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

When pharma companies cross red lines


From UPSC perspective, the following things are important :

Prelims level: NA

Mains level: Pharma sector malpractices in India

pharma companiesMarketing practices of pharma companies are under scrutiny after tax officials searched the premises of a drugmaker, and an association of medical representatives moved the Supreme Court alleging unethical marketing practices by drugmakers.

paharma companiesThe Dolo controversy

  • Bengaluru-based pharmaceuticals company Micro Labs Ltd came under the spotlight recently over the promotion of its anti-fever drug Dolo 650, which was widely used during the covid-19 pandemic.
  • Surprisingly, this drug which contained paracetamol was widely endorsed by doctors all across the India.
  • The Supreme Court last week ordered the central government to respond to a petition filed on the issue of unethical marketing practices by drug makers.
  • The Income Tax department too has accused it of claiming unallowable expenses made on freebies meant to boost sales.

How do drugmakers incentivize doctors?

  • While many medical professionals claim that financial incentives do not influence their practice, some say that private sector doctors are enticed by pharmaceutical companies’ marketing agents to promote their drugs.
  • Pharma companies’ sales executives visit doctors to brief them about new drugs or a new drug component.
  • They try to impress upon them to prescribe their brands and in return, doctors are offered some gifts name reminders such as pens, writing pads, books and sometimes expensive gifts and holidays.
  • Such benefits extended to doctors depend upon the kind of drug, the disease burden etc.

pharma companiesIs this a widespread industry practice?

  • A government doctor said no pharma firm can sustain without marketing its drug.
  • It mostly happens when there is an outbreak, or if there is great demand for a particular drug or when a drug is being launched.
  • Unlike in the case of other products, the decision to buy a drug is not made by the consumer, but by the doctor.
  • This makes pharma a marketing-driven industry.

Are hospitals incentivized too?

  • Yes; doctors at a top private hospital which treated a large number of covid-19 patients said drug giants do try to incentivize hospitals.
  • The possibilities increase when a large corporate hospital chain operating across the country buys a drug in bulk.
  • A doctor at a corporate hospital does not have any control over the drugs sold in the in-house pharmacy of the hospital.
  • Doctors running small clinics see limited patients, and they do not have pharmacies; so, the issue of incentivization does not arise.

What does the I-T dept find wrong in this?

  • While pharma companies treat freebies as a marketing expense which is deducted while computing their taxable income, getting the beneficiary of this spending to report it as his income has been a challenge.
  • In some cases, tax officials have denied promotional expenses as a deduction.
  • Hence, the government introduced a 10% tax to be deducted at source (TDS) effective 1 July, so that doctors and social media influencers report such benefits in their tax returns and pay tax on what it is worth.


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