-Anusha Kothakonda

INDIAN DRUG PRICING POLICY

INTRODUCTION

Drugs play an important role in the health of both people and the economy of a country

People and Governments willing to spend money on drugs for many reasons so, it must be safe, effective and of good quality and used appropriately. Problems relating to drug safety and efficacy exist in many places around the world today in developing and developed countries .

This means, that development, production, importation, exportation and subsequent distribution of drugs must be regulated to ensure that they meet prescribed standards. Therefore, effective drug regulation is required to ensure the safety, efficacy and quality of drugs as well as accuracy and appropriateness of the drugs.

The drug regulation consists

1. Drug Laws

2. Drug Regulatory Agencies

3. Drug Regulatory Boards

4. Quality Control

5. Drug Information Centres etc.

DRUG REGULATORY SYSTEM IN

INDIA

DRUGS REGULATORY SYSTEM IN INDIA is governed by

both Centre and State Governments under the Drugs &

Cosmetics Act, 1940.

MAIN BODIES

CENTRAL DRUG STANDARD CONTROL

ORGANIZATION (CDSCO)

MINISTRY OF HEALTH AND FAMILY WELFARE

INDIAN COUNCIL OF MEDICAL RESEARCH (ICMR)

MINISTRY OF CHEMICAL AND FERTILIZER

MINISTRY OF SCIENCE AND TECHNOLOGY

MINISTRY OF COMMERCE.

MINISTRY OF CHEMICAL AND

FERTILIZER

DEPARTMENT OF PHARMACEUITICAL ORGANIZATION AND STRUCTURE.

NATIONAL PHARMACEUTICAL PRICING AUTHORITY (NPPA)

ACTIVITIES AND RESPONSIBILITIES:

All matters relating to NPPA including its functions of price control and monitoring.

Responsible for development of infrastructure, manpower and skills for the pharmaceutical sector.

Work for the promotion and coordination of basic, applied and other research in areas related to the pharmaceutical sector and for international co-operation in pharmaceutical research.

NATIONAL PHARMACEUTICAL

PRICING AUTHORITY (NPPA)

The National Pharmaceutical Pricing Authority (NPPA), an

independent body of experts in the Ministry of Chemicals

and Fertilizers was formed by the Govt. of India at 1997.

Resolution published in the Gazette of India No.159 dated

29.08.97.

The Resolution mentioned that the Government had been

experiencing that the present mechanism for the fixation

and revision of prices of bulk drugs and formulations was

cumbersome, complicated and time consuming.

In order to streamline and simplify the procedure and to

bring about a greater degree of transparency as well as

objectivity, an expert body should be constituted with the

powers to fix prices and notify the changes therein, if any, of

bulk drugs and formulations from time to time, under the

Drugs (Price Control) Order.

Powers were delegated to the NPPA by the Govt. of India

vide Gazette Notification No. 637(E) dated 4th September,

1997

NPPA is an organization of the Government of India which

was established to fix/ revise the prices of controlled bulk

drugs and formulations and to enforce prices and availability

of the medicines in the country, under the Drugs (Prices

Control) Order, 1995.

The organization is also entrusted with the task of recovering

amounts overcharged by manufacturers for the controlled drugs

from the consumers.

ORGANIZATION

Chairman

Member Secretary

Advisor (Pricing)

Bulk Drug Pricing

Form-I,II & VI Examination

Policy Matters

Customs / Excise Issue

Right to Information Bill

Director (Formulation Division)

Formulations Pricing

(Form III & IV)Cont…

Availability / Shortage of bulk drugs/formulations

Production & Import/Export of drugs & formulations

Parliament Questions / Assurance & VIP ref.

Director (Monitoring & Enforcement Division)

Monitoring & Enforcement of prices of bulk drugs &

formulations, both Scheduled and non-scheduled

Form-V examination

Inclusion / Exclusion of drugs under DPCO,1995

R&D aspects

Pharma Index

Cont…

Director (Legal Division)

Identified cases of overcharging on bulk drugs & formulations

and related issues.

Legal matters & follow up of the pending court cases.

Any other references on the above

Director (Admin Division)

Establishment

General Admn.

Co-ordination

Vigilance

DIFFERENT FORMS INCLUDED :-

FORM- 1 :- APPLICATION FOR FIXATION/ REVISION OF PRICE.

FORM- 2 :- INFORMATION RELATED WITH PRICE OF NON-

SCHEDULED BULK DRUG.

FORM-3 :- APPLICATION FOR APPROVAL/REVISION OF PRICE OF

SCHEDULED FORMULATION.

FORM-4 :- APPLICATION FOR APPROVAL/REVISION OF PRICE OF

SCHEDULED FORMULATION IMPORTED IN FINISHED FORM.

FORM-5 :- FORM OF PRICE LIST

FORM- 6 :- YEARLY INFORMATION ON TURNOVER AND

ALLOCATION OF SALES AND EXPENCES.

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FUNCTIONS OF NPPA

To implement and enforce the provisions of the Drugs (Prices

Control) Order in accordance with the powers delegated to it.

To deal with all legal matters arising out of the decisions of the

Authority;

To monitor the availability of drugs, identify shortages, if any,

and to take remedial steps;

To collect/ maintain data on production, exports and imports,

market share of individual companies, profitability of

companies etc, for bulk drugs and formulations; Cont…

To undertake and/ or sponsor relevant studies in respect of pricing

of drugs/ pharmaceuticals;

To recruit/ appoint the officers and other staff members of the

Authority, as per rules and procedures laid down by the

Government;

To render advice to the Central Government on changes/ revisions

in the drug policy;

To render assistance to the Central Government in the

parliamentary matters relating to the drug pricing.

PROCEDURE FOR PRICE

FIXATION / REVISION OF BULK DRUGS

As per par 3 of DPCO, 1995 prices of scheduled bulk drugs are fixed by

the NPPA.

Following steps are involved in fixation/revision of bulk drug prices :-

Step1: Identification of bulk drugs

Drug taken up for study on the basis of:-

- Validity period

- Concerned manufacturer/company

- Drug produced in the country for which no price has

been notified under DPCO,1995

Step 2:Collection of data

Data is collected by issuing questionnaire/Form I of DPCO,

1995/cost-audit report etc. and verification by plant visits, if

required.

Step 3 : Preparation of actual cost statement

Prepare on basis of data submitted / collected & verified during

plant visit.

Step 4 : Preparation of Technical Parameters

Technical parameters are prepared based on data submitted and

collected.

Plant capacity is assessed considering 330 working days for

normal operation of plant leaving 35 days for scheduled

maintenance of plant.

The achievable production level is considered at 90% utilization

of assessed capacity allowing 10% production loss on account of

unforeseen break down.

Step 5 : Preparation of Estimated Cost

The estimated cost for the pricing period are then prepared

based on actual cost & the technical parameters. While

projecting the future cost, an increment is recognized at 5% per

annum in respect of salaries & wages.

The customs duty and other taxes as per the current budget are

considered.

Step 6 : Calculation of Fair price of bulk drug

Fair price is calculated by providing returns as specified in sub

Para (2), Para 3 of DPCO, 1995.

Step 7 : Fixation of maximum sale price of the drug

When the number of manufacturers of the said drug is more than

one, the maximum sale price is fixed at 2/3rd cut off level or

weighted average price, depending upon the situation.

Step 8 : Notification of bulk drug price in official Gazette

Procedure for Pricing of

Formulations

Prices of formulations based on scheduled bulk drugs are fixed in

two ways:-

(A) Based on applications of the manufacturers and

(B) On suo-motu basis.

As per Para 8 (2) of Drug (Prices Control) Order (DPCO), 1995,

a manufacturer using scheduled bulk drug in his formulation is

required to apply for fixation of price of formulation within 30

days of fixation of price of such bulk drug (s).

The time frame for granting price approval on formulation is 2

months from the date of receipt of the complete information from

the company.

Procedure :

A.(a) Examination of Technical Parameters

Checking the Quantity of Bulk Drug as per label claim. The

overage claim is allowed as per batch production record or

norms fixed by Govt.

(b) Examination of Prices of Bulk Drug

When notified price of bulk drug exists, the notified price or actual

price is considered.

In the case of imported bulk drug used in the formulation,

weighted average import price is considered vis-à-vis the price

submitted by the applicant

(c) Examination of Excipient claims

(d) Examination of PL, CC, PC and PM cost

Are considered as per the norms notified in the Gazette vide S.O.

578(E) dated 13.07.99.

(e) Application of MAPE

Maximum allowable post manufacturing expenses (MAPE) is

given at 100% on the ex-factory cost for indigenous formulation,

while MAPE up to 50% of the landed cost is allowed for imported

formulation.

(f) Working out the retail price

The retail price of formulations are worked out as formula given in

para 7 of DPCO, 1995

"R.P. = [M.C. +C.C.+P.M.+P.C.] x [1+MAPE/100] +E.D.",

(B) Suo - Motu Cases

If the manufacturers or companies do not apply for revision of

formulation prices as required under Para 8(2) of DPCO, 1995

within a period of 30 days of price reduction of bulk drug , steps

are taken for suo-motu revision.

Suo motu, meaning "on its own motion,"

(C) Notification of ceiling prices in the Gazette of India :

Ceiling prices are fixed or revised under Para 9 of DPCO, 1995 for

commonly marketed standard pack sizes of price control

formulations. It is obligatory for all, including small scale units, to

follow the ceiling prices which are notified in the Gazette of India

(Extraordinary). The ceiling prices are usually notified as exclusive

of excise duty, local tax etc. but maximum retail price (MRP)

printed includes excise duty.

(D) Pro-rata price :

The manufactures of all the scheduled formulation pack sizes

different from the notified pack sizes under sub-paragraph (1) and

(2) of the paragraph 9 of the DPCO, 1995, shall have to work out

the price for such pack sizes, in respect of tablets and capsules of

the same strength or composition packed in different strips or

blisters, on pro-rata basis of the latest ceiling price fixed for such

formulations.

(E) Non-ceiling Price Order :

They are specific to particular pack size and dosage form of

scheduled formulation of a particular company. Hence they are

pack specific and company specific. The prices fixed for non-

ceiling packs are communicated to the respective firms by issuing

office orders. In such order, usually excise duty element is shown

separately. However, local taxes are not included in Non-ceiling

price.

A COMPARISION BETWEEN OLD AND LATEST SYSTEMS

IN DPCO

DPCO 1995 DPCO 2013

It is governed by Essential

commodities act 1955

It is governed by national

pharmaceutical pricing

authority, based on national

list of essential medicines

Prices of only 74 drugs were

regulated by this act

Prices of 652 drugs are

regulated by this act

If once the prices are fixed,

they can’t be changed as per

the act

Based on simple average

price (SAP) the highest prices

can be lowered depending on

the margins

Ceiling and non-ceiling

prices of drugs are not

specified

Ceiling and non-ceiling prices

of drugs are specified

DPCO 1995 DPCO 2013

This act facilitates Win –Win

situation for the

government, but not for the

industries

The prices of the drugs are

fixed by the mutual

agreement of government

and industries for the welfare

of the public

Drug Pricing Mechanism

i. Previously the prices of drugs are fixed by the manufacturers

based on their manufacturing costs. But after implementation of

DPCO (1995), the prices are fixed by the government, which led to

a situation like most of the manufacturers has withdrawn their

products from market and manufacturing levels have been

decreased.

ii. After facing such situation, government of India implemented

DPCO (2013), by which most of the drugs are came under national

of

essential medicines (NLEM).

iii. The prices are fixed by their simple average of all marketed

products of that particular drug, which have a market share of more

than 1%.

iv. The final MRP of the drugs at the retailer is increased with a

factor of 16%

v. However, such as read patient groups argue that the previous

price fixing mechanism of 1995 i.e., cost based pricing, is more

significant than the present market based pricing

Drugs that not come under price control

DPCO 2013 strives to support, national research and development by

giving of patent of five years for new innovations in India,

exempting those drugs from DPCO for 5 years after starting

commercial production.

Non-application of provisions of DPCO 2013

i. If the drug is developed through indigenous R&D, for a period

of 5 years from the 1st day of commercial production.

ii. The manufacturers producing new drugs which are patented

under Indian patent act 1970

iii. New drug products manufactured by new development process

iv. New drugs involving new delivery system.

India

The Critical Analysis Of The New Drugs Pricing Policy

Pros And Cons

The Pros of the Policy

The weighted average price of all brands, having greater than

one percent market share formula will result in over 40 % - 70%

price reduction in 60 percent of the National List of Essential

Medicines (NLEM).

The WAP mechanism to control the price of essential medicines

will achieve twin objectives of public health and industrial

growth.

348 "essential" drugs, including cancer and HIV medicines will

come under the purview of the pricing policy.

The policy would not only prove to be miracle of reduced price

ranging from 40% to 77%

It would bring hopes to thousands of poor and needy ones who

unfortunately are usually deprived from the basic health care as

the Government has assured of continued availability of these

medicines even after the price reduction after the implementation

of the policy.

Under the current cost-base formula of determining the price of

the drugs, the expenditure on Research & Development on export

market development was not being considered at all

The cons of the Policy

1. Although the policy is likely to be a boon and major beneficial for

that section of the economy who are the consumers i.e. patients,

However, it is not the same for the other section and the one who

play significant role in making the drugs available to public i.e. the

market player of drugs.

2. As quoted by the Indian Pharmaceutical Alliance (IPA) and

Organization of the Pharmaceutical Producers of India (OPPI), the

new drug policy would have adversely impact on the profitability of

Indian pharmaceutical companies.

3. If the policy happens to be implemented,

-the local drug makers will have to cut prices by 20%-25% across

portfolios

-multinational drug companies will have to reduce rates by between

30% and 50%.

4. The drug companies would be under constant pressure to cope up

with the competition among the players to ensure that the drugs sold

in India are among the cheapest in the world.

5. it might result that the big foreign Pharma Companies may lose

interest from investing or expanding production capacity in India

who are the leading supplier of many essential drugs in India.

Conclusion

DPCO 1995 is a win – win situation for the manufacturers where

government has no control over the fixation of prices of drugs,

where the prices of the drugs are fixed by manufacturing cost

mechanism.

DPCO 2013 has overcome this problem by involving

government in fixing the prices by simple average market price

mechanism, by which the most of the lifesaving drug prices are fixed

by government, which is a win-win situation for manufacturer and

Patient