UPSC MAINS 2019: Regulating drug prices

Regulating drug prices


Topic: Regulating drug prices

Topic in Syllabus: General Studies Paper 1 : Indian Society

Regulating drug prices



The largest share of out-of-pocket expenditure on health is due to medicines (approximately 70%, according to the NSSO). This is a major access barrier to healthcare, especially for the poor. Health experts have criticised the Drug (Prices Control) Order (DPCO), 2013 for doing little to increase the affordability of medicines.



India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.



  • India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK.
  • The pharmaceutical sector was valued at US$ 33 billion in 2017.
  • The country’s pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–20 to reach US$ 55 billion.
  • India’s pharmaceutical exports stood at US$ 17.27 billion in FY18 and have reached US$ 10.80 billion in FY19 (up to October 2018).
  • Pharmaceutical exports include bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgicals.


The drug prices regulation in India:

  • The largest share of out-of-pocket expenditure on health is due to medicines in India (approximately 70%, according to the NSSO).
  • This is a major access barrier to healthcare, especially for the poor.
  • To make medicines affordable, the DPCO (Drug price control order) was made to control the prices of all essential medicines by fixing ceiling prices, limiting the highest prices companies can charge.
  • The National List of Essential Medicines (NLEM) is drawn up to include essential medicines that satisfy the priority health needs of the population.
  • The list is made with considerations of safety, efficacy, disease prevalence and the comparative cost-effectiveness of medicines.
  • The list is updated periodically by an expert panel set up for this purpose under the aegis of the Ministry of Health and Family Welfare.
  • This list forms the basis of price controls under the DPCO.


Mechanism for price capping:

  • The NLEM 2015 contains 376 medicines on the basis of which the National Pharmaceutical Pricing Authority (NPPA) has fixed prices of over 800 formulations using the provisions of the DPCO.
  • However, these formulations cover less than 10% of the total pharmaceutical market.
  • The DPCO follows a market-based pricing mechanism.
  • Accordingly, the ceiling price is worked out on the basis of the simple average price of all brands having at least 1% market share of the total market turnover of that medicine.


The other methods been used for drug price regulation:

  • Prior to 2013, the DPCO followed a cost-based pricing mechanism that was based on the costs involved in manufacturing a medicine along with reasonable profit margins.
  • Health experts have argued that this policy resulted in comparatively lower prices than the current market-based policy.
  • Since the implementation of the DPCO, 2013, the NPPA has made certain departures from the market-based pricing mechanism, which was found to be insufficient for ensuring affordability.
  • This has been done through the use of special powers to act in public interest under Paragraph 19 of the DPCO, to regulate the prices of cardiac stents and knee implants.
  • These moves have brought about dramatic price reductions: 85% in the case of stents and 65% in the case of knee implants.


Need of Essential Medicines:

  • Forty million deaths have been reported in 1 year alone in developing countries, one-third among children under age 5, yet most leading causes of death and disability can be prevented or treated with cost-effective essential drugs.
  • Ten million die due to acute respiratory infections, diarrheal diseases, tuberculosis, and malaria; for all these conditions safe, inexpensive, essential drugs can be lifesaving.
  • The economic impact of pharmaceuticals is substantial especially in developing countries.
  • While spending on pharmaceuticals represents less than one-fifth of the total public and private health spending in most developed countries, it represents up to 66% in developing countries.
  • In most low income countries pharmaceuticals are the largest public expenditure on health after personnel costs and the largest household health expenditure. Despite this substantial spending on drugs, lack of access to essential drugs, irrational use of drugs, and poor drug quality remain serious global public health problems.
  • Essential medicines are believed to be one of the most cost-effective elements in modern healthcare and their potential health impact is remarkable.


Implementation of Essentials Medicine Concept in India:


Government initiatives:

  • Government of India has introduced a policy aimed at increasing the availability of essential medicines at affordable prices.
  • In 2011, the government proposed to increase the number of drugs remaining under the purview of the National Pharmaceuticals Pricing Policy 2011 to 348, up from initial 74.
  • This policy has been amended in 2012 to include 652 commonly-used drugs under 27 therapeutic areas. Introduction of this policy is expected to result in a price drop of 10% or more for about two-thirds of essential drugs available in the Indian market.


Industry initiatives:

  • For a pharmaceutical company, establishing a balance between production cost, profitability and affordability of the drug for consumers is a delicate issue, with natural temptation to push the aspect of affordability to the back seat in search for profit maximization.
  • Large pharmaceutical companies have often been criticized for not undertaking sufficient efforts to promote availability and affordability of essential medicines, especially in poor and developing countries.


Negative repercussions:

  • While these combined corporate and government efforts are likely to boost access to essential medicines, Indian government actions might, ironically, have an adverse impact on the industry.
  • Several pharmaceutical companies operating in the Indian market are already against to these new government policies, citing erosion in both top and bottom line results.


Criteria of Selection of Essential Medicine

Essential medicines are selected based on disease prevalence, evidence on efficacy and safety, and comparative cost-effectiveness.

The following guidelines are used in the selection of drugs for a health facility:

  • Environment (rural/urban, availability of electricity, facility of cold storage, specialized equipments, etc.) in which the healthcare is provided.
  • Pattern of prevalent diseases; a facility should not stock anti-leprotic drugs if the area has no case of leprosy.
  • Level of treatment facilities; a referral hospital should have more medicines than a district hospital, a health center more than a clinic, and so on.
  • Selection must be based on valid scientific evidence on efficacy and safety profile.
  • Where two or more medicines have similar properties, the choice should be made on the basis of a comparative evaluation of their relative efficacy, safety, quality, price, and local availability.
  • In cost comparison between medicines, consideration should be made of the cost of total treatment and not only the unit cost of the medicine.
  • Most essential medicines should be formulated as single compounds. Fixed-ratio combination products are acceptable only when dosage of each ingredient meets the requirement of a defined population group and when the combination has a proven advantage over single compounds administered separately in therapeutic effect.
  • The number of drugs required is different for a referral hospital, district hospital, health center, and dispensary. The number of drugs should definitely depend on the level and size of the health facility.


Strategies to promote rational use of medicines:

  • A multidisciplinary national body to coordinate medicine use policies.
  • Clinical guidelines.
  • Essential medicines list for different therapeutic domains.
  • Drugs and therapeutics committees in hospitals.
  • Problem-based pharmacotherapy training in undergraduate curriculum.
  • Continuing medical education as a licensure requirement.
  • Supervision, audit, and feedback.
  • Independent information on medicines.
  • Public education and awareness about medicines.
  • Avoidance of perverse financial incentives.
  • Appropriate and enforced regulation.
  • Sufficient government expenditure to ensure availability of medicines and staff.


Government initiatives towards health services:


National Rural Health Mission (NRHM):

  • Health system strengthening is a central mandate of the NRHM. Ministry of Health and Family Welfare has cleared Rs. 1,300 crore under the NRHM scheme for states to support their purchase of medicines in September 2012.
  • The NRHM′s state program under the Ministry of Health and Family Welfare equips the PHCs and public hospitals in the state with drugs.
  • However, the adequate availability of medicines and other consumables is still not fully ensured in all states.
  • At present, the public sector provides healthcare to 22% of the country′s population and it is likely to swell to 52% by 2017 once medicines are provided for free from 1.6 lakh subcenters; 23,000 PHCs; 5,000 community health centers; and 640 district hospitals.


Universal Health Coverage (UHC):

  • The recently launched National Urban Health Mission (NUHM) is a major step towards strengthening primary healthcare in urban areas and is expected to help the health needs of more than 10 crore urban people.
  • To provide UHC, government has announced two schemes-National Urban Health Mission and Free Essential Medicines, which will cost the country approximately Rs.50,000 crore.
  • Government of India has taken an initiative for free supply of essential medicines in public healthcare facilities in the country aiming to provide affordable health care to the people by reducing out of pocket expenses for medicines.


Other Government Initiatives:

  • In October 2018, the Uttar Pradesh Government announced that it will set up six pharma parks in the state and has received investment commitments of more than Rs 5,000-6,000 crore (US$ 712-855 million) for the same.
  • The National Health Protection Scheme is largest government funded healthcare programme in the world, which is expected to benefit 100 million poor families in the country by providing a cover of up to Rs 5 lakh (US$ 7,723.2) per family per year for secondary and tertiary care hospitalisation. The programme was announced in Union Budget 2018-19.
  • In March 2018, the Drug Controller General of India (DCGI) announced its plans to start a single-window facility to provide consents, approvals and other information. The move is aimed at giving a push to the Make in India initiative.
  • The Government of India is planning to set up an electronic platform to regulate online pharmacies under a new policy, in order to stop any misuse due to easy availability.
  • The Government of India unveiled ‘Pharma Vision 2020’ aimed at making India a global leader in end-to-end drug manufacture. Approval time for new facilities has been reduced to boost investments.
  • The government introduced mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to deal with the issue of affordability and availability of medicines.



The following recommendations can be considered for overcoming the constraints to implement Essential Medicine Concept in India:

  • The current list (2011) has been revised after 8 years. Like WHO EML, regular revisions are necessary at least once in 2 years.
  • Regarding health financing and financial protection, government should increase expenditures on public health.
  • General taxation can be used as the key source of health care financing; complemented by additional compulsory deductions for health care from salaried individuals and tax payers.
  • Availability of free essential medicines should be ensured by increasing public expenditure on drug procurement. User fees of all forms can be waived as a source of government revenue for health.
  • Elimination of taxes and duties on essential medicines.
  • Regular monitoring of medicine prices and availability.
  • Encouraging pharmaceutical companies to apply differential pricing practices to reduce prices of essential medicines in India where generic equivalents are not available.
  • Independent agencies in the private sector and insurance companies such as Rashtriya Swasthya Bima Yojana (RSBY) are supposed to achieve expected enrolment, utilization levels, and fraud control.
  • Key requirement to ensure availability and accessibility of essential medicines is the provision of adequate human resources. Sufficient numbers of trained and competent health care providers and technical health care workers at different referral levels should be recruited.
  • Adoption of generic substitution policies for essential medicines. Here it is essential to expedite the introduction of a scientifically powerful system of interchangeability of generic medicines, which would ease comprehensive policies to promote the use of generic medicines.
  • Ensuring adequate availability of essential medicines in public health care facilities.
  • Updating of national policy on medicines.
  • The evolution of objective and evidence-based STGs remains an important yet neglected part. Information required for developing evidence-based guidelines includes current utilization patterns for services and medicines.
  • Enhance the promotion of the production of generic medicines and remove barriers to uptake.
  • Increase funding for research and development in areas of medicines relevant to developing countries, including children′s dosage forms and most neglected diseases.


Sample Question:

How are drug prices regulated in India? What is the mechanism for price capping? Briefly discuss.

Regulating drug prices - Info graphics - Feb27th