Pharma Pricing Policy: The verdict is out
August 30, 2013: The verdict is finally out. The Cabinet has recently endorsed the recommendations of a Group of Ministers’ (GoM) on a revised National Pharmaceutical Pricing Policy. The key elements of the policy include capping of prices of 348 essential medicines based on the arithmetic average of prices of all drugs in a particular segment with more than one per cent market share, any company changing composition of any of these drugs will need to seek a separate price approval from the regulator or empowered committee and prices will be reviewed periodically.
Prices of various expensive drugs would be lowered reasonably as a result of the new policy norms. Expensive medicines have higher market share and the higher share flows from the fact that companies get a premium on expensive medicines which they spend on brand building and marketing. The policy attempts to prevent companies from circumventing price control by adding new ingredients to essential medicines. The new pricing mechanism is market based with the ceiling price reflecting the prices determined by several companies for their different brands. The market based pricing mechanism would ensure that drugs reach patients in a cost effective manner.
There has been a mixed response from the industry with some companies being relieved that the government has not gone ahead with the existing cost plus mechanism for capping prices while the revenues of some of the top domestic companies seem clearly to be impacted. It is estimated that the value of the domestic pharma industry is Rs 65,000 crore and around 30 per cent of the pharma market would come under price control as compared to 17 per cent previously. There would be a loss of revenue to the tune of around 20 per cent as per the current recommendation as compared to 18 per cent according to the earlier recommendation of a price cap in terms of a weighted average of all drugs with more than 1 per cent market share.
The success of the government’s objectives in terms of access and availability, which it aims to achieve with this policy would only be assessed with the passage of time.