Why in the News
Price control, which has mainly covered essential medicines, will now reach non scheduled cancer drugs through a 30% cap on their trade margin. The Centre has decided this for 110 drugs, including 35 patented medicines, after market data showed steep markups and the Supreme Court condemned them.
Why does the trade margin inflate cancer drug prices?
- Trade margin: The gap between the price at which a distributor buys a drug from the manufacturer and the Maximum Retail Price (MRP) the patient pays. It works like a shopkeeper’s markup over wholesale cost.
- Scheduled and non scheduled: Scheduled drugs, on the National List of Essential Medicines, are price controlled under the Drugs (Prices Control) Order, 2013. Non scheduled drugs are the ones the new cap now reaches.
- What went wrong: The National Pharmaceutical Pricing Authority (NPPA) found an average markup of about 170% on such drugs, up to 700%, with wide price gaps across retail outlets, hospitals and online pharmacies.
- Court’s view: The Supreme Court called hospital markups “broad daylight dacoity”, citing a cancer drug with an MRP of Rs 27,000 supplied to retailers at Rs 2,700.
- The takeaway: The patient pays the distribution chain’s markup along with the drug’s cost, so capping the margin cuts the bill directly.
What has the Centre decided?
- Coverage: The cap limits the trade margin to 30% of the MRP and covers branded and generic, domestic and imported, patented and non patented drugs. A committee under the Director General of Health Services is finalising the list.
- Timing and effect: The cap is expected to take effect in about 10 days and to cut prices by up to 70% in some cases.
- Selection test: One consideration is that a drug is expensive (a cap on cheaper drugs would not cover marketing costs). It should also be approved for cancer treatment in India and used frequently.
Will the cap work as it did earlier?
- Earlier cap: The NPPA capped margins at the same level on 42 cancer medicines in 2019.
- Result: MRPs of those medicines fell by up to 91%, so the approach has worked at small scale.
- Wider scale: The new list is much larger, so the cut depends on how closely hospitals and online sellers comply.
- Court’s alternative: The Supreme Court asked why not keep a 16% margin on the MRP of everything, a lower and wider cap than this one.
Challenges
- Selective coverage: Expensive, frequently used drugs are the focus, so cheaper cancer drugs and other medicines may keep uncapped markups.
- Compliance across channels: Retail outlets, hospitals and online pharmacies price differently, so the regulator must monitor each channel for the cap to bind.
- Launch risk: Tighter margins on patented drugs can lead companies to delay introducing new medicines in India.
Way Forward
- Notified list: Publish the final list and start date quickly so sellers and hospitals can comply.
- Price monitoring: The regulator should publish MRPs across retail, hospital and online sales and act on overcharging.
- Essential list review: Add high cost cancer drugs to the National List of Essential Medicines so direct ceiling prices apply.
Conclusion
The Centre is capping the distribution markup on cancer drugs rather than manufacturers’ prices, extending an approach tried earlier on a smaller list. The final list and start date are the next milestones, and hospital billing will show whether patients see the fall.
Back2Basics: National Pharmaceutical Pricing Authority
- Role: It fixes and revises prices of scheduled drugs and notified medical devices under the Drugs (Prices Control) Order.
- Enforcement: It monitors the market, checks compliance and acts against overcharging.
- Parent body: It works under the Department of Pharmaceuticals.
Matching Previous Year Question
“[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.”
