Within the Indian government, a tussle over setting price caps on medicines

A leaked copy of a new draft policy of the Department of Pharmaceuticals has revealed the government’s intent to dilute the powers of the National Pharmaceutical Pricing Authority, the agency that is currently responsible for regulating drug prices and ensuring the availability of medicines.

On Wednesday evening, the NPPA responded sharply to the draft pharmaceutical policy in a series of strongly-worded tweets, emphasising that medicines should not be treated as commodities. The NPPA also said that the powers of the authority should not be diluted on the pretext of strengthening it.

Even before the policy gets approval from the Union cabinet, the department has issued orders aimed at restricting the powers of the authority. While it falls under the purview of the Department of Pharmaceuticals, the authority is required to function as an independent body of experts, largely protected from the government’s influence.

Currently, it has the powers to regulate the prices of all medicines and medical devices under extraordinary circumstances in the public interest. However, the department’s orders, issued on April 20, sought to restrict its powers to only the medicines and devices notified on the National List of Essential Medicines.

Despite the orders, on August 16, the authority capped the prices of knee implants, making them at least 65% cheaper, even though the devices are not on the National List of Essential Medicines.

What explains this contradiction and what are the current limits of the authority’s price regulatory powers?

Emails sent by Scroll.in to both the Department of Pharmaceuticals and the National Pharmaceutical Pricing Authority went unanswered.

But a closer look at the April 20 orders provides insight into what enabled the authority to continue exercising its powers beyond the list of essential medicines.

Orders through office memorandum

On April 20, the Department of Pharmaceuticals issued five office memorandums, one of which states that the price of a drug should not be revised before five years, except to be adjusted for Wholesale Price Inflation, or at the behest of the company manufacturing the drug, or on the orders of a court of law. The office memorandum also says that any drug that is not on the National List of Essential Medicines should not be on the Drug Price Control Order Schedule-I.

The National List of Essential Medicines is drawn up by the Ministry of Health and Family Welfare. It forms the basis of Schedule I of the the Drug Price Control Order, which elaborates on which medicines are subject to price control.

Drug Price Control Orders, however, are issued by the Ministry of Chemicals and Fertilisers under the Essential Commodities Act. These orders confer power on the NPPA to declare ceiling prices on essential and life saving drugs.

But, so far, the Drug Price Control Order provides the space, under exceptional circumstances, to the authority to cap prices of drugs that does may not be on the National List of Essential Medicines.

Paragraph 19 of the Drug Price Control Order, among other things, authorises the NPPA to fix the ceiling price or retail price of any drug for such period as it deems fit, in extraordinary circumstances, if it considers necessary to do so in the public interest.

The April 20 office memorandum, while asking the authority to restrict price caps to medicines under the National List of Essential medicines, did not explicitly say anything about Paragraph 19.

The authority invoked Paragraph 19 to cap the price of knee implants on August 16.

But first it explained why knee implants were on the Drug Price Control Order:

“Ministry of Health and Family Welfare vide its S.O. 1468 dated 6th October 2005, has notified the orthopedic implants as ‘drugs’, the DPCO, 2013, is applicable to all notified drugs (including notified devices) and NPPA is mandated to monitor the prices of these drugs under paragraph 20, so as to ensure availability of such drugs (i.e. notified devices) and also ensure that no unethical profiteering is happening in case of any drugs (i.e. notified devices) at the cost of patients.”

Then, it invokes Paragraph 19 of the Drug Price Control Order:

“The Government is under constitutional obligation to provide fair, reasonable and affordable price for orthopedic implants and therefore its immediate intervention is imperative to check unethical profiteering and exploitative pricing at the cost of the patients in an unregulated market; and whereas Paragraph 19 of the DPCO, 2013 interalia authorizes the Government, in extraordinary circumstances, if it considers necessary so to do in public interest, to fix the ceiling price or retail price of any drug (i.e. notified devices) for such period, as it deems fit; and whereas based on the above assessment the extraordinary situation in the case of knee implants does exist.”

The April 20 order is silent on the authority’s power to take actions under Paragraph 19.

Niti Aayog versus Swadeshi Jagran Manch

The April 20 memorandums have elicited a sharp response from the Swadeshi Jagran Manch, an affiliate of the Rashtriya Swayamsevak Sangh, which wrote a critical letter to Union Minister for Chemicals and Fertilisers Ananth Kumar. The letter alleged that the Department of Pharmaceuticals, which comes under Kumar’s ministry, and the government think-tank Niti Aayog, were trying to undermine the role of the NPPA “so as to favour the pharmaceutical industry at the expense of poor patients”.

“They (the Department of Pharmaceuticals) are diluting paragraph 19,” said Ashwani Mahajan, co-convener of the Swadeshi Jagran Manch. “They are also restructuring the NPPA and diluting its powers.”

The Swadeshi Jagran Manch also alleged that the Niti Aayog has attempted to undermine the NPPA and weaken the scope of price control.

In its letter, the group referred to a meeting on October 19, 2016 between officials of the Department of Pharmaceuticals, the Niti Aayog, the Ministry of Health and Family Welfare and the Department of Industrial Policy and Promotion. A key recommendation from the meeting was that the NPPA in its present form and current function should be wound up and deployed under the Department of Pharmaceuticals with a “new mandate”. Other suggestions were that the Drug Price Control Order be delinked from the National List of Essential Medicines, and that the right to regulate the price rest with the government.

Mahajan said that the process of formulating the draft policy began on a “wrong note” and this spirit has been carried in the draft policy.

“While the attempt to shut down NPPA may have been abandoned for the moment, the present effort to amend the DPCO is nothing more than a renewed attempt in the direction of rendering a body of technical experts into a defunct one,” the letter said.

In an email response to a query from Scroll.in about the allegations that the Niti Aayog was trying to undermine the role of NPPA to promote interests of the pharmaceutical industry, Niti Aayog Chief Executive Officer Amitabh Kant said, “The allegations are not correct. We are still in the process of examining the draft policy.”

Flawed price control formula

This is not the first time that the Swadeshi Jagran Manch has raised the issue of the NPPA’s powers being diluted. In May, the lobby group had written a letter to Prime Minister Narendra Modi alleging that the Niti Aayog has had a history of aligning with vested interests in government ministries to dismantle the regime of price control and wind up the NPPA. The letter referred to the change in the formula for calculating ceiling prices of medicines.

Till May 2013, when the Drug Prices Control Order of 1995 was in effect, ceiling prices were calculated at twice the cost of production to allow for marketing expenses and reasonable profits. With the Drug Price Control Order 2013, the government switched to a market-based formula to fix the ceiling price of a medicine that takes an average of prices of all brands that have market share of 1% or more. Since more high-priced brands have 1% or more market share, this formula, allows companies to make super profits and does not bring drug prices down as much as is possible, say the Swadeshi Jagran Manch and other health activists.

Flurry of orders

Another office memorandum also issued by the department on April 20 directs the NPPA not to ask applicants seeking price approvals for new drugs to submit copies of their marketing contracts saying that such contracts are not relevant to determining ceiling prices. A third office memorandum clarified that drug prices that are already below the ceiling price fixed by the NPPA will not have to be reduced to account for negative Wholesale Price Inflation. The NPPA has earlier directed manufacturers to do so, as per provisions in the Drug Price Control Order 2013. A fourth office memorandum states that the NPPA’s price revisions adjusting for Wholesale Price Inflation will not be applicable to drugs that have been shifted from being “scheduled formulations” – that is, on Schedule I of the Drug Price Control Order – to “non-scheduled formulations”.

In a fifth office memorandum issued on April 20, the Department of Pharmaceuticals observed that while fixing the prices of scheduled formulations, the NPPA has included some medicine companies having less than 1% market share. The department directed the NPPA to calculate ceiling prices based on moving annual turnovers and prices to retailers of only those brands that have 1% or more market share.

In its letter to Union Minister for Chemicals and Fertilisers Ananth Kumar, the Swadeshi Jagran Manch said: “We have repeatedly recommended that [Drug Price Control Order, 2013] be amended to implement a rational, cost-based system of pricing which is proven to be the most effective way of ensuring affordability and access to medicines to the public and also providing a reasonable profit to companies.”

The draft pharmaceutical policy now being pushed by the Department of Pharmaceuticals may not go all the way to wind down the NPPA, but it will take the teeth out of the independent authority, giving the government an overarching role in price setting of medicines and medical equipment. For the latter, it has drafted a separate policy.