policy supported by a flawless methodology for CP calculations.

DPCO 2013 faces challenge in the Supreme Court:

As a result of the above apprehensions, a Public Interest Litigation (PIL) is now pending before the Supreme Court for hearing challenging DPCO 2013.

Ground Zero of the quality of outsourced market data:

While assessing from the ‘Ground Zero’, keeping aside instances of hoodwinking DPCO 2013 with tweaked formulations, the core issue of the quality of outsourced market data forming the bedrock of CP calculation by the NPPA, undoubtedly becomes more fundamental, creating huge discomfort for many pharma players .

Unlike DPCO 1995, where NPPA used to calculate the CP based on its own audits, data provided by the concerned companies and from many other reliable market sources, the calculations to arrive at the CP for DPCO 2013 products are based predominantly on data outsourced from IMS Health, if not solely.

IMS data does not always capture correct brand prices:

As stated above, many leading pharmaceutical companies are now reportedly pointing out repeatedly that the CP fixation by the NPPA is not accurate, as the IMS Health data does not represent the real prices in many cases.

This is not a new issue either. I have been hearing similar complaints since ages in different forum, wearing different hats and also from various other reliable industry sources. Moreover, NPPA and the Department of Pharmaceuticals (DoP) have indicated several times in the past that IMS data do not capture the requisite details as needed for over 100 products featured in NLEM 2011.

According to Pharmabiz of April 2, 2014, some of the companies expressing the above apprehensions are Sun Pharma, Unichem Labs, Panacea Biotec, Win-Medicare, Albert David, Baxter (India), Indi Pharma and Gland Pharma.

Responding to such widespread complaints, the DoP has directed NPPA to revalidate the IMS data, now being used for CP calculations, for all notified medicines. Accordingly, NPPA has sought the relevant details from respective companies. However, till such data validation takes place, pharma players must comply with all CPs, as notified by the NPPA from time to time.

Difficulty in data validation:

In my view, it would not be easy for the NPPA to revalidate the IMS data due to the following reasons:

  • Those companies, whose prices are showing higher than the current ones in the IMS Health data, may not report to NPPA, as that could ultimately affect them adversely.
  • Pharma companies’ response, in general, to requests from NPPA for furnishing cost and price related information has traditionally been much less than encouraging.

The logjam to continue:

With this evolving scenario, I reckon, till the Supreme Court intervenes responding to the PIL on DPCO 2013 related issues, the dissatisfaction of the industry and the constraints of the NPPA would continue, patients being the primary sufferers.

Conclusion:

Despite the reported concern expressed in the 2014 National Trade Estimate (NTE) Report on Foreign Trade Barriers over the Indian drug price control mechanisms as a deterrent to foreign investments, government price control for essential medicines in India is here to stay for a long haul, to uphold the patients’ health interest.

That said, the final verdict of the Supreme Court related to the PIL on the NPPP 2012, based on which DPCO 2013 has been worked out, is yet to come. Any unfavorable decision of the Honorable Court on the subject may push both the NPPP 2012 and DPCO 2013 back to square one, yet again.

In this backdrop, considering the key fundamental flaw in the CP calculation process of DPCO 2013 with associated loud hiccups as evidenced by the GSK Consumer Healthcare episode and others, would a well-considered verdict of the Supreme Court on the subject be more desirable for greater access to more affordable essential drugs by the patients in India?

By: Tapan J. Ray

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

 

 

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.