Pharma Sector – Drug Pricing, NPPA, FDC, Generics, etc.

[op-ed snap] Learning from the past on medical device pricing


Mains Paper 2: Governance | Issues relating to development & management of Social Sector/Services relating to Health, Education, Human Resources

From UPSC perspective, the following things are important:

Prelims level: NPPA

Mains level: Recent government decision to cap prices of various medical devices & how such move will affect the industry as well as patients


Government plans to reduce prices of medical devices

  1. After having brought down the prices of drugs, the government has medical devices on its agenda
  2. It will soon announce its decision on the method of rationalizing trade margins for medical devices from the first point of sale

Why using first point of sale?

  1. According to the report of the committee of high trade margins in the sale of drugs, released by the department of pharmaceuticals in 2016, the price to the distributor for both global and indigenous companies was considered from the first point of sale
  2. This report clearly identifies that it is the margin between the price to the distributor and maximum retail price (MRP) that results in the escalation of the latter, and recommends that this should be capped

Failures of the past

  1. Till 2012, the practice followed by the NPPA was a maximum allowable post-marketing expense (Mape) over standardized manufacturing cost or over landing cost of the product
  2. According to the observations documented in National Pharmaceuticals Pricing Policy, 2012 (NPPP-2012), the manufacturing cost/landing cost methodology of price capping had led to “possible manipulation” of cost data, resulting in entry barriers
  3. The idea of price capping based on manufacturing cost/landing cost as per Drug Price Control Order 1995 was an unmitigated disaster
  4. The emphasis on price control starting at the bulk drug and formulation stages resulted in drug manufacturing shifting away from notified bulk drugs and formulations under price control

Medical device industry has higher expenses

  1. The scale of investment in pharmaceuticals is less than what it is for the medical device industry
  2. In medical devices industry spending needs to be done on skill development, in-clinic support, innovation and after-sales service of equipment

Why are price caps of medical devices a bad idea?

  1. If a patient feels a certain medication is not effective, he will go back to the doctor to change it, but this is not the case when it comes to medical devices
  2. The risk factor is high, as medical devices can’t be replaced without re-operating on patients
  3. Doctors need to be aware of the availability of various medical devices for different conditions before treating a patient so that they can guide patients and form an effective referral chain to super-speciality care
  4. For this, the global research-based companies need to invest and support clinicians in education and skill building

Ensuring success of Ayushman Bharat

  1. In this Union budget, the government focused on the healthcare sector, launching the world’s largest government-funded healthcare programme, Ayushman Bharat
  2. Besides providing health insurance to 100 million poor families, the government also plans to open 150,000 health and wellness centres to provide comprehensive healthcare with free diagnostics and treatment
  3. For the success of these initiatives, a lot of skill-building activities are required
  4. At this stage, if the rationalization of trade margin is not calculated from the first point of sale, companies will stop investing in these activities
  5. That would increase the chances of the scheme failing

Way Forward

  1. The department of pharmaceuticals’ recommendation on trade margin rationalization from the first point of sale is the most viable solution available
  2. It will not only allow global companies to sell innovative products but also enable them to invest in skill development along with therapy awareness, while still ensuring affordability by correcting the skewed margins in the supply chain
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