How market based pricing is failing Indian patients

Private pharmacies

India is known as the developing world’s pharmacy because it makes a fifth of the world’s generic drugs and provides most of the developing world with essential high quality, low cost drugs and vaccines.1 Unfortunately, though, the picture is gloomy for the country’s citizens. Some 649 million Indians do not have regular access to essential drugs, the World Health Organization estimates.2 Experts blame the public health system as the single biggest cause for inadequate access to drugs.

“Public health facilities function poorly and have poor availability of essential medicines. This is because of low government expenditure on drugs, inefficient drug procurement, and unreliable drug distribution systems,” said Anurag Bhargava, associate professor of medicine at Himalayan Institute of Medical Sciences, Uttarakhand.

Left without a choice, patients go to the private sector to buy branded generic drugs, and national surveys show that 70% of total out of pocket spending is on drugs.3 Leena Menghaney, head of the access to medicines campaign at Médecins Sans Frontières (MSF) India, said, “The private sector is purely market driven. Even generic drugs, which are much less expensive than those available in developed countries, are still unaffordable for individual patients.”

Price limits

Amended regulations introduced in 2013 attempted to limit drug prices in the private sector to make them more affordable to the general public. However, the law, the Drug Price Control Order 2013, has sparked criticism from health experts.4

The order introduced a new method of market based pricing for capping drug prices, superseding the previous mechanism, which set ceiling prices primarily on the basis of the cost of production. This market based pricing sets the cost of essential drugs at the average of all brands that have a market share of more than 1%. The controls apply to the 348 drugs, with various formulations in specified doses, in the 2011 National List of Essential Medicines (NLEM).5

Bhargava said, “Market based pricing is a retrograde step that legitimises the high prices of drugs. We can only assume that the pharmaceutical industry is leveraging its enormous lobbying power on public policy in India as it has done in countries like the United States.”

Chandra M Gulhati, editor of the Indian Monthly Index of Medical Specialities (MIMS), agreed: “Government officials are industry friendly and anti-poor patients. They want industry to make as much money as possible. Nowhere in the world is market based pricing in vogue.”

Moreover, the value of drugs under price control is Rs 131bn, a mere 18% of the Indian pharmaceutical market. Malini Aisola, a research associate with the Delhi based Public Health Foundation of India (PHFI), told the BMJ, “It’s too small a share to make a significant impact for consumers. The new policy was supposed to control unaffordable prices, but these figures prove that it will barely skim the surface.”

Chinu Srinivasan, of Low Cost Standard Therapeutics, a non-profit making, small scale drug maker and public health advocacy group, said that drug companies can easily circumvent the law by exploiting its loopholes. “They can migrate to dosages that are outside of price control. If paracetamol 500 mg is under price control, they can start producing more of another dose, say 650 mg, and less of 500 mg. They can also drive most of their marketing efforts towards doses not covered by price control,” he said. Srinivasan is one of the petitioners in an ongoing public interest litigation in the Supreme Court of India that seeks to quash the current pricing policy.

MIMS editor, Gulhati, said, “Only 348 out of about 1600 drugs are covered by the drug pricing control order. Thus, more than 1200 medicines are out of price control. Even among 348 molecules, only 650 formulations are covered, while the number is more like 1800.”

On the shift from cost based to market based pricing Arun Panda, joint secretary with the Indian health ministry, said: “The cost based method was found to be difficult and opaque as it was quite difficult to unearth the real costs involved. The new method is much more transparent.”

Also, some experts think the NLEM is inadequate. Several important drugs for diseases such as malaria and diabetes are missing from the list. “For example, severe plasmodium falciparum malaria, which results in thousands of deaths annually, requires injectable artesunate for its treatment, which has been inexplicably excluded from the NLEM 2011. Only one oral preparation of artemisinin combination treatment for falciparum malaria is mentioned in NLEM 2011, compared with four such combinations in the WHO model list,” said Bhargava, adding, “Inexplicably missing are all second line drugs for multidrug resistant tuberculosis. This is shocking, considering India has the world’s largest burden.”

“Apart from insulins, the only other diabetes drugs included in the list are glibenclamide and metformin. Glimepiride, the widely used alternative to glibenclamide, has a lower risk of hypoglycaemia but has been excluded,” said Srinivasan notes in an analysis in Economic and Political Weekly.6

On criticism of the NLEM, Panda said, “When NLEM 2011 was formulated, it was not envisaged that it would be used as an instrument for price control. The list contained medicines that are enough to cater to the major public health needs.”

He added that the health ministry is going to organise a committee to revisit the NLEM 2011 so that a new list can be made in 2014.

Panda said that the new drug pricing policy is being implemented well. “It has already completed the price fixing of nearly 400 formulations out of the 650 odd formulations to be covered,” he noted “It has definitely started working although there could be differences of opinion as to how much dent it is going to make in the general pricing of drugs.”

The Indian drug market, Bhargava said, is skewed against the interests of patients. “The assumption that genuine competition exists in the field of medicines is fundamentally flawed,” he argued. “The market does not, left to itself, work to the benefit of the patient, or public health. In India, higher priced medicines outsell their lower priced alternatives, medicines outside the National List of Essential Medicines outsell those in it, combinations outsell single ingredient preparations, and often unscientific formulations outsell rational ones.”

The way forward

Arguments over drug pricing are sure to continue, but the best solution to the problem of poor access, MSF’s Menghaney said, is to put a robust procurement and public distribution system in place. “India’s intellectual property policies include provisions that safeguard domestic generic production and have opened up sources of low cost versions of essential medicines for procurers—governments, United Nations agencies, MSF—across the world,” she said. “What remains to be done is to use its strength of generic production to procure drugs for not only communicable disease, such as HIV, tuberculosis, and malaria, but also non-communicable diseases, such as cancer, lung disease, diabetes, and high blood pressure, for its public health system at a fraction of the price at which they are available in the private market.”

Sakhtivel Selvaraj, senior health economist with PHFI, explained that Tamil Nadu and Rajasthan, have implemented successful programmes to distribute free drugs, showing the entire country what is possible. These states provide for free what they list as essential at all public health facilities. Procurement is outsourced to an autonomous centralised agency. Tamil Nadu has been running its programme for more than a decade. “Evidence suggests that 40% of the public now accesses drugs from the public health system in Tamil Nadu,” said Selvaraj. “In a developed state like Punjab, that number is still less than 5%.”