Cancer drug pricing: Test is in actual patient bills, supply

Why in the News

Trade margins on 137 non scheduled anti cancer drugs (drugs outside direct price fixing) are moving from mark ups of up to 700 per cent to a cap of 30 per cent of the maximum retail price (MRP), but nothing yet measures whether patients’ bills fall. The National Pharmaceutical Pricing Authority (NPPA) brings these drugs under Trade Margin Rationalisation (TMR) from November 9, and expects MRPs to fall by up to 70 per cent.

What is Trade Margin Rationalisation, and why was it needed?

1. What it is: TMR caps what stockists, distributors and retailers add to the manufacturer’s price, like a ceiling on a middleman’s commission. The cap excludes Goods and Services Tax (GST).
2. Why it was needed: A medicine’s price depends less on science than on the margins added on its way from manufacturer to patient. Eg. NPPA found one dose of pemetrexed priced from Rs 546 to over Rs 72,000.
3. Where the gap arises: Middlemen add their margins, distribution costs and taxes on top of the price the stockist pays. Eg. A drug sold to a stockist for Rs 10,000 can carry a Rs 50,000 MRP.
4. Patented biologics included: Patented biologics are not normally price regulated. NPPA has still covered the immunotherapy drugs pembrolizumab and durvalumab, and pembrolizumab costs about Rs 2.06 lakh a dose over several cycles.
5. The takeaway: The cap targets the middle of the supply chain, so it can cut cancer bills without changing what manufacturers earn.

Does a margin cap hurt manufacturers and innovation?

1. Manufacturer’s realisation: TMR only resets the highest MRP allowed, so the manufacturer’s own selling price, its realisation, is unchanged. Lower prices therefore need not starve new medicines of investment, and large drug company shares have recovered.
2. Small manufacturers’ fears: Associations of small manufacturers fear job losses and poorer availability of medicines in remote areas.
3. Chemists’ position: The All India Organisation of Chemists and Druggists welcomed the move. It says manufacturers, not chemists, set the MRP.

Why are patient bills, not prices, the real test?

1. Hospitals lose mark ups: Hospitals earn part of their profit from mark ups on the medicines they sell, so TMR will squeeze their profits. Eg. Nuvama estimates an impact of about 4 per cent for Max Healthcare.
2. Risk of recouping elsewhere: Hospitals may raise charges for consultations, diagnostics, consumables or bundled packages. Medicine savings would then not cut out of pocket expenditure, which patients pay themselves.
3. Earlier pilot’s blind spot: NPPA’s 2019 pilot on 42 drugs cut prices sharply, but it never showed the effect on availability or actual patient bills.

Challenges

1. Old stock at old prices: Medicines already on shelves carry the older, higher MRPs, and no clear guidelines say how to relabel them.
2. Stock outs of older drugs: Supply chains risk running short of low cost older drugs once margins are capped.
3. Weak enforcement record: About 84 per cent of the overcharging dues NPPA has demanded from medicine makers remains unpaid.

Way Forward

1. Outcome monitoring framework: NPPA, with hospitals and other stakeholders, should track patient bills, medicine availability, hospital billing and treatment access.
2. Transition rules for old stock: NPPA should issue clear guidelines for relabelling high MRP stock and reconciling inventory.
3. Itemised bills and audits: Hospitals should issue itemised bills, checked by periodic audits, to show whether savings reach patients.
4. Supply disruption alerts: The supply chain needs predictable compliance rules and a channel to flag disruptions.

Conclusion

The margin cap shifts the test of drug pricing from what a medicine costs on paper to what a family pays at the end of the month. Whether NPPA builds a way to measure bills, stock outs and hospital charges will decide if the cap becomes a template for fairer pricing.

Key numbers

1. Bevacizumab price spread: About Rs 6,900 to Rs 1.18 lakh per dose (NPPA).
2. Earlier pilot price cut: MRPs of 526 brands cut by up to 90 per cent.
3. Earlier pilot saving: About Rs 984 crore a year.
4. Other hospital chains: Profit impact of about 1 to 2 per cent (Nuvama).

Back2Basics: National Pharmaceutical Pricing Authority (NPPA)

1. Role: Fixes and revises prices of scheduled drugs and notified medical devices under the Drugs (Prices Control) Order, 2013.
2. Scope: Direct price fixing covers drugs on the National List of Essential Medicines. Non scheduled drugs face only an annual price increase cap.
3. Enforcement: It is the first authority for overcharging penalties and demand notices.

Matching Previous Year Question

“No direct PYQ traced in the provided files. Thematic PYQ: [2015, GS2, 12 marks] For achieving the desired objectives, it is necessary to ensure that the regulatory institutions remain independent and autonomous. Discuss in the light of the experiences in recent past.”