Why in the News
The gap between a drug’s price to retailer (PTR) and its maximum retail price (MRP) has reached 1,000% in some cases, because price control caps the final price but not the markup hospitals keep. The Supreme Court has criticised these disparities, including on cancer drugs, and suggested a fixed percentage markup across all drugs.
How does the gap between PTR and MRP work?
- Two prices: The PTR is what a manufacturer charges the seller, often a hospital; the MRP is the most a patient can be charged.
- Hospital as chooser: These drugs are not sold over the counter, so hospitals often decide which brand a patient uses. Drug companies therefore compete for the hospital’s business, not the patient’s.
- Margin as bait: Companies print inflated MRPs and offer hospitals low PTRs, so the hospital pockets the difference. It works like a commission paid to the person choosing on the patient’s behalf.
- Hidden kickback: The practice is not technically a kickback but is one economically, since the manufacturer embeds a financial reward for picking its product.
- The takeaway: Hospitals push the brands with the largest margins, so patients pay more than the supply price.
Why does the price control order leave this gap open?
- What the order caps: The Drug (Prices Control) Order (DPCO), 2013 caps the final maximum price of scheduled drugs (essential medicines under price control), but not the markup on hospitals’ transactions.
- Ceiling arithmetic: Suppose the National Pharmaceutical Pricing Authority (NPPA) calculates a drug’s market-derived average price at ₹100. The ceiling then becomes ₹116.
- Margin within the ceiling: A hospital that negotiates a PTR of ₹50 can still charge the full ceiling, or bill the government for a state-financed drug, and keep ₹66 without breaching the cap.
Who bears the cost of the hidden margin?
- Captive patients: Competition Commission of India (CCI) investigations have established that private hospitals force patients to buy drugs from on-premise pharmacies, so patients cannot shop around.
- Cheaper drugs sidelined: More affordable equivalent drugs lose out because they earn hospitals less revenue, which undermines normal price competition.
- Financial strain: Patients face severe financial strain, a concern also flagged by drug regulators in Karnataka and Maharashtra.
- Treatment dropouts: Patients with cancers and chronic conditions could reduce their adherence, meaning they stop following long treatment regimens as prescribed.
Does capping trade margins work?
- Margin cap pilot: In a proof-of-concept exercise in 2019, the NPPA capped the trade margins of non-scheduled anti-cancer drugs, meaning the markup allowed between manufacturer and patient.
- Scale of the pilot: The cap covered 42 drugs and limited their trade margin to 30%.
- Price fall: The Department of Pharmaceuticals later said prices of 526 brands dropped by up to 91%, showing that cancer drug MRPs carried compressible margins.
Fixed markup or regressive margin?
- Regressive margin: A fixed markup should come with a regressive margin, a smaller percentage as drug prices rise, to remove sellers’ incentive to favour costlier products.
- Earlier refusal: The Court had refused to intervene in Siddharth Dalmia (2025).
- Policy vacuum: Hospitals, not patients, choose the drug, so market competition does not pull prices down. The Union and the States have not filled that gap by regulation.
Challenges
- Brand-name prescribing: Prescriptions written by brand let hospitals steer patients to high-margin products.
- Hospital billing blind spot: Price regulators track printed MRPs, not the margin a hospital earns on each bill.
- State capacity: Price enforcement depends on State drug controllers, whose capacity varies widely across States.
Way Forward
- Wider margin caps: The NPPA should extend trade margin caps beyond anti-cancer drugs to other high-cost hospital drugs.
- PTR disclosure: Require manufacturers to publish the PTR alongside the MRP so patients can see the margin.
- Free choice of pharmacy: Bar hospitals from forcing patients to buy from on-premise pharmacies.
- Generic prescribing: Enforce prescription by generic name in hospitals.
Conclusion
Hidden hospital margins persist because price control targets the final price, not who captures the gap below it. Whether the Supreme Court’s suggestion becomes an NPPA rule, and whether that rule is regressive, will decide if patients see lower bills.
Back2Basics: National Pharmaceutical Pricing Authority (NPPA)
- Set up: The NPPA was constituted in 1997 as an independent regulator for drug prices.
- Parent department: It works under the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers.
- Mandate: It fixes and revises the ceiling prices of essential medicines and enforces the DPCO.
- Non-scheduled drugs: It monitors their prices, which may rise by at most 10% a year.
Matching Previous Year Question
“[2024, GS2, 15 marks] In a crucial domain like the public healthcare system, the Indian State should play a vital role to contain the adverse impact of marketisation of the system. Suggest some measures through which the State can enhance the reach of public healthcare at the grassroots level.”